EU has threatened legal action against India at the WTO if the unjustified high tax issue in the four states is not resolved by September when the meeting is scheduled between the two parties but the agenda needs to be changed as there has been a monumental reduction of duties in Maharashtra while Delhi has increased them heavily .

Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh are the named culprits. They impose higher excise duties on imported wine and liquor compared to domestic liquor. This violates the WTO treaty which specifies that imported goods should be treated at par with Indian products.

In the case of Tamil Nadu, where the state government sources the liquor and sells it to the public, the EU has an additional grouse that it does not source liquor imported from EU countries, reports an article in ET. I believe the esteemed daily has erred on this point. Imported wines and liquor was allowed to be sold in Chennai last year and Brindco was the first importer to have reportedly made a dent. But as he admits in private talks, there a lot of challenges and difficulties apart from the horrendous taxes-a total of 58.5% is paid as taxes and the state corporation marketing these products. Besides, the retailers are discouraged from openly displaying the products, one is told.   

EU officials had visited New Delhi a couple of months ago to hold discussions with the Centre and the state governments, and warned that if no action was taken by India by September, it would ask the WTO to establish a dispute settlement panel to settle the issue. In case, the panel holds India guilty of violating WTO rules, it will have to take corrective action failing which EU may impose trade sanctions.

But two things have happened since the team visited last, changing the scenario substantially. Maharashtra has brought down the import duties-the new slab rates mean a duty of only around Rs.225-400 a bottle on wines. Understandably, the importers, restaurateurs and consumers are reconciled to this marginal additional penalty. However, based on Maharashtra’s action, Delhi was emboldened to increase the excise duty and made it MRP based in June, making it an equivalent of around 150-200%, close to the earlier Maharashtra Excise duties.

In today’s scenario, Delhi is EU’s biggest culprit. If one considers the four states named by the EU according to ET as well as Delhi, the total market share works out more than 80%, Delhi alone being over 30%, before the state increased the duties making the sales through legal channels plummet.

The EU had earlier managed to convince India to bring its import duties on wine and spirits down to levels committed to at the WTO, in July 2007. However, at the state levels the excise duties were increased with Maharashtra taking the lead.

The Central government is only partially right when it says its hands are tied in that alcohol sales and production is a state policy according to the constitution. However, this fact ought to have been known to the policy makers when the agreement was signed by them with WTO. If they cannot force the states to listen to them, they ought to pay the excise duty amount from the central customs duties pool-both customs and excise are a part of the same revenue department.

However, at the present time, if the biggest culprit (TN and AP notwithstanding) in the wine area being Delhi, is forced to bring back to the original excise duty of Rs. 150 a bottle, there will not be a hue and cry from the various wine related sectors like retail and HoReCa.

The EU team is visiting in September to try and resolve the issue. Not an easy task, but it must insist on Delhi rationalizing the duties according to the WTO norms immediately. Pressures on TN and AP need to be continued but the central government will face difficulties in having these states toe its line right away. Delhi and Center being ruled by the same political party should make the task easier.

Subhash Arora