Excise policies face CAG scrutiny in report

The audit covers three years under the old excise policy and one under the now-scrapped 2021-22 iteration of the excise policy.

The Comptroller and Auditor General’s (CAG) audit report on Delhi’s liquor policy between 2017 and 2022 flagged multiple violations in quality control, licensing, pricing, and systemic enforcement failures within the system, according to officials familiar with the findings of the agency.

(The losses to the government, the report said, totalled to around ₹2,002.7 crore.)

The audit covers three years under the old excise policy and one under the now-scrapped 2021-22 iteration of the excise policy and highlights notional financial losses to the exchequer exceeding ₹2,000 crore.

To be sure, the report, titled “Performance Audit on Regulation and Supply of Liquor in Delhi,” was submitted in March 2024. However,despite court intervention, it was not tabled in the Delhi assembly along with 13 other CAG reports prepared between 2017 and 2024.

People familiar with the findings say the report pointed to a string of major lapses in quality control, gaps in tracking liquor bottles through barcodes, violations in awarding licenses, and non-transparent pricing mechanisms. Originally, the audit was meant to cover the 2017-18 to 2020-21 period, but was extended to September 2022 due to substantial changes in the excise policy from November 2021.

The AAP did not respond to HT’s request for a comment on the report.

Old Excise Policy

Quality control: A critical concern raised in the audit report, according to the people cited above, was regarding quality norms. It found that many instances of “unreliable” testing certificates being accepted and test reports from quality compliance were issued from unaccredited labs.

The audit found that between 2017 and 2020, 12 wholesale, or L1, licensees submitted 173 test certificates from 15 labs, of which three were not accredited by National Accreditation Board for Testing and Calibration Laboratories (NABL), two were not accredited for alcoholic beverages, and two lacked accreditations for biological tests.

Most of these labs were linked to the manufacturers themselves, the report found.

In 2020-21, the CAG found that 12 L1 licensees did not submit any quality certificates, yet they were granted licenses without objections, the people said.

Furthermore, out of 2,323 required tests, only 37% were conducted, and just 52% adhered to BIS standards.

Shockingly, 96% of required water quality reports were missing, and essential microbiological tests were absent in 98.4% of wine brands. Beer brands also failed to submit mandatory microbiological tests in 25 out of 31 cases. Testing for methyl alcohol — critical to preventing alcohol poisoning — was found to be either missing or conducted without specifying detection limits.

In some cases, CAG found that reports submitted were identical and only altered to change the report sequence number.

Barcode failures: In 2013, Delhi introduced a barcode-enabled system to track liquor bottles from manufacturers to retailers. However, the CAG found that a significant portion of liquor was sold without scanning through the Excise Supply Chain Information Management System (ESCIMS). Between April 2017 and November 2021, an average of 28.3% of liquor bottles —amounting to 1,365 million bottles — were sold without scanning, undermining the purpose of the system, it said. The proportion of non-scanned bottles varied from 14.48% to 48.41% per quarter, with the highest gaps occurring in the second and third quarters, it found.

This lack of scanning compromised sales data accuracy, resulted in excise duty losses, and increased the risk of liquor diversion to unauthorised channels. Certain liquor brands and vends recorded abnormally high non-scanning rates, raising concerns over potential brand pushing by private vendors.

Licensing irregularities: A key concern raised in the audit, according to the officials, are the largescale irregularities in licensing. According to the Rule 35 of Delhi Excise Rules (2010) no person can be granted more than one wholesale license, nor can license for retail sale be granted to one holding wholesale license.

However, the people cited above said that CAG found instances where multiple licenses were granted to related parties with common directors. The excise department also issued licenses without verifying crucial documents such as criminal antecedents, solvency status, and surety bonds, relying solely on affidavits.

Enforcement and confiscation failures: The audit also pointed to structural weaknesses in the enforcement mechanism, particularly in the Excise Intelligence Bureau (EIB) and confiscation branches. A lack of coordination between these departments resulted in poor record-keeping, with confiscation memos and FIRs often missing crucial details such as smuggled liquor brand names. The report found that country liquor — accounting for 65% of illicit liquor seizures in Delhi — suffered from artificial demand-supply gaps that encouraged smuggling.

It noted that the demand for country liquor had never been realistically assessed. The government capped its supply at 30 million bulk litres per annum (with a 25% variation), while data showed that 180ml bottles, popularly called “quarters”, were the most seized bottle size.

“There should be an actual demand assessment based, number vends, geographical distribution and study on impact of country liquor on duty,” the official cited the report.

It also identified illicit liquor smuggling hotspots, including Sultanpuri, Narela, Dabri, Ranhola, Mangolpuri, Aman Vihar, Alipur, Sangam Vihar, Khyala, and Mundka. It found a glaring disconnect between Delhi Police and EIB, with the former filing significantly more FIRs than the latter’s reported cases. For instance, Sultanpuri Police Station registered 387 illicit liquor FIRs, while EIB contributed only 27 cases from the same area.

New Excise Policy (2021-22)

Revenue losses: Introduced to increase revenue, ensure transparency, curb monopoly, and improve consumer experience, the new Delhi Excise Policy 2021-22 was scrapped following corruption allegations. The audit report found severe flaws in its implementation, leading to revenue losses of over ₹2,000 crore.

Of this, around ₹941 crore was lost due to exemptions and relaxed rules for zonal licensees, who were supposed to open vends in non-conforming areas but failed to do so. There was revenue loss to the government of around ₹890 crore as it did not retender the retail licenses that were surrendered before the old policy expired.

Another ₹144 crore worth of losses were pointed out due to the waiver of license fees granted to the zonal licensees due to the restrictions imposed during the Covid-19 pandemic. The report mentions that the waivers were not required since the sale figures during the Covid restriction period did not show much decline compare to the pre-Covid period. Additionally, another ₹27 crore in losses were calculated by CAG due to incorrect collection of security deposit from zonal licenses.

These losses to the government, the report said, totalled to around ₹2,002.7 crore.

Design flaws, monopoly risks: The report also flagged major differences between the expert committee’s recommendations and the final policy changes made by a Group of Ministers (GoM). The expert panel had proposed a government-owned state beverage corporation for wholesale liquor operations. However, the GoM opted for private wholesalers, arguing that setting up a government entity would take time.

Another significant flaw was the mandatory exclusive arrangement between manufacturers and wholesalers. This resulted in monopolies where single wholesalers controlled all brands of a particular manufacturer. While 367 Indian-made foreign liquor (IMFL) brands were registered in Delhi, only a handful dominated sales. The top 10 brands accounted for 46.46% of total liquor sales, while the top 25 brands made up 69.5%. The report found that three wholesalers exclusively supplied 19 of the top 25 brands in Delhi, leading to cartelization risks.

Pricing, duty losses: The new policy shifted from a per-bottle excise duty model to a one-time license fee. The CAG report, the people cited above said, noted that delinking excise duty from actual liquor sales resulted in significant revenue losses.

Unmet policy goals: Despite its objectives, the new excise policy failed to address major concerns. Key planned measures—such as setting up liquor testing laboratories, ensuring batch testing for quality control, and creating a dedicated regulatory post—were never implemented. Additionally, inadequate scrutiny of business entities resulted in related businesses holding licenses across the liquor supply chain, allowing brand pushing and cartel formation.

The findings have intensified scrutiny over the excise department’s functioning, further complicating the political landscape surrounding liquor policy in Delhi.