The finance ministry is expected to issue a notification by the month end to scrap countervailing customs duty on imported liquor to help India meet its World Trade Organization (WTO) obligations of providing national treatment on imports.
States in India exercise considerable power over duties on liquor and the Union government’s move may not immediately help in reducing prices as some states levy extra charges on imported liquor.
“The revenue foregone by removing countervailing duty on imported liquor would be about Rs40 crore,” said a senior official in the finance ministry, who did not wish to be identified. The countervailing customs duty on imported liquor is 4%.
Countervailing customs duty on imports is levied at a rate equivalent to excise duties on domestic manufacture so as to maintain parity. The Union government does not levy excise duty on liquor; the Indian Constitution allows states to levy excise duty.
Therefore, for the government to charge a countervailing duty on imported liquor is not justifiable, said Satya Poddar a partner at the audit firm Ernst & Young.
States such as Tamil Nadu and West Bengal currently levy a special charge on imported liquor, said the finance ministry official. The special charge on imported liquor violates the principle of national treatment India has to extend imported liquor.
India is obliged to extend national treatment on imported liquor, which means duties charged on imported liquor cannot be different from that made or bottled locally. The US in May filed a complaint with WTO’s disputes redressal body on India’s “excessive levies”, which in some cases exceed 500% on account of combination of charges levied by the Centre and the states.
“If states want to levy higher duty on imports, there may be problems,” said Poddar.
Virtually all liquor imported into India attracts state excise duty as most of it is bottled and packaged in India. Even scotch is brought into India in large containers, such as drums, and subsequently bottled in India. This last stage of packaging in India attracts domestic levies, said Poddar.
The basic customs duty on imported liquor such as Scotch is 150%. In the case of the concentrate used to make the final product, it is 100%.
The finance ministry originally planned to help India meet its WTO obligations on imported liquor by drafting a law that would eliminate countervailing customs duty and also eliminate the grey areas that currently exist. As India needs to defend itself in July at the WTO disputes redressal body, the government decided to issue an executive order to remove countervailing duty instead of waiting for a law to get parliamentary approval, said the finance ministry official.