INTRODUCTION

ALCOHOL IN INDIA

India is the fastest growing alcohol market in the world. The alcohol consumption in India is about 6,700 million litres. It grows approximately at a rate of 30% annually. It is expected to cross 19,000 million litres by 2015. Whisky is the most preferred alcoholic beverage.

The legal drinking age in India and the laws which regulate the sale and consumption of alcohol vary significantly from state to state.Whisky is the most preferred alcoholic beverage, comprising 80% of the 6,700 million litres of liquor sold through authorised liquor shops annually. The Indian whiskey market which currently stands around 40,500 crore is expected to cross 54,000 crore (US$11.88 billion) by 2013.

Beer made from malt is popular among the youth and its consumption is expected to reach 2.4 billion litres by 2012. The market comprising beer, wine and spirits would cross 140,000 crore (US$30.8 billion), selling 19,000 million litres, in 2015 from the current 50,700 crore (US$11.15 billion) market.

India produces almost 70% of alcohol and accounts for 10% of the imports in southeast Asia, counterfeit bottles form 15-20% of the total outtake.

According to Government statistics 21% of adult Indian men and 2% of women drink. About 60 million Indians are alcoholics.

Kerala is the largest consumer of alcohol in India, followed by Punjab. Kerala alone accounts for 16% and Punjab accounts for 14% of all the liquor consumed in India. Andhra Pradesh, Haryana, Himachal Pradesh, Karnataka, Rajasthan, Tamil Nadu and West Bengal are leading liquor consuming states in that order accounting for 40% of all the liquor consumed in India. The union territories of Chandigarh and Pondicherry account for almost 6% of all the liquor consumed across India.

LIQOUR TRADE IN KERALA AND TAMILNADU

Both the states have a separate public sector company fully owned by the respective governments. These company have a monopoly over wholesale and retail vending of alcohol in the states. It controls the retail sale of Indian Made Foreign Liquor and beer trade in the state.

KERALA - Kerala State Beverages (M&M) Corporation LtdTAMILNADU - Tamil Nadu State Marketing CorporationThe reorganisation of retail alcohol trade in the states has brought record revenues for the governments allowing them to increase spending on welfare schemes. The revenue from alcohol sales constitutes nearly half of the states annual tax revenues. Tamil Nadu ranks first among the states of India in alcohol sales by volume. While consumption of alcohol has increased among the population, deaths due to consumption of contaminated illicit liquor (common during the prohibition era) have gone down. Kerala is one of the highest per capita consumption of alcohol in India, alcohol related problems are on the rise with even the President expressing deep concern about the rising alcoholism in Kerala.

The monopoly trade has led to widespread irregularities like adulteration, corruption, overpricing and black marketing in the retail outlets.

Alcohol as a major source of Indirect tax revenue has always been the centre- point of the policy makers thinking and little pain and consideration were given to look on to the social aspect and economic consequences. Alcohol policies especially those relating to production, consumption and taxation have varied widely across the states. Alcohol policy and legislation in India is based on political compulsions rather than interests of public health. Part of the reason is that there has been little attempt to examine the economic and social burden generated by misuse to provide a sound guide for policy makers.Article 47 of the directive principles of state policy described in the Indian constitution says: the state shall regard the raising of the level of nutrition and standard of living of its people as among its primary duties and in particular, the state shall endeavour to bring about prohibition of the use except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health.

This study is done to check whether the states, Kerala and TamilNadu, uphold the constitutional promise. The study also focuses to trace the sales and revenue trend of liquor market in the states. Apart from that, the growing necessity of the revenue raised from the liquor market for the respective state governments exchequer is also explained.

OBJECTIVES

The objectives of our study are focused to bring the comparison between liquor policies of Kerala and TamilNadu, two states in India, where there is a large consumption of alcohol.

To compare the liquor license and policies of the states. To compare and study the sales, revenue and pricing of liquor in the states. To give suggestions and recommendations based on the study. CHAPTER: 3

METHODOLOGYRESEARCH METHODOLOGY

(A) EXPERIMENTAL PROCEDURES

The research methodology is discussed under the following headings.

1. Selection of area

The areas selected to conduct the research were five star hotels in Trivandrum and Chennai, two capitals of the states. The reasons for choosing Trivandrum and Chennai are that they helped in saving more time and were more accessible. This ensured the smooth flow of the research work.2. Selection of subject

The subject chosen for the research is A comparative study of the Liquor license of Kerala and TamilNadu. The above research subject gives an insight into the importance of a better liquor policy to reduce the impact of the signature pattern of hazardous alcohol use in the states.3. Selection of method

Primary - The data was collected after interviewing the guests who were staying in the hotel. This was done with the help of a questionnaire and a verbal interview.

Secondary - The data was collected from Internet, Hotel Journals, periodicals and books.

Both the sources were used in completion of this project.

REVIEW OF

LITERATURE

EVOLUTION OF ALCOHOL USE IN INDIAAlcohol use has been an issue of great ambivalence throughout the rich and long history of the Indian subcontinent. The behaviors and attitudes about alcohol use in India are very complex, contradictory and convoluted because of the many different influences in that history. The evolution of alcohol use patterns in India can be divided into four broad historical periods (time of written records), beginning with the Vedic era (ca. 1500-700 BCE). From 700 BCE to 1100 CE, ("Reinterpretation and Synthesis") is the time of emergence of Buddhism and Jainism, with some new anti-alcohol doctrines, as well as post-Vedic developments in the Hindu traditions and scholarly writing. The writings of the renowned medical practitioners, Charaka and Susruta, added new lines of thought, including arguments for "moderate alcohol use." The Period of Islamic Influence (1100-1800 CE), including the Mughal era from the 1520s to 1800, exhibited a complex interplay of widespread alcohol use, competing with the clear Quranic opposition to alcohol consumption. The fourth period (1800 to the present) includes the deep influence of British colonial rule and the recent half century of Indian independence, beginning in 1947. The contradictions and ambiguities-with widespread alcohol use in some sectors of society, including the high status caste of warriors/rulers (Kshatriyas), versus prohibitions and condemnation of alcohol use, especially for the Brahmin (scholar-priest) caste, have produced alcohol use patterns that include frequent high-risk, heavy and hazardous drinking. The recent increases in alcohol consumption in many sectors of the general Indian population, coupled with the strong evidence of the role of alcohol in the spread of HIV/STI infections and other health risks, point to the need for detailed understanding of the complex cross-currents emerging from the past history of alcohol use and abuse in India.

