New Delhi: The Delhi excise policy 2021-22 resulted in a revenue loss of Rs 2,002.68 crore, observes a report of the Comptroller and Auditor General (CAG), putting the erstwhile AAP government on the dock for pushing it through.
The policy “increased the risk of monopoly or cartel formation” and lacked mandatory clearances from either the cabinet or the lieutenant governor, underlines the report tabled in the Delhi assembly by the new BJP government Tuesday.
According to the CAG, the policy effectively opened up space for the government to extend favours to individuals in liquor trade in both wholesale and retail sectors; hiked profit margins for private players on flimsy grounds.
Alleging that complaints of cross-ownership of retail and wholesale licensees were disregarded by the government, the CAG report highlights several questionable provisions in the now-scrapped policy that previously came under the lens of the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI).
The investigations by the agencies had resulted in the arrests of former Delhi chief minister Arvind Kejriwal, former deputy CM Manish Sisodia and AAP Rajya Sabha MP Sanjay Singh among others. All three leaders are currently out on bail.
Joint ventures
The policy mandated that only those entities with wholesale distribution experience in the liquor trade for at least five years, and minimum annual turnover of Rs 150 crore for preceding three consecutive financial years, were eligible to be considered for wholesale licenses.
However, the AAP government, the CAG report says, slipped in a clause on allowing joint ventures (JVs) too, stating that at least one of the partner firms should individually have the required experience and turnover.
The CAG found that at least two of the wholesalers entered into a JV where the entity with requisite liquor distribution experience and turnover had an “insignificant stake in the partnership i.e. ranging from one per cent to five per cent”.
It implies that the majority stakeholder in the JV could have had zero experience and yet enter the wholesale liquor trade. “This indicated that the entity, which fulfilled the eligibility criteria, was taken aboard as a matter of formality to make the JV eligible for the license,” noted the CAG.
Moreover, no details relating to the background, financial status and experience of the majority partner or managing partner were found in the records made available to audit, the CAG added. “In one of the above cases, JV partnership agreement explicitly states the ‘payment of royalty of Rs 25,000 to the partner with requisite experience and turnover, in order to make the first party eligible to apply for license’,” the CAG added.
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Profit margin hike
The CAG also referred to the decision to hike the profit margin for distributors from 5 percent to 12 percent in the 2021-22 excise policy, a change which was flagged by the ED as a means to generate “kickbacks for the AAP”.
A group of ministers headed by Sisodia had justified the hike saying it was necessary to compensate for the higher license fee to meet global distribution standards through quality checking systems under which every wholesale licensee had to set up a government approved laboratory at their warehouses to randomly check the presence of substandard or spurious liquor.
It was also supposed to cover the cost of local transportation.
The CAG rejected the justifications. “The change in distribution standard which was likely to incur higher cost was never explained by GoM. The local transportation charge was not enough to justify the substantial increase in distributor margin. Further, the quality checking labs which were to be set up, with apparently high cost incidence, were not put in place and operationalized,” it said.
On relatedness between retailers
The auditor found that the scope of criteria for determining relatedness between retailers (zonal licensee) and wholesalers was diluted in the new policy. The policies that predated the 2021-22 one required applicants to establish that they were not related to any other entity not just directly but also through partners, agents or family members.
“Such dilution in the conditions of the Policy resulted in grant of licenses to entities in which same persons were having common interest,” the CAG said, pointing out many such connections, including one between Indospirit, a wholesale licensee, and Khao Gali Restaurants, a zonal licensee.
“Khao Gali Restaurants is an associate company ofM/s Indospirit Distribution Limited which has 35 per cent stake in M/sIndopsirit (wholesale licensee). Further, the director of Khao Gali was a director of an associated company of Indospirit Distribution Ltd,” according to the CAG report.
Wholesale licensee Mahadev Liquor was linked to the zonal license Bhagwati Transformer Corp, holding two zones, through Common Past Partnership in 2021 and family relations. In the case of the wholesaler, Gautam Wines, it was found that family shareholding connected it to the Liquor manufacturers, Oasis Distilleries Pvt. Ltd. and Vijeta Beverages Pvt. Ltd, said the CAG report.
“The zonal licensee- Popular Spirits LLP was related to a manufacturerBuddy (Punjab) Bottlers Pvt. Ltd. through Common Partner/Director in2021. Buddy (T1D) Retail Pvt. Ltd., the zonal licensee for Airport zone,was related to the manufacturer- Buddy (Punjab) Bottlers Pvt. Ltd.through Common Directorship in 2021,” it added.
The policy was designed in such a manner that the wholesale distribution of liquor was largely controlled (71.70 percent) by three entities—Indospirit, Brindco and Mahadev Liquor, underlined the CAG.
The auditor attributed the bulk of the losses—Rs 1,831 crore of Rs 2,002.68 crore—to two reasons: abrupt surrender of licenses and exemptions to retailers who could not set up vends due to municipal law prohibitions.
“The policy did not prescribe any baseline for financials (except for net worth), which resulted in financially weak entities being awarded zonal licenses. Ultimately majority of the zonal license surrendered their licenses before the termination of the Excise Policy, and no retendering was done in any instance”, resulting in a revenue loss of approximately Rs 890 crore, stated the CAG.
Of the 22 successful retail bidders, only 10 had reported an income of more than Rs 1 lakh in any of the three previous financial years, the CAG found. As many as nine entities had reported zero income and/or losses in two of the three years.
“Five entities reporting almost zero income, losses and zero to negligible taxes, were awarded 10 retail zones, two zones each. This indicated that the concomitant financial conditions of the bidders were not considered as red flags while issuing licenses,” according to the CAG.
Moreover, despite being aware that vends were required to be opened in non-conforming municipal wards in order to achieve the objective of equitable distribution, the department did not take timely action to work out modalities.
“It also resulted in loss of revenue of approximately Rs 941 crore due to exemptions which had to be given to the zonal licensees,” the auditor pointed out.
(Edited by Gitanjali Das)
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