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High Court Of Calcutta
BHAGAWATI PRASAD BANERJEE
I.T.C.LTD. - Appellant
Versus
UNION OF INDIA - Respondent
Matter 3256 Of 1987
Decided On : 12/24/1987
CENTRAL EXCISE ACT - Notification - Interpretation - ‘Sale price’ - Meaning - Printing of lower price on packages of cigarettes for the purpose of payment of excise duty and fixing higher price as ‘effective price’ for sale in market - Whether amounts to evasion of duty - Held, yes.
Fact of the Case:
The petitioner company, a manufacturer of cigarettes, was issued a show cause notice for allegedly evading Central Excise Duty to the extent of Rs. 803.75 crores. The allegation was that the petitioner company had printed a lower price on the packages of cigarettes for the purpose of payment of excise duty and had fixed a higher price as the ‘effective price’ for sale in the market. The petitioner challenged the show cause notice on the grounds that there was no misstatement or misrepresentation regarding the sale price, that the notification in question did not require the printing of the maximum retail price, and that the respondent No. 3, who had issued the show cause notice, was biased against the petitioner.
Finding of the Court:
The court held that the notification in question required the petitioner to print the maximum retail sale price on the packages of cigarettes. The court found that the petitioner had deliberately printed a lower price on the packages of cigarettes in order to avail of a lower rate of excise duty. The court also found that the petitioner had fixed a higher price as the ‘effective price’ for sale in the market, which was known to the petitioner. The court held that this amounted to fraud on the revenue and that the petitioner was liable to pay the deficit excise duty.
Issues: 1. Whether the notification in question required the petitioner to print the maximum retail sale price on the packages of cigarettes? 2. Whether the petitioner had deliberately printed a lower price on the packages of cigarettes in order to avail of a lower rate of excise duty? 3. Whether the petitioner had fixed a higher price as the ‘effective price’ for sale in the market? 4. Whether the petitioner was liable to pay the deficit excise duty?
Ratio Decidendi: 1. The court held that the notification in question required the petitioner to print the maximum retail sale price on the packages of cigarettes. The court interpreted the definition of ‘sale price’ in the notification along with the definition of ‘cigarettes packed in packages’ and found that the petitioner was required to declare the maximum retail sale price on the packages of cigarettes. 2. The court found that the petitioner had deliberately printed a lower price on the packages of cigarettes in order to avail of a lower rate of excise duty. The court relied on the seized documents and records, which showed that the petitioner had admitted to printing a lower price on the packages of cigarettes and that the petitioner had fixed a higher price as the ‘effective price’ for sale in the market. 3. The court found that the petitioner had fixed a higher price as the ‘effective price’ for sale in the market. The court relied on the seized documents and records, which showed that the petitioner had issued circulars/blind notes/secret instructions to the wholesalers and retailers fixing a higher price for the cigarettes. 4. The court held that the petitioner was liable to pay the deficit excise duty. The court found that the petitioner had evaded excise duty by deliberately printing a lower price on the packages of cigarettes and by fixing a higher price as the ‘effective price’ for sale in the market.
Final Decision: The court dismissed the writ petition and upheld the show cause notice issued to the petitioner company.
( 1 ) THIS writ application was moved by the petitioner company against a show cause notice dated 27th March, 1987 issued by Shri N. K. Bajpai, Director, Directorate of Anti Evasion (Central Excise) New Delhi, whereby the petitioner company was, inter alia, directed to show cause why Central Excise Duty to the extent of Rs. 803. 75 crores which was allegedly short paid by the petitioner company should not be demanded under the provisions of S. 11a of the Central Excises and Salt Act, 1944 read with R. 9 (2) of the Central Excise Rules.
( 2 ) THE facts, in short, relevant for the purpose of determination of the questions raised in this case are as follows :- The petitioner company is engaged in manufacturing of cigarettes having its registered office at Calcutta and have five factories situated at Bombay, Bangalore, Saharanpur Munger and Calcutta respectively. The petitioner company sells cigarette manufactured by it through wholeseller, secondary wholesellers and retailers. The petitioner company also had been getting their brands of cigarettes manufactured on job basis from other tobacco companies which are mentioned in the show cause notice. Prior to lst March, 1983 the cigarettes were liable to excise duty under item 4 II (2) of the first schedule of the said Act and were liable to excise duty under Chap. 24 of the Central Excise Tariff Act, 1985. The valuation of the excisable goods for the purpose of charging the excise duty was made in accordance with the provisions of S. 4 of the said Act. The said Tariff Act as prescribed under the said item was as follows :
Date Basic Duty Addl. Duty Spl. Excise Duty 1-3-83 Rs. 440/- per thousand or 300% Rs. 160/- per thousand or 100% ad. val. Plus Rs. 12/- thousand whichever is higher 1-3-84 Rs. 440/- per thousand or 300% ad. val. plus Rs. 20/- per thousand whichever is higher Nil Nil Rs. 260/- per thousand or 175% ad. val. plus Rs. 12/- per thousand whichever is higher
25-3-85 -do-
2-9-85 -do-
-do- 10% of basic -do- Nil
( 3 ) THEREAFTER the Central Government, in exercise of its power under R. 8 of the Central Excise Rules, issued Notifications from time to time granting exemption and providing for a lower and concessional rate of excise duty on cigarettes than ordinarily prescribed under the Act. Prior to 1st March, 1983 the amount of duty was required to be determined with reference to the wholesale cash price of the exercisable goods determined in accordance with the principles laid down under S. 4 of the said Act. After 1st March, 1983 by a Notification dated 27-2-86 issued under R. 8 of the Central Excise Rules, the rates of duty for cigarettes were related to various specific slab rates for which different rates of cigarettes were placed depending upon the retail price of package of cigarette, in other words, the rate of excise duty was made specific for different values depending upon the retail price of the cigarettes and that the duty was levied according to the rates prescribed. For the purpose of determination of the amount of excise duty payable under the Notifications issued under R. 8 of the said Rules, the Central Government from time to time issued Notifications changing the rates. It is not necessary to set out the said rates which were amended from time to time but only for the purpose of this writ application the rate introduced by the Notification dated 2-9-85 is mentioned for the purpose of understanding the case made out in the show cause notice and the case made by the parties before this Court which is as follows : (1)Rate (2)Cigarettes (being cigarettes packed in packages) of which the adjusted sale price per one thousand - (i) does not exceed rupees sixty forty-two rupees per one thousand; (ii) exceeds rupees sixty but does not exceed rupees one hundred and seventy one hundred and twenty five rupees per one thousand. (iii) exceeds rupees one hundred and seventy but does not exceed rupees three hundre
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