Scotch imports by Pernod Ricard, Diageo under tax probe - How is it linked to India-UK trade deal? All you need to know

Liquor giants Pernod Ricard and Diageo are being investigated in India for allegedly wrongly classifying some bulk Scotch imports to take advantage of the India-UK trade deal. According to Reuters, which first reported the development, tax officials were looking into whether the two companies were eligible for the reduced import duty which came into effect on July 15.Diageo and France's Pernod Ricard dominate India’s $65 billion alcohol market. Both companies import bulk Scotch concentrates in containers to mix with other ingredients to make brands like Royal Stag, Blenders Pride and McDowell’s.Import taxes slashed under India-UK trade dealUnder the trade pact, which took effect on July 15, India agreed to slash import taxes on certain Scotch imports to 75%, from 150%.The tax inspectors argued that the duty relief did not apply to bulk concentrates, sources told Reuters."The tax department is concerned that bulk imports are being wrongly classified," a source added.The UK accounts for almost 75% of India's imported spirits market, primarily driven by Scotch whisky, Crisil Ratings said this year.In July, the British government said "iconic UK products" including whiskies and gin would benefit from India's tariff changes. It added that the UK's whisky exports to the country were worth more than £200 million in 2022.According to Reuters, last week, tax inspectors made an unexpected visit to Pernod's India headquarters near New Delhi, where they questioned company executives about their Scotch imports.What Diageo, Pernod saidDiageo's Indian unit, United Spirits, in a stock exchange filing last week said its offices in multiple locations were searched on Friday as part of an "industry-wide exercise" by authorities, without saying what the search related to. The other two people said Diageo is also being investigated for how it classifies some Scotch imports.Pernod, in a statement, told that it is cooperating with the Directorate of Revenue Intelligence and providing all information requested, adding it was committed to addressing any questions from the authorities. Diageo, also in a statement, said it is cooperating with Indian authorities and has always complied with local laws. In its stock exchange disclosure, it said it had provided all documents and clarifications. Diageo, Pernod already under scanner The development comes even as Pernod is already facing antitrust cases in India and faces a $314 million back-tax dispute in India over alleged Scotch whisky undervaluation. After withdrawing a Delhi High Court challenge in July 2026, the company shifted to the tax authority appeal process. Total penalties could exceed $600 million. Diageo in August agreed to reformulate some of its most popular drinks after the country's food ​safety regulator banned them in some states for adding flavours against regulations.The Food Safety and Standards Authority of India (FSSAI) said it allows the use ​of natural flavouring substances in alcoholic drinks, but its tests found that some Diageo and Inbrew factories were adding flavours of the alcoholic beverage ​itself, like adding rum flavour to rum."There is no internationally recognized manufacturing practice whereby rum flavour ?is added to rum or whisky flavour is added to whisky," the FSSAI said in a statement.Such flavours would allow companies to bypass ​maturation or the use of natural ingredients such as molasses, malt, or grapes, FSSAI added.