CVD on imported wines hits legal hurdle

The commerce ministry's efforts to seek imposition of an additional duty by states in lieu of the Centre withdrawing the countervailing duty (CVD) on imported wines and spirits has hit a legal hurdle.

The Union law ministry has said states do not have powers under the Constitution to impose an additional levy on imports to countervail the excise duty which would be leviable on these products if they were manufactured domestically.

It has made it clear that the Centre will have to seek a constitutional amendment in order to allow states to levy such additional duty. The commerce ministry had sought legal opinion ahead of persuading the finance ministry and states to amend the taxation regime for imported wines and spirits.

New Delhi is under pressure to do so since the European Union has begun the process to take India to the World Trade Organisation on the matter.

At present, the Centre imposes a countervailing duty on imported liquor to neutralise the excise duty on domestic liquor. The CVD is an average of the various levels of excise duties imposed by different states.

Over and above the CVD, states impose excise duty on their local liquor and countervailing duty on liquor manufactured by other states. The finance ministry had agreed to withdraw the CVD in lieu of states imposing an additional levy.

The European Commission today said it will request formal consultations with India in the WTO (under the Dispute Settlement Understating) regarding India's import regime for spirits and wines.

"After having allowed India a considerable period of time to address the problem, the EU now hopes to use the WTO consultation process to arrive at a mutually satisfactory solution with India." a statement issued by the EU said.

The commerce ministry had in June made a presentation to the empowered committee of state finance ministers in which it proposed that the countervailing duty could be lifted in lieu of the states agreeing to impose a duty equal to excise on domestic liquor. The states had in turn sought information on the legal implications of the move.

States, at present, extend different treatments to imported wines. Maharashtra, for instance, does not impose any duty on domestic wines while the duty on imported wine is 28 per cent. Tamil Nadu, on the other hand, does not allow retail sale of imported wines.

The EU has pointed out that India imposes an additional duty on all imported wines and spirits.

In addition, excise duties and taxes are applied exclusively or a higher rates to imported wines and spirits than to domestic wines and spirits by certain Indian states, and there are restrictions on importation and sale applied by certain Indian states.