ALCOHOL AND PUBLIC HEALTHPrevalence of alcohol use India is generally regarded as a traditional dry or abstaining culture. A recent National Household Survey of Drug Use in the country, the only systematic effort to document the nation-wide prevalence of drug use, recorded alcohol use in only 21% of adult males. Expectedly, this figure cannot accurately mirror the wide variation that obtains in a large and complex country like India. The prevalence of current use of alcohol ranged from a low of 7% in the western state of Gujarat (officially under Prohibition) to 75% in the Northeastern state of Arunachal Pradesh. There is also an extreme gender difference. Prevalence among women has consistently been estimated at less than 5 per cent but is much higher in the Northeastern states. Significantly higher use has been recorded among tribal, rural and lower socioeconomic urban sections).

The per capita consumption is 2 litres/adult /year (calculated from official 2003 sales and population figures). After adjusting for undocumented consumption, which accounts for 45-50% of total consumption, this is likely to be around 4 litres, but still low compared to that in wet nations. Licit and illicit spirits i.e. government licensed country liquor (rectified spirit mixed with water at Indian made foreign liquors like whisky, rum, vodka and gin (42.8%v/v); and illicitly distilled spirits (of indeterminate composition) constitute more than 95% of the beverages drunk by both men and women. Beer accounts for less than 5% of consumption (70% of beer sales is dominated by strong beers at strengths over 8% v/v). Wine is a nascent but growing market.

LIQUOR TRADE IN KERALA

HISTORYExcise Department is one of the oldest Departments in the State, and it contributes a major share of the State Revenue.

The word ABKARI derived from Persian (abkara from kar- business) strengers Persian English Dictionary defines it as tax on the manufacture and sale of Spirituous liquors and intoxicating drugs. According to the glossary of judicial and revenue terms it means revenue derived from duties levied on the manufacture and sale intoxicating drugs whether in substance, infusion, extract as opium, charas, etc.

After the formation of the State of Kerala, it was noticed that different Abkari Acts were in force in different parts of the State, namely; Travancore Abkari Act for Travancore, Cochin Abkari Act for Cochin, Madras Abkari Act for Malabar. Existence of the different Acts created much practical difficulties and a unified Act for the whole of the state became necessary. Therefore Government decided to extent the Cochin Abkari Act for the whole of the state with necessary amendments. The Cochin Abkari Act I of 1077 was renamed as the Abkari Act I of 1077 and was extended to the whole of the state with effect from 11.05.1967. Various amendments were made in the Abkari Act from time to time.

The original Act viz., the Cochin Abkari Act was passed by His Highness the Maharaja of Cochin on the 5thday of August 1902, corresponding to 31stday of Karkadagom 1077.

Excise Department was functioning under the Board of Revenue till 30.6.98. Excise Commissioner is the administrative head.

The Department is administering laws related to Liquor, Narcotic Drugs and Psychotropic Substances, Medicinal Preparations containing alcohol and narcotic drugs, etc.

The Acts enforced by Excise Department are [1]. The Abkari Act 1 of 1077, [2]. The Narcotic Drugs and Psychotropic Substances Act 1985, [3]. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 [4]. The Spirituous Preparations (Inter State Trade and Commerce) Control Act 1955., and [5]. The Prohibition Act 1950 (Sections 1, 7 & 11 only). The NDPS Act and the M&T.P Act were enacted by the Central Government.

The various rules formulated under the Abkari Act, NDPS Act, M & TP Act are furnished below:

1. Abkari Shops (Disposal) Rules 2002.

2. Kerala Foreign Liquor Rules 1953.

3. The Kerala Liquor Transit Rule 1975.

4. The Kerala Foreign Liquor (Compounding, Blending and Bottling) Rules 1975.

5. Abkari Shops Departmental Management Rules 1972.

6. Kerala Rectified Spirits Rule 1972.

7. Kerala Winery Rules 1970

8. The Kerala Distillery & Warehouse Rules 1968.

9. The Kerala Spirituous Preparation Control Rules 1969.

10. The Brewery Rule 1967.

11. Cochin Denatured Spirit & Methyl Alcohol Rules 1965.

12. Varnish Rules 1965.

13. Foreign Liquor (Storage in Bond) Rules 1961.

14. Tree Tax Rules 1959.

FormDetails of Licences

I -- Indian Made Foreign Liquor

L-1Wholesale licensee of Indian Made Foreign Liquor

L-2Retail vend of Indian Made Foreign Liquor/Beer.

L-3Service of liquor in a hotel (to the residents in their rooms).

L-4It is granted to independent restaurants for service of liquor.

L-5Service of liquor in a bar/restaurant attached to a hotel.

L-5ARetail vend of foreign liquor in a bar/dining car in a luxury train.

L-6Retail vend of Indian Made Foreign Liquor in duty free shop.

L-6ARetail vend of foreign liquor in duty free shops off the premises.

L-7Retail vend of Indian Made Foreign Liquor in a military canteen.

Source:ksbc.kerala.gov.inThe principal duties of the Department are protection, augmentation and collection of Excise Revenue and enforcement of the above acts and various Rules made there under. The Department prevents leakage of revenue, and exerts effective control on the abuse of liquor and Intoxicating Drugs. The duties of Excise Department are broadly classified as Collection of Revenue, Enforcement activity to prevent illicit liquor production, sale and trafficking and Campaign against Alcoholism.

