Factbox-French spirits giant Pernod faces growing challenges in India

(Reuters) - From tax notices to allegations of illegally boosting market share, French liquor giant Pernod Ricard is facing several business and regulatory challenges in India, one of its key growth markets.

The maker of Chivas Regal and Absolut vodka is the second-largest spirits company globally and in India. It accounts for 17% of the alcohol market by volume in India, where it competes with the likes of Diageo, IWSR Drinks Market Analysis says.

Here are some of the recent challenges the company has faced:

* DELHI CITY INVESTIGATION

Pernod has since last year been under the scanner of India's Enforcement Directorate as part of an investigation into how retailers, manufacturers and politicians allegedly colluded to illegally profit from the 2021 auction of liquor retail licences in New Delhi.

The capital city's liquor policy prohibited manufacturers from participating in retail sales, directly or indirectly, but Pernod was "in contravention" as it effectively used bank guarantees to invest in retailers, the agency says.

Pernod Ricard India said it strongly denies the allegations of the directorate, adding that it "will continue to fully cooperate with the Indian authorities in this matter."

* FEDERAL TAX DEMAND

On the tax front, the spirits giant is facing a near $250 million federal demand for allegedly undervaluing imports for over a decade to avoid full payment of duties.

India's customs authority in a court filing last year called the company a "habitual litigant" and accused it of a conspiracy "to defraud the Government of India of its legitimate revenue."

Pernod, which challenged the demand, says it has "always endeavoured to act with full transparency and in compliance with customs and regulatory requirements."

* IMPACT ON INVESTMENTS, BUSINESS

Pernod says that since 1994, its tax disputes have made it tough to do business in the country.

In a letter written to Prime Minister Narendra Modi in 2021, the company said that "ever-lasting litigation has been a big strain on our ease of doing business and has inhibited fresh investment by our group headquartered in Paris (France) for expansion of business in India."

Pernod says it has been in dialogue with Indian authorities as it looks at finding a swift resolution to the matter.

In July 2022, Pernod wrote a letter to the federal tax authority stating it was "facing significant business continuity challenges" and that operational challenges were choking its supply chain.

* HIGH IMPORT TAXES

India's alcohol market is heavily regulated and Pernod - like much of the industry - has been concerned about the 150% tax imposed on imported liquor.

In April last year, the company urged the government to drop the tax it said poses a "large challenge" for Pernod Ricard and puts many of its drinks out of reach of consumers.

Pernod's revenue from operations in India stood at $2.4 billion in 2020-21, but taxes and duties - which includes federal, import and state levies - accounted for 79% of that. Its India net profit for the year stood at $130 million.

(Reporting by Arpan Chaturvedi and Aditya Kalra in New Delhi; Editing by Raju Gopalakrishnan)