The Comptroller and Auditor General (CAG) has released a scathing performance audit on the regulation and supply of liquor in Delhi, uncovering significant lapses in the functioning of the Excise Department. The report, which covers the period from 2017-18 to 2020-21, highlights financial irregularities amounting to approximately ₹2,026.91 crores.
Violations in Licensing and Transparency Concerns
One of the most critical findings of the audit was the widespread violation of licensing rules. The Excise Department failed to enforce Rule 35 of the Delhi Excise Rules, 2010, which prohibits entities with common directorship from holding multiple types of licenses. The report noted that licenses were issued without adequate scrutiny, including the verification of solvency, submission of audited financial statements, and criminal background checks. This lapse enabled cross-ownership and potential cartelization in the liquor trade.
Furthermore, the report pointed out a lack of transparency in liquor pricing. Manufacturers and wholesalers (L1 licensees) were given undue discretion to set their Ex-Distillery Price (EDP), leading to price manipulation. The audit found inconsistencies in EDP declarations across states and noted that this practice resulted in revenue losses due to artificially inflated pricing.
The CAG audit also raised serious concerns about the quality control measures employed by the Excise Department. The department failed to ensure that liquor sold in Delhi adhered to Bureau of Indian Standards (BIS) norms. It was found that several test reports on water quality, harmful ingredients, and microbiological tests were either outdated or missing. In some cases, the test certificates were issued by non-accredited laboratories, posing a significant risk to public health.
The report criticized the weak enforcement mechanisms of the Excise Department, stating that its role was largely limited to recording seizures rather than actively curbing illicit liquor trade. Data from the Excise Intelligence Bureau (EIB) indicated that country liquor constituted 65% of total seizures, with certain areas emerging as smuggling hotspots. However, due to poor record-keeping and fragmented data, the department lacked actionable intelligence to prevent these illegal activities effectively.
The enforcement function was further hampered by procedural lapses, including incorrect inspection reports, poorly drafted show cause notices, and the absence of a standardized investigation framework. The lack of a real-time barcode-based tracking system allowed non-duty paid liquor to enter the market, undermining revenue collection and regulatory oversight.
The CAG report also scrutinized the controversial Excise Policy 2021-22, which was later withdrawn. The policy was intended to enhance transparency and prevent monopolies but, paradoxically, led to the formation of cartels. Instead of strengthening state control, wholesale licenses were granted to private entities, reducing competition and increasing the risk of collusion among businesses.
Moreover, procedural lapses in implementing the new policy resulted in revenue losses of approximately ₹2,002 crore. Key issues included the untimely surrender of retail licenses without provisions for retendering, leading to disruptions in supply and loss of government revenue. The government also faced financial setbacks due to waivers granted to zonal licensees and miscalculations in security deposit collections.