The World Trade Organization's highest appeals court -- the Appellate Body -- on Thursday upheld the United States' challenge against India's imposition of 'additional duty' and 'extra additional duty' on imported alcoholic beverages.
It maintained these two duties are inconsistent with the trade body's core scheduled tariff commitment rules as they result in the imposition of duties in excess of those committed by the Indian government in its schedule of tariff concessions.
However, the Appellate Body declined to make any recommendations to the WTO's dispute settlement body what India should do in the light of its ruling.
The government has already removed the additional duty on wines and spirits last year. Similarly, it exempted various products from the extra duty, making the case redundant.
But the US went on to challenge these two duties before the Appellate Body after a disputes settlement panel pronounced that Washington had failed to establish that the two duties imposed by India are inconsistent with Articles II:1(a) and II:1(b) of the GATT 1994.
Now, the Appellate Body reversed the panel's findings and upheld Washington's complaint that both these duties levied by the Indian customs authorities are inconsistent with Articles II: 1(a) and II: 1(b).
Under these two provisions -- Articles II:1(a) and II:1(b), WTO members cannot impose duties more than ordinary customs duties that are spelt out its tariff schedules.
India also challenged some aspects of the panel's conclusions, while the European Union, Australia, Chile, Japan and Vietnam participated as third parties.
At the core of the dispute is whether India can impose duties in the form of additional duty or other duties and charges on alcoholic beverages and other items that are in excess of what are called the ordinary Customs duties which are notified to the trade body.
India had maintained that the additional duty was imposed as a means to 'counterbalance' state value-added and sales taxes, the central sales tax and other local taxes, arguing that they are justified under Article II:2 (a).
These duties had been in vogue since March 2003 and last year, the government removed the additional duty.
Similarly, India also imposed an extra-additional duty in 2006 at the rate of 4 per cent ad valorem.
In the face of the legal challenge, the government exempted various alcoholic beverages from the extra-additional duty last year.
The US maintained that both these two duties, irrespective of their current status, violated the trade body's scheduled legal commitments.
The Appellate Body endorsed the US complaint by saying that the dispute settlement panel was wrong in its interpretation between a border measure (ordinary Customs duty) and an internal tax.
The highest court said there should be a qualitative comparison of all these measures, arguing that the disputes settlement panel had failed to carry out such a comparison.
It maintained that that additional duty and the extra-additional duty cannot be justified as they amount to imposition of charges on imports that are more than those imposed.
Despite its pronouncements, the Appellate Body chose not to make any recommendation to the disputes settlement body as required under Article 19.1 of the dispute settlement understanding.
