This article is co-authored by Bhumika Pardesi and Anish Sethi, both of whom are practising lawyers in Delhi High Court and other Tribunals.
Table of Contents
The Corona Dilemma
On 4th of May 2020, India marked, if not its greatest, but nothing short of as colossal a landmark, as 22nd of March had been in the history of struggle of the biggest Democratic nation of the world, in the battle against the Coronavirus.
Out of the numerous much needed relaxations, there was one very celebrated and probably the most awaited one, that is the re-opening of liquor shops[i]. However, as a segment of the country praised the decision, at the same time, others subjected it to criticism.
Desperate times call for desperate measures. People have recognized this since the beginning of mankind, but it is only in a few exceptional circumstances where the whole mankind altogether, essentially faces a tough choice where they need to take these desperate measures so as to balance the interest of the society against those of individuals. When it comes to death and survival, it’s a clear decision. But when it comes to death and death, it becomes a matter of choosing the better alternative amongst the worst. And that’s when the actual dilemma starts. What may be the best option for one in this death-and-death situation might not be the same for another. It is a complex subjective interpretation and thus, there is no right or wrong answer.
Success or Failure?
The comprehensive Nationwide Lockdown is an unprecedented event in the history of this nation and as much as it came as a shock for people residing in the metro cities which were self-proclaimed, ‘never sleeping and never stopping’, to the rural belts who did not even understand the ramifications the virus will have, it was no doubt a huge ‘success’, as the media reports would suggest. But that is a story for another day[ii]. What we all know as of today is that India apparently successfully managed to ‘flatten’ the curve to a large extent and has remarkably managed to keep the official reported numbers of the infected patients to a contrasting low as compared to many counterparts and both the state government and the central government have played a vital part in this success. Considering the population density and the low number of testing done, one might say that these figures are misleading, but what no one can deny is that the government did however succeed in doing one thing properly: putting the lives of people above the economy. The Lockdown, brought very many hardships and was harsh on everyone alike; the international and domestic students, the traders and businessmen, the professionals, the migrant labourers, the farmers, and every other person beyond the divide of class, race, ethnicity and sex.
Nonetheless, what cannot be denied is that the government managed to keep every single one of these people at homes: at least until the announcement of Lockdown 3.0 for sure.
Taxes & Revenue: Brief background
During this time, the citizens and the government have suffered equally. Whereas the public at large was deprived of its right to freedom of movement and trade and of right to practice religion amongst many other rights, it wasn’t exactly for the benefit of the government either. It is a well-known fact that after implementation of GST, only 3 services have been excluded beyond the ambit of a rigid tax structure, and to no one’s surprise, these three exceptions are recognisably made for a reason: they alone constitute of about more than 15% of the total annual revenue for the central government approximately[iii].
Hence these exclusions are in fact a continuous and inextinguishable gold mine, the government is sitting on since time immemorial, and guarantees a stable inflow of taxes and revenue thereby ensuring that the government treasury never runs dry. These commodities are, as you might have guessed or known, Liquor, Petroleum and Electricity[iv]. Further, according to approximates, various taxes levied on the liquor business alone contribute anywhere between 8% to 25% to a state government’s own tax revenue[v].
Legal and Logical Explanation
As per a rough estimate, depending upon the state where you may reside, around 60% to 80% of the price you pay today for a litre of Petroleum or Liquor comprises innumerable taxes which have been levied on these products by the government[vi]. One can consider it as a by-product of Polluters Pay Principle (P.P.P). It is the Directive Principle of State Policy (D.P.S.P.) of every state to move towards establishment of a society which is free of alcohol use and any intoxicants[vii], and also ensure that it uses the cleanest and the greenest sources of energy[viii] in order to protect the environment and prevent pollution. But the shift to this ideal utopian society is a long and steady one and cannot be achieved by a wave of magic wand. There has to be in place a proper and gradual phase out with ample alternatives available for people in order to smoothen the transition and make it more viable, and the objective is not to create hardships for anyone. But what if this change is all of a sudden forced upon people, say by means of a natural calamity which no one had seen coming? Precisely. What needs to be done slowly and steadily, if done suddenly, is bound to create unrest and ruckus for all.
