TMI Blog1998 (9) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... al No. Name of the appellant Referred to as E/209/96-A M/s. I.T.C. Ltd. ITC E/210/96-A J.N. Sapru - E/211/96-A J. Narayan - E/288/96-A M/s. Asia Tobacco Ltd. ATC E/289/96-A M/s. Hyderabad Deccan Cigarette Factory Ltd. HDCF E/290/96-A M/s. Lakshmi Tobacco Co. LTC E/291/96-A M/s. Reliable Cigarettes and Tobacco Industries (Pvt.) Ltd. RCTI E/292/96-A M/s. Master Tobacco Co. MTC E/293/96 M/s. Crown Tobacco Co. CTC E/294/96-A R. Bhoothalingam E/331/96-A Samir Ghosh E/332/96-A Abhijit Basu E/338/96-A S.K. Mehta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules 9(2) 52A(5)(c) Penalty (in rupees) under Rule 209. S.K. Mehta 25 Lakhs 50 Lakhs J.N. Sapru 25 lakhs 50 Lakhs J. Narayan 25 Lakhs 50 Lakhs S. Ghosh 15 Lakhs 20 Lakhs A. Basu 15 Lakhs 20 Lakhs R. Bhoothalingam 10 Lakhs 10 Lakhs Confiscation of land, buildings and other assets of the several assessees, though proposed in the show cause notice, was not ordered. 3. Different units of ITC Ltd. (for short ITC) are engaged in the manufacture of cigarettes of various brands. The other concerns who are also appellants manufacture cigarette as job workers of ITC. Cigarettes fell under erstwhile T.I. 4(II)(2) and presently fall under Chapter 24 of Central Excise Tariff. Central Excise duty on cigarettes was ad valorem prior to 1-3-1983 (except under Notification No. 30/79 which provided for effective rate of duty based on value and number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to sale prices. 5. During the said period, ITC and job workers were availing the benefit of the notifications and discharging central excise duty. On the basis of information gathered by Revenue Intelligence that ITC had been evading payment of very large amounts of central excise duty, searches were carried out at various premises of ITC and of wholesale dealers and incriminating documents were seized. ITC deliberately ensured that actual retail sale prices of cigarettes to consumers were higher than the declared and printed sale prices (for short, PP) and for this purpose fixed and clandestinely circulated effective prices (for short, EP) to be adopted by the cigarette sale chain from time to time. PPs printed and declared on the packets were false and were so printed only with the ulterior motive of availing lower rates of duties relevant to the lower slabs and to defraud the Government of revenue. Even while declaring PPs, ITC visualised and expected that cigarettes should sell at prices higher than such prices. ITC envisaged EPs besides printed prices. EPs so envisaged were higher than the PPs. ITC fixed higher EPs and took steps to ensure that such EPs prevail in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the demand and imposed penalties as indicated in para 2 above, but did not order confiscation of the assets of the concerns on the ground that Rule 209 of C.E. Rules became applicable in the last one year of the period covered by the notice and keeping in view the facts and circumstances of the case. This order is challenged by the appellants. 8. The following submissions have been made on behalf of the appellants :- (i) The background in which Notification No. 36/83 was issued clearly indicates that the Central Government intended to switch over from ad valorem basis to a system which did not involve any valuation dispute and by which duty could be levied on a definite and certain basis with reference to an amount or figure available from time to time. (ii) The plain language of the notification clearly shows the intention to impose duty based entirely on the maximum price declared and printed on the package and does not warrant an intention to levy duty on the maximum price which should have been declared or printed on the package. The Adjudicating Authority erred in taking the price which, according to him, should have been printed as the sale price for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price, the notifications do not indicate that price on each day is to be so shown. Therefore such an interpretation cannot be accepted. (xiii) Newly introduced Section 4A of the Act would support the interpretation canvassed by the assessee. (xiv) The basis of the show cause notice is one of fixation and circulation by ITC of higher market price, while the order is based on the price that should have been printed being the price prevailing in the retail market and visualised by ITC. (xv) The documents relied on have not been correctly understood by the Adjudicating Authority. (xvi) The documents or statements relied on do not evidence fixation of higher EPs to consumers and ensuring implementation of such prices by ITC and hence the demand must fail. (xvii) Prices in different markets charged by retailers in different areas are different. Notification requires a single All India price to be declared. Hence actual prices which are varying and different cannot be the basis for determination of sale price or ASP. (xviii) The impugned order is based on purported actual retail prices prevailing in the market which was not the basis of the demand in the show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to SWD. After the Voltas case, duty was paid on the ITC prices to WDs. Price Lists of ITC were being approved provisionally and on account of litigation, assessments could not be finalised for the period 1973 to 1983. ITC filed eight writ petitions in various High Courts in 1974-75. After the amendment of C.E. Act with effect from 1-10-1975, ITC had to file ten writ petitions in various High Courts during the period from 1975 to 1981. Some matters were taken to the Supreme Court. There were amendments to the Central Excises Act, 1944 (for short, the Act) in 1982 and these amendments were also challenged. Notification No. 30/79 provided partial exemption by basing effective rate of duty on value and number. This was withdrawn with effect from 30-11-1982 and, thereafter duty payable was at the tariff rate, which allegedly cast a heavy burden on the Cigarette Industry. On 28-12-1982, ITC suggested to the C.B.E.C. that ad valorem rate may be replaced by specific rate linked to the length of cigarettes to avoid disputes about determination of assessable value. 10. After a long delay, the Central Government attempted to meet the manufacturers half way by a scheme promulgated under No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing expenses. The Public Accounts Committee (PAC) scrutinised the notification. Learned Counsel also referred to the 34th Report of the PAC 1985-86 incorporating the evidence given by the Chairman as well as the Member (Budget) CBEC describing the above rates as specific rates of duty. The Member (Budget) appears to have stated that they were interested in collecting a certain amount of duty from a particular industry and the rate of duty was accordingly fixed. The Member also indicated that they were conscious of the fact that there could be overcharging of prices by the retailers. According to P.C. Rules, retailers are bound to sell packaged goods at the printed price and if the price charged was more, there is a legal provision for taking action against the retailers. Reference is also made to the evidence of the Member (Budget) to the effect that so far as the Cigarette Industry is concerned, there is no strict correlation between the cost of individual brand and the price that is printed on the package, because each company is having a particular percentage of share of the market in relation to a particular brand of cigarettes. The Member also indicated that they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be granted by providing for the levy of duty at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted shall have effect subject to the condition that the duty of excise chargeable shall in no case exceed the statutory duty. According to the Explanation to the Rule, form or method in relation to rate of duty means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable. Apparently, this sub-rule was incorporated in order to enable the Government to grant exemption in a form or method different from the one based on determination of assessable value under Section 4 of the CE Act, such as value, weight, number, length or volume etc. 14. Learned counsel also referred to various representations submitted by ITC Ltd. and the industry to the Finance Minister, the Chairman of the Board and other authorities. These representations were submitted during the period from March, 1983 to October, 1986, i.e., after the promulgation of Notification No. 36/83. The substance of these representations is as follows :- Prior to 1983 Budget, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the adjudication proceedings. The evidence of Shri J.N. Sapru, the then Chairman of ITC Ltd. is seen in book No. 19. The parts of evidence adverted to by the learned counsel can be summarised thus :- He met the Chairman and Members of CBEC in May/June, 1983 and discussed the issue with them. They wanted a detailed memorandum which was submitted in due course. He also suggested in August, 1983 that Government may stipulate margins and give set off. He pleaded with the Government to provide relief by moderating the rate of excise and giving set off so that trade margins could be enlarged and overcharging by the trade could be controlled. The Chairman, CBEC stated that the Government s primary interest was in getting its budgeted revenue and if that was met, the overcharging was a matter which fell within the purview of the State Governments and from the Revenue s point of view, as long as the manufacturers did not charge or sell at prices higher than the printed prices, there was no revenue implication. The industry volume was suffering because the Government was not taking any steps to contain overcharging and implementing the PC Rules and if no action was taken, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of duty to a certain criterion such as length of cigarette or printed price. It is pointed out that the industry had placed three suggestions before the Government. The first suggestion was to give discount of 25% on the printed price to cover the distribution and other expenses and trade margins. Second suggestion was to relate rate of duty to length of cigarettes and the third suggestion was to relate rate of duty to printed price. The Government initially went by the printed price and in 1987 went over to the basis of length of cigarettes. All these circumstances, it is contended, clearly indicated that the scheme of the notifications under consideration was to enable levy of duty on a definite and certain basis with reference to an amount or figure available from time to time, namely, printed price and, therefore, the notifications cannot be understood as enabling the excise authorities to go behind the printed price and proceed on a roving enquiry regarding the actual retail price. 