The Comptroller and Auditor General (CAG) has detected failure on the part of the Excise department to notify norms for production of Indian Made Foreign Liquor (IMFL) from ENA, which led to the shortfall in the IMFL yield during production and resulted in a revenue loss of Rs. 57.83 crore.
ENA is the primary raw material for making alcoholic beverages such as whisky, vodka, gin, liqueur and alcoholic fruit beverages. It typically contains 95% alcohol by volume and is derived from sources such as sugarcane, molasses and grains.
The CAG report for the year ending March 31, 2020, was tabled in the autumn session of the Assembly.
The report said the records (June 2020) of one distillery (CMJ Breweries Pvt Ltd) and bottling plants of the same firm and four others – North East Bottling Plant, MDH Beverages Bottling Plant, Marwet Bottling Plant and Oaken Gold Bottling Plant – from 2015-16 to 2019-20 were audited to assess the correctness of excise duty collected based on data relating to production and stock.
The audit revealed that four of the five bottling plants utilised a total of Rs. 3.58 crore BL of the ENA during this period. Taking the 1% wastage norm (0.5% for blending and 0.5% for racking) into account, the bottling plants were expected to produce 90,96,457 cases of IMFL, the report said.
“However, four bottling plants disclosed production of 87,17,511 cases of IMFL. This resulted in the short-production of IMFL by 3,78,946 cases. These plants failed to maintain any records of ENA procured and consumed; nor were such reports submitted to the Excise authorities,” the report stated. The audit report observed that the rate of excise duty notified by the state Excise department during the review period was fixed at a uniform rate of Rs.810 per case. It noted that the rate of VAT (40%) fixed by the Taxation department varies from brand to brand ranging from Rs.716 to Rs.787.59 per case.
“The failure of the government to notify norms for production of IMFL from ENA, despite lacunae pointed out in the audit report for the year ended March 31, 2014, resulted in a shortfall of 3,78,946 cases during production, involving loss of revenue to the tune of Rs. 57.83 crore in the form of excise duty (Rs. 30.69 crore) and VAT (Rs. 27.13 crore) over a period of five years under scrutiny,” the CAG report said.
It further said the failure of the state government to notify norms for production of IMFL from ENA and norms for production of ENA from raw materials (grains) resulted in the loss of Rs. 57.83 crore in revenue. Besides, concealment of actual production and sale of IMFL cannot be ruled out, it added.
The CAG stated that the matter was reported to the state government in November 2021. “During the exit meeting in February 2022, the commissioner and secretary of Excise department assured that the norms for production of IMFL from ENA and norms for production of ENA from raw materials will be notified latest by May 2022,” it said.
• Delhi government discontinues Excise Policy 2021-22 from August 1, 2022
• 468 private liquor shops operating in the city, shut from August 1 as licenses expire on July 31
• Mad rush at liquor vends as supply chain affected
It is a massive political battle out in the National capital between the Bharatiya Janata Party (BJP) and the Aam Aadmi Party (AAP) and the casualty has been the liquor industry. While the battle rages on, there is short supply of liquor and with private vends closing down, there is mad rush for liquor of whatever that is left.
As such Delhi was experiencing short supply of liquor for some months now, but the government did not really pull up its socks.
While the situation was such, came another shocker for the AAP government when its Chief Secretary on July 8 reported that there has been ‘deliberate and gross procedural lapses to provide post tender undue benefits to liquor licensees for the year 2021-22’. The Chief Secretary’s report also pointed out to prima facie violations of GNCTD Act 1991, Transaction of Business Rules 1993, Delhi Excise Act-2009 and Delhi Excise Rules – 2010.
Based on the Chief Secretary’s letter and the corruption murmur in the capital, the Delhi Lieutenant Governor, Vinai Kumar Saxena recommended a probe by the Central Bureau of Investigation (CBI).
Alcobev industry at its wits end
The alcobev industry which had hailed the Delhi Government’s new Excise Policy 2021-22 is at its wits end with the political battle going on. Many industry experts had hailed the policy but had complained that implementation was the stumbling block.
AAP blames BJP for the crisis
However, the Deputy Chief Minister of Delhi, Manish Sisodia in a press conference has put all the blame on the BJP for the excise crisis, stating that private vendors were threatened by the Enforcement Directorate and the CBI, forcing them to shut shop. The BJP, on the other hand, has alleged that the Delhi Government had doled out licenses to private vendors on a quid-pro-quo basis, charging AAP of large scale corruption. The two parties are leveling charges against each other while the alcobev sector and the end-consumer has to bear it all.