Covid-19 brought with it unprecedented and unforeseen hardships. No doubt Loss of Jobs and slowdown to the economy hit each and every individual to a very personal level, but also brought along with it a never seen problem for the government as well: their treasury was, for the first time starting to run dry.
The complex Mathematics behind Liquor
Owing to the local licensing fees[ix] and a range of state controls on the trade of liquor, it is estimated that the consumers often end up paying four to five times more than the price at a distillery[x].
However, speaking in the strictest terms, the 29 states along with seven union territories in India have adopted different approaches when it comes to taxing and regulating liquor. For instance, the states of Gujarat, Bihar and Nagaland and the Union Territory of Lakshadweep, has entirely banned the consumption of liquor and Gujarat per se has even banned the trade of alcohol since 1961. By contrast, Puducherry, the territory on the Coromandel Coast, earns most of its revenue from alcohol trade.
Some of the states auction the retail and wholesale licenses, while others have their own monopolies. Tamil Nadu is one state that has a monopoly on the alcohol trade and employs more than 30,000 people with over 6,000 outlets[xi].
Taxation of Liquor is a subject which is actually more complex than what it seems. Even though liquor hasn’t been brought under the purview of Goods and Services Tax (GST), it still falls under other taxes that contribute to its rising prices. These taxes are Excise Duty and VAT (Value Added Tax) respectively.
Alcohol was not brought under the purview of the GST regime primarily due to two reasons:
Firstly, to ensure that the State Governments continue to have a strong inflow of revenue (other than what they get from GST). It’s estimated that taxes on liquor and beer fetch the state governments nearly INR 90,000 crores annually[xii];
Secondly, to keep the prices of liquor high in order to limit its consumption and purchase quantities.
To put into perspective and give you an approximate idea about the rough consumption of liquor in an ideal situation, Delhites alone spent a staggering Rs 1,000 crore (YES, you read that right) on liquor just in the month of December 2019[xiii].
In spite of GST not being levied on liquor, the prices of liquor continue to rise after the rollout of Goods and Services Tax. This is because the inputs used to manufacture liquor were taxed at 12-15% under the VAT regime before GST. However, after the introduction of GST, most of the input raw material now attracts 18% GST resulting in increased input cost. This rise in taxes on the inputs is passed on to the end customers. The other reason for the sharp increase in the cost of liquor is the applicability of GST on transportation and freight charges. Previously, transportation and freight attracted a service tax of around 15%. However, post-GST, they are taxed at 18%. Hence, even with no major changes in the VAT rates charged on beer or liquor, the cost of beer and liquor had increased due to the increase in input taxes[xiv].
Un-ban the sale for Revenue Source
The CIABC, which is the apex body of the Indian alcoholic beverage industry, had sent letters on 6th of April to chief ministers of 10 states, namely Delhi, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Telangana, Uttar Pradesh and West Bengal.[xv]
CIABC Director General stated in the letter that there are growing reports of sale of illicit and spurious liquor in the state which can potentially lead to serious health hazards for people as well as create adverse law and order situation.
The Confederation Director General also asserted that alcohol is one of the most important sources of revenue for state governments and by shutting down retail shops, states are depriving themselves of the tax revenues that are so fundamentally required in fighting the coronavirus pandemic.
He also stated some people need alcohol on medical grounds that should also be considered.
The CIABC, which includes most major Indian companies that manufacture and market their product range in India and abroad, suggested that the state governments may facilitate alcohol sale by placing reasonable control measures such as curtailed shop timings, and directing outlets to strictly follow social distancing norms.
The body also asked for the issue of online permits and permissions enabling wholesalers in a state to receive and supply stocks to off-shops during prescribed hours.
It also pleaded for issue of relevant permits, permissions and approvals to facilitate stock movement and receipt to and within the state.
