The Scotch Inside Indian Whisky: The Business Behind The India-UK Tariff Dispute

When a bottle of Indian whisky is made, some of the spirit inside it may have travelled thousands of kilometres from Scotland before reaching a bottling plant in India. Domestic liquor companies import Scotch whisky in bulk, using it for local bottling or blending with Indian spirits to produce whiskies across different price segments. These imports are therefore not limited to finished liquor sold directly to consumers; they also form part of the supply chain for domestic manufacturing.

This business model is now at the centre of a dispute over the customs classification of bulk Scotch imports. The India-UK Comprehensive Economic and Trade Agreement (CETA), which came into force in July 2026, reduced duties on qualifying Scotch whisky. However, questions raised by Indian tax authorities over how certain bulk consignments should be classified have created uncertainty for liquor companies. The outcome could influence the cost of an important manufacturing input and the benefits Indian producers stand to gain from the trade agreement.

Why Indian Whisky Makers Import Scotch

Indian liquor manufacturers import Scotch for its malt and grain whisky base, which can be blended with domestically produced spirits to develop products with specific flavour profiles. The proportion and composition of imported Scotch vary across brands and product categories, depending on the manufacturer's recipe and positioning.

Not every Indian whisky uses imported Scotch. However, bulk imports are an important part of the supply chain for some premium and mass-premium products. Around 80% of Scotch whisky imports from Britain by volume arrive in bulk shipments, according to industry estimates cited by Reuters. These consignments are used for local bottling and blending, including in the production of Indian-made whiskies.

Anil Gupta, president of the PHD Chamber of Commerce and Industry (PHDCCI) and CMD of KEI Industries, says imported Scotch provides a distinctive malt and grain whisky base that can be combined with domestic spirits. He describes bulk Scotch as part of an integrated manufacturing chain, saying, "Bulk Scotch should be understood as part of an integrated domestic manufacturing and value-addition chain."

Sachin Uppal, founder of Isthmus 44 and an independent bottler, says it is important to distinguish between different forms of Scottish spirits entering India. "Not everything that comes from Scotland is Scotch whisky, and not everything that arrives in India is the same kind of import," he says. Raw grain and malt, bulk Scotch meant for blending and bottling, and finished bottled Scotch serve different purposes, he adds.

What The India-UK Deal Changed

The India-UK CETA came into force on July 15, 2026. Under the agreement, customs duty on qualifying Scotch whisky imports was reduced from 150% to 75% at the time of implementation, with a further phased reduction to 40% over the next 10 years. The tariff commitments cover both bottled and bulk exports, subject to the applicable product and origin requirements.

The dispute centres on how bulk Scotch should be classified for customs purposes. Indian tax authorities have questioned whether certain bulk consignments should be treated as whisky under Heading 2208 or as preparations used in the manufacture of beverages under Heading 2106. The latter classification could attract the earlier 150% duty instead of the reduced rate.

The liquor industry argues that bulk Scotch remains whisky, irrespective of whether it arrives in retail bottles or larger containers for subsequent bottling and blending. The disagreement has led to an investigation involving major liquor companies, including Diageo, Pernod Ricard and Indian distillers Radico Khaitan and Allied Blenders. Reuters reported that company-linked premises were searched and executives questioned. The investigation, however, does not establish any wrongdoing by the companies.

For Uppal, clarity over the categories is essential because the products have different characteristics and uses. He says they should be defined and treated separately, with a clear understanding of what the trade agreement covers. "Clarity protects consumers, helps manufacturers plan, and protects the standing of Scotch itself," he says.

The Business Cost Of The Dispute

The lower import duty had already begun to support the margins of some liquor companies. According to Mint, Allied Blenders and Distillers estimated a 70-basis-point benefit for FY27. United Spirits said it had also seen some benefit, although it did not quantify the impact. Tilaknagar Industries, meanwhile, said it had not received any benefit in the September quarter because it was still holding inventory.

If bulk Scotch is denied the reduced duty while qualifying bottled Scotch continues to receive the concession, the cost of importing bulk spirit for local bottling and blending could increase. This could affect manufacturers' input costs and the economics of domestic production. The extent of the impact would depend on the final customs classification and how much imported Scotch individual companies use.

The tariff reduction is also beginning to affect consumers. A PTI report said the Delhi Excise Department had started implementing revised costs for British liquor, with some premium Scotch prices expected to decline. It also reported that prices of several UK-origin liquor brands in Uttar Pradesh had already fallen by around 5-15%. These changes reflect the broader tariff reduction and do not indicate that the separate dispute over bulk imports has been resolved.

What It Means For Indian Whisky

On November 2, the Commerce Ministry assured industry stakeholders that the duty concessions for bulk Scotch would remain intact. Commerce Secretary Rajesh Agrawal told representatives that steps were being taken to address the HSN classification ambiguity and ensure that the benefits negotiated under the trade agreement were not impaired. The ministry also indicated that the matter would be taken up with the Finance Ministry.

The assurance has offered some reassurance to the industry, but it is not the same as a formal clarification of the classification issue. Companies still need clarity on how the relevant customs provisions will be applied to bulk consignments.

Gupta says manufacturers make procurement and production decisions based on expected landed costs. He argues that a predictable tariff regime can support investment, employment and innovation, while strengthening the competitiveness of Indian whisky brands.

Uppal also believes clearly defined rules can help manufacturers plan and give Indian producers greater confidence to experiment with products. He says Scotch can play a role in encouraging innovation in India's whisky industry, provided the rules governing different categories of imports are clear.

Ultimately, the dispute is about more than the duty paid on a shipment of imported spirit. It will help determine whether the tariff benefits under the India-UK trade agreement extend smoothly to a supply chain that supports domestic bottling and blending, and how far those benefits can strengthen value addition within India's whisky industry.