A Tipsy Liquor Policy

H B Soumya

"And when I'm dead, don’t bury me at all,

Just pickle my bones in alcohol,

An amphora of wine at my head and feet,

And then I'm sure my bones will keep"

These lines are from Goscinny and Uderzo's Asterix and Caesar's Gift. Tremensdelirious sings these lines on being served with the alcohol of his choice. But what about Delhi? Are all concerned parties happy with the government's excise policy?

Licensing procedure

The Delhi government issues manufacturers an L-1/L-1A license every year on the fulfillment of some criteria. An L-1 is issued to an Indian made Foreign Liquor (IMFL), which is given an approval certificate on meeting a minimum sales figure target, which applies to all of India except Delhi. It is also required to undergo quality checks. An L-1A license is issued to country liquor manufacturers who have to undergo quality checks that are carried out by the government laboratories. IMFL brands are sold by government retail outlets, which have L-2 licenses, like the Delhi Tourism and Transport Development Corporation (DTTDC), the Delhi State Industrial Development Corporation (DSIDC), the Delhi State Civil Supply Corporation (DSCSC), and the DCCWS (expansion unknown) which run various outlets. While country liquor is sold in Government shops that are issued L-10 licenses sell. These shops also sell cheap IMFL, priced below Rs. 90.

The L-1 licences are given to a company, society, or manufacturing firm: partnership or proprietorship firm provided the applicant owns a distillery. The applications for this are invited through advertisements in leading newspapers. The prime job of L-1 license holders is to supply liquor to other license holders.

A number of certificates need to be submitted along with an L-1 license application. These are listed below:

• Solvency certificate from SMD
• Income tax clearance certificate
• No dues certificate from collector (excise)
• No dues certificate from sales tax officer
• Declaration of distillery on affidavit regarding sale and minimum ex-distillery prices and distance of distillery from Delhi
• CA certificate for sale and minimum ex-distillery prices
• Certificate from Excise authority regarding sale figures
• Registered partnership deed/memorandum and article of association
• Duly audited annual account and balance sheet of distillery
• Attested copy of the license for establishment of distillery/winery/bottling unit/brewery
• Power of attorney
• Attested photocopies of export passes/EVCs verifying the sale figures of the whisky and rum brand for which distillery has applied
• Trade Mark Certificate (TMC)
• Usership agreement under Trade & merchandise Marks Act, 1958
• Certificate from a government authorised laboratory or other reputed private institution regarding quality of brand.
• An affidavit stating that there is nothing adverse or against the applicant in view of the provision of rule 7 of Delhi Intoxicants license and sale rule, 1976
• Documentary evidence to prove that the alcohol is manufactured from natural alcohol (double distilled) Extra natural alcohol

The IMFL or the beer brand proposed to be sold by the applicant of the L-1 license should be owned by the distillery and in respect of the IMFL brands, excluding wine, the applicant should be in possession of trade mark certificate in respect to these brands. However if the brand has been sold in Delhi before 1993-94 the TMC is not required. For the approval of rum and whiskey brands, the brand must have sold a minimum quantity in the all India market excluding Delhi as indicated in the terms and conditions.

Once the license is approved, the applicant has to submit the following:

• Registration of brands
• Approval of bonded warehouse
• Approval of label
• Fixation of ex-distillery prices

Distilleries and breweries also have a bone of contention with the liquor policy of the government. According to the Constitution of India, under Article 47, it is the

"Duty of the state to raise the level of nutrition and the standard of living and to improve public health--the state shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and in particular, the state shall endeavour to bring about prohibition of the consumption except for medical purposes of intoxicating drinks and drugs which are injurious to health."

However experience of prohibition in other countries has shown that the prohibition would be counter productive. Therefore, the Delhi government grants a privilege to the distilleries with regulations, without granting any right to trade in liquor.

L-2 licenses are given to only select undertakings of the Delhi government namely DTTDC, DSIDC, DSCSC, and DCCWS. The proposal for opening a vend has to come from these corporations. Individuals wanting to rent out their premises for such a vend have to approach these institutions, which after looking at the suitability of the premises approach the relevant offices for the grant of the license. The premise is required meet the following specifications:

• The premise should be a pucca building with a minimum floor area of 400 sqft and located in a commercial area
• The area MLA should give his positive opinion on the matter.
• The Collector of excise, the DEO, and the representative of the corporations and the area SMD have to inspect the premises.
• The shop shall not be within 75m of the following

- Major educational institution

- Religious place

- Hospitals and nursing homes with more than twenty five beds

- Colonies of labourers and harijans

The permission of the area's MLA is a must. If approval is not given, then a retail outlet cannot be opened. For instance, in Vasant Kunj, there is not a single alcohol retail outlet, due to the negative opinion of the MLA of the area.