Government vends would be revived: Sisodia
Manish Sisodia said that the government vends would be back from August 1 as private vends were ‘scared’ to venture into this business. The number of government vends, would not exceed 850. Stating that there was an orchestrated campaign by the BJP to fail the new excise policy, he said only 468 shops were running and that number would further reduce drastically from August 1. “Their (BJP) plan is to stop legal sale of liquor and promote illegal sale of liquor in which the BJP has stake of thousands of crores of rupees,” he said and referred to the Gujarat model where there is prohibition, but illegal liquor trade is strong, leading to illicit liquor, consequently to hooch tragedies.
Citing that the AAP government had planned it’s vends to cater to the population without exceeding the number of vends from 850, he cited how in BJP-ruled States the number of vends was higher, thus encouraging liquor trade, both legal and illegal. There was one outlet for over 4,000 people in Gurugram; one for over 12,000 people in Bangalore; one for over 700 people in Goa, while in Delhi it was one outlet for over 22,000 people.
Another reason for the BJP to derail the Delhi policy, he said was as the former feared that the state revenue would jump from `6000 crore to `9,500 crore which would mean the success of the new policy.
BJP holds Sisodia responsible
Meanwhile, the BJP has upped its ante charging the AAP led government of corruption to which the Delhi Chief Minister has termed it as ‘false and that the BJP was afraid of AAP’s growth’. The BJP said the Excise Department, which is headed by Sisodia, reportedly gave a waiver of `144.36 crore to the licensees on the tendered license fee citing pandemic as an excuse.
Policy was to give enriching customer experience, now going back to government vends
The 2021 policy was to pave the way for a range of sweeping reforms to boost excise revenue, crack down on the liquor mafia and to improve customer experience. The Government wanted to provide a ‘decent standard of customer experience commensurate to the stature of the National Capital’ and one of the most noticeable changes was abolishing the iron grills in front of the shops. The policy amendment also allowed for online sales in sync with the ‘new normal’. There is no mention of what would happen to online sales, considering that the supply chain itself is adversely affected.
Framework for grant of licenses
The process of granting of the license was to ensure equitable coverage so that there is no instance of un-served and underserved areas in Delhi including Non-Conforming Areas. The number of retail liquor vends had been limited to 849, including five super premium retail vends, but absolutely no Government owned liquor vends for IMFL/FL.
The policy had ended on May 31 but extended by two months offering the retail licensees chance to renew their licenses paying fees on the pro rata basis for the extra period. However, many license holders did not opt for the extension and shut shops as they were already finding it difficult to reach break even after paying high license fees, some liquor traders have claimed.
Then there was the issue of some retailers giving massive discounts up to 40% to consumers while some big players offered ‘buy one, get one free’ schemes. The government intervened and capped the discount at 25%, but some retail shops went beyond that, some in the trade have complained.
Excise policy extant vs Delhi Master Plan rules
Under the excise policy extant, each licensee had to open three stores in each municipal ward. However, out of 272 municipal wards, 100 were non-conforming where the shops could not open due to action by civic bodies against violations of Delhi Master Plan rules, officials said thus leading to inadequate liquor stores.
CIABC hopes the policy will be tweaked
As mentioned there were many good features in the policy but the government failed to implement. The Director General of the Confederation of Indian Alcoholic Beverage Companies (CIABC), Mr. Vinod Giri has said that the industry had taken up the matter with the Delhi Government to reduce the size of the zones as to make the trade viable. He said by doing that it would have reduced the financial stake of licensees, improved loss bearing capacity and prevented monopolies. He attributed the failure of the policy to bureaucratic apathy towards trade, while the policy per se was good, befitting a modern metropolis such as Delhi. He was hopeful that the policy would be tweaked, but right now the political din has taken over.
There have been many such niggling issues that the Delhi Government did not iron out, while it kept patting itself on its back that it had come up with a ‘great policy’ that eliminated corruption and sale of seconds liquor. But the reality on the ground has been different, where actions did not match the words the AAP government kept bandying about. The capital is going to be mired with this controversy for some time now. The alcobev sector awaits new directives, till then the end consumer will have to find ways to quench his or her thirst.
Uttar Pradesh became the first state to announce its excise policy for the year 2022-23, setting an excise revenue target of Rs. 40,000 crore, up from Rs. 34,500 crore in the previous year. To achieve the target, one of the routes the UP government has taken is to increase the license fee across all categories. The increase ranges from 20% to a whopping 172%, depending upon the nature of license.
The UP government collects 20% of its annual revenue from excise, however in the last two years, due to Covid, there has been a dip in the collection of excise from the set targets. In 2020 -21 targetted revenue was `37,500 crore which was reduced to Rs. 34,500 crore in the current financial year (21 -22) against which by this year end the expected revenue collection is Rs. 36,000 crore. Considering the positive trends and situation becoming normal the UP government has fixed an optimistic revenue of Rs. 40,000 crore. This is 16% more than the revenue target of 2021-22. The breakup of revenue planned for 22-23 is shown below :
Avenues for Revenue
To achieve Rs. 40,000 crore, it has increased the licence fee and security amount across all categories of licences. Some of these licences are shown below:
Besides the above mentioned increase, the processing fee for these licences has been increased to `1.0 lac as against Rs. 55,000 for each application.
