Delhi cabinet note details reasons for temporary withdrawal of excise policy

New Delhi: Loss of excise revenue despite the high sale of liquor, retailers and wholesalers exiting the business, discounts leading to “unhealthy market practices”, and shortage of premium brands, were the key reasons cited by the Delhi government in a cabinet note to withdraw the 2021-22 excise policy and restore the old excise regime for now, according to official documents.

The proposal was moved on Sunday night since all liquor-related licences in Delhi were expiring from August 1 and an extension of the excise policy 2021-22 -- which came under fire after the LG referred it to the Central Bureau of Investigation for a probe due to alleged irregularities -- was the only way to prevent the city from going dry.

The government and the LG also approved constituting two committees -- one for formulating a fresh excise policy for Delhi, and another to ensure a smooth transition to government-only shops from September 1 onwards.

In the cabinet note, the finance department, while explaining the proposal to restore the old “excise duty based regime” (prevalent till November 16, 2021) said that, as per the Excise Policy 2021-22, the major component of the excise revenue is in the form of license fee determined through tenders and a major portion of the excise duty and VAT has been subsumed in it.

But it contended that the collections were below budget estimates. “During the Q1 of the current fiscal, Rs1,485 crore was realised which is 37.51% below the budget estimates for current fiscal 2022-23 ( ₹2,375 crore for Q1 [Total BE ₹9,500 crores]),” the Cabinet note dated July 31, 2022 stated.

It also said that numerous court cases were leading to “blockage of significant revenue”. “The amount of revenue not realised on account of various court orders up-to July,2022 is Rs.1062 crores and there is continuing shortfall of Rs. 84.8 crore every month due to relief given by the High Court in non-confirming areas,” the note added.

The note, approved by both the Arvind Kejriwal-led Delhi cabinet and lieutenant governor VK Saxena, also said that nine zonal retail licensees have not availed extension during the extension period from April 2022 and three more zonal retail licensees have conveyed their intent to not avail the extension beyond July 2022. “The revenue decline on account of surrendered zones is estimated to be around ₹193.95 crore per month. It is pertinent to note that while the exchequer is losing significant revenue due to vacation of zones, there has been no decline in the sale of liquor and the slack has only been picked up by the remaining license holders which amounts to windfall gain to them,” the note said.

The cabinet note included comments by deputy chief minister Manish Sisodia, who is also Delhi’s finance and excise minister. Sisodia said that the earlier regime, in which a large number of retail vends were run by government corporations, “had huge leakages”. He added that the new policy was framed because there was unequal distribution of vends which created opportunities for sale of illicit liquor in unserved areas. “It was also felt that it is not the job of the government to sell liquor. Therefore, the government brought the new excise policy. However, there are several parameters which have caused instability in the new excise policy,” Sisodia wrote in the note.

Sisodia, according to the note, directed the excise department “to prepare a new, fresh robust policy on the experience obtained in the implementation of the new excise policy and the earlier regime within six months”. In the meantime, he asked for a switch to the previous regime while ensuring no leakages.

No fresh comments were issued by the Delhi government or the LG office on the matter despite queries.