- Commerce Ministry to resolve HSN classification ambiguity for bulk Scotch imports soon
- Issue affects customs duty benefits under India-UK Free Trade Agreement on whisky imports
- HSN code determines customs duty and tax treatment of imported goods in India
The Commerce Ministry has assured the alcoholic beverages industry of an amicable resolution to the ambiguity surrounding the HSN classification of bulk Scotch imports, following a meeting between industry associations and Commerce Secretary on November 2.
The ministry reiterated its commitment to honouring India's obligations under the India-UK Free Trade Agreement (FTA) and said it would work with the Finance Ministry to resolve the classification issue within the existing legal framework.
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The government is aiming for an early resolution to ensure business continuity, while ensuring that the benefits of the trade agreement also accrue to India's domestic industry.
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What Is The HSN Classification Issue?
HSN stands for Harmonised System of Nomenclature. It is an internationally recognised system used to classify goods traded across countries.
Every product is assigned a specific numerical code based on its nature and category. Customs authorities use these codes to determine the applicable import duty and tax treatment.
In simple terms, the HSN code determines how a product is classified for customs purposes and which duty provisions apply to it.
Why Is Bulk Scotch Import Classification Important?
Indian liquor manufacturers import Scotch whisky in bulk from the UK, which is subsequently used for blending and bottling in India.
The industry is seeking clarity on the classification applicable to these bulk imports and whether they will receive preferential customs duty benefits under the India-UK FTA.
The issue is significant because the classification of imported goods determines the applicable customs duty treatment. Any ambiguity could create uncertainty around the duty benefits available to eligible bulk Scotch imports under the trade agreement.
What Does The India-UK FTA Provide?
Under the India-UK FTA, customs duty on eligible UK whisky imports into India is scheduled to reduce from 150% to 75% initially, with a gradual reduction to 40% over 10 years.
However, clarity on the classification and eligibility of bulk Scotch imports is important to determine how these preferential tariff provisions apply to such shipments.
What Could Be The Impact On Indian Liquor Companies?
Bulk Scotch is used by Indian manufacturers as an input for blending and bottling operations. Any higher customs duty burden could increase the cost of imported Scotch, raising input costs for domestic liquor manufacturers.
If companies are unable to pass on the additional costs to consumers, their margins could come under pressure. A resolution could provide greater clarity on import costs, sourcing decisions and business continuity for Indian manufacturers.
The issue is relevant for companies such as United Spirits, Radico Khaitan and Allied Blenders and Distillers, which have exposure to the blended whisky market.
The Commerce Ministry has said it will work with the Finance Ministry to resolve the issue at the earliest, while ensuring that the benefits of the India-UK FTA also accrue to India's domestic industry.
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