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The great Indian wine duty circus

business Updated: Jul 22, 2007 13:57 IST

Just when there was a rejoicing over the scrapping of duties, one realised that fine wines had gotten more expensive. Now the Maharashtra government has declared 150 per cent special duty on wines and other states have got a direction to follow suit.

At the same time, the European Union (EU) has decided to suspend its complaint in the World Trade Organisation (WTO). Importers and Indian wine producers who are generally at loggerheads and suspicious of each other now plan to meet the excise commissioner of Maharashtra on a common platform.

Hotels, jumping for joy because they were spared the customs duties yet again, suddenly find their cost of wines doubling. It may not be a great plot for a Bollywood film but certainly has all the elements of amusement that a circus can provide.

The initial reaction was of relief, even though the irritation of an increase in duties from 100 percent to 150 percent was announced on imported wines on July 3. It took some time before people realised that, in fact, expensive wines had become even more expensive.

No one seems to understand the motive. Certainly not the Indian producers who do not see these wines on their radar screens when they ask for a level playing field. In any case, fine wines were the sporting ground of hotels, basking in the glory of their lobbying power and being able to get away with buying wines without any custom duties and low excise duties. At the fixed amount of Rs.150 a bottle or less, it was merely an irritant.

But then came a bolt from the blue. Maharashtra, the big daddy of Indian wines, long proactive in levying increasing excise duties on imported wines, whether they were imported from Bordeaux or Bangalore, decided to make it just and equitable for all.

The 150 per cent duties on assessable value it was charging for wines imported from Bangalore were to be charged on all wines whether they were Chateau de Latour (perhaps US$4 per bottle) or Chateau Latour (US$500 or more per bottle).

Except, and here is the rub. Earlier the former would have attracted duties of 75 per cent and the latter only 20 per cent. Under the equitable new policy, Chateau Latour has to suffer the pains of 150 per cent and not Rs 150, as was earlier the case.

Since Chateau Latour was strictly in the hotels' domain, they have to shell out the extra amount. The result, says Sanjay Menon, director of Sonarys: "Earlier the duty free price to the hotel was Rs 21,700. Charging a very low profit margin of only 150 per cent, they would retail it for Rs.53,000 (US$ 1,300). With the new ruling, the cost will rise to Rs.60,150.

"Hotel pricing policies being dictated by the percentage mark-ups, it will still attract the same profitability of 150 percent. Thus the same bottle will now cost Rs.150,000. The extra Value Added Tax (VAT) of about Rs.20,000 may be short change for those who order it anyway, but does it make any logical sense?"

Take another example closer to our horizon - Chablis from Michele Larches. A bottle that cost Rs.1,190 duty free now would cost Rs 2,425 under the new Maharashtra tax regime.

There are several examples of Scotch prices going up, which are "shocking and bizarre" as Naresh Uttamchandani of Sovereign Impex puts it. But he is really worried about his Barolos and other fine wines that would cost a bomb to hotels in Mumbai, and bring his sales plummeting down.

Amid this entire circus, the EU announced that it plans to suspend the "agitation" as if it got what it wanted. Like a union strike being called off after getting a few crumbs and face-saving achieved by scoring a point or two, the suspension actually means buckling down.

The EU should have already realised that in the absence of legislation being in place, the excise duty issue will continue to tickle each state differently but definitely. After all, Section 47 gives that power and freedom to all states under the Constitution. It seems the US has better comprehension of the situation. It has so far maintained it will wait and watch before taking any action.

Fortunately, the situation is not as bad for the cheaper foreign wines as some of the above prices indicate. A bottle of Hardy's that cost Rs 650 in retail would come down to Rs 520 (This magical reduction despite the 150 per cent new duty is because the previously levied special duty of Rs.200 per bulk litre now will have to be removed. They cannot charge the excise duties twice, can they? I have no answer for that- I am a mere logical mortal.

The Laroche Chardonnay costing Rs.966 earlier would cost Rs.780 now, provided the excise department has nothing else up its sleeve.

So now, the Indian producer is upset, the wine importer is upset and when the hotel purchase department wakes up tomorrow to place his next order, he will also be upset with the importer.

Hopefully, other states are more sensible this time around. Here is an opportunity for states like Haryana, Punjab, Karnataka and saaddi Dilli to realise that wine drinking should be encouraged in relation to other higher alcohol content beverages, and reign in the hormonal tendencies to jack up the duties and hammer the consumer.

(Subhash Arora is president of the Indian Wine Academy. He can be reached at delwine@indianwineacademy.com )