Liquor includes spirits of wine, arrack, spirits, wine, toddy, beer and all liquid consisting of or containing alcohol. Individual has no fundamental right over the manufacture and trade of liquor. Absolute right on liquor is vested with the State. Government formulates Abkari policy of the state every year. The policy formulated by the State Government is implemented by the Excise Department. KERALA STATE BEVERAGES CORPORATION(KSBC)KSBC was formed on 23.2.1984 to take over the wholesale distribution of liquor in a phased manner and to eventually set up distilleries and blending units to produce spirit, arrack and IMFL. Since then the distribution of liquor has been brought under the control of the Corporation. By a decision in 2001 the majority of the retail outlets also has been entrusted to the Corporation. As at present the whole activity of IMFL from procurement to distribution and sale to the consumer is controlled by the Corporation except for loose vending of liquor by Bars / Clubs and a small portion of the retails by Consumer Federation.

HISTORY

The judicial commission of inquiry appointed by the Government to streamline the liquor trade in the state recommended -

(1) To provide genuine liquor at reasonable price, through Government agencies.(2) Exploitation through increased taxation and exploitation by middleman should be stopped and consumer protection must be the guiding policy.For achieving the above, nationalization of entire liquor trade was suggested.

In line with the suggestion the Government decided to set up a Public Sector Corporation to procure spirit and arrange blending, bottling, sealing and distribution of arrack and also for dealing with the sale of IMFL. An amendment was made in the Abkari Act in 1984 to give effect to the same.

OBJECTIVES OF THE ORGANISATION(1) To provide genuine quality liquor to consumers at reasonable prices.(2) To make available supplies of liquor commensurate to demand.(3) To evolve a proper system to prevent misuse, distribution of spurious liquor through unauthorized sources and evasion of duties and taxes by middlemen.(4) Consumer protection and satisfaction.RULES & REGULATIONSPurchase Procedure:Every year, the Corporation invites offers from prospective Indian Made Foreign Liquor/BEER suppliers situated throughout the country by inviting tenders for entering into rate contract for sales and supply of Indian Made Foreign Liquor /BEER for the ensuing financial year (April to March). This is being done as per directions of the government. From Financial Year 2001-2002 the offer was extended for supply of Foreign Made Foreign Liquor also.

The invitation to offer is advertised positively by February/every year in important newspapers. Notices are also sent individually to the existing suppliers in this regard. The offer document stipulate the conditions for supply, the quality specifications, payment terms, general conditions to be complied etc. The offerors have also to submit an earnest money deposit of Rs.10 lakhs each for FMFL / IMFL / Beer for a value of business upto 15000 cases and shall progressively increase by Rs.1 lakhs upto addition of every 15000 cases transacted. The maximum Security Deposit is Rs.75 lakhs. For exclusive Wine suppliers the EMD is Rs.50,000 and for value of business of Wine above 550 cases and upto 1100 cases, Security Deposit will be Rs.1 lakh and shall progressively increase by Rs.25,000 for every additional sale of 550 cases of Wine. The maximum Security Deposit will be Rs.3 lakhs. The documents received within the stipulated date are tabulated and presented to the Board of Directors. Suppliers who satisfy the conditions stipulated for supply are accepted by the Board. The list of suppliers, so approved shall from the suppliers rolls of the Corporation for the ensuing financial year.

The rate contract agreement for supply of liquor is not a competitive tender. Each supplier has definite approved brands. Only the approved supplier who owns the brand can supply the respective brands to the Corporation Eg. Mc Dowelll brandy can only be supplied by Mc Dowell & Co. Ltd., Hercules Rum by M/S Khoday Industries and King Fisher by Premier Breweries Ltd. Therefore the choice of the Corporation is to accept the rate offered or to decide not to purchase the brand. As per the provision in the rate contract agreed the Board of Directors of the Corporation is empowered to fix the supply prices. Accordingly the Board of Directors fixes the supply prices at the time of finalization of the rate contract agreement, which will be FIRM during the rate contract period. The Corporation has however fixed a minimum price of Rs.235/- for a case of Indian Made Foreign Liquor. This is done on consideration of cost analysis of various elements that constitute cost and thereby the minimum price at which supply could be made is arrived at. The quality of Foreign Made Foreign Liquor and Indian Made Foreign Liquor and BEER supplied confirm to the standards indicated in the offer condition. This has been fixed in consultation with the Chief Chemical Examiner to the Government of Kerala. The Chemical Examination Certificate and a certificate showing that ENA has been used in production (in case of Indian Made Foreign Liquor) is to be sent to the Corporation against dispatch of each batch of Indian Made Foreign Liquor/Beer. For Indian Made Foreign Liquor such Chemical Certificates should be duly authenticated by the Chief Chemical Examiner/Authority recognized by the State and ENA Certificate by the Chief Executive of the distillery authenticated by Excise Authority. Chemical Examination Certificates of Beer should be authenticated by the Chemist/Brew. Master of the Brewery and duly authenticated by Excise authority of the Brewery. The Corporation also reserves the right to periodically subject the samples for Chemical Examination/Verification of standards and the Expenses incurred by the Corporation for such Chemical Examination/Verification will have to be borne by the supplier. These stipulations are strictly adhered to.

Government have issued guidelines vide G.O.No.24112/DL/85/TD dated 28.10.1985 to place orders by and large only on replacement/replenishment basis. Accordingly purchase of Indian Made Foreign Liquor and BEER are based on the average monthly sales of the respective supplier. The average is of the previous three month sales. The average monthly sales are reviewed every month and a re-order quantity (ROQ) based on the requirement is placed. The ROQ is normally 30 days, 40 days, 45 days requirement as the case may be. When the stock plus the order pending execution falls below the ROQ, the shortfall is replenished on a daily basis.