17. Learned counsel appearing for the Revenue rebutted the above contentions. According to him, Rule 8(3) was incorporated to serve the general purpose of enabling broad-based exemption to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnected with the price structure, the burden of duty would fall equally on cheaper cigarettes and more expensive cigarettes. In fact, the Board had pointed out this aspect to the industry when it wanted effective rate of duty to be related to length of cigarettes. Necessarily, while relating the rate of duty to the number, slabs were prescribed so that there would be lesser duty burden on cheaper cigarettes and higher duty burden on more expensive cigarettes. This was the reason for introducing the concept of ASP based on the sale price . There is nothing in the Budget Speech or other materials relied on by the appellant to show any intention on the part of the Government to base duty structure on whatever price the manufacturers choose to declare or print, irrespective of the real state-of-affairs. It cannot be said that the Government intended to send a message that the industry was at liberty to print and declare whatever prices it chooses and the Revenue would be bound to accept the same. The materials relied on by the appellant do not lead to the inference that the Government intended to create a situation where the prices declared and printed on the packets would be the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby contravene P.C. Rules. The obligation to declare and print MRP is not an empty formality. The manufacturer has to determine MRP properly and correctly by taking into account cost of manufacture, distribution and other expenses and the margins. The discretion has to be exercised honestly. The contention that the words may be sold have been used only because the price is only the maximum price and the retailer has discretion to sell below the maximum price and that may be sold means may be sold lawfully and since any price higher than the declared and printed price which may be fixed by ITC or at which retailer may effect sales is unlawful in the sense that such a retailer is liable for penalty under the P.C. Rules and such higher price cannot be taken cognizance of for implementing the notification is not sustainable, as it would amount to adding words to the notification. The actual words used in the notification cannot be ignored. If the declared PP is a price at which it is not possible for retailers to sell, then it is not a price at which it may be sold in accordance with the declaration. Any contrary intention cannot be gathered from the language of the notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceed ₹ 50, (ii) exceeded ₹ 50 but did not exceed ₹ 60 and (iii) exceeded ₹ 60. The rate corresponding to (i) was ₹ 35 per thousand. The rate corresponding to (ii) was ₹ 35 per thousand plus ₹ 3.50 per thousand for every increase of ₹ 5 or fraction thereof in ASP in excess of ₹ 50. The rate corresponding to (iii) was ₹ 42 per thousand plus ₹ 3.75 per thousand for every increase of ₹ 5 or fraction thereof in ASP in excess of ₹ 60. The Central Government exempted under Rule 8(1) of the Central Excise Rules, 1944, cigarettes of the description specified in column (1) of the Table from so much of excise duty as is in excess of amount calculated at the rate specified in the corresponding entry in Column (2) of the Table. According to the Explanation, ASP in relation to each cigarette in a package meant the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such package. Cigarettes packed in packages meant cigarettes packed for retail sale in packages which contain 10, 20, 50 or any higher number (being a multiple of 50) of cigarettes and bearing a declaration s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Central Excise) : Proviso was introduced to the above definition indicating the authority of the Director (Audit) in the matter of granting or refusing approval to the surface deign. Proviso (3) reads as follows :- (3) design includes elements such as colour, typography, illustration and any lay-out or combination in any form, style or manner of any of these elements, whether with or without any other elements, but does not include the declaration relating to sale price; The definition of sale price remained unaltered, as follows : (4) sale price , in relation to a package of cigarettes, means the maximum price (exclusive of local taxes only) at which such package may be sold in accordance with the declaration made, in print, on such package; Explanations (5) and (6) relating to surface design read as follows : (5) surface design , in relation to any package, means the design on the surface of the package visible to a person seeing the package; (6) a surface design shall be deemed to be deceptively similar to another surface design if it so nearly resembles that other surface design as to be likely to deceive or cause confusion. 22. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the appeal leaving it to the adjudicator to proceed with the adjudication proceedings in accordance with law, allowing both sides to urge all questions on facts and law before the Adjudicator. Justice Shri Suhash Chandra Sen (as his Lordship then was) indicated in paragraph 91 of the judgment that the provisions of the Standards of Weights and Measures Act, 1976 and the P.C. Rules should be entirely overlooked even where there is no specific provision in the Notification. It was further observed as follows in paragraph 97: [1991 (53) E.L.T. 234] The law requires a manufacturer to declare the maximum retail price at which such packages may be sold in accordance with the declaration made on such packages. This requirement is not complied with by a misdeclaration of the price. In the Table, the duty is limited to the adjusted sale price per one thousand . The cigarettes must be cigarettes packed in packages . A definition has been provided for the meaning of adjusted sale price .................Therefore the duty of a manufacturer is to specify the maximum sale price of the cigarettes as the amount specified in the declaration ................. Therefore the law requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich such package may be sold. If the declaration made on the packages are of a price in accordance with which such packages will not or may not be sold, then the declaration would amount to a false declaration. It will be a declaration of price in accordance with which such packages may not be sold. 110. It this argument is to be taken to its logical conclusion, it will mean that if a manufacturer prints the wholesale price or a figure less than the wholesale price as the maximum retail price, then the Government has no option but to accept that as the maximum retail price and levy tax accordingly. This construction will lead to absurdity and cannot be accepted. 111. ............. If it is not possible for a retailer to sell the packages in accordance with the declaration made to the knowledge of the manufacturer or the manufacturer had fixed or had connived at fixation of a higher retail price than what had been actually printed on the packages as the maximum retail price, then it cannot be said that the manufacturer had declared a maximum price in accordance with which such packages may be sold. On the contrary. the inference will be that the manufacturer had printed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on abundantly clear that Mr. Sen s contention as regards may be sold cannot, in my view, be accepted since the last line of definition of sale price makes the position abundantly clear, viz., in accordance with the declaration made on such package. 150. In my view on a correct reading of the Notification there exists an obligation on the part of the manufacturer to print the maximum retail sale price. It is a requirement of law that the manufacturer is directed to give a declaration as to the maximum retail sale price and if there is any attempt on the part of the manufacturer to print a particular sale price, but in the same breath through surreptitious and clandestine means (as the case made out in the show cause notice) communicates another price down to trade chain to the point of retailers, thereby maintains a dual pricing strategy, it cannot but be termed to be a fraud within the meaning of Section 11A of the Central Excises and Salt Act . (Emphasis supplied) 25. It is true as pointed out by the Learned Counsel for the appellant that the Calcutta High Court has left all relevant questions of fact and law open for decision by the adjudicating authority. At the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicating authority, have persuasive value, and must be followed by the adjudicating authority and appellate authority, unless contrary position can be clearly established. 26. According to the appellants, contrary position is clearly made out if the language of the notifications in the background in which they came to be issued and the surrounding circumstances are taken into consideration. We have already considered the background of the notification and the surrounding circumstances and have taken the view that this cannot lead to the inference that the Government intended to create a situation whereby the price declared and printed on the packages would be the last word and could not be examined with reference to the actual conditions prevalent. The notification applies to all cases where cigarettes are packed in packages and contain the number of cigarettes stipulated in the notification and the packages bear declaration specifying the maximum sale price thereof as the amount specified in the declaration plus local taxes only and have surface design approved by the competent authority. Once it is seen that the cigarettes manufactured and cleared by the manufacturer fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in print, on such package. If the language of the notifications is that ASP is based on the maximum retail price, declared, in print, on such package , it would have been possible to argue that ASP depends on the price printed on the package, whatever it may be and howsoever it may have been arrived at and such printed price is final and cannot be subjected to scrutiny in any manner by the excise authorities. But such is not the language used in the notifications. 28. The language in Explanation (4) of the notification is : the maximum price (exclusive of local taxes) at which such package may be sold in accordance with the declaration, in print, on such package. There is no dispute that maximum price means maximum retail price to the consumers. According to learned counsel for the appellants, the words may be sold in accordance with the declaration have been used only because the price referred to is the maximum price . If what is printed is the maximum price, it is argued, the retailer has the option to sell the package at any commercially viable price less than the printed maximum price. The printed price represents, it is argued, the maximum or the upper cei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notification. This, it appears to us, is the true import and the meaning of the words may be sold in accordance with the proviso . Such words would be totally redundant if the intention of the Government was to treat the declared printed price, whatever it is, even the under-declared printed price, as the sale price for the purpose of determining the ASP for choosing the slab applicable to a given brand. 29. Learned Counsel for the appellants referred to certain notifications under the Essential Commodities Act, 1948 and the language of those notifications to contend that the words maximum price at which ---- (commodities) may be sold have been used therein and these words do not lead to any particular significance as contended by Revenue with reference to the exemption notifications relating to cigarettes. The words used in the notifications under the Essential Commodities Act, 1948 are as follows :- Notifications Relevant Clause 1. The Cinema Carbons (Control) Order, 1961 Clause (4) The Controller may fix the maximum price at which any Cinema Carbons may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no relevance in understanding the language of the exemption notifications under consideration. 