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Posted: Thursday, 04 January 2018 15:47

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Pernod Ricard to cough up Rs. 612 crores in Customs Duty

Jan 04: The probe conducted by the Directorate of Revenue Intelligence (DRI) of India has discovered that the Indian arm of the world’s second-largest spirits maker and the biggest wine imported Pernod Ricard India Pvt. Ltd., has allegedly been ‘evading’ Customs duty of about Rs 612.72 crore (Rs. 6.13 billion) in the last six years, primarily in the spirits section

There seems to be some truth apparently in the Indian wine importers’ grouse and continuous murmurs for around 10 years about their inability to compete with Jacobs Creek produced by Pernod Ricard in Australia and imported by the local arm. The BIO (bottled-in-origin) wines were assumedly priced much lower to exclude several expenses, making the fob value much cheaper compared to the equivalent wines selling for similar prices in other countries.

The probe found that Pernod Ricard India allegedly undervalued imports of bottled-in-origin products (drinks made and bottled abroad) from a related company Pernod Ricard Gulf, Dubai. Both these companies are wholly owned subsidiaries of Peri (PErnod- RIcard) Mauritius Ltd.

Pernod Ricard India manufactures popular brands such as Royal Stag, Imperial Blue and Blenders Pride. In India, it has over 45 per cent share of the spirits market in terms of value. According to the Report by the Indian Express, the company has voluntarily deposited about Rs 48 crore against the total alleged liability of Rs 613 crore during the course of the probe.

The official spokesperson of Pernod Ricard India declined to comment on the findings of the DRI. The DRI investigation alleged that Pernod Ricard Gulf entered into a distributor agreement with Pernod Ricard India in April 2006 to increase sales.

Typically, Pernod Ricard Gulf procures bottled-in-origin products from several brand owners and supplies it to Pernod Ricard India, which then sells it in India. According to the agreement between the parent company and the Indian subsidiary, the latter has to incur expenses on advertisement, marketing and sales promotion. The fob cost being much lower as compared to the competitors, the customs duty at 150% can mean substantial savings.

Pernod Ricard India, sources said has already voluntarily deposited about Rs 48 crore against the total alleged liability of Rs 612.72 crore during the course of the DRI probe.

As is customary, the official spokesperson of Pernod Ricard India has declined to comment on the findings of the DRI. According to the Report the investigation alleges that Pernod Ricard Gulf entered into a distributor agreement with Pernod Ricard India in April 2006 in order to increase sales. According to the agreement, Pernod Ricard India is required to incur expenses on advertisement, marketing and sales promotion of the imported product with prior approval of the Dubai firm, says the Report.

The agency alleges that the agreement stipulates the quantum of funds required to be spent by Pernod Ricard India on advertisement and promotion. It also stipulates the profits of Pernod Ricard India from their domestic sales of imported products. While these expenses have been dictated by the Dubai firm for its benefit, Pernod Ricard India has not included these costs incurred on advertisement and marketing of the imported products while determining the value of the imports, according to the Report. This has resulted in short payment of Customs duty to the tune of Rs 598 crore.

“The transaction value between Pernod Ricard Gulf and Pernod Ricard India has excluded the expenses pertaining to advertisement, marketing, and sales promotion incurred by the Indian firm. Legally, in terms of the provisions of Rule 10 (1) (e) of the Customs Valuation (Determination of value of imported Goods) Rules, 2007, all expenditure incurred by the buyer in India on behalf of the seller located outside

India, as a condition of sale, should be a part of the value of the imported goods,” said a source.

Apart from this, the DRI has also alleged that a scrutiny of imports in relation to the actual outward remittances has found undervaluation of imported goods by Pernod Ricard India to the extent of Rs 9.41 crore, resulting in alleged duty evasion of Rs.14.72 crore.

Pernod Ricard does not like to share its statistics with the media generally but reported 1 per cent sales growth in India during the nine months that ended March 31, 2017, according to the Indian Express.

Pernod Ricard is not new to the government/judicial system in India and was involved also in a case in 2015 when India’s largest selling imported wine brand moved the High Court against the import rejection on wine shipments which the food safety regulator FSSAI said. contained Tartaric acid. The High Court had allowed the petition filed by Pernod Ricard India which imports the wine, and disposed of the matter it its favour, paving way for liberalisation in the label registration.

Victory for Common Sense in PRFJC vs. FSSAI

Subhash Arora

 

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