The arrangement to replenish stock could be applied only if a supplier has an average monthly sales. Unless an order is given to companies who quote for the first time there cannot be an average monthly sales for the respective supplier and consequently the norm cannot be implemented. It is to ensure this the initial order of a few loads are given for new suppliers at the commencement of the financial year. In order to ensure uniformity in placing purchase orders at the commencement of the year all the companies are uniformly given initial orders. Thereafter from the next fortnight onwards, orders as per formula indicated above is being given.Special orders are also placed on trade discount basis to the supplies depending upon the requirement. That is if a company offers a trade discount of 10% for IMFL and 5% for Beer, special orders are placed to the extent of a maximum of two loads when the stock is nil or meager.

A Purchase Committee consisting of the Company Secretary, Internal Auditor, Finance Manager, Administrative Officer , Regional Manager and Senior Manager reviews the procedure above. Recommendations of the Committee are placed before MD, who gives final orders for placement of purchase orders. The orders so placed are subsequently ratified by the Board of Directors.

LIQUOR TRADE IN TAMILNADUThe Prohibition and Excise Department is a major revenue earning department of the State

functioning under the administrative control of Home, Prohibition and Excise Department.

1. Commissionerate of Prohibition and Excise;

2. The Prohibition Enforcement Wing of the Police;

3. The Narcotics Intelligence Bureau (NIB);

4. The Tamil Nadu State Marketing Corporation Limited (TASMAC).

are the four organizations functioning under this department.

The Excise administration is done by the Commissioner of Prohibition and Excise. Two Joint Commissioners and five Assistant Commissioners are working to assist the Commissioner in the headquarters. The Commissioner is responsible for enforcing various provisions of the Tamil Nadu Prohibition Act, 1937 (Tamil Nadu Act X of 1937) and the rules made thereunder and he oversees and controls the entire excise administration in the State. He is vested with powers for granting necessary privileges and licences with prior approval of the Government for the establishment of Distilleries, Indian Made Foreign Spirit, Wine and Beer manufacturing units and for renewing their licences annually. The District Collector supervises the excise administration at the district level. He exercises various statutory powers under the Tamil Nadu Prohibition Act, 1937 and the rules made thereunder. The Collector is assisted by an Assistant Commissioner (Excise) in the cadre of Deputy Collector in all Districts except Chennai and Coimbatore, where Deputy Commissioners (Excise) in the cadre of District Revenue Officer are assisting the Collectors. In the Distilleries and Indian Made Foreign Spirits / Beer manufacturing units, Deputy Collectors are posted as Distillery Officers and Excise Supervisory Officers respectively. Officers of the Revenue Department in the cadre of Tahsildars and Deputy Tahsildars are posted as Excise Supervisory Officers and Bonded Manufactory Officers in the chemical units and Bonded Warehouses to supervise the proper use of alcohol and to levy excise duty on excisable articles under the Tamil Nadu Prohibition Act, 1937 and the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 and the Rules framed there under.Molasses produced as a byproduct in the manufacture of Sugar in the Sugar Mills is used as the raw material in the manufacture of alcohol. There are 42 sugar mills in the State, out of which 16 are in the Co-operative Sector, 3 in the Public Sector and 23 in the private sector. The details of the Sugar mills and their capacity for storage of molasses is indicated in Annexure-I.

The Tamil Nadu Molasses Control and Regulation Rules, 1958 governs the possession, sale, use, transport and export of molasses. An Administrative Service Fee at the rate of Rs.300/- per metric tonne is being levied for export and import of Molasses.

Distilleries and Alcohol

Major use of alcohol in the State is for the manufacture of Indian Made Foreign Spirit products. However, alcohol in small quantities are used in Educational institutions, Laboratories and Research institutions. Two Distilleries in Co-operative Sector and fifteen Distilleries in private sector are manufacturing alcohol from molasses in the State. Three out of eight distilleries which have been granted permission for expansion to enhance their total existing production capacity viz., Tvl. Sakthi Sugars Limited, Tvl. Bannari Amman Sugars Limited and Tvl. Dharani Sugars and Chemicals Limited have completed the expansion work and commenced the spirit production to the enhanced capacity. During the year 2009-2010, distillery licence has been issued to Tvl.S.V.Sugars Limited for the operation of a new distillery at Palayaseevaram Village, Kancheepuram District with 100 KLPD production capacity of alcohol from molasses. Again in 2009-2010 privilege has been issued to three distillery units for the production of alcohol using molasses viz. (i) Tvl. Dhanalakshmi Srinivasan Sugars and Chemicals Limited, Perambalur District with the production capacity of 60 KLPD of alcohol (ii) Tvl. Dharani Sugars and Chemicals Limited, Villupuram District with production capacity of 100 KLPD of alcohol and (iii) Tvl. Rajshree Sugars and Chemicals Limited, Villupuram District with production capacity of 80 KLPD of alcohol.

Indian Made Foreign Spirits and Beer Manufacturing Units

There are nine Indian Made Foreign Spirits manufacturing units and three Beer manufacturing units in Tamil Nadu supplying IMFS and Beer products respectively to the Tamil Nadu State Marketing Corporation Limited. The details relating to production of IMFS and Beer are furnished in Annexure II. Taking into account the existing capacity within the State for production of Indian Made Foreign Spirits and the projected requirement for sales within the State, the Government have taken a policy decision not to grant privilege to new units for the manufacture of IMFS for the present.

Manufacture of Wine

The Government have framed the Tamil Nadu Wine (Manufacture) Rules, 2006 in order to give an opportunity to those interested to establish wineries in the State. In the year 2009-10, a licence for manufacturing wine has been issued to a private sector unit viz. Cumbum valley Winery (P) Ltd., in Theni District. The unit is expected to commence its

production shortly. The new winery at the Cumbum valley will be highly beneficial to the grape cultivating farmers of Theni District.

The Privilege fee, application fee and licence fee for the preparation of Sacramental Wine

used in Catholic Churches has been reduced to the level that prevailed prior to 1999. Accordingly, from 1.9.2009, the following rates of fee are being collected.