It is pertinent to mention that comprehending the threats to public health and law and order, some state governments had already taken proactive measures and directed relaxation in shutdown orders for alcoholic beverages shops. Some have also mooted the idea of allowing home delivery of alcoholic beverages like Punjab.
But to many people’s utter shock and surprise, MHA in its notice dated 1st May[xvi] finally implicitly allowed the sale of alcohol by usual means: by regulated opening of licensed stand-alone alcohol shops in the states. What was more surprising was that this was even applicable to places which fall under the Red Zone: with the State government left free to modify the order as per their preferences.
Supervising governance machinery and Administrative division
There exists an enigma over the division of powers between the Centre and states to fight the Covid-19 pandemic. Many have advocated the prime role of centre to deal with parallel situations in a quasi-federal democratic country where ambiguity gives rise to conflict in understanding the democratic roles of the two.
As per Article 246 of the Constitution of India, the matters with respect to Public health and order fall under the State List. However, to cope with the rapidly worsening situation of the pandemic, the central government resorted to the provisions of the Epidemic Diseases Act, 1897 (ED Act) and the Disaster Management Act, 2005 (DM Act) and declared a nationwide lockdown to curtail the spread of this deadly virus.
A more comprehensive Public Health (Prevention, Control and Management of Epidemics, Bio-terrorism and Disasters) Bill, 2017 was put up for discussions by the Ministry of Health[xvii] entailing the scope, responsibilities and functioning of the centre and the states in the situation of a Medical Emergency. However, the said bill was not translated into an Act, because of pending deliberation and thus the only options left were resorting to the DM Act or imposition of an Emergency. However, such a measure would have faced implementation challenges. The Constitution does not directly mention health emergencies of the kind India is currently experiencing. This aforesaid Bill laid down several clear demarcations, highlighting individual powers of state governments, Union Territories, the Centre, and even local governments. It also included a provision which addressed the Centre’s power to supersede the state. Hence it may be safe to suggest that once the worst of the pandemic is over, Parliament may reconsider the Bill, so that a proper protocol between the Centre and states is set to address a public health emergency in the future.
But as for the contemporary state of situation is concerned, the centre has declared the Covid-19 Pandemic as a ‘disaster’ and has thus issued emancipation of resources and accumulation of funds to battle the spread of the virus that has instigated the shutdown of travel, educational institutions and offices across the country. As per the DM Act, the Centre can take all measures as it deems fit and necessary, which leaves little or no room for the states to formulate their own structure to combat the situation. Theoretically, the Act provides for sharing of responsibilities between the Central and State level agencies, however practically that is not the case, just like how the Centre issued a notification asking states to refrain from buying personal protection equipment, ventilators and masks leaving the states to merely ensure that the Centre distributes the material efficiently.
What is a Red zone?
Nevertheless, even in the present circumstances, a big question now also arises post the Lockdown 3.0; what is the criteria for a zone to be in the red zone? To our dismay, there is no strict definition.
As per the latest government guidelines and media reports, it is only defined that if no case is reported for 14 days, the area will be earmarked as orange zone. Thus, as per this, going by the strict interpretation, it means that any area having even a single reported case in the past 14 days from the day you’re counting, is a red zone. However, there’s much ambiguity as to how these areas are classified and how much of a zone should be sealed to contain the spread[xviii].
It has also been reassured that the criterion is not fixed but rather evolving, and that the same would be revised weekly[xix].
The dilemma of the decade
By now the dilemma must be very obvious to you, does the benefit of opening up sales of liquor outweigh the potential risks associated with it? The question seemed rhetorical as the rising sun in the morning of 4th May brought with itself numerous videos which started surfacing online. Massive lines of masked people had come on the streets in many parts of the country, some following social distancing, all for one purpose: to finally buy liquor, the wonderful-evil intoxicant. It was not much later when further reports of apparent closures of these shops had to be done since they had not expected such long queues and turnouts.[xx]
The liquor store owners and the police administration were witnessing what the central and the state governments had failed to foresee. A lockdown nightmare: blatant violation of the social distancing norms, hooliganism on the streets by drunks and the alcohol menace which the constitution makers had always feared.
