CAG Report: Excise 'reform' or scam? The Delhi government under former chief minister Arvind Kejriwal suffered cumulative losses of over Rs 2,000 crore due to the now-scrapped 2021-2022 excise policy, according to a Comptroller and Auditor General (CAG) report tabled in the Assembly on Tuesday. The report cited weak policy framework, deficient implementation, and violations in the licensing process as key factors behind the losses.

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The report was presented by Chief Minister Rekha Gupta amid protests from AAP MLAs, leading to their suspension. It is one of 14 reports alleging corruption during the AAP government’s tenure, tabled by the new BJP-led administration after its recent electoral win in Delhi.

The excise policy, aimed at curbing spurious liquor sales and bootlegging, fell short of its goals due to the non-establishment of liquor testing laboratories, lack of batch testing for quality assurance, and failure to appoint dedicated monitoring officials, the CAG stated.

Here are 15 key takeaways from the CAG report against AAP-led government: 

Massive revenue loss: The CAG pegged the total loss at Rs 2,002.68 crore, stemming from multiple factors. Non-opening of retail shops in non-conforming wards led to a loss of Rs 941.53 crore, while failure to re-tender surrendered licenses caused an additional Rs 890 crore shortfall. Fee waivers to zonal licensees, citing COVID-19, resulted in a Rs 144 crore loss, despite objections from the Excise Department. Moreover, Rs 27 crore was lost due to inadequate collection of security deposits from zonal licensees.

License violations: The report flagged non-enforcement of Rule 35 of the Delhi Excise Rules, 2010, which led to licenses being granted to wholesalers with interests in manufacturing and retail sectors. This created common beneficial ownership across the supply chain.

Increased wholesaler margin: The AAP government increased the wholesaler margin from 5 per cent to 12 per cent, claiming it was necessary to fund quality checks through government-approved labs. However, no such labs were established, boosting wholesalers' profits while reducing government revenue.

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Lax screening and financial checks: Retail licenses were issued without verifying solvency, financial statements, or criminal records. Despite the requirement of an initial investment of over Rs 100 crore to operate a liquor zone, no financial eligibility criteria were set. This enabled financially weak entities to obtain licenses, raising concerns of proxy ownership and political favouritism.

Ignored expert recommendations: The report noted that the AAP government disregarded recommendations from its own expert committee while drafting the 2021-2022 excise policy, without providing any justification.

Monopolies and cartelisation: The new policy allowed a single applicant to operate up to 54 liquor vends, compared to the previous limit of two, facilitating monopolies. Earlier, government corporations operated 377 retail vends, while private entities ran 262. Under the new policy, 32 retail zones with 849 vends were created, but licenses were awarded to only 22 private entities, reducing transparency.

Brand pushing and monopolistic practices: The policy mandated manufacturers to partner with a single wholesaler, allowing a few players to dominate the market. Of 367 registered IMFL brands, 25 accounted for nearly 70 per cent of total liquor sales. Three wholesalers—Indospirit, Mahadev Liquors, and Brindco—controlled over 71 per cent of the supply, holding exclusive rights for 192 brands.

Violation of cabinet procedures: Key exemptions and relaxations impacting revenue were granted without cabinet approval or consultation with the Lieutenant Governor, violating legal procedures.

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Illegal vends in non-conforming areas: The report highlighted that the excise department approved liquor vends in residential and mixed-use areas without mandatory approvals from the MCD or DDA. Inspection teams falsely declared four vends in Zone 23 as being in commercial areas. These vends were later sealed by the MCD in early 2022.

Opaque liquor pricing: L1 licensees were permitted to set their own Ex-Distillery Price (EDP) for premium liquor, leading to price manipulation.

Testing rule violations: The report flagged serious quality control lapses, with the Excise Department issuing licenses despite missing or non-compliant quality test reports. In 51 per cent of foreign liquor test cases, reports were either outdated, absent, or undated. Some test reports came from labs not accredited by the National Accreditation Board for Testing and Calibration Laboratories (NABL), violating FSSAI guidelines. There were also no reports on harmful substances such as heavy metals and methyl alcohol.

Weak enforcement and smuggling: The Excise Intelligence Bureau (EIB) failed to curb smuggling, especially of country liquor, which constituted 65 per cent of the seized stock. FIR analysis revealed repeated smuggling patterns in specific areas, but no preventive action was taken.

Poor data management: The Excise Department maintained fragmented records, making it difficult to track revenue losses and smuggling patterns. Restrictions on supply, limited brand options, and bottle size constraints fuelled the illegal country liquor trade.

Lack of action against violators: The AAP government did not penalise licensees violating excise laws. Excise raids were inconsistent, while poorly drafted show-cause notices and inaccurate inspection reports undermined enforcement efforts.

Abandoned security label project: The Excise Adhesive Label project, aimed at ensuring authenticity and preventing tampering, was never implemented. Instead, the government relied on outdated tracking methods, ignoring modern data analytics and AI-based fraud detection.