When Britain and India put their trade agreement into force on July 15, the headline number for whisky was simple: India would cut the import tax on certain Scotch from 150% to 75% immediately, then step it down to 40% over 10 years. For an industry that had spent years treating Indian tariffs as the single biggest wall between Scottish distilleries and the world's largest whisky-drinking market, it looked like the door had finally opened. Three months later, a fight over what counts as "Scotch" at the Indian border is threatening to close part of it again.
According to Reuters reporting from New Delhi, India's Directorate of Revenue Intelligence has searched the offices of Pernod Ricard and Diageo and questioned executives this month as part of an investigation into whether the two companies misclassified bulk Scotch imports in order to pay the lower rate. Now the trade association that represents both companies has taken its objection straight to the top, writing to India's commerce minister that excluding bulk Scotch from the reduced tariff conflicts with the deal itself. Reuters has described the dispute as the first significant one under the India-UK agreement since it took effect.
What the Tax Inspectors Are Actually Questioning
The investigation turns on a distinction most whisky drinkers never think about. Diageo and Pernod do not only ship finished, bottled Scotch to India. Both companies also import bulk Scotch concentrates in containers and blend them with other ingredients locally to make some of the country's best-selling whisky brands, including Royal Stag, Blenders Pride and McDowell's. Those brands are household names across India and move enormous volumes, which is exactly why the tariff applied to the Scotch inside them matters so much.
Reuters first reported on October 19, citing five industry sources, that Indian tax officials were examining whether the two companies had wrongly classified some of those bulk Scotch imports to get the lower duty. Four of those sources said the inspectors argued that the duty relief in the trade pact did not apply to bulk concentrates. One source put the concern plainly: "The tax department is concerned that bulk imports are being wrongly classified."
In a follow-up report on October 23, Reuters said Indian government inspectors had told companies privately that they do not benefit from the reduced 75% tariff on bulk imports of Scotch concentrates, according to three people. In the inspectors' view, those concentrates have to be declared under a customs classification that carries the full 150% duty. The companies take the opposite position and believe that concentrates from the UK should qualify for the lower rate.
The Raids
The enforcement activity has been concrete, not theoretical. Three sources told Reuters that tax inspectors made an unexpected visit to Pernod's India headquarters near New Delhi, where they questioned executives about the company's Scotch imports and reviewed documents related to bulk shipments during the Thursday visit. One source said there had been no further contact since.
Diageo's Indian unit, United Spirits, disclosed in a stock exchange filing that its offices in multiple locations were searched on a Friday as part of an "industry-wide exercise." The filing did not spell out what the investigation was about, but two sources told Reuters that Diageo is also being looked at over how it classifies some Scotch imports. United Spirits said in its filing that it had provided all documents and clarifications requested.
Pernod said it was cooperating with the Directorate of Revenue Intelligence, stating that "it is cooperating with the Directorate of Revenue Intelligence and providing all information requested." Diageo said it was cooperating with Indian authorities and had complied with local laws. The revenue directorate did not respond to Reuters' request for comment.
The Trade Group's Letter
The International Spirits and Wines Association of India, known as ISWAI, counts both Diageo and Pernod Ricard among its members. Reuters saw a copy of the letter the group sent to India's commerce minister, and its language is pointed. Excluding bulk Scotch from the reduced tariff, ISWAI wrote, "risks undermining, in practice, an important market-access benefit" that India and the United Kingdom negotiated and agreed.
The letter argues that the agreement expressly provides preferential tariff treatment for whisky under the relevant tariff lines. If the inspectors' reading holds, the group warned, "The preferential tariff treatment negotiated ... could effectively become unavailable for these imports." ISWAI asked for an urgent clarification to protect the market access both governments agreed to, "while avoiding uncertainty and disruption for legitimate industry participants."
ISWAI declined to comment to Reuters on the letter, and India's commerce ministry did not immediately respond. Pernod declined to comment on the latest report and Diageo did not respond, though both had told Reuters earlier in the week that they were cooperating with authorities carrying out the investigation. The British government said it is working with the government of India to resolve the issue.
Why Bulk Scotch Is the Heart of the Indian Market
For American drinkers, Scotch usually means a bottle with a distillery name and an age statement. In India, a huge share of the Scotch that crosses the border never reaches consumers in that form. It arrives as bulk malt or blended spirit and becomes one component of a locally bottled whisky, often blended with Indian-made spirit. That model lets companies sell a product with Scotch character at prices that a far wider slice of the Indian market can afford, something a fully imported bottle carrying a triple-digit duty could never do.
