Wine importers are currently facing a problem other than high duties, excise complexities, slow and dead inventories, insensitive and sometimes wine- unappreciative purchase managers- they are now required to bear the financial burden of arranging bank guarantees based on their import values.

The customs department has given a directive whereby the importers are obliged to deposit cash/bank guarantee to the extent of 25% of the value of the assessable duty when the goods are kept in the bonded warehouse. They have the option to get a revolving bond for the higher amount. This bond will be debited by the duty amount payable every time an item is bonded. For shipments already imported and yet not de-bonded, the amount has to be deposited for all such products inside the warehouse.

Wine is a sensitive item

The rule is equally applicable to private bonded public warehouses like Veritas. However, the government owned Central Warehousing Corporation is exempt. The rule is applicable not only to wine but to all products defined as sensitive items by the customs department and include, besides wine, products like liquor, cigarettes, foodstuffs, consumables like palm oil, tea, coffee, milk and milk products; marble and granite etc.

Customs Circular No.20/96 dated April 4, 1996 issued by the Board of Central Excise and Customs informed the Commissioners of Customs that ‘No comprehensive list of sensitive items should be drawn for the guidance of the Commissioners’. It further advises them that they should themselves decide what is sensitive, based on the nature of commodity, rates of duties and the licensing aspects involved.

Wine and liquor have been considered sensitive items on many accounts. Recent reduction of duties from 264% to about 160% (150% ++) on wine has not changed the status. The government in fact stepped up its ‘sealing the dealing’ action by making August 31 as the last date for compliance, failing which ‘no inward or outward bonding or de-bonding’ will be allowed.

Current Status on Bank Guarantees:

Products lying in the warehouse will have to suffer a slow death and the wines landing at the docks will die from the heat.. On persistent pleas of the importers, the date was extended to 15th September. As of now, the government has taken the liberal stand and allowed them to deposit 60% of the guarantee applicable by September 30. In the meantime, the current dealings though not stopped are on the slow track.

The importers are up in arms against the sudden tightening of screws, especially when they are reeling under the pressure of no sales in Maharashtra for almost three months due to the new excise duty of 150% added after ACD removal on July 3.

Comments a relatively newcomer who had made quick progress in getting his wines listed in several premium Mumbai hotels, where ‘the buyers are more knowledgeable about wines and thus more objective and professional. I had pending orders of Rs. 60 lakhs which have turned into dust.’ ‘ Forget about the loss of profits, I am now running around trying to arrange the bank guaranty’, he adds with a sense of anger, frustration and helplessness.

These are just some of the moods which made several importers I talked to, open up their bottled up anguish, but with explicit assurance of anonymity. No one wants the customs or excise department to single them out though most of them are in unison.

Not all importers are against the policy

Not all of them are totally vocal or against this decision. Since the elimination of duties for hotels earning foreign exchange, and looking at the booming wine culture and potential predicted by many institutions like the Indian Wine Academy( which has gone on record predicting a even a faster growth of 40-60% with correct government policies), many new entrants have been appearing on the scene without any knowledge, passion or experience of wine marketing.

Hardly a day goes by when I am not approached by some oil merchant, financial wizard, a provision store owner or a real estate agent who wants to get into wine import business because someone at a cocktail party egged him on at the previous night’s cocktail party. People believe that imprters are raking in huge profits.

There are scores of people who have a cousin’s neighbour having a small vineyard in Burgundy or a friend owning a winery in Australia or on their pleasure trip to Italy the agriturismo owner having vineyards around it has convinced them they can become one of the top importers with his or her support. Enough of them have a hotel general manager as their drinking buddy and feel he will help them replace the existing list with the wines they import.

With no ability to differentiate between Cabernet Sauvignon or Sauvignon, a Chilean Merlot or a French Pétrus, they land up with containerfuls of wines (I met a budding importer a couple of years ago who told me he had plans to import 80 containers of wine every year! In the fist year!! Needless to say he is ‘dead’). Of course, with their sharp vision they feel they save transport charges per bottle and import too much wine without knowing the temperature at which the wines should be stored.

Therein lies the rub

The customs department allows 90 days of duty free bonding. Beyond that 15% interest is chargeable till the date of release of consignment. Normally products are allowed to be stored for a year on the above terms. The Commissioner has the discretion to allow another 6 months of storage with interest. Another 6 months are usually allowed by the Chief Commissioner of Customs. Theoretically he can give further extensions. Recently the Board has started taking a dim view of the products lying unproductive for over 2 years and has asked them to be careful in extending further indulgence.

The importer, of course, is allowed to re-export during this period. He could be sending it back to the importer, or selling it at much discounted prices. He could even dump it in the international waters. But it must be out of the country and customs’ charge.

Who are the biggest sufferers

The biggest victims are the big importers and the tiny importers. Mid levels are trying to reach higher sales level and like the middle classes are not willing to rock the boat. Smaller importers and more ambitious upstarts have, in the past, created a situation wherein, the huge stocks they imported could not be liquidated in 2 years. They simply raised their hands and buckled under the stark market realities. Since the material was not de-bonded they could not be forced to shell out the duties. Many simply ‘re-exported’ to unknown destination, rather than face the wrath of customs.

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