According to the audit findings, the controversy surfaced on June 30, 2021, when two tanker lorries carrying extra neutral alcohol, the industrial spirit used for manufacturing Indian-made foreign liquor, were stopped by excise officials before reaching the TSCL distillery. Officials discovered that 20,386 litres of extra neutral alcohol had disappeared during transit. The drivers reportedly admitted that the spirit had been illegally sold in Madhya Pradesh with the alleged involvement of certain distillery employees. A police case was registered, but the Excise Department released the remaining consignment after imposing a fine of Rs 6,76,072, treating the shortage as ordinary transit wastage.
Following the discovery, authorities conducted checks on spirit stored inside the distillery tanks. On September 7, 2021, officials found a shortage of 4,60,659 litres of extra neutral alcohol and issued a demand notice seeking Rs 1.54 crore from the company.
However, the amount demanded was later drastically reduced. The company informed authorities that it had never claimed the permitted storage wastage allowance of 0.5 per cent per quarter because mandatory quarterly stock verification had not been conducted. Accepting the explanation, the department granted retrospective wastage benefits for nine years, covering the period from 2013-14 to 2021-22. After adjusting the allowance, the original demand of Rs 1.54 crore was reduced to Rs 48,70,858, which the company paid on June 14, 2022.
The CAG questioned the decision, pointing out that a joint physical verification conducted on March 31, 2021, and signed by excise officials and company representatives had shown no discrepancy in stock. Despite this, the department allowed retrospective wastage claims spanning nearly a decade without any supporting verification records. The audit termed the retrospective allowance irregular and stated that the theft detected during transportation had also been regularised as normal transit loss.
The report highlighted the scale of the financial damage. The missing 4,60,659 litres of extra neutral alcohol stored at the distillery could have produced approximately 1,14,048 cases of liquor, resulting in a revenue loss of Rs 49.68 crore through excise duty, sales tax and turnover tax. The 20,386 litres lost during transportation accounted for an additional loss of Rs 2.20 crore. The total unrecovered loss to the state exchequer was estimated at Rs 51.88 crore.
Against these losses, the state recovered only about Rs 55 lakh in fines, slightly more than one per cent of the estimated revenue loss.
The CAG also highlighted findings that cast doubt on the explanation of routine wastage. After the theft was detected and scrutiny intensified, bottling wastage at the distillery remained below 250 litres for nearly two years. According to the audit, the sharp decline indicated that the disappearance of spirit had virtually stopped once monitoring became stricter.
Responding to the audit observations in June last year, the state government informed the CAG in July that strict instructions had been issued for surprise and independent stock verification. It also stated that proposals had been made for a real-time tracking system for extra neutral alcohol during transportation and a technology-based mechanism to monitor spirit consumption and losses during bottling operations.
However, the government did not address the issue of recovering the remaining Rs 51.88 crore. The CAG rejected the response as unsatisfactory.
More than two and a half years after the company cleared the reduced demand of Rs 48.70 lakh, the bulk of the alleged loss remains unrecovered, leaving unanswered questions over accountability in one of Kerala's most significant liquor-related financial controversies.
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