CAG Report On “Regulation And Supply Of Liquor In Delhi” Highlights Serious Concerns In Excise Policy And Revenue Collection

New Delhi (India), February 25: The Comptroller and Auditor General (CAG) of India’s Performance Audit Report on the “Regulation and Supply of Liquor in Delhi” has raised several concerns regarding the governance and efficiency of the Excise Department. The Audit Report, which covers a period from 2017-18 to 2020-21, was placed before the Legislative Assembly of Delhi on Tuesday.

The executive summary of the report outlines the complexities of liquor distribution in Delhi, with multiple stakeholders involved, including manufacturers, bonded warehouses, private and government vends, hotels, clubs, and restaurants. The Excise Department collects revenue through various fees, such as excise duty, license fees, permit fees, and others, complicating the regulatory environment.

The audit observed numerous discrepancies, raising questions about the effectiveness of the Excise Department in regulating liquor supply. The total financial implication of the audit findings stands at approximately Rs 2,026.91 crore.

Key Findings from the Audit Report:

1. Violations in License Issuance:
   • The Excise Department failed to enforce Rule 35 of the Delhi Excise Rules, 2010, which prohibits the issuance of multiple licenses to related parties. This led to the presence of common directorships across entities holding various types of licenses.
   • There were instances of licenses being issued without fulfilling key requirements such as solvency, criminal background checks, and audited financial statements, leading to potential unfair practices.
2. Lack of Transparency in Pricing:
   • The Audit observed that the Excise Department allowed discretion in the declaration of Ex-Distillery Price (EDP) for liquor, which led to pricing manipulation by the L1 licensee (manufacturer and wholesaler). This discretion resulted in a decline in sales and revenue loss for the government, as pricing was not transparently monitored.
3. Inadequate Quality Control:
   • The Excise Department failed to ensure that liquor met prescribed quality standards, with several instances where mandatory test reports were either outdated or non-compliant with standards. The lack of adherence to food safety regulations jeopardized public health.
4. Weak Regulatory and Enforcement Functions:
   • The Audit found that the Excise Department’s regulatory function was weak, with ineffective enforcement actions against violators. The data maintained by the Excise Intelligence Bureau (EIB) was found to be rudimentary and lacked analytical value, hindering the identification of smuggling hotspots and revenue leakages.
   • The enforcement function suffered from a lack of standardized procedures, weak evidence collection, and inadequate penalties for violations.
5. Flaws in Inventory Tracking and Barcode System:
   • The Excise Department’s inventory tracking system, ESCIMS, failed to ensure the proper tracking of liquor, leading to anomalies in sales data and increasing the risk of non-duty paid liquor being circulated. The department’s failure to implement secure barcode labels further compromised the system.
6. Problems with the New Excise Policy (2021-22):
   • The audit raised concerns about the formulation of the new Excise Policy, noting that the recommendations of the Expert Committee were ignored. The policy’s design allowed for monopolistic tendencies, with wholesale licenses granted to fewer entities, raising the risk of cartel formation.
   • The policy’s implementation also led to revenue loss due to the failure to retender surrendered retail licenses and grant exemptions based on COVID restrictions, resulting in a loss of around Rs 2,002 crore in revenue.

Recommendations:

• The Audit suggests that the Excise Department should ensure strict adherence to licensing rules, improve transparency in pricing, and monitor quality standards more rigorously.
• It also recommends strengthening regulatory functions, enforcing penalties for violations, and implementing a real-time, end-to-end barcode tracking system for liquor.
• Additionally, the report urges better execution of the new Excise Policy, including measures to prevent monopolization and enhance transparency in licensing and revenue collection.

This audit highlights the critical need for reforms in the functioning of the Excise Department to ensure better regulation, increased revenue, and improved public health and safety in Delhi’s liquor trade.