30. Learned Counsel also referred to proviso (ii) to Section 4(1)(a) of the Central Excise Act, 1944 to compare the language of the proviso with that of the exemption notifications. Proviso (ii) to Section 4(1)(a) of the Act reads as follows :- Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof. It is pointed out that the proviso contemplates a situation where price or maximum price is fixed under any law for the time being in force and the assessee sells the goods at such price. If both these circumstances exist, the price or the maximum price shall be deemed to be the normal price thereof in relation to the goods so sold. The price fixed shall be deemed to be the normal price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less the language is clear and such an interpretation necessarily and logically flows from the language. We are not able to agree that the language of the notification is such that the interpretation sought to be placed on it by the assessee logically and definitely flows from it. We therefore hold that while ordinarily the price printed on the package is to be taken into consideration for the purpose of determining sale price and the ASP, the Department is not precluded from going behind the printed prices in appropriate cases. It is not necessary for us to indicate exhaustively the various circumstances under which the Department can go behind the printed prices. Going by the allegations in the show cause notice, the ITC fixed effective prices at which retailers were expected to sell packages to consumers at a level higher than the printed prices and declared and printed prices at a level lower than such effective prices and circulated the higher prices to the trade channel and ensured that retailers sell the packages at such effective prices higher than the printed prices. Alternatively, the show cause notice also alleged that at any rate ITC in the wake of the earliest of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the lower printed price. We have already indicated that any other interpretation would lead to opening the floodgates for massive evasion of duty, which could not be the intention of the Government. 33. It is contended that the Adjudicating Authority was in error in holding that duty can be levied on the basis of maximum sale price printed on the packages only if the same is sold at that price. We quite appreciate the contention of the assessee that the manufacturer has limited or little control over the actions of the retailers who are, in the case of ITC, about a million in number and the assessee cannot be held responsible for the tendency of the retailers to charge higher than the printed prices so as to secure larger margin. We are also mindful of the situation in certain parts of the country where, it is said, there is a strong and effective Association of retailers which advises the retailers on the prices at which they may sell the packages to consumers. Learned Counsel for the assessee has drawn our attention to several documents showing that retailers of Bombay Region District West, Bangalore, etc. invariably sold the packages at prices higher than the printed pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no substitution of words as alleged. It is only a question of fully comprehending the language of the notification in the light of the scheme of the notification. The view we have taken of the intendment and import of the noti- fications is in accordance with the prima facie view expressed by the High Court of Calcutta in the Writ Petition filed by ITC challenging the show cause notice. 35. Under the P.C. Rules, the manufacturer of cigarettes to be sold in packages, is required to print the maximum price at which the packages are to be sold to consumers. The subject notifications were issued taking advantage of the requirements of P.C. Rules and postulating slabs based on ASP which, in turn, are based on the maximum price exclusive of local taxes, at which the packages may be sold in accordance with the printed declaration on the packages. If the manufacturer of cigarettes packs cigarettes in numbers as contemplated in the notifications and the packages contain declaration in print of the maximum retail price, exclusive of local taxes and as contemplated in the later notification the design of the packages is approved by the designated authority, the packages attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accepted as the maximum retail price exclusive of local taxes at which the packages may be sold in accordance with the printed declaration. If the printed price is such that the packages may not be sold at any such price, it cannot be accepted as the sale price under Explanation (4) on the basis of which ASP and slab applicable can be determined. If the manufacturer has fixed or visualised a different price higher than the printed price at which the packages may be sold in retail, such higher price should have been declared in print on the packages; in other words, such higher price has to be taken to be the declared price and ASP and slab determined on that basis. Any other construction would, as indicated by the High Court of Calcutta, lead to absurd results and in our opinion go against the plain tenor, language and scheme of the notifications. We are quite conscious of the tendency on the part of a section of retailers to try to sell the packages at prices higher than the printed prices. Such conduct on the part of the retailers cannot affect the slab or duty liability of the manufacturer, if he has made an honest estimate of the sale price and declared such safe pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o case that sale had been made to retailers at prices higher than the respective declared printed prices and there is evidence to show that since coming into force of the earliest of the subject notifications, the margins of the retailers had been reduced to 10 Paise for 1000 cigarettes. In other words, during the subject period, the retailers were enjoying some margin, however small it was and therefore it was not a case where it would not have been possible for the retailers to sell the packages at the printed prices or the packages were not capable of being sold at the printed prices. If the retailers sold the packages at higher prices, the manufacturers cannot be held responsible. This is not an aspect arising on the interpretation of the notification; it is an aspect arising on the factual situation. Since Learned Counsel has urged this contention in the course of his submissions regarding the interpretation and scope of the notifications, we will consider the same at this stage. 38. The contention of the appellants is that there is only one situation where the retailers can be effectively prevented from selling the packages at prices equal to or less than the declared prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that local taxes are paid not by the retailers but by the wholesalers and local taxes such as octroi need be paid only once and it is open to the retailers to collect local taxes from the consumers in addition to the printed prices. 39. Let us look at the matter from the perspective of commercial considerations. Retailers were getting margins ranging from 6% to 6.8% on the printed prices prior to the earliest of the notifications. The margin was squeezed to 10 Paise per 1000 cigarettes. Even assuming that retailers are dealing in other products in their outlets and should not mind absence of profit, it is not commercially reasonable to expect the retailers to sell any product at no profit or even at a marginal loss. Retailers are there to earn profit as much as the manufacturers of cigarettes are there to earn profit. From the point of view of commercial considerations, it has to be accepted that from the manufacturer to retailer down the line, everyone will be expecting a reasonable profit. The retailers who also are justified in expecting a reasonable profit may not find it possible to sell the cigarette packages at the printed prices if their margin is to be restricted to 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the maximum price or maximum retail price and impose no restriction on the manufacturers in determining such price. We do not think that P.C. Rules have any particular bearing on the interpretation of the exemption notifications under consideration except that these notifications devised a scheme of exemption taking advantage of the scheme of the P.C. Rules in force and the fact that cigarettes are sold in packages and therefore are governed by the P.C. Rules. 41. Point No. (viii) : It is contended that since sale of a package at a price higher than the declared printed price is a penal offence under the P.C. Rules, it is not open to a retailer to lawfully sell the package at such higher price and a price which is unlawful cannot be regarded as a price at which goods may be sold within the meaning of Explanation (4) of the exemption notification. Learned Counsel for the appellants relied on certain decisions of the Supreme Court in support of this contention. Some of these decisions arose in respect of the provisions of Municipal Acts of various States which defined annual value for the purpose of determining the building tax, as gross annual rent at which the building may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant Rent Act and the period of limitation for making an application for fixation of standard rent has expired, the annual value must be held to be the standard rent determinable under the Rent Act and not the actual rent received by the owner. 42. The contention is that it would be unlawful for a retailer to sell the package of cigarettes to consumers at a price higher than the declared printed price and therefore such a price must be regarded as unreasonable or unlawful and such unreasonable or unlawful price cannot be the basis for determination of the slab or quantum of duty under the exemption notifications. We do not think that the decisions relied upon support the broad proposition canvassed before us. The provisions in the various Municipal Acts define annual value as the sum for which the property might reasonably be expected to let. What the legislature itself prescribed as standard rent should be regarded as reasonable rent . The question of reasonableness or lawfulness does not enter the picture so far as exemption notifications are concerned. Explanation (4) to notification speaks of maximum price at which the package may be sold in accordance with the decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ₹ 2.25 leaving a surplus of 75 Paise which will be sufficient to cover the cost of raw materials, manufacturing cost, distribution and other expenses, profit margin of the manufacturer and chain of dealers but this will not be so if the so-called effective price of ₹ 3.50 is treated as the printed price of the purpose of determination of slab in which case the duty itself will be ₹ 4 per packet. Similarly, it is pointed out that if the printed price is ₹ 1.55 as against the so-called effective price of ₹ 2, the duty based on the printed price will be ₹ 1.25 per package and the duty based on the so-called effective price would be ₹ 2.25. According to the Learned Counsel representing Revenue, total margin in the case where the printed price is shown as ₹ 1.55, is 30 Paise, and if the effective price is to be the basis for determining the slab, the manufacturer has to print the price as ₹ 2.55, that is duty of ₹ 2.25 and margin of 30 Paise, in which case there is no change of slab. This, according to the appellants, may not the feasible commercially. Learned Counsel for Revenue further pointed out that this kind of diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision in Smith v. East Ellen Rural District Council 1956 All. E.R. 855 for the proposition that even if the clear language of a statute leads to strange results, that has to be accepted and the Court cannot add words to the statute to change the result. In Smt. Sita Devi v. State of Bihar JT 1995 (1) SC 411, it was noticed that the clear language of Bihar Agricultural Produce Markets Act, 1960 showed that agricultural produce includes product of animal husbandry. It was held that the absurdity or irrationality of bringing the enumerated items of agricultural produce within the sweep of the legislation is not a principle of interpretation of the statute and the Court cannot strike down the Act on that basis. 