India says Pernod delaying $244 million tax demand probe

By Abhirup Roy and Aditya Kalra

MUMBAI (Reuters) – Indian authorities have asked a court to quash Pernod Ricard (EPA:)’s bid to halt proceedings related to a $244 million tax demand, accusing the French spirit giant of being a “habitual litigant” and conspiring to “defraud” the government, legal documents show.

The Oct. 3 Mumbai court filing by India’s customs authority, which has not been reported previously, underlines the growing dispute between Prime Minister Narendra Modi’s government and Pernod’s local unit over how the company valued some of its imports for over a decade.

The customs authority says Pernod did so to evade full payment of import taxes.

The tussle comes when Pernod Ricard is facing business and regulatory stress in India, one of its key growth markets where it accounts for a 17% share. It has previously told Modi that long-running disputes over the valuation of liquor imports had “inhibited fresh investments” in India.

After India demanded back taxes from the maker of Chivas Regal and Absolut vodka in June, Pernod challenged it in court, saying the investigation should be put on hold as it relied on incorrect industry data, and the process was “neither fair nor reasonable.”

In the 43-page October filing, India’s customs authority said the French company was resorting to “delay tactics” by approaching a court for relief, instead of responding to the government’s tax demand notice.

It accused the company of a conspiracy “to defraud the Govt. of India of its legitimate revenue.”

Pernod has been “a habitual litigant and always attempts to abuse the due process of law,” the filing added, referring to some previous tax demands Pernod challenged in India.

Asked for comment, Pernod referred Reuters to a previously issued statement, which said the company is actively working on demonstrating its position to Indian authorities and has “always endeavoured to act with full transparency and in compliance with customs and regulatory requirements.”

It declined further comment due to ongoing litigation and because the filing by the customs authority wasn’t public. The court case will next be heard on Oct. 20 in Mumbai.

The Indian investigation assessed Pernod India’s import bills of liquor concentrates from a group subsidiary, UK-based Chivas Brothers, and found they were undervalued for years.

To compensate for the undervalued imports, Pernod paid “hefty” dividends to the group’s holding company, Pernod Ricard in France, which also owns Chivas Brothers, the investigation found. Import duties on liquor concentrates are 150% while dividends attract lower taxes.

The long-standing tax disputes Pernod faces in India has led to business uncertainty – in July, the company wrote a letter to a federal tax authority saying the company was “facing significant business continuity challenges”, asking for a resolution.

Last week, Pernod said its India CEO, Thibault Cuny, had stepped down due to health reasons.

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