Mumbai: The government withdrew the additional customs duty on imported wines and spirits in an effort to resolve a dispute with the European Union and other leading trading partners over high duties on these items.

A finance ministry statement said the government had decided to withdraw the additional customs duty on imported wines, spirits and liquor after discussing the issue with state governments.

But the government raised the basic customs duty on wines from 100 per cent to 150 per cent, as permitted by the World Trade Organisation, a rate which will continue to apply to spirits and liquors.

India had set base import duties on wine and spirits at 100 per cent and 150 per cent respectively, which were within WTO rules, but together with additional customs duties and some central and state-level taxes the tariffs ranged from 264 per cent to over 500 per cent.

The EU and the US had been pressing for a reduction in the wines and spirits duties which the European bloc said were as high as 264 per cent on imported wines and 550 per cent on spirits.

A European Commission report issued last year found "clear violations of WTO provisions". Scotch whisky makers had asked the EC to escalate the dispute after India left wine and spirit duties untouched in its annual budget in February, despite lowering duties on other imports.

EU spirits exports to India in 2005 amounted to 43 million euros ($56.4 million), while wine exports stood at just 7 million euros, according to a study by the Centre for European Policy Studies.

Demand for imported wines and spirits is rising in India as a fast-growing economy and higher wages boost the spending power of an expanding middle class.

The influential Scotch Whisky Association (SWA) welcomed the move and said it was "good news" for Indian consumers as well.

The SWA has been campaigning at various levels with the British and Indian governments as well as the European Union, United States and the WTO for reduction of India''s high import duties.

The high duties were a major hurdle for Scotch whisky exporters who were keen to enter the vast Indian market for spirits and wines.

New Delhi''s announcement of withdrawal of the additional customs duty is seen as part of an effort to resolve the dispute with the European Union and other leading trading partners over high duties on these items.

"We are awaiting confirmation of the announcement in New Delhi , but the removal of the duty will be widely welcomed. It is a step towards market access and fair competition," David Williamson, spokesman of the SWA, said.

The Scotch industry sees India and China as major markets for growth. The demand for imported spirits in India is high as its burgeoning economy increases the size of its middle class exponentially every year. The Indian market is considered more lucrative and may well be the largest market for spirits in the world. India reportedly consumes over 120 million cases of spirits each year, the vast majority of which are locally produced.