46. It may be as suggested by the Learned Counsel for the appellants that for some of the numerous brands belonging to ITC, alleged effective prices or the prices allegedly fixed or visualized or expected by ITC are more than the printed prices and the higher prices lead to next higher slab prescribing rate of duty higher than the printed price or the wholesale price. We do not think this should weigh with us in interpreting the notification in a correct manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he declaration relating to sale price. The Director (Audit) shall not refuse approval of any surface design unless he is satisfied that such surface design is deceptively similar to any other surface design approved under the notification. The approval given shall be subject to the condition that the package with such surface design shall not be used for packaging of cigarettes bearing declarations of different sale prices. On the breach of this condition, the approval granted shall cease to be operative. Surface design shall mean the design on the surface of the package visible to a person seeing the package. If a surface design so nearly resembles another surface design, it shall be deemed to be deceptively similar to it. The concept of approval of surface design was introduced mainly to prevent different brands of deceptively similar packages with different levels of printed prices resulting in smokers being deceived into purchasing a lower priced package as such an exercise may have revenue implications in absolute terms. Care has been taken to make it clear that the requirement of approval did not apply to printed price. Appellants have placed before us a copy of CBEC circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual or prevailing price on the packages. Prevailing on what date? Manufacture of cigarettes takes place continuously on all days or in all periods. Similarly, manufacture of packages takes place continuously, directly or through job workers or others. Clearances take place on all days or in all periods. These packages reach the retail market after an interval of time, however short it may be. The question posed by the appellants is, the actual or prevailing price on what day or date is to be declared and printed on the packages? Learned Counsel for Revenue said that relevant date is the date of clearance. This, it appears to us, is not a practical proposition. 49. The price or prices at which retailers actually sell the packages to smokers are dependent on several factors such as - (a) the price declared and printed on the packages; (b) the degree of effective implementation of the P.C. Rules; (c) commercial considerations such as availability of a particular brand of cigarettes and degree of competition offered by competing brands and the retail prices of brands of competitors etc. (d) Sufficiency or otherwise of the margin allowed to retailers. (e) Natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages such higher prices and appropriate slabs have to be decided on the basis of such higher prices. In our opinion, the same result should follow where retail prices were not fixed and circulated, but visualised or expected or envisaged. The scheme and language of the notifications require the manufacturer to declare and print prices at which they visualise or expect the packages may be sold in retail to smokers and slab applicable has to be determined on the basis of such visualised prices and not on the basis of lower prices actually declared and printed which are unreal and pretended prices. But in considering the quantum of such visualised prices, actual prices may have some relevance. Actual prices , as we have seen, depend on factors partly within the control of the manufacturers and partly beyond their control. Even the factors which are out of the control of the manufacturers may be within the knowledge of the manufacturers. Market conditions and tendency of retailers to overcharge would be within the knowledge of the manufacturers, though local coin shortage and exact prices which some retailers association prescribe may or may not be within the knowledge of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be with reference to value but on the number of cigarettes and only slab depends on ASP. Therefore, Section 4A cannot help in arriving at a correct understanding of the notifications. Point answered accordingly. 51. Point No. (xiv) : Learned Counsel for the appellants strenuously contended that the basis of the show cause notice is only fixing of effective price to consumers and circulation of the same to the trade chain by ITC but the impugned order is based not on any such fixed or circulated price but on the price which should have been printed being prices prevailing in retail market and visualized by ITC. Since the basis of the order, it is contended, is quite different from and contrary to the basis of the show cause notice, the impugned order and the confirmation of demand made thereunder cannot stand. 52. We have carefully analysed the averments in the show cause notice as well as corrigendum notice. In paragraph 4.2 of the notice, it was alleged that ITC consciously and deliberately ensured that actual retail prices of some of their brands were higher than the declared and printed sale prices and for ensuring sales at such higher prices, ITC circulated clandesti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lesale dealers and Retailers were so fixed and varied that retailers had to sell at higher effective prices fixed by ITC in order to remain in business and to earn reasonable return. ITC carried out market operations in order to stabilise cigarette prices at the desired level of effective prices. Prices and margins were circulated on the basis of formula adopted by Head Office and field officers implemented these prices at various levels. In paragraph 5.4 it was alleged that trade margin was a means used ruthlessly for enforcing effective prices in the market. Trade margins and in particular margins of retailers were brought down substantially after the budgetary changes in 1983, without changing unit prices. What SWDs and retailers lost, ITC gained, as can be seen from simultaneous upward revision of invoice prices. Reduction of margins of retailers led to enhancement of contribution for every 1000 cigarettes to ITC. In paragraph 6.1 it was alleged that ITC undertook market operations periodically to control abnormal swing in the prices to ensure that the prices remain close to the desired effective price level. In paragraph 6.2 it was alleged that ITC was giving price rebate to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter which requires consideration at the appropriate stage. The point answered accordingly. 55. Point Nos. (xv) (xvi) : We now turn to the evidence relied on by the Department and accepted by the adjudicating authority in proof of the case set up by the Department in the show cause notice and corrigendum notice. The show cause notice did not furnish the basis for the demand of differential duty, apart from referring to various documents and furnishing copies of various documents. The basis of the demand was furnished in the corrigendum notice. The corrigendum notice refers to Annexure C to the show cause notice as containing the calculation of differential duty. The corrigendum notice was accompanied by a chart showing effective prices. This chart is seen referred to in the adjudication order as DDC Chart . Copy of the chart is seen at pages 80 to 83 of Paper Book No. 3. This chart refers to the effective prices for various brands of cigarettes manufactured by ITC during the entire period of demand divided into 12 sub-periods (A to L). It is seen that in respect of some of the brands no effective prices were given during some of the periods. At the end of DDC Chart are rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recorded but not relied on in the show cause notice since he stated that he had collected information from his field staff and collated the same in A81(F). There is no dispute that the budget referred to in the document was 1983 Budget which led to the issue of the earliest subject notifications. A.P. Bilimoria explained the headings of various columns and stated that unit price referred to unit price charged by retailers and retailers margin was calculated as per their price lists. When he was cross-examined for the appellants he stated that A81(F) was his document prepared as a result of survey conducted before and after 1983 and market price was shown as unit price. Market price varies from locality to locality. A81(F) shows average market price or the unit price. Unit prices were fixed neither by him nor by ITC. Actually these prices were fixed by Bombay Bidi Traders Association. He also stated that these prices may not necessarily be the same as actual prevailing prices. He referred to Exhibit DAE 191 seen at pages 22-27 (Book No. 37) said to be a copy of A81(F) and stated that it was a field survey report and did not mention Association prices separately. What is seen men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Sarkar, (Market Research Manager, ITC), R. Noronha (Branch Manager, Ernakulam) and A. Dutt (Branch Manager, Bombay). J. Narain denied A81(F) to be an ITC document. Learned Counsel pointed out that the margins shown in A81(F) and A48 which gives pricing logic by ITC in 1983 are different and argued that the difference in margins would show that ITC was not fixing effective prices to retailers and difference in figures would not be present if ITC was fixing such prices and margins. It is contended that the adjudicating authority did not properly consider the above aspects which clearly show that prices and margins in A81(F) were not fixed or circula- ted by ITC. 59. A81(F) bears the signature of a WD. There is no direct evidence to show that the prices and margins to SWD and retailers, unit price, stick price etc. shown therein had been fixed and circulated by ITC. There is the evidence of ITC Director that A81(F) is not an ITC document. This evidence has to be accepted in the absence of specific contra evidence. The more important question is what was the source of the prices and margins shown in A81(F). A.P. Bilimoria, gave contradictory evidence as to the source, namely, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and with reference to the total available margin based on unit prices. That being so, it must follow that the suggestions of ITC Bombay office were also based on the higher prevailing prices. The system followed was such that WDs having long standing relationship with ITC adopt pricing logic based not on printed prices, but on higher prevailing prices. If ITC was adopting a system of determining total available margin based on lower printed prices, it cannot be that WDs adopted pricing logic based not on printed prices, but on higher prevailing prices. It is accepted that with the coming into force of the first of the subject notifications, ITC increased their margin and reduced the margin of retailers vis-a-vis the printed prices from 6.8% to absorb the higher duty liability and progressively increased their margin and reduced the retailers margin vis-a-vis printed prices so as to bring it down to ten paise per 1000 cigarettes. It is not disputed that the natural tendency of