AI-assisted research analysis by FutureKnowledge. Sources checked 19 October 2026. Details of the investigation come from a Reuters report based on unnamed sources and from company statements; the authorities have not commented publicly. This is not investment advice.
Indian customs investigators are examining whether Pernod Ricard and Diageo paid too little duty on bulk Scotch whisky imported under the India-UK trade agreement, Reuters reported on 19 October. The question is whether the halved tariff covers the bulk whisky that India’s biggest liquor companies blend into mass-market brands. The answer affects margins, prices and the pact’s value to Scotch exporters.
What happened
According to the Reuters report, which cites five industry sources, tax officials are investigating whether some bulk Scotch imports were wrongly classified so that they qualified for the lower tariff. Four of those sources said inspectors argued the relief did not cover bulk concentrates. These are shipped in containers and blended in India into brands such as Royal Stag, Blenders Pride and McDowell’s. Three people said inspectors visited Pernod’s head office near New Delhi and questioned executives. Two said Diageo’s classification of some Scotch imports is also under review.
Pernod said it was cooperating with the Directorate of Revenue Intelligence (DRI). Diageo said it was cooperating with the authorities and has always complied with local laws. Diageo’s listed Indian unit, United Spirits, had already told the stock exchanges that the DRI searched several of its locations under Section 105 of the Customs Act on 16 October. InvestyWise’s summary of the filing says the search ended at 8:30 pm that day, and that the company called it part of an industry-wide exercise. The company reported no impact on its financial or operational activities. The filing gave no reason for the search, Business Upturn notes. No duty demand has been reported in this case so far.
Why it matters: the tariff and the bulk trade
The UK government says the agreement halves India’s tariff on Scotch from 150% to 75%, with a further cut to 40% by the tenth year (GOV.UK). The Drinks Business reports that the deal took effect on 15 July 2026 and that the 75% rate applied immediately. When the deal was announced, the Scotch Whisky Association forecast £1 billion of extra exports to India over five years. It also said the deal would raise Indian federal and state revenue by more than £3 billion a year, according to Drinks International.
Bulk whisky sits at the centre of that trade. The Drinks Business reports that India took more than 220 million 70cl-bottle equivalents of Scotch in 2025, worth £286 million and up 15% on 2024. That makes India Scotch’s largest export market by volume but only its third-largest by value. Much of that volume arrives in bulk for blending. Scotch is still only about 3% of India’s total whisky market. Reuters cites Crisil Ratings as saying the UK supplies almost 75% of India’s imported spirits.
If bulk concentrate has to pay the old rate rather than the treaty rate, the cost of the Scotch content in large Indian-bottled brands would be far higher than companies may have assumed. Whalesbook reports that both companies passed on some of the savings after the cut, with prices down 10–15% in Maharashtra, Goa and Rajasthan. FutureKnowledge could not confirm this with a second source.
Context: Pernod’s existing customs dispute
The probe adds to an older case. Outlook Business reports that Indian authorities issued a $314 million back-tax demand in September 2025. They allege that Pernod undervalued Scotch imports over several years under the old 150% regime. In July 2026, Pernod withdrew its Delhi High Court challenge to pursue a statutory appeal within the tax authority. It rejects any wrongdoing. Vino Joy, citing Reuters, says the bill could exceed $600 million with penalties if Pernod loses. The new probe concerns classification under the trade pact, a different question from valuation.
The timing is awkward for Pernod. Il Sole 24 Ore reports that its July-September sales fell 6% to €2.234 billion, or 0.9% on an organic basis, as the US and China weakened.
How it affects the business model
- Blending economics. Many Indian blended whiskies combine imported Scotch with locally made spirit. Scotch is a small share of the volume but a meaningful share of the cost. The duty paid on that share directly affects gross margin.
- Pricing power. Liquor prices in India are largely set or approved by states, so companies cannot quickly pass a higher duty on to consumers. Any back-duty would mostly fall on profits.
- Treaty uncertainty. A clear ruling either way would help importers plan; a long dispute would blunt the deal’s early benefit.
Who is more or less exposed
In general, the most exposed are companies that import bulk Scotch for blends bottled in India and that passed treaty savings on through lower prices. Brands bottled in Scotland and imported finished are less exposed to this particular question, because they have no bulk-classification issue. Domestic producers that use little imported spirit are largely unaffected and could gain on price if rivals’ costs rise. Scottish bulk distillers that supply Indian blenders are exposed through demand.
Scenarios to watch
These are conditional scenarios to help readers follow the story. They are not predictions.
| If… | Then likely effects |
|---|---|
| Authorities accept that bulk Scotch qualifies for the 75% rate | The investigation closes or narrows; current pricing and blend strategies continue; the pact’s value to Scotch bulk exporters is confirmed |
| Authorities rule bulk concentrate is outside the concession | Duty demands for imports since 15 July, possible price increases or blend changes, and pressure for UK-India talks under the agreement |
| The issue becomes a long appeal process | Companies may provision or pay duty under protest; uncertainty weighs on imports and new launches |
| Governments clarify the tariff line through a notification or joint interpretation | Fewer disputes for the whole industry, whichever way the clarification goes |
What to watch next
- Any DRI show-cause notice or duty demand, and whether United Spirits updates its exchange disclosure.
- Comments from the Scotch Whisky Association or the UK and Indian trade ministries on how the concession applies to bulk Scotch.
- United Spirits’ September-quarter results and management comments on Scotch costs and pricing.
- Pernod’s appeal in the separate $314 million valuation case.
Bottom line
The investigation turns on one question: does India’s tariff cut cover the bulk Scotch that goes into the country’s biggest blended brands? Nothing has been decided, no demand has been reported, and both companies say they are cooperating. Because bulk dominates Scotch volumes in India, the answer will shape blenders’ margins and the deal’s real value.
Method: this article compares Reuters’ report (via U.S. News and Global Banking & Finance Review) with United Spirits’ exchange disclosure as summarised by InvestyWise and Business Upturn, the UK government’s release on the deal, and reporting from The Drinks Business, Drinks International, Whalesbook, Outlook Business, Vino Joy and Il Sole 24 Ore. Details of the probe come from unnamed sources and are attributed as such. Scenario descriptions are FutureKnowledge analysis.