A probe by the Directorate of Revenue Intelligence (DRI) has found that Pernod Ricard India Pvt Ltd, the Indian arm of the world’s second-largest spirits maker, has allegedly evaded Customs duty of about Rs 612.72 crore in the last six years, sources told The Indian Express.
The probe found, sources said, that Pernod Ricard India allegedly undervalued imports of bottled-in-origin products (drinks made and bottled abroad) from a related firm Pernod Ricard Gulf, Dubai. Some of the bottled in origin products of Pernod Ricard include The Glenlivet, Chivas Regal and Ballentine’s, among others.
Pernod Ricard India and Pernod Ricard Gulf are both wholly owned subsidiaries of Peri 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.
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.
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, 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.
The agency has alleged that the agreement mathematically 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. Sources said 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.
This, according to the probe agency, 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 reported 1 per cent sales growth in India during the nine months that ended March 31, 2017.