In India, liquor falls under List II or the State List in the Seventh Schedule to the Constitution of India. In other words,anything pertaining to production, manufacture, transport, sale or purchase of liquor falls under purview of state administration. The control and regulation exercised by the states on liquor production and supply makes an interesting case for improving the ease of doing business in the liquor industry. The liquor industry in India has been broadly divided into two distinct segmentsi.e. the Indian made foreign liquor (IMFL) and country liquor commonly known as hooch. For the purpose of this piece, only IMFL segment has been considered. The entire production and supply chain in the IMFL industry including distilleries, warehouses, distributors and retailers falls under the jurisdiction of an excise official.
Let us take an example to understand how an order is processed during an interstate trade of IMFL. Consider a wholesaler in Karnataka (KA) wants to buy stocks of 500 cases from a distillery based in Maharashtra (MH). The wholesaler approaches the excise superintendent under whose jurisdiction he falls, with an application and challan of the already paid import (permit) fee of KA for bringing those 500 cases to the state. The excise superintendent issues a permit after scrutinizing the submitted documents, post thatthe wholesaler sends the original copy of the permit to the distillery in MH via courier. Simultaneously, the excise superintendent has to send a duplicate copy of the permit to the excise official “guarding” the distillery in MH.
While the original copy of the permit may reach MH in a day or two, the duplicate copy may take few more days. Once the original permit is received, the distillery can start producing the 500 cases, bottle them, put the required labels and get the shipment ready. It can plan to supply but not actually do so, until the duplicate copy has reached the excise official at the distillery. Once the duplicate copy reaches the MH excise official, both copies are verified and upon complete tallying he allows for an executable permit which means the order is now officially ready to be shipped (dispatched) from MH to KA. This means that the goods can be moved from the excise-bonded warehouse and loaded in the truck, again under excise supervision. The truck leaves from MH with the order and the necessary excise documents.
There is a stipulated time within which the next leg of the trade needs to be completed. This time period is decided by the states independently and varies from one state to another. Generally, the window is around fifteen days. Now, the truck carrying the goods from MH has to reach KA, the excise official at KA has to acknowledge the receipt of the 500 cases, verify the quantity and authorize the Excise Verification Certificate (EVC). EVC validates that the wholesaler in KA has received the goods under excise supervision that were earlier supplied from the distillery in MH. The wholesaler then sends the EVC back to the distillery in MH through the company salesperson to ensure that it reaches on time. All this has to be completed within the specified time period.
In case the EVC does not reach the MH distillery in fifteendays’ time, the excise official in MH will assume that even though the goods were meant for KA, they did not reach KA. It is further assumed thatthe consignment has been dropped off in MH without paying the excise duty of MH as there hasn’t been any acknowledgement from KA. At the onset of the sixteenth day, the excise official charges the wholesaler in KA the excise duty of MH (which can be as high as 300 per cent of the manufacturing cost) and the money is deducted from the wholesaler’s bank account. If the EVC reaches MH later in the evening, too bad! By then, the wholesaler’s account has already been debited and getting that amount back from the state excise department is a Catch-22 situation. It costs time, effort and money.
There are certain grounds provided by the government for such heavy regulation at each step. The revenue from excise duty on IMFL is a significant part of the receipts for the state government and the presence of tax arbitrage motivates the states to heavily monitor the movement of IMFL output. This comes at the cost of efficiency and transparency in doing business for the stakeholders in the IMFL industry. Therefore, the Government needs to reexamine the stringent regulations as currently the industry is constrained due to over regulation.Further studies should be conducted to better understand the value chain and come out with conclusive suggestions, which will ease doing business in the IMFL sector.