retailers would be to sell the packages at prices higher than printed prices so as to maintain their pre-existing margin or so as to earn a reasonable margin. These circumstances clearly establish that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling prices or All India average price. However, we do not agree that the prices shown as union price or market prices in this document were those fixed by ITC. A37(A) for Period C : 62. This document was seized from the Bombay Branch of ITC. Genuineness of this document is not in dispute. A copy is seen at page 91 of Paper Book No. 4A. At the top are the following words : After 1st May 1983 Bombay Branch 21-6-1983 A = Bombay City (Retailers Association - 15% Profit) + U/C Maharashtra/Gujarat Markets, with 10% to 12% profit and 3% to 2% E.T. B = U/C Maharashtra/Gujarat Market with 15% profit + 4 to 5% E.T. C = Goa U/C (Up-country) E.T. is Entry Tax.] The document mentions the price of 20 ITC brands separately in each of the regions A, B, C. Figures mentioned are the prices to WD, BTL (below the line), Margins to SWD, Price to Retailer, percentage of margin to retailers and unit price and stick price to smokers. Though A and B relate to Maharasht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same are not uniform. It is argued that if I.T.C. fixed and implemented higher EPs, the actual prices reported by IMRB must be equal to the prices so fixed and the variance observed would not have been present. A37(A) is a branch document and, it is contended, there is no evidence to show that it originated from or had the consent of the Head Office. A37(A) takes into consideration 15% margin fixed by retailers association and therefore, it is argued, the prices could not have been fixed by ITC. The same contention has been urged on the basis of the reference in A37(A) to Markets with 10 to 12% profit and 2% E.T. and 4 to 5% E.T. . The unit prices include profit of retailers and the element of entry tax and there was no entry tax in Goa. There are variations in percentages of profit indicated in the document, it is pointed out. It is also contended that higher EPs adversely affect volumes of sales and it will be against the interest of ITC to fix higher EPs which bring down volumes. Learned Counsel illustrated this with reference to the data seen at page 1249 of Paper Book No. 29 and page 12 of Paper Book No. 39 which show that for certain brands when price to smokers we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations with reference to A37(A), A74, A81(E) and A82. The chart is seen at pages 138 and 139 of paper book No. 42. Reliance is placed on the evidence of A. Dutt, Branch Manager, ITC Bombay (Book No. 10, pages 6), K. Ramanath (Book No. 10, page 216), S. Misra (Book No. 11, page 132), S.K. Mehta (Book No. 18, pages 38, 39) and J. Narain (Book No. 15, page 32) claiming that A37(A) prices and prices in other documents were not fixed by ITC and they were observed or modal prices. Learned Counsel complained that none of these submissions made before the Adjudicating Authority had been considered specifically. These submissions are rebutted by learned Counsel for Revenue, according to whom the finding rendered by the Adjudicating Authority is correct. 64. A37(A) was seized from Bombay Branch Office of ITC and the genuineness is admitted. Obviously, it is a list of prices to WD, SWD and retailers, BTL, unit prices to smokers (i.e., EPs higher than printed prices) and percentage of profit of retailers based on such higher unit prices. There is no specific evidence that these prices and margins had been fixed and circulated by ITC. The explanation of appellants is that the prices and marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f districts or branches under ITC or it would have been visualised by ITC. It may be true that pricing logic has to take into consideration several factors including the factor that sometimes increase in price to smokers may affect sales. This cannot be a factor applicable to all situations, brands or periods. It depends partly on the popularity of brands and pricing logic of competitors. We have no doubt, when ITC adopts a pricing strategy fixing wholesale prices and printed prices and visualises, envisages or expects sale of packages to smokers at certain prices higher than printed prices, all relevant factors would be taken into consideration. We hold that the unit prices seen in A37(A) were visualised, envisaged or expected by ITC. 65. A83 (for period D) : A copy of A83 is seen at pages 171 to 176 of paper book 4A. This document was seized from Bombay Branch of ITC. It is unsigned and contains no date. It contains various particulars such as price to WD, to SWD and retailers and margins of WD, SWD and retailers as also BTL, total trade margin, retailers margin (MKT) in real figures and percentages and unit and stick market prices. This document has been relied on in the DDC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed prices. He also explained that the column retailers margin - market shows retailers margin based on observed unit market price to smokers. Reference is made to the percentage of retailers margin based on market prices as ranging from 8.3% to 23.2%. Since it was an internal document, it is contended, it was not circulated to the trade chain. Learned Counsel referred to the evidence of S. Dutt, Branch Manager ITC, Bombay (Book No. 10, pages 3 to 12, 35, 41 and 43) to the effect that he regularly did market survey in his jurisdiction, i.e. Bombay city, Maharashtra, Gujarat and Goa which has a highly competitive market, that there was a strong retailers association in Bombay city, there was influence of retailers association and high Entry Tax in area B and retailers association desired a lower margin in Goa compared to other areas in the district. The market-data was allegedly collected by his staff. He admitted that the market prices were higher than printed prices. He also claimed that prices shown in A6 were modal prices , i.e. prices at which cigarettes were sold in maximum number of sales. He stated that the observed retail prices may or may not agree with the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC. This could not have been without the knowledge or consent of the Head Office. It is highly improbable that the prices and margins were merely observed prices and margins. The preponderance of probability is in favour of the conclusion that the intermediate prices and margins were fixed by the Bombay District office and the prices to smokers were envisaged, visualised or expected by ITC. 69. We may, in this connection, refer to certain other documents which throw light on the modus operandi followed by ITC. ITC explained before the adjudicating authority the process of arriving at PPs. This is seen at pages 73 to 80 of paper book No. 45. The process can be summarised as follows :- In revising PPs. regard must be had to volumes and market share a brand will achieve at the revised PP. Information regarding the performance of competing brands in the same price cluster and the context of PP related excise duty structure w.e.f. 1-3-1983 must be considered. If trade margins (TM) had been kept at the pre-1983 levels, volume would have been badly affected and PP would have been increased manifold with disastrous impact on volumes. Minimum volume necessary to avoid loss was 30,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be visualising or envisaging or expecting particular or specific EPs and having done so, ITC would certainly be interested in creating conditions to ensure that cigarette packages are sold to smokers at such EPs, as otherwise sale volumes and profits may be affected. 70. Learned Counsel for Revenue stressed on certain documents to support the above inference. A51 (page 117 of paper book 4A) seized from ITC Head Office related to some of the 42 ITC brands. This price list w.e.f. 22-8-1983 contains unit price (PP), margins to WD, SW and retailer, price to WD. A51 shows it was prepared on the advice of S.K. Mehta, Chairman ITDB and signed by Chandu (S. Misra). This Head Office document worked out prices and margins on the basis of PPs. A51 proposed profit rebate on certain brands in North/Central/West districts. These margins had been worked out on 17-8-1983, before issue of price list w.e.f. 22-8-1983. A36 (page 90 of paper book 4A) is a similar document seized from ITC Head Office, checked and corrected by S. Misra. A36 contains prices for 19 ITC brands w.e.f. 29-10-1983 based on prices revised on 27-10-1983. A14 (page 31 of paper book 4A) sent by district manager, South to br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on A6. A8 (A78) for period F 71. A copy of A8 is seen at pages 20 and 155 of paper book 4A. The document was seized from the Bombay District office of ITC. The heading of the document is : 11-2-1984 onwards (after H.O. s nn/11/PCPL -7 dated 9-2-1984) By PCPL is meant price list. A8 relates to seven ITC brands of cigarettes and furnishes prices to WD, SWD, and retailer, margins of WD and SWD, retailers margin based on printed price, BTL, total trade margin, Retailers margin MKT i.e. retailers margin as per market price , percentage of such margin and market prices for unit package and stick. It is significant that while retailers margin based on printed price was uniformly 5 paise for 1000 cigarettes, retailer s margin based on market prices was shown as ranging from ₹ 7.2 to ₹ 50.05 per 1000 cigarettes, the percentages ranging from 7.2% to 23.2%. Prices and margins have been furnished separately for A , B and C which letters obviously carry the same connotation as in A6, A37(A) and A83. Head Office price list dated 9-2-1984 seen at page 22 of paper book 4A was noted as strictly private and confidential and signed by R.N. Roy for Marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Head Office of ITC on 9-2-1994. This conclusion is assailed by learned Counsel according to whom two days would be sufficient to observe market conditions and prepare a detailed statement like A8. We find it difficult to agree with this submission. The wholesale price and printed price were revised by ITC only with effect from 11-2-1984, though they were communicated as price list dated 9-2-1984. The impact on the market of wholesale price and printed price revised with effect from 11-2-1984 could not have been observed by the field staff all over Maharashtra, Gujarat and Goa, collected at the district office, tabulated and margin worked out and A8 prepared on the very same day. Preponderance of probability is that on coming to know of revision of wholesale price and printed price with effect from 11-2-1984, the district office of ITC distributed the total margin based on printed price to WDs, SWDs and retailers and fixed unit and stick prices or at any rate, arrived at the suggested unit and stick prices to be followed in the market, that is, by retailers. There is no other logical and acceptable explanation for A8. The explanation attempted by the witnesses relied on by learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enclosure (pages 40 to 44 or A15 at pages 34 to 37) to the letter indicated the revised price categories w.e.f. 1984-85 and the corresponding July, 1984 effective pack price for 10s. Price category-wise particulars are seen at A16 seized from Bombay branch office. 