The European Union could renew its demand for trade sanctions against India if the country's state authorities scupper moves by the New Delhi government to lift prohibitive import duties on Scotch whisky.

This was the suggestion yesterday, as the EU formally suspended a dispute panel initiated at the World Trade Organ- isation over India's additional duties on imported wines and spirits.

Earlier this month, India agreed to scrap additional regional duties on wine and spirits that can push tariffs as high as 550% on imported spirits and 264% on wines. A new basic customs duty for both, 150%, is to be retained. The Scotch Whisky Association welcomed the move because it enabled Scottish distillers to compete with domestic producers on a level playing field for the first time.

The SWA learned yesterday, however, that its fight may not be over. Under Indian law, individual states cannot apply excise tax to imported spirit drinks. Following this month's withdrawal of the Additional Customs Duty, however, the Indian government indicated it would bring forward new legislation allowing states to do this on a non-discriminatory basis in line with WTO rules.

According to the association, Mumbai's state government in Maharashtra has jumped the gun while this legislation remains in draft form, imposing its own 200% tax on Scotch whisky. It is feared the state governments of Delhi and Bengaluru could impose their own tariffs as early as this week.

An SWA spokesman said: "Individual states in India must tax imported and domestic spirit drinks on a non-discriminatory basis. We are disappointed that Maharashtra has introduced a new excise policy without waiting for Federal authority to do so and we are studying the details of the new regime.

"Early indications are that the new policy may not be fully compatible with WTO rules and we will discussing our concerns further with EU and Indian officials."