Judgment

RUMA PAL, J.- M/s ITC Ltd. (hereafter referred to as the appellant) manufactures cigarettes. Prior to 1983 excise duty was leviable on cigarettes under Section 4 of the Central Excises and Salt Act, 1944 (referred to as "the Act") at rates specified under Tariff Item 4 of the First Schedule to the Act. The dispute in this appeal relates to the excise duty payable by the appellant for the period 1983 to 1987 on the cigarettes manufactured by it. The resolution of this dispute lies primarily in the interpretation of two exemption a notifications, namely, Notification No. 36/83 dated 1-3-1983 (referred to hereafter as "the 1983 notification") and Notification No. 201185 dated 2-91985 (referred to hereafter as "the 1985 notification") issued under Rule 8(1)

of the Central Excise Rules, 1944 (referred to as "the Rules") and Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The 1985 notification which replaced the 1983 notification was in b similar terms except that the rates of excise duty and the categories of the cigarettes entitled to be exempted were different. In substance, however, as far as the question of interpretation is concerned, there was no material difference between the 1985 and the 1983 notifications. The necessity of our going into the other issues raised in these appeals would depend upon what interpretation we put on these notifications. Between the 1983 notification C and the 1985 notification as well as after the 1985 notification there were other notifications which are not of any consequence as far as the issues raised in the appeal are concerned, and are not required to be referred to in greater detail. As we have said, the 1983 notification for the first time introduced the concept of levying excise duty with reference to the retail sale price of cigarettes instead of the wholesale price at which the manufacturer d sold cigarettes at the time and place of their removal under Section 4 of the Act. The retail sale price was defined in the notifications as "the maximum price (exclusive of local taxes) at which the packet of cigarettes may be sold in accordance with the declaration made on such package by the manufacturers"

2. According to the appellant, the "declaration" referred to in the 1983 and 1985 notifications was the printed price which was in any event required to be printed on each cigarette packet by virtue of the Standards of Weights and Measures Act, 1976 (referred to hereafter as the SWM Act) as well as the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (referred to as the Packaged Commodities Rules). The appellant cleared f cigarettes manufactured by it during this period after paying excise duty on the basis of the maximum retail price (MRJ?) which was exclusive of local taxes printed by the appellant on each cigarette packet.

3. Sometime prior to March 1987 searches were carried out by Central Excise Officers at various premises including the five factories, the registered office, the district offices and branch offices of the appellant as well as in the 9 premises of some of its wholesale dealers. On 27-3-1987, Respondent 1 issued a show-cause notice to the appellant and its job workers [called outside contract manufacturers (OCMs)] in which it was alleged that the concessional rates of duty under the notifictions had been wrongly availed of by the appellant and OCMs. It was alleged in the show-cause notice that the investigation had revealed that: "ITC consciously and deliberately h ensured that the actual retail sale prices of these cigarettes (which had been assessed to exempted rates of duty on their declarations) were higher than the declared and printed sale prices"; that the appellant had been "controlling the margins/prices of wholesale dealers, secondary wholesale dealers and retailers, they have been fixing the margins and varying the same to suit their convenience and design; they have chosen to communicate such