74. A copy of A17 dated 13-8-1984 is seen at pages 45 and 46 of Paper Book 4A. This document was seized from Bombay branch office. It is a clarification issued by the market research officer to all district managers, all branch managers, officers of ITDB. The clarification related to A16 revision of price categories w.e.f. July, 1984. A17 amended A16 in regard to a few brands, changing the category and also the effective pack price for ten brands. These amendments were made due to a change in the methodology for determining the effective pack price. The earlier method or basis was effective pack price to consumers generally prevailing in the country . The changed method or basis was pack price at which we expect it should sell to consumers . It was stated that with price change on new brand introduction, decision regarding fitment of brands into price categories would emanate from marketing department. It was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember/December, 1982 there was change in excise duty structure resulting in pushing up prices of most brands and shortage of stock in market leading to overcharging by retailers. Even after restoration of stock position, overcharging did not stop or reduce. Effective prices being higher than printed prices, brands would often fall into higher category according to effective prices. Basic object of categorisation being comparison of brands which interact and compete with each other, categorisation on the basis of printed price became meaningless. After categorisation, brands within a category which compete with each other were analysed for forecasting future volumes on the basis of the category, for determining gaps in specific categories either for introduction of a new brand or re-positioning in terms of price of an existing brand. Market data was being received through market reports on prices of ITC and competitors such as IMRB or reports received by Head Office from districts and branches. A15 to A17 gives particulars of ITC and rival brands. Learned Counsel referred to A15 dated 16-7-1984 (at pages 32 to 37 of Paper Book 4A) a price categorisation revision circular with eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also and it cannot be that ITC was fixing effective prices of rival brands also. Reference is also made to the Section 14 statement of A.C. Sarkar, the author of A16, seen in page 10 of Paper Book No. 10 and his evidence seen at page 37 of Paper Book No. 10. He had stated that expectation was based on prices at which retailers were normally selling cigarette packages to smokers i.e., ignoring abnormal prices caused by abnormal factors and EPs or expected prices were always higher than PPs. EPs, according to him, were estimated on the basis of actual observed prices in the past based on market information, consumer panel data which varied from region to region, market to market. S. Wanchoo gave evidence that A16 and A17 were never communicated to anyone outside the Head Office or branches. He also stated that in November, 1985, ITC reverted to price categorisation based on printed prices as seen from circular signed by him seen at page 36 of Paper Book No. 36. Learned Counsel stated that since November, 1985, ITC excluded prices in unworkable slabs. He also invited our attention to the evidence of K.N. Grant (pages 106, 107 - Book No. 13), N.K. Mukherjee (pages 78-112 and 183-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saged or visualised retailers to sell packages to smokers. 80. We have considered the materials placed and submissions made before us carefully. Having regard to the nature and purpose of the exercise of price categorisation, reflected in A16 and A17 and the clarification seen in these documents, it cannot be said that the EPs referred to therein were EPs fixed by ITC. It is true that EPs referred to in A16 (and also A15) and the enclosure were EPs stated to be generally prevailing in the country arrived at after ignoring yet higher actual prices due to activity of retailers association in certain cities and higher octroi incidence in Gujarat. However, the EPs referred to in A17 do not purport to be based on prevailing prices; on the other hand, EPs in A17 were retail prices at which ITC expected the packages should sell to consumers and categorisation was also required to be made on that basis. The word above in A16 (and A15) has no significance since it is appropriate for indicating various price categories. It is clear that EPs in A17, though not fixed by ITC, were prices at which ITC visualised, envisaged or expected packages should sell to consumers. Abnormalities in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , marketing manager, advertising manager and certain other individuals. The letter was written in the context of post 1985 budget changes and revised fitment into price categories of ITC brands. Revised fitment was to be as indicated in the enclosure seen at page 25. The author sought discussion with Information Systems regarding computation of consumer expenditure on sale analysis outputs and ABC analysis. This letter was sent in reply to letter ISD/DI/5201 dated 11-4-1985 of Information Systems, a copy of which is seen at page 135 of Paper Book 8 which sought relevant information. Such information was furnished in the enclosure to Al0. This document furnished maximum price per unit recommended in tax free markets and effective pack price per unit for 37 brands of ITC, the EPs being higher than the former. The 37 brands were divided into five price categories. The second sentence in A10 reads as follows :- Fitment for ITC brands, for which Post Budget prices have been announced are indicated in the enclosure . The adjudicating authority indicated that use of the word announced clearly indicated that the Post Budget EPs had been fixed and announced by ITC. Learned Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or eight high brands, nine medium brands and twenty-three low brands. UP is unit price which in this context is PP and EP is effective price. Being a forecast, according to learned Counsel for appellants, the EPs in A86 were not prices fixed by ITC and can only be regarded as prices visualised or envisaged by ITC. He explained that the prices mentioned for July and August 1985 were observed prices which along with observed prices for earlier years were regarded a historical data and using such data and other relevant information, EPs for September 1985, and later months were predicted or visualised. This exercise is regularly conducted to project future trends to help the top management to take decisions for future periods regarding production and pricing. It cannot be, it is pointed out, that in September 1985, ITC would or could fix or visualise prices for period up to June 1986. The show cause notice made no reference to A86 though DDC chart for period J was based on the document. 85. Learned Counsel referred to oral evidence of certain witnesses. K. Ramanath stated (pages 230-234 of paper book No. 10) that sale forecasts are based on projection of printed prices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y rejected these replies as not genuine because of the dates in the receipt stamp seen at pages 904, 916 and 926 as 4-3-1984, 26-2-1984 and 13-3-1984 respectively. These letters were deposed to by R.S. Noronha who produced them on 2-12-1988 and he was not cross-examined by Revenue regarding the year 1984. Learned Counsel explained that the mistake was not in altering the year in the rotating date seal before using the date seal. He referred to date seal showing 24-3-1982 in a letter written after the budget proposals of 1983 at page 96 of paper book No. 8, a similar mistake in letter dated 8-2-1985 at page 890 of paper book No. 27 referring to 3 year period from July, 1985 and the annexure to the reply (page 897) showing the period as 84-88. The letters doubted by the adjudicating authority had been proved by K. Ramanath as seen at page 236 and 238 of paper book No. 10. He also deposed that All India forecast was based on the average of EPs forecast by all the district managers and the All India figures were quite different from EPs adopted by the Adjudicating Authority. PPs in All India average were rounded off to multiples of 5 but average EPs were not so rounded off. The average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Adjudicating Authority erred in adopting the EPs in A86 as such without any adjustment and without considering the fact that A86 is a document of district west which includes areas with high retail prices on account of influence of retailers associations and with high octroi incidence. A85 for period K 89. A copy of A85 is seen at page 178 of paper book 4A. It contains various figures for eleven high brands, fourteen medium brands and thirteen low brands etc. The figures provide Volume, UP, EP, CS and expectations for July 1986, August 1986, November/December 1986, January/June 1987. The heading of the document is Expectations (West) . K. Ramanath deposed that as district manager (west) he prepared A85 in November, 1986 and it was a summary of sales forecast. The figures for July 1986, August 1986 and September 1986 were existing data. This sixth column under C.S represented actuals. The figures for subsequent periods were estimates . He also stated that A85 was prepared for review of ITC s market position and in view of changing circumstances of competition. UP stood for unit price or PP and EP stood for effective price. CS represented consumer spen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91. According to Learned Counsel for ITC the word protected does not imply that EPs were fixed by ITC, but it is an expression with special connotation in use in computer technology. He referred to Quick and Easy Learning Lotus 0-1-2-3 by Douglas J. Wolf, second edition, Appendix B at page 156 where it is stated :- If you wish to display a work sheet but not allow it to be modified, the protection command will do that . Figure B-7 indicates Worksheet global protection . The computer can be so operated as to protect certain data and such protection can be disabled also. It is explained at page R-150 of The power of Running 1-2-3 by Robert Williams that protection facility can be turned on and off. After a spread sheet has been defined, and is expected to be used by others, cells are protected from changes. While modifying a spread sheet with protection cells, protection has to be turned off while changes are being made. When protection is turned on, cell modification can only be made to cells which had protection deleted using the Range unprotect command. Worksheet delete Columns/Rows command cannot be issued while protection is still turned on, but workshee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s visualised in A85 for November 1986 onwards came true only if he had compared them with actuals or observed EPs, which he did not do. Even in the chart at pages 1224 and 1225 of the impugned order, some of the EPs do not agree with the actuals. Learned Counsel for ITC has prepared a chart for comparison of EPs for all the months shown in A85. It is seen that only about 42% of the EPs tally with actuals. Therefore the aspect of adjustment of EPs projected in A85 has to be considered as indicated in the previous paragraph. 93. Learned Counsel contended that though A85 indicated EPs for November and December 1986, the Adjudicating Authority adopted the EPs for July and October 1986 to quantify EPs for the entire period (1-7-1986 to 31-12-1986) and figures for November and December 1986 also should have been taken into consideration. This contention has no substance since it is seen that EPs in A85 for October 1986 were the same as for November and December 1986 except in one case where there was a difference of only one paise. Period L 94. DDC chart and the impugned order relied on A85 for arriving at the EPs for period L also (January and February 1987). Period K consisted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upward revision of PPs was by around 36%. The price lists are DAE 127(L) and (M) at pages 1128 and 1131 of paper book No. 29. It is pointed out that the PPs were revised from ₹ 3.75, ₹ 3.60, ₹ 2.80, ₹ 2.10, ₹ 2.10 and ₹ 1.30 per packet of ten cigarettes to ₹ 5.15, ₹ 5.00, ₹ 3.00, ₹ 2.90, ₹ 2.85 and ₹ 1.70 respectively. The slabs under Notification No. 201/85 were ₹ 60, ₹ 61 to ₹ 170, ₹ 171 to ₹ 300, ₹ 301 to ₹ 350 and above ₹ 350 while the pre-existing slabs were ₹ 50, ₹ 51 to ₹ 60, ₹ 61 to ₹ 300, ₹ 300, ₹ 301 to ₹ 500 and above ₹ 500. The rates were increased substantially. If PP of packet with PP of ₹ 3.50 was not increased, duty payable would have been ₹ 4. It is contended that ITC submitted price lists proposing reduced PPs with lower duty liability as seen in document DAE 127 at page 1128 of paper book No. 29 but since it was not accepted, ITC filed price lists increasing PPs as seen in document DAE 127M at page 1137 of paper book No. 29. 