If all these qualifications are met by the proposed premise, then the license is given and the concerned party is required to deposit an amount of Rs. 60,000 as the license fees. IMFL/beer brands are sold by these vends at rates fixed by the excise commissioner. In the year 1999-2000, there were 224 L-2 license holders.

L-3, L-5 licenses are given to hotels, which are approved by the Department of Tourism and are categorised as Budget hotels. The approval of the department of tourism is necessary for the grant of an L-3 license. This license is for the sale of liquor to its residents.

These hotels can also apply for an L-5 license for serving of liquor in exclusive bars and in the restaurant in the hotel premises. The following need to be submitted with the application of an L-5 license:

• Documentary proof regarding legal status of the hotel
• Whether the hotel is in legal possession of the plot.
• Completion certificate in respect of the hotel building.
• Trade license from the Local authority (MCD/NDMC)
• Lodging house license from the local authority
• Certificate of registration of eating house license issued by the DCP
• Documentary proof regarding applicant being an income tax assessee and sales tax assessee.
• A layout plan of the hotel, site plan of the license outlet and the liquor stores.

The application is to be submitted to the Commissioner of Excise. After scrutiny of the documents, the premises are inspected by the excise officer as under the excise rules, particularly rule 11 of the Delhi Intoxicants License and Sales Rule, 1976. The premises should not be within 75m of any of the institutions as were listed in the case of L-2 licenses.

Once the hotel has been found to be suitable, the views of the public/residents are invited on the proposal giving 7 days time to file objections before the licensing authority. If no objection is received then the authorities proceed with the approval for grant of license. An L-5 license is given only with an L-3 license and the same requirements apply to an L-5 license. The total number of L-3/L-5 licenses given in 1999-2000 was 42.

An L-4 license is given to an independent restaurant approved by the Department of Tourism. Applications are submitted to the Commissioner of excise with the relevant documents. The restaurant should be located in a commercial area with adequate parking space. The requirements of rule 11 of Delhi Intoxicants License & Sales Rules 1976 have to be met by the restaurant. The requirements and procedure are the same as in the case of L-3 and L-5 licenses. The total number of L-4 licenses given in 1999-2000 was 81.

L-19 licenses are given for the service of liquor in a club registered under the Societies Act 1860.The applicant is required to submit on the letterhead of the club an application along with the following documents:

• Registration certificate in respect of the club
• Documentary proof in support of legal possession of the plot of the club.
• No objection certificate from the area DCP
• List of members of the club
• List of office bearers of the club
• Registration passed by the management Committee to start the bar facility in the club and also to meet the liability thereof.

Rest of the procedure with regard to the grant of license is the same as indicated in respect of L-3/L-5 license.

Liquor, being an excisable article, can not be stored beyond a certain limit. A consumer is allowed to store a maximum of 20 litres. For higher possession, an application to the department and the payment of Rs. 2000 would get the applicant an L-49 license. The applicant has to be an income tax assessee to be eligible for the permit. The total number of L-49 licenses given in 1999-2000 was 258.

Status of alcohol industry in India

The alcohol industry is very important for the government. It generates an estimated Rs. 16,000 crore per annum in spite of the fact that the per capita consumption of liquor in India is the lowest in the world. The total liquor industry is worth Rs. 2,000 crore. IMFL accounts for only a third of the total liquor consumption in India. Most IMFLs are cheap and are priced below Rs. 200 per bottle. Alcohol sales proceeds account for 45%of the total revenue collection in the country. Whiskey accounts for 60% of the liquor sales while rum; brandy and vodka account for 17%, 18% and 6% respectively. MNC's share is only 10% and they have been successful only in the premium and super premium ranges.

Post WTO the government may have opened India to foreign distilleries, but the duty has been increased from 222% to 464-706%. This is due to the fact that there is a 100% customs duty, 150% contravening duty, local taxes, distributor's margin, retailer's margin and publicity charges. The cost is finally borne by the consumer. Though the government claims that this is being done to protect the domestic liquor industry, the domestic industry accounts for 99% of the market share. This protectionist policy could prove to be counterproductive and lead to smuggling. As of now, only 45% of the sales are through legal channels and only 25% of this is duty paid for.

Within India itself, the policy of alcohol retail differs from state to state. While some states like Maharashtra, Uttar Pradesh, and Tamil Nadu have a liberal policy, some states like Haryana and Andhra Pradesh have had very bitter experiences in trying to make these states dry and have eventually had to withdraw the policy.

