CHAPTER 24
MINISTRY OF TOURISM

India Tourism Development Corporation Limited

24.1.1    Infructuous expenditure in opening of Down Town Duty Free shop

India Tourism Development Corporation Limited (Company) decided in January 1999 to operate a Down-Town Duty Free shop (DTDFS) at Ashok Hotel, where a traveller could select the merchandise at leisure which would then be delivered to the airport prior to his departure. Government approved opening of the shop on 4 February 1999 after which Management deputed (March 1999) two officers viz. Sr. Vice President (Engineering) and Vice President (Duty Free Trade) to Bangkok and Singapore to study the layout/ functioning of DTDFS there.

The DTDFS was commissioned (April 1999) after incurring expenditure of Rs.34.27 lakh on renovation/refurbishing/repairs. Besides, expenditure amounting to Rs.9.54 lakh was incurred towards establishment of offices for the Customs Department (Rs.7.51 lakh), foreign tour expenses of the two officers mentioned above (Rs.1.62 lakh) and salaries of employees on contract basis (Rs.0.41 lakh). The turnover of this shop being US $ 796 from April 1999 to March 2000, Management decided to suspend its operations in July 2000.

Audit scrutiny of the case revealed that DTDFS was put into operation without conducting any feasibility studies. The Company also failed to obtain the services of M/s. GEBR Heinemann (Consultants) with whom it had signed an agreement in March 1999 to provide consultancy services for operation of DTDFS.

Management replied (May 2002) that the shop could not achieve the desired revenue due to overall slowdown of the global economy and stringent Customs rules prevailing in the country.

The contention of Management is not tenable as there was only a 0.97 per cent decline in the sales turnover of the Duty Free Division of the Company in the year 1999-2000 compared to the turnover for this division in the previous year. As far as the Custom rules are concerned, the Company should have taken their stringency into account before deciding to set up the DTDFS.

Ministry stated (July 2002) that DTDFS was not meant to be a sales counter but a show window to facilitate sales at the airport. They further stated that the furniture/shelving procured for the DTDFS was being shifted to Delhi where it would be utilised for the souvenir shop and hence there was no infructuous expenditure incurred by the Company.

The reply of Ministry is not tenable as DTDFS was primarily meant to boost foreign exchange earnings. The contention of Ministry that furniture/shelving would be utilised is also not correct as the major portion of the expenditure was incurred towards electrical installations and interior work.

Thus, the Company incurred an infructuous expenditure of Rs.43.81 lakh due to its failure to conduct a feasibility study before deciding to set up DTDFS.

24.1.2    Infructuous expenditure due to delay in commissioning of duty free shops

Delay in opening duty free shops at domestic airports resulted in infructuous expenditure of Rs.28.86 lakh towards payment of royalty.

Airports Authority of India (AAI) awarded (March 2000) licences to the Company to run duty free shops at the domestic airports at Ahmedabad, Bangalore, Hyderabad, Calicut and Varanasi. The licences were valid for a period of 5 years from the date of taking over possession of the shops. A total area of 248.51 square metre was allotted to the Company for these shops on a monthly rent of US$ 17 per square metre with escalation of 10 per cent each year and payment of royalty at the rate of 20 per cent of the projected annual turnover.

As per the terms of the award, the payment of royalty was to commence after 120 days of the date of taking over the space for the shops. Although the Company took over the spaces from AAI between July to November 2000 it could operationalise these only after March 2001 to January 2002 that is, after delays ranging between 59 to 401 days. Consequently, the Company incurred infructuous expenditure of Rs.28.86 lakh towards payment of royalty even when the shops had not commenced sales.

While confirming the facts and figures, Management stated (June 2002) that the reasons for delay in opening of the shops were operational and beyond their control, such as late handing over of site by AAI, non-granting of licences by customs authorities/state governments and delay in construction of shops.

Ministry also concurred (October 2002) with the views expressed by Management.

Contention of Management/Ministry is not tenable as the period of 120 days was to be reckoned from the date of taking over the space from AAI. Further, advance action should have been taken to obtain clearances from the customs authorities/state governments and the work of construction of shops should have been properly monitored to avoid unnecessary payment of royalty.

Thus, the Company incurred an infructuous expenditure of Rs.28.86 lakh due to its failure to commission duty free shops at domestic airports within the time frame stipulated in the agreement.