96. Learned counsel argued that A23 action plan dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper book No. 11) that ITC was advertising PPs and intimating PPs to State Governments and had opened fair price shops to combat the phenomenon of retailers selling packages at higher prices. All the contentions urged by appellants are sought to be rebutted by learned Counsel for Revenue who supported the finding in the impugned order that EPs referred to in A23 were prices fixed by ITC or at any rate, visualised by ITC as prices which should prevail. 97. A23 clearly referred to new EPs which were higher than the new PPs. The first object of the action plan was to establish the brands at the new prices and at the same time protect sale volumes. A23 did not refer to the pre-existing or new PPs fixed in September, 1985 in the aftermath of drastic changes in duty structure brought about by Notification No. 201/85. A23 did not reveal any concern about changes in PPs; on the other hand, it referred to the new EPs and revealed concern over impact of quantum of new prices over sale volumes. The new prices referred to could be only new EPs visualised as a consequence of increasing PPs by about 35%. The market could absorb increase in prices only up to a limit without adversely aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rettes. This amount of ₹ 1.70 tallied with the PP in price list DAE 127(J) seen in paper book 29. The brand was a low price brand. The competing brand was STYLE FTK of GTC. A28 indicated that in the low price segment, Style FTK had established a volume of 40 million and the volume was rapidly growing while ITC brand NOW FTK was unrepresented. A26 provided a plan for increasing the sale volume of ITC brand. KS means King Sized and FT means Filter Tipped . The volume of low price segment in cigarettes was 126 million which represented 45% share of industry in which ITC was poorly represented with EMBASSY FT and WILLS ROYAL FT. ITC share in 20 paise/25 paise category which represented 58% of industry volume was a poor 4%. The plan wanted to project a value offer by ITC of a contemporary cigarette for which there was growing demand. Page 76 noted existing volume position of 4 ITC brands and 7 competition brands and the total volume in the industry in the effective unit price range of ₹ 4 per packet and stick price of 25 paise. Page 77 referred to estimated sales. The plan required teams to be set up to assist WDs and their salesmen in implementing an aggres- sive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITC staff used to come and tell the retailers the price at which they should sell cigarette packages. 100. Learned Counsel for appellants challenged the correctness of the conclusions in the impugned order regarding A28. According to him, popular price meant PP and not EP since it is clear that ₹ 3.40 referred to as popular price was PP as seen from DAE 67 at page 424 of paper book 25. It was contended that the adjudicating authority was in error in thinking that the permission for float operation referred in A28 meant permission from Head Office of ITC for EP. Actually the reference was to permission from police authority for arranging float operation on public road. K.L. Khanna, Assistant (marketing) Delhi deposed (page 30 onwards of paper book No. 13) that before launching NOW FTK, effective price was forecast as the price which the retailer was likely to charge. It is stated that the two retailers whose statements were relied were operating in Lucknow and not Delhi. It is contended that one of them, Mahavir Prasad has his shop adjoining the Central Excise Office gate in Lucknow. He stated in cross-examination (page 199 of paper book 12) that he did not know who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . So also did S. Misra (pages 233 to 238 of paper book 11). Learned Counsel for appellants challenged the finding that the price in Para 8 of A29 was a price visualised by ITC. A29 did not give any indication of any price as fixed or visualise or expected by ITC. Reference was to prevailing price of ₹ 3.25 as against PP of ₹ 2.50. Sales to smokers organised under the guidance of ITC staff were not of mere packages but of packages with two attractive articles for a consolidated price of ₹ 10.00. The contention of learned Counsel for Revenue that ITC staff organised sales to smokers at the prevailing price of ₹ 3.25 per packet of 10 cigarettes is not correct. A29 does not so indicate; on the other hand, it indicates that ITC staff organised sales only of packages containing a cigarette packet and the other articles. We are not able to agree that A29 supports the case of fixation or visualisation of higher EP by ITC. But A29 clearly shows that ITC was aware of the prevailing retail price. A24 at page 64 of Paper Book 4A 103. This is a launch report dated 5-12-1985 prepared by Saharanpur Branch and sent to the Marketing Manager, Head Office of ITC regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the brand to ₹ 2.70 so as to cover the new excise duty of ₹ 2.25. A new brand CAPSTAN FLAKE FT at PP of ₹ 1.70 was introduced and the old CAPSTAN FT at PP of ₹ 2.70 was also in the market. A24 reported that small quantities of CAPSTAN FT lying in the market were not moving at the new price. A24 related mainly to the new brand price of ₹ 1.70. All these details are seen in the minutes of the meeting of the Directors at page 99 of paper book No. 40 and the note by Chairman ITC to Member CBEC seen at page 179. We find that A24 is not helpful to Revenue except to the extent that ITC branches were actively involved in pushing new brands in the market by consumer contact and allied activities. A19 at page 48 of 4A dated 25-4-1986 104. This relates to period J. A19 is a letter from District Office Bombay to Member (Marketing) about the urgent need for a new brand by name BRISTOL FILTER KINGS 20SC. It appears that Bristol Trademark was in grave danger of extinction in the west with sharply declining sales since December 1985, the reason being escalation of price of Bristol FT from ₹ 2 to ₹ 2.85 within a span of six months, September 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the process of rounding off be adopted. It is also pointed out that A19 proposal was for Bombay region where prices are always higher than other regions on account of strong pressure of retailers association. 105. The adjudicating authority indicated that EP of A19 could not be observed price as the brand was yet to be introduced and it was clear that the District Managers were suggesting EP higher than PP for new brand because that was in tune with the ITC strategy. It is also pointed out that the proposal was to introduce a package of 20 cigarettes but actually a package of 10 cigarettes was introduced. K. Ramanath, author of A19, deposed as seen at pages 255 and 256 of paper book No. 10, that EP in A19 referred to model price in view of tendency of retailers to overcharge. It is seen stated in the deposition of J.N. Sapru, Chairman as seen at page 189 of paper book no. 19, that A19 did not represent fixation of price and E.P. can only be PP plus local taxes with rounding off process on account of coin shortage. Since the brand referred to in A19 was a proposed brand, EP mentioned in A19 could not be observed price . Of course, it could be an estimated EP and as it tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as modal price . In his section 14 statement, he stated that EP was an observed price as the brand was generally sold at ₹ 2.00. This evidence appears improbable. A18 referred to brands positioned at ₹ 2.00 and the advisability of developing brands with EP of ₹ 2.00. While ₹ 2.00 mentioned as EP of an existing brand may or may not be observed price , the EP of a brand yet to be developed could not be observed price . A18 clearly shows that visualising or expecting a brand to be sold at a higher EP while PP was lower was an accepted policy and strategy of ITC. A72 dated 3-10-1985 at pages 143 and 142 of Paper Book 4A (Period J) 108. A72 contains a list of brands and prices seized from a WD at Madras, Adam Jahi Md. Sait. The prices given were prices to WD, SWD, Retailer and PP. The PP tallies with PP shown in DAE 127L at page 1128 of Paper Book No. 29 and DAE 127M at page 1131 of Paper Book No. 29. A72 does not indicate EPs. But it shows retailers margin based on PPs was 10 paise for 1000 cigarettes. A72 offered rebate of ₹ 5 per 1000 cigarettes to SWD and Retailers in the case of one brand and of ₹ 15 in the case of another brand with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants, A40 does not indicate any attempt to maintain EP of packet at any particular level and stick price is outside the pale of the exemption notification. S. Misra in his evidence (paper book no. 11) stated that the PP was ₹ 3.00 and the attempt was to keep down the stick price at 35 paise. A40 does not relate to EP for packet and hence does not support the case of Revenue except that it shows ITC was prone to interfere in ensuring certain stick prices. A70 at page 139 of Paper Book 4A 110. A70 is letter dated 24-7-1986 of a WD to the ITC Branch Manager at Madras regarding rebate allowed to customers. According to the impugned order, A70 indicates grant of rebate to special outlets to enable cigarettes to be sold at PP and it must follow that if rebate was not given, retailers cannot sell packets at PP. This conclusion is challenged by the appellants. S. Misra (pages 226, 227 of paper book no. 11) deposed that rebate or discount was not given directly by ITC. WDs gave rebate to selected prestigious outlets such as clubs, leading stores, railway institutes and consequently ITC got prominent display space at those outlets. The practice of rebate was in force even in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to him, therefore the price to consumers referred to in A44 was PP and not EP. It is pointed out that any action of a manufacturer fixing prices to SWDs and retailers would violate MRTP Act and hence the message about intermediate prices not changing was sent by an unsigned note. The show cause notice referred to A44 as implying the existence of a system of communicating EPs to the trade without leaving any trail by way of blind notes or blind price lists. Learned Counsel contended that intermediate prices conveyed by ITC to the trade were only suggested prices and not prices fixed by ITC. A44 evidences a similar attempt to communicate intermediate prices to the trade by figures at the bottom of price list with perforation so that the part containing intermediate prices can be removed by the WDs. Learned Counsel agreed that the suggested intermediate prices were generally same though there were variations in some cases as seen in the charts at pages 24, 43, 45 and 46 of paper book no. 43 prepared on the basis of Section 14 statements of WDs not relied on in the show cause notice. In those statements, WDs stated that they themselves fix prices to SWDs keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from