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The Centre-state tussle over the power to grant liquor licences has taken a new twist, with the Centre deciding to "officially" reject all foreign direct investment (FDI) proposals in the liquor business due to lack of a clear policy.

The decision will close the lid on the expansion plans of several foreign liquor firms operating in the country, and is likely to mix a cocktail of legal tangles since acquisition of breweries having state licences by foreign companies will not be endorsed by the Centre. Several cases including proposals of UDV, South African Breweries, United Breweries, William Grant & Sons, Vijay Breweries and Colanac Breweries have been pending with the foreign investment promotion board (FIPB) for a decision for several years now.

A senior official of the department of industrial policy and promotion (DIPP), the nodal department for industrial licensing, told ET that new FDI proposals involving acquisition of licences would not be entertained until the dispute, now pending in the Supreme Court, is resolved. The Centre is of the view is that if it cleared an FDI proposal involving acquisition of a state licence, it will automatically amount to endorsing a licence granted by the state. The decision to reject pending FDI cases comes ahead of a crucial hearing of a case in the Supreme Court.

The official said all pending liquor cases dating as far back as 1998 have been reopened and will be taken up in the next meeting of FIPB, setting a precedent for all similar filings in the future. DIPP has recommended that these proposals be rejected once and for all.

According to sources, the Centre has already filed an affidavit with the Supreme Court seeking to retain the power of granting licences for liquor production against a claim by the states that the same power is vested on them. The government had not filed an appeal against the Supreme Court judgement given in the Bihar Distilleries case. But it decided to appeal against the apex court order through an affidavit in a separate case which came up a year ago. A decision on the Centre's affidavit is still pending in the apex court.

In 2000, the Centre sought to resolve the dispute by vesting the powers of licensing solely with the states through an enabling amendment in the Industries (Development and Regulation) Act, 1951. A note was sent to the Cabinet to amend the IDR Act and delete the portion that vested the power to the Centre. As per the note, the Centre would continue to be responsible for formulating policy and regulating foreign collaboration in all products of fermentation industries. After further deliberations, however, it was decided that the Centre will retain the powers and contest the Supreme Court judgement.

In 2002, the Centre was asked to clear its stand on the issue when a special writ petition was filed in the apex court in connection with a Kerala High Court judgement. The Centre last year filed an affidavit challenging the SC decision.

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