All this for the greater good of the society, protection of the right of life and liberty of the people, and of course, the replenishment of the depleting government treasures. But all this at what cost? Spreading of the disease to every household at a rate, even half of which cannot in fact be tested for by the government, leave alone be treated?
Repercussions
India reported its biggest one day spike in the number of Covid-19 positive cases on 5th of May, with an addition of 3900 new cases and the massive jump in the death toll by 195, in a single day after the countrywide lockdown eased from May 4th, 2020[xxi]. In a developing country like India, with significantly high population with respect to the area of the land, wherein most of the people live below the poverty line with minimal standards of living and access to low sanitation facilities, it becomes imperative for the government to adhere to the social distancing policies advised by the World Health Organisation (WHO). By opening private offices with 33% employees and segments of the manufacturing and agriculture sector and simultaneous opening of liquor shops have derailed the strictest lockdown the world witnessed. Without adequate maintenance of proper hygiene and social distancing norms, the overcrowded liquor shops even with a 70% increase in price in cities like Delhi[xxii], has pulled the progress at achieving a flat line in the number of cases, back by two colossal steps. Fearing the impact of this deadly and hastily unplanned decision, few cities like Chennai[xxiii] and Mumbai[xxiv] immediately decided to go two steps backward by shutting down the liquor shops back just within a couple of days after opening them, while on the other hand, Delhi[xxv] opted for an online e-token system to control the unregulated crowding for purchase of Alcohol. It is also pertinent to mention that the High Courts, as well as the Government, has suggested Home Delivery as an alternate option but nothing concrete and substantial has been done in this regard. It is further pertinent to mention that a proper, centralised mechanism for Alcohol distribution needs to be devised for each state, to balance the aid that is requisite to prevent the drying up funds of the nation, but not withholding and disregarding the safety and security of the people from the life-threatening virus at the same time.
What did we learn?
Alcohol is no doubt in all its essence a necessity for many even if the society refuses to categorise it as one due to moral grounds. In the present circumstances, it is a source of much needed revenue for the government which in turn shall ensure smooth functioning of other plans of the government, and at the same time ensure that the people who are having heavy alcohol addiction aren’t all of a sudden left to the mercy of black market methanol and resorting to self-reverse-manufacturing of alcohol from sanitizers, etc.
But after such commendable patience the government put all its efforts in complete vain. What could have been another laudable handling of circumstances unfortunately looks like something which shall be remembered as the biggest blunder after a near perfect plan of action. Today when the biggest market players like Dominos[xxvi] and Swiggy[xxvii] have adapted and evolved to deliver groceries instead of doing what they’re best at, just to ensure and make social distancing easy, the need of the hour is in fact ensuring minimal contact delivery and absolute prohibition of public congregation of any kind. Alcohol, like any other scheduled drugs, should be made deliverable to homes, subject to uploading of age proof which can be verified at the time of delivery to the end customer. It will further also promote use of digital currency and distribution in a controlled manner in controlled quantities, thereby giving a systematic means to the distribution of this essential item like every other.
What it would further ensure is that none of the sales go unaccounted for, none of the alcoholics go out on road rages and create menace, and last but not the least, no public congregation and thereby minimising the spread of deadly virus thereby keeping the curve flattened.
Further, it’ll even create much needed employment opportunities for the logistics chain companies who have been badly suffering in this slowdown. Millions of delivery boys have been laid off by delivery giants. Home delivery would push in much needed boost in the economy by creating jobs and at the same time making us ready and equipped with a strong delivery chain which will enable us to tackle the forthcoming challenges of unpredictable epochs when people will prefer to stay home till it is not absolutely essential to go out.
