Liquor wholesalers posing as retailers? CAG report unveils ‘preferential’ licensing by AAP in alleged Delhi excise scam

The CAG report on Delhi Liquor Policy, tabled in the Delhi Assembly on Tuesday, claims that the group of ministers (GoM), headed by then Deputy Chief Minister and Excise Minister Manish Sisodia, changed the recommendations of the expert panel formed to formulate the policy.

The Comptroller and Auditor General (CAG) report – ‘Performance Audit on Regulation and Supply of Liquor in Delhi’ – is one of the 14 reports that Chief Minister Rekha Gupta-led Bharatiya Janata Party (BJP) government plans to table in the coming days in assembly.

The 208-page CAG report, divided into eight chapters, highlights the lapses in implementing the now-scrapped Delhi excise policy which eventually led to a loss of approximately ₹2,002 crore to the Delhi government.

The GoM, the CAG alleges, decided against the panel’s recommendation and allowed private players to handle wholesale liquor operations, among other violations.

The expert committee recommended government takeover of wholesale trade of liquor, through separate state beverage/wholesale corporation, owing to past instances of dual ownership (wholesale and retail) through related private entities and probable complicity of wholesaler in facilitating illegal liquor supply through duplicate barcodes, the report said.

Even the GoM, in its report, accepted that many wholesalers were able to acquire retail licences through proxy ownership and make it possible to indulge in the sale of non-duty paid liquor, it said.

“Still the GoM recommended issue of L-1 licenses to private players only. The reason provided in the GoM Report for not forming such government-owned wholesale corporation was that a deep study and implementation of the same would require time and till such time L-1 license should be granted to private players,” the report read.

The L-1 licences are granted for the wholesale supply of Indian liquor.

“It was noted from the finally-approved Excise Policy for the year 2022-23 that the wholesale operation was proposed to be managed by private players, which belied the claims made by (Delhi) Government that private wholesale operations was only an interim measure,” the CAG report reads on page 83.

The expert committee had suggested retention of collection of Excise Duty on per bottle basis, while altering the pricing mechanism. “However, the GoM favoured advance collection of excise duty, in the form of License fee, which was practically delinked to the actual sale of liquor,” th report reads.

Wholesale and retail licence norms

The CAG report says that the relevant provisions in the earlier Excise Policy specifically stated that no person or his family member interested in any distillery or brewery or bottling plant holding a licence for wholesale distribution shall be given a retail licence.

“However, the scope of criteria for determining relatedness was diluted in the new policy. Such dilution in the conditions of the policy resulted in grant of licenses to entities in which same persons had a common interest,” it said.

The CAG report has cited many instances where evidence of relationships between licensees/ common beneficial ownership, was observed.

In one such example, the report says that there was evidence of a relationship between M/s Indospirit, a wholesale licensee and the zonal licensee, and M/s Khao Gali Restaurants, holding two zones. Khao Gali restaurants is an associate company of M/s Indospirit Distribution Limited which has 35 per cent stake in M/s Indopsirit (wholesale licensee), the report says. Further, the director of Khao Gali was a director of an associated company of Indospirit Distribution Ltd, it says.

70% wholesale market with three entities

In an overall analysis of the supply pattern of liquor in Delhi, the CAG found that the wholesale distribution of liquor was largely controlled (71.70 per cent) by three entities, Indospirit, Brindco and Mahadev Liquor. “The former two also exclusively supply brands of United Spirits (Diageo), United Breweries (Heineken) and Pernod Ricard, three of the largest domestic manufacturers of liquor,” the report said.

It also found that of the 22 business entities holding 32 retail zones, the top eight business entities (in terms of volume of sale per zone) holding 10 zones, accounted for 44.79 per cent of the sale. In contrast, the bottom 10 zones (held by six business entities) accounted for only 16.68 per cent of sale, it said.

The CAG report also mentions of instances where a particular wholesaler supplied a ‘statistically large proportion’ of its stock to a particular zonal licensee which highlighted the risk of ‘favourable business terms’ and/or close association between these wholesale licensees and respective zonal licensees.

“Also, some notable instances have been pointed out where a large proportion of sale of a zonal licensee was sourced from a particular wholesaler. Whereas this might not be an issue per-se in cases of procurement from wholesalers supplying popular brands, it could have implications like brand pushing and limited consumer choice,” it said.