Fee prior

to 1.9.2009

Rs.Reduced fee

w.e.f. 1.9.2009

Rs.

i) Privilege fee 40,000/-

10,000/-

ii) Application fee 400/- 100/-

iii) Licence fee 200/-

50/-

Source: tasmac.tn.gov.in

Import of Foreign Liquor

Consequent to General Agreement on Tariffs and Trade (GATT) 1994, restrictions on import of foreign liquor has been removed. The Government have, therefore issued necessary amendments to Tamil Nadu Prohibition Act, 1937 (Tamil Nadu Act X of 1937) and relevant rules made thereunder to make them compatible to World Trade Organisation agreements. With a view to levy special privilege fee on the IMFS Products and spirits imported from foreign countries and from outside the State, the Tamil Nadu Indian Made Foreign Spirit (Supply by Wholesale) Rules, 1983, has been amended so as to adopt a uniform special privilege fee.

The various rules formulated are furnished below:1. Tamil Nadu Molasses Control and Regulation Rules 1958 - Prohibition & Excise Dept

2. TN Liquor (License and Permit) Rules 1981 - Prohibition & Excise Dept3. The Tamil Nadu Spirituous Preparations (Control) Rules, 1984. - Prohibition & Excise Dept

4. The Tamil Nadu Narcotic Drugs Rules, 1985 - Prohibition & Excise Dept

5. The Tamil Nadu Liquor Retail Vending (In Shops And Bars)Rules, 2003 - Prohibition & Excise Dept 6. Tamil Nadu Distillery Rules, 1981 - Prohibition & Excise Dept

7. The Tamil Nadu Disposal of Articles (Confiscated under theTamil Nadu Prohibition Act) Rules, 1979 - Prohibition & Excise Dept 8. Denatured Spirit - FP Rules 1959 (Updated) - Prohibition & Excise Dept

9. Tamil Nadu Indian-Made Foreign Spirits (Manufacture) Rules, 1981

10. The Medicinal and Toilet Preparations (Excise Duties) Rules, 1956

11. Tamil Nadu Rectified Spirit Rules, 1959

12. The Tamil Nadu Liquor (Transit) Rules, 1982

13. Tamil Nadu Mass Wine Rules , 198414. Tamil Nadu Spirituous Essences Rules 1972

15. Tamil Nadu Wine (Manufacture) Rules, 2006 .

16. The Tamil Nadu Brewery Rules, 1983.

17. The Tamil Nadu Liquor (Supply by Wholesale) Rules, 1983.FORM DETAILS OF LICENSE

The licences issued under this class are for privilege of sale of IndianMade Foreign Spirits in retail under section 17-C of the Act or for sale of

foreign liquor

F.L. 1

Licence for the grant of privilege of retail sale of bottled Indian

Made foreign spirits or sale of foreign liquor.

F.L. 2.

Licence for possession of liquor by a non-proprietory club for

Supply to members.

F.L. 3.

Licence for possession of liquor by the Star Hotels for supply to

foreign tourists and foreigners resident in India holding personal

permits and also citizens of India holding personal permits for

consumption within the licensed room of the Hotel or for removal

to their private rooms in the same hotel in which they stay for

Consumption there.

F.L.3(A) Licence for possession of Liquor by hotel run by the Tamil Nadu

Tourism Development Corporation for supply to persons who

actually stay in the hotel for a minimum period of 3 hours for

Consumption in the rooms of the hotel.

F.L. 4.

Licence for possession for liquor by the Manager, Canteen Stores

Department ( India ), Canteen Retail and Bulk issue Depot, Fort St.

George, (Chennai) for a supply to military contractors and officers

of the military units holding licences.

F.L.4(A)

Licence for possession and sale of liquor to Military Units and

Military personnel and Ex-servicemen.

.

F.L. 5.

Licence for possession and issue of liquor by the Madras Seamens

Institute / Madras Seamens Hostel to the Officers Seamen of the

Merchant Navy

F.L. 6.

Licence for possession and use of liquor for Scientific Industrial or

such like purposes.

F.L. 7. Licence for possession and sale of wine, grape juice or other liquor

for sacramental purposes.

F.L. 8. Special licence for possession and issue of liquor to International

Passengers on aboard the Aircraft of Air-India.

F.L. 9. Special licence for possession and issue of liquor including bottled

liquor to International Air passengers transiting the

Meenambakkam Civil Airport who are required to wait at the

Airport transit lounge reserved for such passengers before

resuming their journeys 1[ and issue of foreign liquor to the foreign

diplomats stationed at ( Chennai )].

F.L. 10.

Special licence for possession of liquor by an approved

restaurant and to serve liquor for consumption in the bar of the

restaurant to the foreign tourists or foreign residents of India or

Indian Citizens during their halt at the airport.

F.L. 11.

Licence for the grant of privilege of retail sale of foreign liquor

FORMDETAILS OF LICENSE

Licences for liquor used for medicinal purposes.

F.M. 1.

Licence for possession and vend of medicated wines to F.M. 1,

F.M. 2, F.M. 3 or F.M. 4 licences.

F.M. 2.

Licence for possession and sale of brandy or medicated wines for

medicinal purposes by chemists or by persons or firms which

employ chemists.

F.M. 3.

Licence for possession and issue of brandy or medicinal wines for

medicinal purposes by a medical practitioner.

F.M. 4. Licence to medical practitioner in charge of a hospital for

possession and use of brandy or cashew arrack or medicated wines

for medicinal purposes in the hospital.

Source: tasmac.tn.gov.in

Duration of licence:-

Every licence granted under these rules shall be valid for the financial year beginning from the 1st of April or the date of issue of the licence and ending with the 31st March, immediately following unless otherwise stated in the licence issued in a particular case.