But if this explosive menace is not curtailed as soon as possible, it would be too late subsequently to control the damage. Hence as for now, it can only be said that the current lifting of ban on alcohol sales is a decision taken in perfect time but with a failed execution.
References
[i]https://www.businesstoday.in/latest/trends/liquor-shops-wine-shops-reopen-today-amid-lockdown-check-out-timings-status-state-wise-details/story/402790.html
[ii]https://www.indiatoday.in/coronavirus-outbreak/story/is-coronavirus-situation-in-india-less-severe-than-other-countries-1661359-2020-03-30
[iii]https://www.livemint.com/budget/news/budget-2019-what-is-india-s-biggest-revenue-source-1562554222302.html;
https://timesofindia.indiatimes.com/business/india-business/budget/how-india-earns/budgetinteractives/msid-67654848,interactive-sources-of-revenue.cms
[iv]https://howtoexportimport.com/3-commodities-not-fall-under-GST-in-India-4272.aspx
[v] https://thewire.in/economy/lockdown-states-alcohol
[vi] https://cleartax.in/s/taxation-liquor-related-products
[vii] Article 47 of the Constitution of India
[viii] Article 48A of the Constitution of India
[ix] https://excise.delhigovt.nic.in/content/licences (Different for respective states, as the state government mandate)
[x] https://cleartax.in/s/taxation-liquor-related-products
[xi] ibid
[xii] ibid
[xiii]https://timesofindia.indiatimes.com/city/delhi/delhiites-spent-rs-1000-crore-on-liquor-last-december/articleshow/73077352.cms
[xiv] https://cleartax.in/s/taxation-liquor-related-products
[xv] https://www.google.com/amp/s/www.indiatoday.in/amp/business/story/allow-liquor-sale-illicit-trade-burden-on-exchequer-ciabc-to-10-states-1664333-2020-04-07
[xvi]https://www.mha.gov.in/sites/default/files/MHA%20Order%20Dt.%201.5.2020%20to%20extend%20Lockdown%20period%20for%202%20weeks%20w.e.f.%204.5.2020%20with%20new%20guidelines.pdf
[xvii]https://www.prsindia.org/uploads/media/draft/Draft%20PHPCM%20of%20Epidemics,%20Bio-Terrorism%20and%20Disasters%20Bill,%202017.pdf
[xviii] https://www.google.com/amp/s/m.businesstoday.in/lite/story/coronavirus-lockdown-20-does-your-district-fall-in-red-zone-check-out-full-list-here/1/401188.html
[xix] https://www.google.com/amp/s/www.indiatoday.in/amp/india/story/red-zone-green-zone-classification-coronavirus-1673183-2020-05-01
[xx] https://www.ndtv.com/india-news/coronavirus-india-locdown-long-queues-social-distancing-challenge-as-liquor-shops-open-2222863
[xxi]https://timesofindia.indiatimes.com/india/3900-new-covid-19-cases-and-195-fatalities-in-last-24-hours-highest-increase-in-single-day-centre/articleshow/75555278.cms
[xxii]https://www.ndtv.com/india-news/delhi-to-charge-extra-70-tax-on-liquor-from-tomorrow-amid-coronavirus-crisis-2223273
[xxiii]https://timesofindia.indiatimes.com/city/chennai/madras-high-court-orders-closure-of-tasmac-liquor-shops-in-tamil-nadu-permits-online-sale-and-home-delivery/articleshow/75628668.cms
[xxiv]https://www.livemint.com/news/india/covid-19-mumbai-liquor-shops-to-remain-shut-from-today-11588735097897.html
[xxv]https://www.india.com/news/india/buy-liquor-in-delhi-want-to-booze-heres-how-to-apply-for-e-token-via-www-qtoken-in-4023285/
[xxvi]https://www.businessinsider.in/business/news/tata-consumer-products-ties-up-with-dominos-pizza-zomato-to-deliver-essential-goods/articleshow/75601266.cms
[xxvii]https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/swiggy-expands-essential-services-to-over-125-cities/articleshow/75121289.cms
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