July 20: In what may appear to be illegal or high handed depending upon which side of the table you are on, the Delhi Excise Policy of the current fiscal year increased the annual license fee from Rs. 500,000 to Rs.600,00 from the date of issue but continued with the old policy for 3 months, each time letting the importers carry on the business for a month by paying the license fee on a proportionate basis, thus charging them an extra Rs. 125,000 for Apr-Jul for inaction of the Delhi government.
Annual license fee for getting the excise license to sell imported wine has been Rs. 500,000 for a year or part thereof. This means that whether one applies for a license in April or December, the excise department must get their full ton of flesh-Rs. 500,000. It would have been logical for a wine lover to see it come down to Rs. 200,000 as it was a few years ago. But the government’s logic being -what goes up must go higher, the license fee was increased to Rs. 600,000 even if you imported wines only and no spirits.
But the Delhi government had been indecisive for several reasons- one of them being to defend itself against the pointed fingers about its role in the Commonwealth Games fraught with fraud and a lot of controversies. The policy which is usually extended for 15-30 days every year, disrupting the business of purchase and sale of wine, was extended for 3 (three!) months this year- in 2-3 tranches, creating a lot of uncertainty and delay in purchases because there was a buzz in the air that the excise duties were being rationalized and reduced.
Then the policy was announced in Mid June-to be effective from July 1. During the intermittent period, the government was benevolent enough to allow the business to carry on by depositing the previous annual charges in a proportionate manner. Thus in 3 months, the importers were asked to part with Rs. 125,000 each in order to sell their products-wine and spirits.
This apparently is quite illogical and illegal. If the department did not act without any reason, it could still collect Rs.125,000 from each importer in the next 3 months. However, a case could be made out that by allowing the products out at the old rates of lower vend fees, there might have been a net loss to the exchequer of millions of rupees. In fact, it may not be surprising to see CAG make adverse remarks at the end of the year that the government lost Rs. 75 million (based on estimated collection of Rs.2.7 billion as excise duty for the whole year for wine and spirits and an average increase of 12% duty on wines and spirits.)
Not talking of the inefficiency/high-handedness/inaction, an outsider would find it difficult to comprehend why the importer is made to pay for 15 months for a business of max of 12 months. Unfortunately, the importers’ lot is fragmented and servile, unable to band together and seek legal remedy. The amount involved may not be a lot but it is factors like this that have cumulatively made the loading of import CIF price on wine from the initial 40-50% to 80-120% with every importer still losing money and helping to make the final price even more expensive.
Export Verification Certificate (EVC)
Another non-tariff barrier that seems to have worked well for the propagators of sec 47 of the Constitution through roadblocks and landmines is the EVC. Every time a shipment has to be sent out of Delhi, an Export Pass is to be made and sent along with the shipment along with other relevant documents. The copy of the pass has to be collected back after getting the signature of the buyer. About 3 years ago, the importers were asked to get the original copy signed by the excise department of the buyer’s circle. It means that if the shipment went to Jammu or Jalandhar, the hotel was expected to get it signed by the excise officer. This procedure was never followed strictly since the excise departments of the buyer were never informed about the procedure.
A few months ago when the export shipments were threatened to be stopped unless the duly stamped EVCs were received back and submitted, the excise department discovered that the counterparts had not been informed about the procedure. Duly informed , the licensees were asked to collect the receipts from the excise offices for the previous couple of months (April, May). During the interim, no material could reportedly be shipped out till last Friday when the Commissioner was kind enough to extend the date to July 31 on the condition that all the pending EVCs will be collected. The importers are now busy collecting the stamped receipts for the previous shipments from across the country, lest their business comes to a grinding halt.
The excise department has a valid reason to be strict. There is a significant amount of leakage between Delhi to Gurgaon and to some extent to Chandigarh and Punjab because of the nil-to-negligible excise duties payable in those regions. The reason is to be found in the primary course of Economics in school text books. The difference between the excise duties is so much (for instance Champagne and equivalent premium wines have a difference of Rs.1000 and above) that the temptations to ‘sell’ in Gurgaon are plenty. Unfortunately, the excise department just follows the policy announced by the government and the government has over-spent so much in the Commonwealth Games that no one can point accusing fingers at them wanting to fill the leaky cylinder drop by drop.
Will the new EVC initiative help solve the leakage? It is anyone’s guess. But it is a safe bet that the cost of bringing the signed documents back or adding a couple of recipients in the chain of beneficiaries will soon increase the importer’s loading by another 5-10% without necessarily helping them reduce their losses, but putting another dent in the already choked wine industry.
Subhash Arora
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