In 2001 the government of India removed wine imports from the shackles of licensing. Earlier, only hotels and diplomats were allowed to import it against special licenses after justifying the import requirement but the new policy allowed anyone to import without license.
It appeared to be a straightforward step simplifying wine distribution but in fact there are a myriad of laws governing the sales and distribution in various states some of which impose strong non-tariff barriers for anyone not familiar with the Indian bureaucratic set up and procedures.
Imports and Customs Duty
Although import is allowed freely under OGL (Open General License), it is subject to customs duty at various borders. Theoretically, anyone can import wine by air or sea, pay the customs duty of 150% of Assessable Value (CIF Value +1%) and get the wine released after convincing the authorities that it is for self consumption. A refundable Special Additional Duty (SAD) of 4% is levied on the total value which includes this 150% duty, making it 10% effectively and thus a total of 160%. SAD is refundable but the procedure is so complex that no importers ever apply for a refund; they include it in their costing.
Hotels and Restaurants are exempted from paying this duty subject to a maximum as specified by a license called DFCEC (Duty Free Credit Entitlement Certificate) issued by the Director General of Foreign Trade valued at 5% of the foreign exchange earnings of the past 3 years. It entitles the holder to import not only wines but spirits and a host of other specified equipment for self-use.
Bonded Warehouses
To avoid immediate payment of customs duty, wine may be stored in a bonded warehouse, both private and public, which must meet certain specifications including the deposit of a bank guarantee for 25% of the customs duty leviable. No interest is chargeable for the first 90 days after the wine is allowed to be stored in this warehouse which is under the lock and key control of an assigned officer who goes physically to remove the wines requested after ensuring that the requisite duty has been deposited. The warehouse can be either a public or private warehouse.
In case the wine is not released during this period, an interest of 15% p.a. is levied on a quarterly basis for the delays up to 12 months. A further extension of 6 months may be granted. But after this period, the wine must be removed from the warehouse by paying the applicable customs duty , even if it is undrinkable and needs to be drained out or may be re-exported out of Indian jurisdiction
During its validity the DFCEC license may be handed over by the hotels physically to more than one importer, anywhere in India where the customs office physically endorses and debits the DFCEC.
However, there is no uniformity in the interest debit policy. States like Maharashtra debit the amount in the license whereas Delhi insists on depositing cash for the late release, even for hotels that do not normally need to pay customs duty.
Wholesalers and Excise regulatory procedures
Whereas the customs duties are charged by the central government and involve relatively easier procedures, sales are monitored and controlled by the excise department in each state. They have individual policy which my change from year to year every April, They put the importer in a strait jacket, with innumerous paperwork.
Multi-level Excise costs
Excise duties are levied at three levels in most states. First is the wholesale license that entitles a wholesaler/distributor to sell the product to licensed buyers. It is nomenclature differently in every state-in Delhi it is L-1F while in Haryana it is L1b-F.
In Delhi this license called L-1F costs Rs.600,000 (€ 92,000) for the whole of fiscal year (Apr-Mar). A fresh application needs to be made every year involving complex paperwork, taking 6-8 weeks to get it, during which no sale is allowed. Never mind that the license charges are payable for full 12 months!
In Maharashtra, the same costs Rs.75,000 whereas in Bangalore, the third largest market it is not required; the sale is made through the state alcohol Monopoly, Karnataka State Beverage Corporation which charges 7.1% premium and stores it. In Rajasthan the liquor wholesale license costs Rs. 600,000. In Rajasthan, one must get an ‘excise bind’ for an annual charge of Rs.600,000.
In Haryana the wholesaler requires L1B-F which cost Rs. 500,000 for sale up to 5,000 cases of wine, beer or spirits. However, from April 1 this year it was increased 3-fold to Rs.150,000.