Refusal of licence:-

If the licensing authority decides that the applicant is not eligible for the grant of privilege and issue of licence or that the grant of the privilege and issue of licence are not justified with reference to conditions and circumstances specified in rule 19, he shall, by an order in writing, refuse to grant the privilege and issue of the licence for reasons to be specified in the order. In that case, the licence fee, if any, paid by the applicant, shall be refunded to him.

Renewal of licence:-

A licence holder desiring to renew the licence shall make an application in the prescribed form (the same as for the original grant of the licence) atleast one month before the date of expiry of the licence. The application may be sent to the licensing authority direct. The provisions of rules 18 to 20 shall, as far as may be, apply to an application for renewal of licence as if it were an application for the original grant of a licence, where an application for renewal of the licence has not been made within a period of one month before the expiry as specified herein, but in no case after the expiry of the licence, the licensing authority may admit such application, provided there are good and sufficient reasons for the delay on payment of an additional fee of twenty five per cent of the prescribed licence fee.

TAMILNADU STATE MARKETING CORPORATION LIMITED (TASMAC)

HISTORY

TASMAC was established in 1983 by the government of M. G. Ramachandran (MGR) for wholesale vending of alcohol in Tamil Nadu. The state has a long history of prohibition, first implemented in 1937 by the Indian National Congress government of C. Rajagopalachari. Between 1937 and 2001, it was lifted briefly during 1971-74, 198187 and 1990-91. After 1983, TASMAC was in charge of wholesale liquor sales in the state whenever prohibition was lifted. In 2001, prohibition was lifted again and TASMAC became the wholesale monopoly for alcohol. For retail vending, the state auctioned off licenses for running liquor shops and bars. But this led to the formation of cartels and loss of revenue to the state. The government tried to counter this by introducing a lot system from the financial year 2001-02, where potential bidders bid for shops grouped by revenue. But the lot system could not prevent cartelisation, as bidders later withdrew in favour of others. In October 2003, the government passed an amendment to the Tamil Nadu Prohibition Act, 1937, making TASMAC the sole retail vendor of alcohol in the state. By 2004 all private outlets selling alcohol were either shut down or taken over by the company. This monopoly established by the ADMK government of J. Jayalalitha came into effect on 29 November 2003. The DMK government of M. Karunanidhi which took power in 2006, did not revise its predecessor's policy and TASMAC continues to control the alcohol industry in the state.

The reorganisation of retail alcohol trade in the state has brought record revenues for the government allowing it to increase spending on welfare schemes. The revenue from alcohol sales constitutes nearly half of the states annual tax revenues. Tamil Nadu ranks first among the states of India in alcohol sales by volume. While consumption of alcohol has increased among the population, deaths due to consumption of contaminated illicit liquor (common during the prohibition era) have gone down. The monopoly trade has led to widespread irregularities like adulteration, corruption, overpricing and black marketing in the retail outlets. It has also led to increased complaints about disturbances created by drunk patrons from residents in areas where the retail outlets are situated. High retail prices (due to a higher tax rate) and absence of a wide range of choices have led to a thriving alcohol tourism industry in the neighbouring union territory of Pondicherry, where alcohol prices are low and different brands are available. TASMAC has been forced to offer more choices of brands to counter the increase in smuggling of non-available alcohol brands into the state

FORMATION OF RETAIL VENDING DIVISION:In order to completely eliminate the sale of contraband, spurious and non- duty paid liquor in some licensed premises under the system of retail vending by private persons, which can affect the public health of the liquor consuming public and wide spread violations of Maximum Retail Price (MRP) of liquor fixed by the Government, both of which also cause loss of revenue to the Government and in order to curb the organized groups and cartels, who act in groups to ensure that applications are not made for a substantially large number of shops so as to keep them vacant and thereby to corner the retail vending trade causing loss of revenue to the Government, it was considered necessary by the Government to grant the exclusive privilege of retail vending of Indian Made Foreign Spirits to the State owned public sector under taking, TASMAC. Accordingly, the exclusive privilege of Retail Vending of IMFS was granted to TASMAC under Sec.17 (C) (1-B) of the Tamil Nadu Prohibition Act, 1937. TASMAC is doing the retail business also successfully with effect from 29.11.2003.CAPITAL STRUCTURE (i) Authorised capital : Rs. 15.00 Crores (ii) Paidup capital : Rs. 15.00 Crores(100% contributed by Tamil Nadu State Government )PURCHASE AND DISTRIBUTION TASMAC procures IMFS and Beer stocks locally from six IMFS manufacturers and three Beer manufacturers in the State. Certain IMFS, Scotch and Beer products are procured through import from other States.

Distribution of IMFS & BEER items to the licensees is being done through the 41 depots of TASMAC located throughout the State.

INVENTORY MANAGEMENT(Procedure being followed since 1998)

I. Placement of orders with Local Manufacturers and Import Suppliers of IMFS/BEER.

The requirement of IMFS and Beer is worked out on the first day of every month. The monthly depotwise requirement is worked out by adopting the following procedure.

i) Weighted average sale per day is arrived at by dividing the total sales with No. of working days during the last three months with weightage being given to the recent sale.

ii) The monthly order for IMFS and Beer is generated based on the Weighted average sales per day multiplied by 39 days in the case of local IMFS and 52 days in the case of import IMFS and in case of Beer the Weighted average sale per day is multiplied by 39 days.

iii) 39 working days in 1 months and 52 working days and 2 months is taken for calculating the order to be generated, since we need atleast a months stock to be generated on the first of every month. The extra days is allowed for the transhipment of the stock.

iv) Stock in transit i.e. indent issued but not despatched, goods despatched but not unloaded and the closing balance available at the Depot on the last day of that month will be deducted from the monthly requirement arrived at as per the working mentioned at Point No.(ii) above.

v) The net requirement for IMFS will be rounded off to the nearest multiples of 5 and the net requirement for fast moving Beer 650ml/325ml pack will be rounded off to the nearest multiples of 700/600 cases. In respect of slow moving Beer brands the net requirement will be rounded off to the nearest multiples of 50 cases.