That is why the classification question is not a technicality. If bulk concentrates keep paying 150% while bottled Scotch pays 75%, the tariff cut benefits mainly the premium end of the market, where imported bottles are a luxury. The mass-market brands that dominate volume, the ones built on bulk imports, would see little or nothing from the pact. ISWAI's argument, in effect, is that a deal sold as a breakthrough for Scotch would leave out the biggest channel through which Scotch actually reaches Indian drinkers.
The Numbers Behind the Stakes
Diageo and Pernod dominate India's $65 billion alcohol market, according to Reuters. Pernod says India is its biggest market by volume. Crisil Ratings said this year that the UK accounts for almost 75% of India's imported spirits market, driven mainly by Scotch whisky. When the British government promoted the agreement in July, it said "iconic UK products," including whiskies and gin, would benefit from India's tariff changes, and noted that UK whisky exports to India exceeded £200 million in 2022.
Put those figures together and the dispute's weight becomes clear. Britain supplies the overwhelming majority of the spirits India imports, Scotch drives that trade, and two companies control most of the market the Scotch flows into. A ruling that the lower rate does not apply to bulk shipments would hit the core of the business that the trade deal was meant to unlock.
A Familiar Pattern for Foreign Companies in India
Import tariff disputes have long been a sore point for foreign investors in India. Reuters noted that companies including Samsung, LG and Volkswagen have been caught up in similar classification fights, which often end in large back-tax demands raised years after the goods were imported. Indian officials, for their part, have said they are only enforcing the law.
Pernod already knows this territory well. The company faces antitrust cases in India and a $314 million back-tax demand over allegations that it undervalued some imports, which it denies. Diageo has had its own regulatory trouble this year: in August, it agreed to reformulate some of its most popular drinks after India's food safety regulator banned them in some states for adding flavors in violation of regulations.
Against that backdrop, the bulk Scotch probe reads less like an isolated event and more like the latest chapter in a long, difficult relationship between multinational spirits groups and Indian regulators. Analysts covering the companies have noted that disputes of this kind tend to produce duty and back-tax liabilities rather than a loss of market access. That is cold comfort if the back-tax bill covers every bulk shipment since July 15, but it suggests the long-term business is not in question so much as its cost.
What It Means for Scotch Producers
The direct exposure sits with Diageo and Pernod, but the consequences reach well beyond two corporate balance sheets. Scotland's distilleries supply the bulk malt and grain whisky that feeds those Indian blends. If the tariff on that bulk spirit stays at 150%, the demand growth the industry hoped to see from the pact will be smaller than forecast, and the investment cases that rested on India as a growth engine get weaker.
There is also the question of precedent. The India-UK agreement was the product of years of negotiation in which whisky tariffs were one of the hardest sticking points. A first major dispute that ends with one side quietly narrowing the scope of a headline concession would send a signal to every exporter weighing how much the agreement is really worth. That is why the British government's statement that it is working with India to resolve the issue matters: this has become a test of the pact as much as a customs case.
The Path Toward 40%
The phased schedule raises the stakes further. The pact takes Scotch duties from 75% down to 40% over a decade. If bulk concentrates are excluded from the first step, they would presumably be excluded from the later ones too, and the gap between bottled and bulk Scotch would widen year after year. For the industry, settling the classification now determines who benefits from the entire 10-year glide path, not just the first cut.
What American Whiskey Drinkers Should Watch
American consumers will not see a price change on the shelf from this fight, but the outcome will shape the global whisky business in ways that eventually reach the US. India is the market the big spirits groups point to when they talk about long-term growth, and how much profit Diageo and Pernod can squeeze out of it affects how they spend money everywhere else, from distillery expansions to marketing budgets to the brands they choose to back.
American whiskey makers have their own reasons to pay attention. Trade deals that cut tariffs on spirits often look generous on paper and then get narrowed through customs rulings, classification decisions and enforcement practice. The Scotch case shows how a single question, whether bulk spirit counts the same as bottled spirit, can decide whether a headline tariff cut actually reaches the bulk of the trade.
For now, the next moves belong to New Delhi. ISWAI has asked the commerce ministry for an urgent clarification, the Directorate of Revenue Intelligence is still investigating, and London is talking to the Indian government. Whether the answer comes as a policy clarification, a negotiated settlement or a back-tax demand will tell the whisky world how much the India-UK pact is really worth to Scotch.
