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DelWine has learnt from reliable sources that the newly formed Wine Board
in Karnataka has recommended to the excise department to increase excise
duty on out-of-state wines including imported ones and those from states
like Maharashtra, Goa etc. to a fixed duty of Rs.150 a bottle. The department
is actively considering the increase. At present there is a slab system
with duty on imported wines varying from Rs.52 to Rs.70 a bottle. There
is no extra VAT.
This would mean an additional duty of up to Rs. 100 ($2.5) a bottle.
This will upset the bulk of domestic industry which is primarily based
outside of Karnataka and is currently centered in Maharashtra.
Kapil Grover, Director of Bangalore based Grover Vineyards and a member
of the Wine Board confirmed to me that the recommendation has been sent
to the excise department. 'But I feel that the increase suggested was
Rs. 300 a bulk liter,' he added. Perhaps, this rate was discussed about
a month ago when the Maharashtra government was reportedly ready to announce
the reduction of the recently excise duty of 150% to Rs. 300 a bulk liter.
This duty was increased to 200% instead for foreign wines. Therefore,
the excise department may now find the recommended increase too small.
Kapil was categorical when he stated that it was only fair that the Maharashtra
wines pay the recommended duties and face in Karnataka what he is facing
in Maharashtra for his Bangalore produced Grover wines. Sante produced
from Maharashtra grapes do not suffer the extra excise.
The Tit-for-tat policy may bring more revenues to the excise departments,
but the consumer is likely to pay higher prices, thus retarding the growth
in wine consumption and resulting in further setback to consumption of
foreign wines..
Earlier, Bangalore-based Paul John, owner of John Distilleries and a
big distiller of the South, who started his wine venture Big Banyan wines
last year, was forced to buy his wine grapes from Maharashtra despite
having bought vineyard land in Karnataka. 'What if the wine producers
of Karnataka put political pressure on Karnataka and make them do to them
what they are doing to us?' he had told me in exasperation.
What if Bangalore based Vijay Mallya feels slighted with the discrimination
against his state and uses his political clout to push the concept further
in his home state?
Other domestic producers are sympathetic to the Grover dilemma. Rajeev
Samant, CEO of Sula tells me, 'Although we do not feel threatened by any
increases in Karnataka, we are sympathetic to Kapil's problem. We want
a fair protection against the cheap foreign imports, but do not want out-of-state
wineries like Grover to be penalized in Maharashtra.'
What if the Mumbai-Goa-Karnataka excise factors reach Delhi? The consumers
will suffer the same fate except that the progressiveness of Haryana and
Chandigarh may save us from this catastrophe. As of now, Haryana has practically
no excise duties. Delhi's neighbouring state, already sells wine cheaper
by at least Rs.180 a bottle. Any increase in duties in Delhi will imply
more sales in Haryana at the cost of Delhi.
The US is also closely watching the situation with keen interest. The
final presentations were made to the WTO on November 12-13 in the ongoing
complaint against India from which EU had earlier withdrawn. The excise
duty factor was not emphasized in the pleadings. The effort was to get
the ruling in its favour since the total duties being paid are more than
the 150% agreed upon with WTO.
The results will be known by January end. After a few mandatory deliberations,
they will be made public in another couple of months. India is expected
to lose the case. The case of extra excise duties will be cited further
by the US which is of the opinion that according to WTO agreement, the
total duties should be 150% and if the states are to charge excised duties
these should be paid out from the central government's bound limit.
US is fully aware of the constitutional freedom to the states to charge
excise duties as they deem fit, but they want the upper limit of 150%
as capped.
In the end, the hapless consumer may find support from WTO when the central
government has raised hands and the state governments like Maharashtra
have become high-handed.
Subhash Arora
December 17, 2007
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