The unfair excise policy in Maharashtra has already spread to Goa in which the higher registration charges are proving restrictive for the importers to expand that market. Now the Karnataka government is mulling over the idea of increasing excise duty on out-of-state wines that would include the imported products too.

Reliable sources have informed me that the newly formed Wine Board in Karnataka has recommended to the excise department an increase in duty on out-of-state wines including imports to a fixed amount of Rs.150 a bottle; this will include states like Maharashtra, Goa etc.At present there is a slab system with duty on imported wines varying from Rs.52 to Rs.70 a bottle with no extra VAT. The slapping of an additional duty of up to Rs. 100 ($2.5) a bottle is thus very much on the cards.

Kapil Grover, Director of Bangalore based Grover Vineyards and a member of the Wine Board has confirmed to me that the recommendation has been sent to the excise department. 'But I feel that the increase suggested was Rs. 300 a bulk liter,' he added. Perhaps, this rate was discussed about a month ago when the Maharashtra government was reportedly ready to announce the reduction of the recently escalated excise duty of 150% to Rs. 300 a bulk liter. This duty was increased to 200% instead for foreign wines. The excise department may now find the recommended increase too small and increase even more.

Kapil was categorical when he stated that it was only fair that the Maharashtra wines pay the recommended increased duties and face in Karnataka what he is facing in Maharashtra for his Bangalore produced Grover wines. Sante produced from Maharashtra grapes do not suffer the extra excise.

The tit-for-tat policy may bring more revenues to the excise departments, but consumer will end up paying higher prices, thus retarding the growth of wine consumption and resulting in further setback to the intake of foreign wines..

Bangalore-based Paul John, owner of John Distilleries and a big distiller in the South India, who started his wine venture Big Banyan wines last year and released his first vintage earlier this year, shared with me a few months ago that he had been forced to buy his wine grapes from Maharashtra despite having bought vineyard land in Karnataka. 'What if the wine producers in Karnataka got together and put political pressure on the state to make them do to them what they are doing to us?' he had told me in exasperation.

What if Bangalore based Vijay Mallya feels slighted with the discrimination against his state and uses his political clout to push the concept further in his home state?

The thought can be disturbing in which the consumer is bound to be caught in the cross fire. However,the domestic producers are sympathetic to the Grover dilemma. Rajeev Samant, CEO of Sula told me in Delhi last week,'Although we do not feel threatened by any increases in Karnataka, we are sympathetic to Kapil's problem. We want a fair protection against the cheap foreign imports, but do not want out-of-state wineries like Grover to be penalized in Maharashtra.'

What if the Mumbai-Goa-Karnataka excise fire reach Delhi? The consumers will suffer highr prices except that the progressiveness of Haryana and Chandigarh may save us from this catastrophe. As of now, Haryana has practically no excise duties. This neighbouring state of the Capitol, already sells wine cheaper by at least Rs.180 a bottle. Any increase in duties in Delhi will imply more sales in Haryana at the cost of Delhi and this should be an effective deterrent.

The US is also closely watching the spreading excise 'fire' with interest. Their final presentations were made to the WTO last month in the ongoing complaint against India from which EU has already withdrawn. The excise duty has not been factored in their pleadings yet. The objective has been to get the ruling in its favour since the total duties being charged are more than the 150% agreed upon with WTO.

The results will be known by January end. After a few mandatory deliberations, they will be made public in another couple of months. India is expected to lose the case. The case of extra excise duties will be cited further by the US which is of the opinion that according to WTO agreement, the total and not customs duties should be 150% and if the states are to charge excise duties these should be paid out from the central government's bound limit.

US is fully aware of the constitutional freedom to the states to charge excise duties as they deem fit, but they want the upper limit capped at 150%.

In the end, the hapless consumer may find support from WTO when the central government has raised hands and the state governments like Maharashtra have become high-handed, and where tit-for-tat polices are going to hurt him and him alone.

Subhash Arora
December 17, 2007

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