II. ISSUE OF INDENTS

On 1st of every month the order is placed with all the local manufacturers and import suppliers and indent is regulated in order to have 15 days stock of a particular item in the depots including stock in transit. This ensures that the brand does not go out of stock at any point of time.

Day to day indents are issued based on the previous day sale, closing balance of that day, demand of the fast moving items etc., which is reflected in the daily statement showing depots with Nil stock and low stock (inclusive of cumulative stock in Transit) of fast moving items. This statement shows the depots which have NIL stock, 1-3 days stock, 4-7 days stock, 8-10 days stock, 11-14 days stock and 15-21 days stock for particular brand and for a particular pack size. Based on the statements, indents are being issued to the suppliers on a daily basis. If a particular brand and pack size is in exceptional demand in the current month and there is a likelihood of stock out situation, then additional order for that particular item is placed and indents issued thereafter.

No preferential treatment is given to any supplier and the systems mentioned above (which has been computerized) is strictly followed since 1998. After take-over of retail vending by TASMAC also the same procedure is being followed without any change.

After the indents are issued the daily despatches from the suppliers is also being monitored by TASMAC.

SALES AND REVENUE COMPARISON

KSBC

Purchases are made on replacement/replenishment basis by the Corporation. Purchase orders placed on the basis of average monthly sale of the respective supplier. The average monthly sales are reviewed every month and an ROQ based on the requirement is fixed. Special orders are also placed on trade discount basis depending upon the requirement. Details of purchases affected till date is given below.

Source: ksbc.kerala.gov.inSales are effected from the Warehouses and FL-1 Shops. Licencees viz Consumerfed and Bars authorized to Purchase approach the Corporations Warehouses for purchases. The amount payable is first remitted into the respective bank accounts of the Corporation and only after receipt of the remitted challans for the value thereof the goods are released to the purchasers. For the requirements of the Corporations FL-1 Shops goods are just transferred. From the FL-1 shops, goods are sold in bottles to consumers direct on cash basis.Details of sales made till date is given below.

Source: ksbc.kerala.gov.inCONTRIBUTION TO STATE EXCHEQUER

The following were the amounts contributed to the State Exchequer during previous seventeen completed years by way of Sales Tax, Excise Duty, Vending Fee, and License Fee etc.

YEARCONTRIBUTION TO STATE EXCHEQUER

1984-8525.63

1985-8630.86

1986-8740.06

1987-8840.74

1988-8957.35

1989-9078.33

1990-9192.07

1991-92112.59

1992-93133.00

1993-94179.72

1994-95215.58

1995-96315.51

1996-97611.19

1997-98753.48

1998-99847.56

1999-00903.56

2000-011025.93

2001-021310.17

2002-031468.16

2003-041622.30

2004-051824.04

2005-062055.71

2006-072424.49

2007-082914.10

2008-093621.15

2009-104259.80

Source: ksbc.kerala.gov.inFINANCIAL RESULTS

The profit made before and after payment of Vending Fee till date is indicated below. Figures in CroresYEARProfit before Vending FeeVending FeeProfit After Vending Fee

1984-852.512.090.48

1985-863.153.040.11

1986-873.664.090.43

1987-884.784.010.78

1988-8910.350.041.31

1989-908.708.420.28

1990-9111.4610.281.18

1991-9213.9512.151.80

1992-9312.9912.260.73

1993-9415.7714.880.89

1994-957.015.451.56

1995-9610.219.081.13

1996-9711.387.983.00

1997-9817.529.817.71

1998-9915.4010.603.80

1999-008.434.863.57

2000-019.835.444.39

2001-0219.9610.029.94

2002-0311.104.206.90

2003-0419.099.409.69

2004-0551.8540.1511.70

2005-06122.8271.2451.58

2006-07173.68106.4467.24

2007-08179.72120.4859.24

2008-09285.91140.86145.05 ( pre-audited)

2009-10399.39164.61234.78( pre-audited)

Source: ksbc.kerala.gov.inDIVIDEND PARTICULARSThe dividend paid to the government from 1990-91 is indicated below.

YEARDIVIDEND (%) DIVIDEND AMOUNT

1990-9120%0.21

1991-9220%0.21

1992-9320%0.21

1993-940%0.31

1994-9530%0.31

1995-9640%0.41

1996-97100%1.03

1997-98100%1.03

1998-99100%1.03

1999-00100%1.03

2000-01200%2.06

2001-02300%3.09

2002-03400%4.12

2003-04400%4.12

2004-05400%4.12

2005-06400%4.12

2006-07400%4.12

2007-08400%4.12

2008-09Declaration awaitedDeclaration awaited

2009-10Declaration awaitedDeclaration awaited

Source: ksbc.kerala.gov.inDUTIES AND TAXES ON LIQUOR w.e.f 01.04.2005EXCISE DUTY ON IMFL

Rs.235 and above but below Rs. 25014.5% of purchase cost / case / PL subject to minimum of Rs.34.5 / PL ( Rs.232.88 / case)

Rs.250 and above but below Rs. 30015.5% of purchase cost / case / PL subject to minimum of Rs.40 / PL ( Rs.270 / case)

Rs.300 and above but belowRs.40016% of purchase cost / case / PL subject to minimum of Rs.53/ PL ( Rs.357.7 / case)

Rs.400 and above but belowRs.50016% of purchase cost / case / PL subject to minimum of Rs.66 / PL ( Rs.445.50/ case)

Rs.500 and above but belowRs.100016% of purchase cost / case / PL subject to minimum of Rs.80 / PL ( Rs.540 / case)

Rs.1000 and above16% of purchase cost / case / PL subject to minimum of Rs.165 / PL ( Rs.1113.75 / case)

Excise Duty on BeerRs. 3 per bulk litre (Rs. 23.40 per case)1Within the statesupply Paid by Brewery