Registration Blues
Photos By:: Adil Arora
 Secondly, each label must be registered annually, individually at varying rates, in most states and involving procedures that are different. In Delhi it is Rs.5,000 a label (different vintages can be clubbed under the same label). In Haryana, it was nil till last year but is proposed to be increased to Rs.10,000 a label for FY12-13, making it difficult to sell in Haryana, the bordering state of Delhi, which had so far very progressive policy enabling it to increase its sales many-fold to the residents of Delhi, even though it is illegal to transport more than 2 bottles of alcohol across the border. In Mumbai (Maharashtra) one can register the first 10 labels at Rs.5000 each after which it costs Rs.2500 each. In states like Tamil Nadu, one could directly ship to the hotels from out of states but from the current year Rs.10,000 a label have to be spent; making it highly unprofitable to sell wine.
 The importers are quite upset with the uncertainties and continuous changes. ‘The government is always interested to increase taxes. For example, Haryana government may feel that by introducing registration charges and tripling the license fees, they may collect more taxes. But the number of wholesalers will go down, the cost of every wine bottle will go up and the customer will lose. Moreover, the registration charge will ensure that lesser labels are available to the consumer. This will hurt the producers’ interest overseas further,’ says Debjeet Das Gupta, Secretary of the Delhi Foreign Liquor Association.
The Excise Vend Fee
Thirdly and finally, excise duty is payable on every bottle, known as vend fees. Each state follows its own policy. In Delhi, it is charged at 65% of the Whole Sale Price (WSP) computed without considering the customs duty and the retail margin. For the amount more than Rs.1000, 50% is chargeable. In Maharashtra, there are slab rates based on MRP (Maximum Retail Price). In Karnataka too it works out to Rs.225 a bottle.
TP procedure
After the wine is removed from the customs bonded warehouse, it must be shifted to the excise warehouse licensed to the wholesaler who must apply for supply to the licensed buyer-hotel, restaurant, club, retailer etc. A transport permit (TP) is issued after the excise is deposited and wines are transported to the buyer within a specified period which varies from a day in Delhi up to a couple of weeks in some states.
No separate license on date is granted for wine only-it’s clubbed with spirits. A wholesaler may represent several small importers and may provide only logistics support or market actively for them, usually it’s the former. However, having the bonded warehouse is a pre-requisite.
Export Permit (EP)
For exports to out of state, the excise duty does not have to be paid but the order must be received from the buyer and the Export Permit obtained from the authorities-this must be countersigned by the inspector in that state confirming that the goods have been delivered.
Value Added Tax-Sales Tax
In states where VAT is prevalent, it has to be paid by the buyer at the first instance. In inter-state sales, only central sales tax is payable. The retailer or hotel is required to charge from the customer and pay it to the government.
Import of samples
Wine for sampling may be imported through courier and in reasonable quantity on the discretion of the customs officer. A duty of 160% is currently charged on the assessable value which is appraised by the appraiser. No other duties are payable.
Procedural wrangles
Besides the duties and high state taxes, the ever tightening procedures play havoc with the importers who are liable to be prosecuted in case of technical oversights though arrests and imprisonment s are not uncommon in cases of cheating the government or attempts to evade taxes are uncovered.
Some of the procedures include a declaration by the wholesaler that the price he is charging is the lowest in every state. Das Gupta says, ‘It’s not practical to give the genuine affidavit when the cost of distribution is different in each state? This implies that the prices are same in all states; that is obviously impractical.’
Hanging like a Damocles sword is a directive by the Food Safety and Standards Authority of India (FSSAI) threatening to bring the wine imports under its control for quality check. That would add to the cost of wine and procedural complexity, what with each lot requiring to part with a bottle as sample.
The taxes and procedures may sound too complex and a tad negative but the authorities are yet clueless about wine as a food product-it did not exist as a category till a decade ago. It may take some time and persuasion. But at the end, one expects the structure to become more relaxed as more consumers enter the wine drinking pool.
Subhash Arora
‘India, the world’s largest democracy, sounds like an enticing market. That impression lasts right up the moment it’s time to fill in the forms and hand over money for the many fees and taxes involved. Subhash Arora has taken the time to make sense of it all - a very brave undertaking’ reads the article in the recent issue of Meininger Wine Business International for which it was written primarily. There have been a few minor changes but have not been updated to avoid confusion. However, those changes have been incorporated in the articles elsewhere on delWine - editor. |