Brand & Label Registration Fee
Label registration is very tedious work which the entire beverages alcohol industry has to indulge in every year by compromising manufacturing and supplies till new labels are registered. Manufacturers spend a good amount of productivity of its people besides paying the stipulated fee. The industry feels it is difficult to understand the reason for this increase every year. Under the new excise policy, this fee has been increased from 33% to 90%.
There is a very nominal increase in the Pratifal fee of IMFL. This increase will be between 0.75% – 1.50% maximum per case of 9 litre depending upon the Liquor category (Economy, Medium, Regular, Premium etc.). Similarly for beer the Pratifal fee has been increased by Rs. 1 per litre. At least this is a relief to the industry which has a direct impact on fixation on MRP.
Country Liquor – The Milking Cow
Due to high sales, massive production stakes with minimal import allowed from outside state, country liquor (CL) has always been top priority for various state excise departments. CL’s contribution in overall excise revenue ranges between 45% – 50% every year and therefore a lot of effort is made to safeguard this major chunk of revenue. The UP excise has therefore initiated following steps to ensure its revenue of Rs. 19,140 cr. for the fiscal 2022 -23;
Reducing MRP by Rs. 5 per unit of 200 ML
Removal of Covid cess a) Not increasing the excise duty
Removing 42.8% v/v MASALA CL . Now there will be only two types of MASALA CL i.e. 36% & 25% v/v
However 42.8% v/v UPML shall continue to sell at reduced MRP
It is very interesting to note that the same UP Govt and state excise department which had become very strict on changing the packaging norms of country liquor last year has changed its decision in just a couple of months . After two subsequent hooch tragedies in western UP in early 2021, the alternatives of the CL in PET bottle were being discussed at high levels of government and in the months of July – August 21 pressure was mounted on the industry to source aseptic brick carton filling machines aka Tetra Pack machine since this kind of packing is considered as 100% tamper proof. In fact few circulars were issued to industry to start supplying at least 20% of CL in Tetra Pack immediately. There was much hue & cry in UP’s distillery sector because there is hardly any manufacturer of this type of filling machine in India and import of this machine can take minimum 90 – 120 days’ time. In the new excise policy this condition has been replaced from Tetra pack to glass bottle packing having a shrink wrap on the cap. This will certainly give a boost to Firozabad (UP) glass industry which has been requesting the government to provide a platform for its revival.
Wine: Still a Mirage
The total excise revenue generated through wine sales in 20 -21 was only Rs. 9.68 crore out of total revenue generated of approx. Rs. 30,000 crore. Wine’s revenue contribution increased to Rs. 29.54 crore in 2021-22 of Rs. 34,500 crore. The growth in wine sales in UP has phenomenally increased by 200% in just one year which clearly shows the scope and opportunities for wines. The increase of revenue is directly proportional to consumption.
At the moment there is not a single winery in UP and to boost the wine industry the government is continuing with its endeavour as provided in its last years excise policy by :
Exempting wines produced in UP from all types of excise duty & levy for a period of another four years
Allowing vintner to sell wine in a store inside the winery by paying a small annual fee of `50,000 for a year
Allowing wine taverns inside the winery.
A licence fee of Rs. 57,500 for establishing a winery in UP
The new excise policy also indicates towards a separate new wine policy being prepared. It is suggested that the UP government establish a wine promotion board on the lines of the Karnataka Wine Board which is headed by a knowledgeable and senior IAS officer and other administrative officers who closely work with wine industry to find our more and more avenues for increasing wine production and consumption. Associations and federations like the Indian Wine Academy should also come forward to tap this potential.
Ease of Doing Business
We can see some steps the U.P. government is taking for ease of doing business in the excise policy. Some of these initiatives are:
Annual licence fee for home/personal possession of liquor licence has been reduced to Rs. 11,000 from Rs. 12,000 from last year and the refundable security amount has also been reduced to Rs. 25,000 from earlier Rs. 51,000.
Wine manufacturing and selling soaps as mentioned.
No increase in bar licence fee.
Microbrewery can sell/supply craft beer in 50 litre kegs.
Wholesale licence can store stocks w. e. f. 15th Feb.22 meant for next excise year.
Renewal of retail shops is permitted.
No increase in any licence fee and excise duty for defense forces establishments in UP.
Rs. 50,000 will be given as discount on the licence fee if bar & microbrewery both licences are applied simultaneously.
Track & Trace system to be extended to the retail sales.