INFO  LOG-00   EEB-00   AID-00   CA-00    CEA-01   CIAE-00  CTME-00  
      INL-00   DODE-00  ITCE-00  DOTE-00  PDI-00   EXME-00  E-00     
      FAAE-00  UTED-00  VCI-00   FRB-00   H-00     TEDE-00  INR-00   
      JUSE-00  LAB-01   CDC-00   VCIE-00  NSAE-00  ISN-00   NSCE-00  
      OES-00   OMB-00   EPAU-00  CAEX-00  GIWI-00  MA-00    ISNE-00  
      SP-00    SSO-00   SS-00    NCTC-00  FMP-00   CBP-00   BBG-00   
      EPAE-00  IIP-00   DRL-00   G-00     SCA-00   SAS-00   FA-00    
      SEEE-00    /002W
  
P 021230Z NOV 09
FM AMCONSUL MUMBAI
TO SECSTATE WASHDC PRIORITY 7535
INFO ALL SOUTH AND CENTRAL ASIA COLLECTIVE
AMCONSUL CHENNAI PRIORITY 
AMCONSUL MUMBAI PRIORITY 
AMEMBASSY NEW DELHI PRIORITY 
AMCONSUL KOLKATA PRIORITY 
DEPT OF AGRICULTURE USD FAS WASHINGTON DC
DEPT OF AGRICULTURE WASHINGTON DC
DEPT OF COMMERCE WASHINGTON DC
DEPT OF TREASURY WASHINGTON DC

UNCLAS MUMBAI 000422 
 
 
DEPT PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD IN
SUBJECT: GOOD CHEERS FOR FOREIGN WINE IN MAHARASHTRA: STATE SPECIAL 
FEE LOWERED 
 
REF: 08 MUMBAI 0050 
 
¶1. Summary:  In August 2009, the Maharashtra government 
significantly lowered the 200 percent "special fee" for foreign 
wines imported into the state.  Post recently verified that the 
special fees are now just 44 percent or less ad valorem, 
depending on the value of the foreign wine imported.  The 200 
percent duty had been assessed in addition to federal import 
duties of 150 percent, putting most foreign wines beyond the 
reach of even wealthy consumers, and was meant to match the 
state's excise duty for domestic wines brought in from other 
Indian states.  Local wines made in Maharashtra continue to 
enjoy exemptions from this excise tax, while domestic wine 
manufactured outside Maharashtra is still taxed at 150 percent 
and 200 percent of the manufacturing cost depending on whether 
it is local or foreign branded.  According to Maharashtra's 
Excise Commissioner I.S. Chahal, this discriminatory treatment 
of domestic out-of-state wine will continue until the tax for 
Maharashtra-made wine is reciprocally lowered in Karnataka, the 
other major wine producing state in India.  Until this happens, 
foreign wines will enjoy a duty advantage over domestic, 
out-of-state wine brought into Maharashtra.  End Summary. 
 
 
¶2. In a recent discussion, I.S. Chahal, the Commissioner of 
Excise for the Government of Maharashtra, informed Assistant 
U.S. Trade Representative (USTR) for South and Central Asia 
Michael Delaney that the special fee assessed on foreign wine 
was changed from a flat rate to a three-slab inverse ad-valorem 
structure on July 22.  Since August, all foreign wines costing 
less than INR 900 (about USD 19) have had to pay a special fee 
of INR 400 (about USD 8.50) per one-liter bottle imported into 
the state.  The special fee for foreign wine costing between INR 
901 (about USD 19) and INR 6,000 (USD 128) is slightly lower, at 
INR 300 (about USD 6.40) per bottle, while expensive foreign 
wine costing over INR 6,001 (USD 128) will be taxed at five 
percent of the manufacturing cost.  He admitted that the new 
duty structure was devised and developed by the European 
Commission which, along with Moet Hennessey, asked the 
government to lower import duties for foreign wines in 
Maharashtra.  The Maharashtra government accepted their 
recommendations and implemented the suggested tax structure 
without making any changes, he said.  These new taxes for 
foreign wine in Maharashtra replace the old flat tax of 200 
percent of the assessable value (manufacturing cost) which were 
judged as unfair and unjust by foreign wine manufacturers. 
Chahal admitted that the high tax rate for imported wine 
encouraged a grey market in the state. 
 
 
¶3. Chahal explained that since wine accounts for a mere one 
percent of total excise revenues, the revision in the import tax 
rate would not really result in any significant revenue loss for 
the state government.  He also noted most foreign wines are 
priced over INR 900 (about USD 19) and very few Indian wines 
fall within the same price range.  Therefore, charging lower 
taxes for importing expensive wine will not harm Maharashtra 
wine producers since they do not compete in the premium market. 
Nevertheless, to mollify the local wine producers, the 
government ultimately raised the special fee from INR 300 (about 
USD 6.40) to INR 400 (about USD 8.50) per bulk liter in the 
final regulations, Chahal added.  (Note: Maharashtra wine 
manufacturers pay zero excise duty until December 2021 after 
which they have to pay duty at the rate of 100 percent of the 
manufacturing cost.  End Note.)  Chahal also claimed that he 
told other officials in the state and central government that 
continued WTO litigation was not worth the meager revenues this 
special fee raised in the state. 
 
 
¶4. Chahal also argued that the new state import duties placed 
foreign wine on a better footing compared to domestic wine 
produced outside Maharashtra.  He noted that Maharashtra and 
Karnataka were the only two major wine producing states in 
India.  Quid-pro-quo excise duty increases have led to 
exorbitant price hikes for out-of-state domestic wines in both 
states.  Chahal said that the Maharashtra government was willing 
to lower the excise duties for out-of-state wine if the 
Karnataka government reciprocated in its treatment of wine 
produced in Maharashtra.  He said that he had written a letter 
to the Karnataka Excise Commissioner assuring him that 
Maharashtra would adopt the same excise duty structure for 
Karnataka-produced wine that Karnataka adopts for 
Maharashtra-made wine.  Until then, all foreign-branded and 
local-branded wine manufactured in Karnataka and brought into 
Maharashtra will have to pay 200 percent and 150 percent of the 
manufacturing cost as excise tax, respectively. 
 
 
¶5. Comment:  The duty revision for imported wine in Maharashtra 
provides some relief to the foreign wine market who had 
petitioned against the rise in state import tax which, they 
believed, widened the gap between foreign and locally-made wine. 
 Even with the new duty structure, foreign wine remains a costly 
alternative to home-grown Maharashtra wine.  However, 
ironically, it appears to now enjoy a pricing advantage compared 
to out-of-state domestic wine, at least as long as the 
inter-state price and tax war continues.  The success of the 
European wine trade association in rolling back the special 
duties shows that in matters where states have discretion, such 
as excise taxes, the most effective strategy is to deal with the 
relevant state bodies in a constructive and persistent way.  In 
many cases, the central government does not have the authority 
to force changes in state policies.  End Comment. 
 
 
FOLMSBEE