Method of ordering

The L-2 licensed authorities on the basis of the price of the alcohol place the orders for IMFL. For liquor priced below Rs. 90, the order is equally distributed among all those manufacturers who have been licensed in this category. For the alcohol priced between Rs. 91 and Rs. 205, the order is distributed among the L-1 holders in this category depending on the production capacity of the brewery. For the premium brands (above Rs. 205) the orders are placed by the individual vends themselves. Any stock of liquor lying unsold in a branch of an outlet is transferred to another shop of the same chain. When stocks pile up, a committee is appointed to look into the disposal of the stock of liquor. On a visit to a shop run by the DSIDC in Saket on July 1, 2001, about 15 whiskey, 14 rum brands and 15 beer brands in the under Rs. 90 category, and about 30 brands of alcohol (whiskey, gin, vodka, rum) in the Rs. 91- Rs. 205 category were displayed on their board of products with their prices. However, there was no beer available in this shop and only about 5 rum brands were stocked in the shop.

The sales figures of alcohol over the various years for entire Delhi is given below:

Source: delhigovt.nic.in website

(The sale of liquor did not have any units)

The revenue growth of the excise department is tabulated below:

Source: delhigovt.nic.in website

In 1996-97, till October, the total revenue collected by the Delhi government was Rs. 1429 crore. The excise contribution was Rs. 347.87 crore (24.34%). The cost of collection incurred by the department was 0.4 crore (2% of the revenue). (All these figures are according to the report on the delhigovt.nic.in website.)

As can be seen from the sales figures, there is a lot of fluctuation in the quantities sold every year. When asked about this, the relevant authorities refused to comment.

Area of objection

The Delhi government is the sole buyer and seller of alcohol in Delhi. There was Rs. 4 crore worth of liquor of inferior quality lying in the government retail outlets, according to a report in the Times of India dated May 29, 2001. What is meant by inferior quality liquor is something no one knows. On asking, the concerned officials in the DTTDC head office in Lakshmi Nagar said that the liquor was just unsold stock.

The government's excise policy is subject to a lot of sudden changes. The manufacturers sometimes just need to get their L-1 licenses renewed and at times they need to apply afresh, like in the year 2001. In 1993, the L-1 license holders were allowed to set up 5 'dedicated' shops in Delhi in which they could sell their approved brands in addition to having them sold in the government retail shops. The policy was withdrawn in an ad-hoc manner in 1994. On being questioned about the effects of this policy, an official in one of the country's leading breweries said that the introduction of this policy had led to an increase in their revenue by almost 30% which they have lost out on since the policy got crushed. Recently, the government's policy to open up 45 private liquor shops was quashed by the cabinet, because it meant that the MLA's power in the issue of a no-objection certificate for the setting up of a retail outlet would be questioned. Had this policy been implemented, the government would have earned Rs. 7.5 lakhs on each vend as license fees annually.

So, are all the concerned parties satisfied? Apparently not. Customers often complain that they buy the alcohol that is made available to them and that the brand of their choice is difficult to get. Sometimes the scarcity is real, at other times it may be a case of "brand pushing". (The market rate for brand pushing starts at Rs. 30 per case.) Brand pushing depends on which company is willing to pay more commission to the man who is at the outlet of the government liquor vend. For example, a cheap whiskey may carry a commission of Rs. 30 per case while a premium brand may carry Rs. 60 per case. Though some officials of certain firms admitted to the practice of brand pushing, the DSIDC officials vehemently denied this practice.) Lines are long, stocks inadequate, and the service leaves a lot to be desired. More vends; particularly private ones would be welcome by the customers. The manufacturers would definitely welcome a change in the excise policy, not just in terms of licensing but also in terms of retail. It would mean a cleaner and clearer system and would eliminate the monopolistic and monopsonistic power of the government (the cost of which in 2001 was Rs. 4 crore of unsold liquor lying in government retail outlets) by bringing in efficiency through competition. The government would definitely not be worse off with the introduction of private stores. In fact, more revenue, in the form of license fees as well as in the form of taxes that would accrue to the government from these vends. The net alcohol consumption would also not increase. There would be just a change in the buying pattern of the people. Instead of stocking liquor as people do now, the same alcohol would be bought over a period of time in smaller amounts. Studies conducted by the Fraser Institute of Canada in Alberta, a place where alcohol is sold privately, have shown that privatization of liquor retail has not lead to an increase in consumption or any increase in crime.

The only party that would be worse off would be the people who have made this policy--namely the people who are benefiting from the current policy. Whatever benefits they are accruing now would decrease, perhaps even be eliminated. But it would mean a big step towards consumer satisfaction. In any case, don’t we all believe in the greatest good of the greatest number?

Sources

• Excise link on the Delhi government website located at delhigovt.nic.in
• Ajay Jain, Accounts officer, DTTDC
• Shivani Singh, Staff reporter, Times of India
• R P Singh, Area manager, United Breweries
• Shivani Singh, "Saathi's Plan to Privatise Liquor Vends Scrapped", Times of India, May 29, 2001