Jos. Schlitz Brewing Co. pleaded no contest yesterday to federal charges that it paid millions of dollars to retailers to induce them to sell Schlitz beer instead of competing brands.

Under terms of the Settlement filed in U.S. District Court in Milwaukee, Schlitz agreed to pay $761,000 in penalties.

The company pleaded no contest to a single count of criminal conspiracy. It also pleaded no contest to failing to keep accurate, permanent books and records for tax purposes.

For its part, the government agreed to drop 746 other counts of tax and liquor law violations handed down by a federal grand jury last March in Milwaukee.

The government charged that Schlitz made some $3 million in illegal payments between 1967 and 1976. The 746 counts dropped in the settlement list the retailers, wholesalers and others who got cash and other sales inducements from the brewer.

According to the indictment, the policy of pushing sales began in April 1967 during conversations between the former vice president of marketing Robert A. Martin, and the late Schlitz chairman, Robert Uihlein, a member of the Schlitz founding family. Other conversations included board members and executives.

The plan was to boost sales in retail "accounts of influence" by paying inducements, among other things, the indictment said.

Martin chose George Shay, then director of special accounts, and now retired, to carry out the plan.

Shay pushed sales in airports, sports stadiums, race tracks and chain restaurants. Among those receiving payments was John Radnay, the former president of Emerson's Ltd. of Rockville.

Emersons, which was reorganized is now under new management. In April, after pleading guilty to charges of tax fraud Radnay was sentenced to four months in Prison.

Other major retailers receivings illegal payments or services included Chesapeake Bay Seafood Houses of Fairfax. Red Lobster Inns of America Inc. and ARA Services Inc. of Philadelphia.