2Outside state supply Paid in advance by KSBC

IMFL Import FeeRs. 5 per proof litre (Rs. 33.75 per case)Paid in advance by KSBC

Beer Import FeeRs. 2 per bulk litre (Rs. 15.60 per case)Paid in advance by KSBC

SALES TAX RATE

IMFL100%Paid by KSBC

Beer50%Paid by KSBC

Wine50%Paid by KSBC

Cess on Sales Tax1% Paid by KSBC

Surcharge on Sales Tax5% Paid by KSBC

TOT on Gross Sales5% Paid by KSBC

Cess on TOT1%Paid by KSBC

Source: ksbc.kerala.gov.inCONTRIBUTION TO STATE EXCHEQUER AFTER TAKEOVER OF RETAIL BUSINESSThe following were the amounts contributed to the State Exchequer during previous four completed years by way of Sales Tax, Excise Duty, Vending Fee, and License Fee etc. Figures in CroresYEARAMOUNT CONTRIBUTED

2001-021313.64

2002-031455.66

2003-041622.09

2004-051824.44

2005-062055.71

Source: ksbc.kerala.gov.inInternal Audit and Vigilance DepartmentThe Internal Audit of the Corporation is based at Head Office and has a staff strength of 82 comprising of a Head Office Audit Team and 18 Warehouse Audit teams. In addition to frequent inspections, the Audit team and Vigilance teams also conducts enquires into customer and the complaints. The Audit teams annually conduct about 3000 inspections.

TASMAC

Before take over of Retail Vending by TASMAC, the sale volume of IMFS was 148.99 lakh cases. The sale volume has increased to 229.22 lakhs during the year 2005-06. The additional sale volume was 80.23 lakh cases. The growth rate was 53.85%.

Before take over of Retail Vending by TASMAC, the turnover of TASMAC was Rs.3499.75 Crores. The turnover has increased to Rs.7335 Crores during the year 2005-06. The additional turnover was Rs.3835.25 Crores and the growth rate was 109.59%.REVENUE TO GOVERNMENT:Before take of Retail Vending by TASMAC, the Government Revenue through TASMAC was Rs.2828.09 Crores. It has increased to Rs.6086.95 Crores during the year 2005-06. The additional Government Revenue during 2005-06 was Rs.3258.86 Crores and the growth rate was 115.23%.

DIVIDEND DECLARED :Apart from remitting various Taxes and Duties to the Government, TASMAC is declaring dividend every year and remits the amount to the Exchequer. The details regarding rate and the amount of dividend declared are given below:

YEAR %AMOUNT(Rupees in lakhs)

1999-2000 535.00

2000-2001 535.00

2001-2002 535.00

2002-2003 535.00

2003-2004 535.00

Source: tasmac.tn.gov.in

DUTIES AND TAXES:

EXCISE DUTY:

ITEMRATEUNIT

IMFS

ORDINARYRs.93.24per Proof Litre

MEDIUM & PREMIUMRs.113.24per Proof Litre

SCOTCH WHISKYRs.113.24per Proof Litre

BEERRs.4.36per Bulk Litre

DRAUGHT BEERRs.13.10per Bulk Litre

Source: tasmac.tn.gov.in

WHOLESALER'S VEND FEE:

IMFS Both Local & ImportRs.142/- per case

BEER Rs.36/- per case

Draught BeerRs.4.61 per Bulk Litre.

Source: tasmac.tn.gov.in

ADDITIONAL VEND FEE/SPECIAL PREVILEGE FEE:

IMFS & VODKARs.46.35per Bulk Litre

BEERRs.16.19per Bulk Litre

WINE & CIDERRs.1.00per Bulk Litre

Source: tasmac.tn.gov.in

IMPORT LICENCE FEE:

IMFS:

ORDINARYRs.221/- per case

MEDIUMRs.271/- per case

PREMIUMRs.420/- per case

BEERRs.73/- per case

Source: tasmac.tn.gov.in

SALES TAX: Local Manufacturers (I sale) - 55%

TASMAC (II Sale) -35%

Wine (by TASMAC) -55%

Scotch (by TASMAC) -70%

CLASSIFICATION OF IMFS PRODUCTS:IMFS products are classified as (1) Ordinary Brands, (2) Medium Brands and (3) Premium Brands.

ORDINARY BRANDS:'Ordinary Brands' means IMFS products in different pack sizes with manufacturers' price not exceeding Rs.429/- per case.

MEDIUM BRANDS:'Medium Brands' means IMFS products in different pack sizes with manufacturers' price between Rs.430/- and Rs.504/- per case.

PREMIUM BRANDS:'Premium Brands' means IMFS products in different pack sizes with manufacturers' price (*)of Rs.505/- and above per case.

(*) Price for 180ml. pack size and in the absence of 180ml. pack size, price for 375ml. pack size and in the absence of both 180ml. and 375ml. pack sizes, price for 750ml. pack size.

Annual Revenue of TASMAC

Fiscal YearRevenue in Crores% Change

2002 032,828.09

2003 043,63928.67%

2004 054,87233.88%

2005 066,086.9524.94%

2006 077,30019.93%

2007 088,82220.85%

2008 0910,601.520.17%

2009 1012,49117.82%

2010 1114,96519.80%

BASED ON THE ABOVE INFORMATION

Source: primary data

From the chart we can incur that the volume of sales of liquor in TamilNadu is relatively higher than that in Kerala. TamilNadu shows double the amount of sales than Kerala.

PRICING

THE PRICING OF INDIAN MADE FOREIGN LIQUOR AND BEER IS MADE AS UNDERWarehouse Selling Price

Purchase Price + Excise Duty + 36% Warehouse Margin + Labelling Charges Rs.11 + Sales Tax ( 100% for IMFL & 50% for BEER) + Cess 1% of Sales Tax

Shops Selling Price

Purchase Price + Excise Duty + 36% Warehouse Margin + 20% Shop Margin + Labelling Charges Rs.11 + Sales Tax ( 100% for IMFL & 50% for BEER) + Cess 1% of Sales Tax

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