ITC. P.N. Shaw in his section 14 statement seen at page 89 of paper book no. 11 stated that he may have received price list from ITC by post and had followed the rates and the prices in A4 had been written or typed by his staff based on ITC circular dated 4-4-1985. This circular DAE 127-I seen at page 1122 of paper book no. 29 mentioned only prices to WD and PPs. ITC price list covered 43 brands while A4 referred to only 26 brands. It is pointed out that A4 mentioned the corresponding prices of a few rival brands also. It is contended that ITC could not have fixed prices of rivals. The basic stand taken is that based on the wholesale prices and PP s circulated by ITC, the WDs worked out the intermediate prices and EPs on their own for ITC brands and rival brands and ITC cannot be held responsible for such effort on the part of WDs. P.N. Shaw deposed at page 74 of paper book no. 12 that the EPs in A4 were observed prices and not received from ITC and he was keeping ITC informed about market prices and prevailing prices. There is no evidence, it is said, to show that the intermediate prices or EPs in A4 had been fixed or circulated by ITC. Learned Counsel for Revenue point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 4-4-1985 signed by the Ernakulam Branch Manager addressed to WDs and enclosing the usual price list i.e. A64 (containing only wholesale price and PP) an underneath the price list was a cyclostyled document with the heading price list (i.e A65) giving intermediate prices and unit prices for 1000 cigarettes and per pack w.e.f. 4-4-1985 which was the date of the covering letter and he concluded that A64 and A65 must have been enclosed along with the letter. It is clear that the full story of these documents is not before us, but A64 indicates an attempt by the ITC branch to circulate certain prices shown in pencil which were higher than PPs. It may be that these prices could not be implemented by WDs for various reasons. Hence this document broadly corroborates the case of the Revenue. A5 at page 12 of Paper Book 4A 117. A5 is a price list w.e.f. 14-9-1985 with printed columns filled in and seized from M/s. Tobacco Mart, Siliguri, a WD of ITC. A5 furnishes price to SWs and to retailers as also PP and EP for fourteen ITC brands. The Adjudicating Authority arrived at a finding on A5 similar to the finding on A4 and for the same reasons. Appellants contend that this document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows A3 was prepared in the branch office after receipt of official price list of ITC indicating wholesale price and PP. The total trade margin for SWDs and retailers would be clear from the price list. A3 must have been prepared in the branch office by apportioning the trade margin and fixing prices to SWDs and retailers as also the EPs to consumers. These cannot be merely observed prices. A1 at page 1 of Paper Book 4A (Period K) 119. A1 was seized from the Calcutta branch office of ITC. It notes Mr. M.L at the top left side. The heading is Revised Trade Price/Margin - w.e.f. 1.7.1986 . A1 furnishes price to WD, NM (that is, normal margin for WD), A.V. (that is, additional value margin for WD), INT (that is interest for 29 days for WD), total margin of WD, price to SWD in ET and NET areas, total margin for SWD, prices to retailer in ET and NET areas, total margin of retailer and unit price - PP and EP. Appellants point out that the EPs of nine out of the thirteen brands shown in A1 are lower than the EPs in DDC chart and for six out of thirteen brands, PP and EP shown in A1 fall in the same duty slab. In the case of two brands out of the nine brands referred to, the EP in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WDs stating that they did not receive copy of A1. The relevant statements are DAE 30 (pages 220, 223 of paper book no. 23), DAE 17 (page 132 of paper book no. 23). The Adjudicating Authority held that A1 prices were not observed prices but prices fixed by ITC. According to him, A1 and the contents thereof speak for themselves. This finding is challenged by learned Counsel for appellants who relied on the materials referred to above. 120. Two prices in A1, that is, price to WD and PP were admittedly fixed and circulated by ITC. It is probable that the margins and other prices in A2 were fixed or visualised by ITC. The reference to the three components of margin of WD, including the interest of 29 days clearly suggest that the margin of WD must have been fixed or visualised by ITC and this would give the price to SWD. It is more probable that the margin of SWD and price to retailer were also fixed or visualised by ITC. D. Roy admitted having given a copy to one WD. A1 must have been prepared prior to 1-7-1986 and not after 1-7-1986 if it was an example of recording observed prices and margins. The element of circulation is also in evidence. We hold that A1 evidences prices, margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al brand which was being sold at 30 paise per stick. However, retailers were conscious that they make more profit by selling the rival brand than the ITC brand as explained by the figures given in the report. The figures are:- Brand Price to E.P. Retailers s profit on retailers per 1000 cigare-ttes Packet stick Packet sale Stick sale R W FTK (RIVAL) ₹ 230 ₹ 2.75 30 p. ₹ 45 ₹ 70 ITC Brand ₹ 210 ₹ 2.25 25 p. ₹ 15 ₹ 40 Charms FTK (RIVAL) ₹ 215 ₹ 2.50 25 p. ₹ 35 ₹ 35 A26 further indicated that 70% business was in packet sale, cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er free samples of sticks to them with or without branded offers. On the basis of this evidence, learned Counsel contended that the contents of A26 do not support the impugned finding. As per the notification in force at the time there was no higher slab as in the case of Notification No. 201/85. It is pointed out that Delhi is an octroi (Entry Tax) area. Learned Counsel for Revenue supported the finding relying on the contents of A26. 124. We are not inclined to accept as true the explanations offered by K.L. Khanna or the appellants, as they are laboured and contrary to understanding of the contents of A26 from the common sense point of view. A26 related to a new brand then introduced only in Delhi about a month prior to the date of the report. Extensive and intensive sales promotion and publicity campaign had been launched by special teams, as explained by K.L. Khanna, corroded of ITC staff, WD staff and supervisors and their effort established the ITC brand on a firm basis in spite of strong competition. Though the PP for the brand was ₹ 2.10, it was being sold to smokers at ₹ 2.25 per packet or 25 paise per stick. This was the EP for the brand. The convenienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The telex was sent a short while after the budget changes in 1985, intimating that the rival FOUR SQUARE KINGS brand was selling from duty paid stocks to SWDs at ₹ 347.55 and to retailers at ₹ 350.00, without formal price increase and stick was selling at 40 paise in Bombay city. ITC had not resorted to grant of rebate on the corresponding brand (WFT) as the rival brand was expected to go up to ₹ 3.55 or ₹ 3.60. If such price increase for the rival brand did not take place in the next few days, the West District may resort to grant of rebate to ensure EP for WFT at 40 paise, as it was currently selling at ₹ 4.25 per 10 and 45 paise per stick. Retailers were unwilling to sell stick at 40 paise on PP of ₹ 3.60. K. Ramanath was also trying to persuade retailers to sell ITC brand stick at 40 paise. According to DDC chart, ITC EP was ₹ 3.85. The Adjudicating Authority considered A41 as an example of ITC intervention in maintaining EPs (in this case, of stick) at a predetermined level. Learned Counsel for appellants referred to the section 14 statement and oral evidence of K. Ramanath seen at page 190 of paper book no. 5 and pages 254 and 255 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that A55(B) showed that even for new brands, ITC visualised two different prices as PP and EP and rejected the theory of coin shortage as the explanation. He also held that ITC was fixing or visualising EP for stick and suitably adjusting PP. Learned Counsel contended that higher EP indicated in A55(B) was based on prevailing prices for other brands in comparable price segments. According to him, no witness questioned under section 14 was asked about A55(B). He relied on the evidence of R. Sujan (pages 95, 96 and 97 of paper book No. 10) that EP of ₹ 2.00 shown in A55(B) was only the market price or prevailing price. It appears that before a new brand is launched, market trend is studied. He also stated that ITC had no intention that the stick price of 40 paise should be followed in the market and ITC was not able to fix price at that level. Having considered the evidence and probabilities, we are not able to accept the evidence given by R. Sujan which appears to be inherently improbable and unnatural. It is clear that a new brand will be launched with a particular PP and a fixed or visualised or suggested higher EP. This conclusion supports broadly the case of Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITC brand WILLS FLAKE. The letter followed an earlier telex message dated 19-7-1985 suggesting revision of market price of the brand from ₹ 1.95 to ₹ 2.05 and of another brand WILLS FLAKE FILTER KING to ₹ 4.40. The author of A20 discussed the desirability of dropping the price to ₹ 1.80 and recommended against it for various reasons including the circumstance that 75% to 80% sales were in sticks and stick price can remain at the current 25 paise. He recommended revision of the price to ₹ 2.05 per packet and suggested that even at ₹ 2.05 the EP could still be pegged at ₹ 2.40 (instead of ₹ 2.25) without significantly affecting volume and stick price would remain at 25 paise. He also made suggestions for the improvement of quality and size of the brands. The Adjudicating Authority held that A20 evidenced the practice of ITC controlling retail prices and visualising higher EPs and maintaining such prices. 129. Learned Counsel who challenged the finding in the impugned order relied on section 14 statement of the Bangalore Branch Manager K.S. Iyengar and the evidence of S. Misra. K.S. Iyengar stated that his recommendation about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuing without change during the period and contemplated maintaining EP at 30 paise in 1 year with eventual increase to 35 paise by next plan. Learned Counsel pointed out that A13 did not suggest EP for packet. According to him, 35 paise per stick was only visualisation and not fixation by ITC. The relevance of A13 is that EP was very much present in the thoughts of ITC at all stages of planning. A37(B) at page 93 of Paper Book 4A (period I) 132. A37(B) dated 9-4-1985 seized from the Bombay Office of ITC, contains Prices effective from 9-4-1985 for 18 ITC brands. There was an admitted revision of PPs w.e.f. 5-4-1985 seen from DAE 127I dated 4-4-1985 seen at page 1122 of paper Book No. 29. It is common case that the date 9-4-1985 was a mistake for 5-4-1985. A37(B) furnished the PP, price to WD, SWD and retailer, margin of SWD and retailer, percentage of retailers margin on package and stick, price of packet and stick to smoker (admittedly EP) and SQB (sales quantity budget) for 1985-86. The author of A37(B) has not been identified by either side. The Adjudicating Authority held that the price to smoker (EP) in A37(B) was fixed by ITC relying on the intrinsic evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ITC appear to be improbable and unnatural. The intermediate prices and margins as well as EPs shown in A37(B) must be part of the pricing logic of ITC and visualised by them. When ITC visualised an EP, it is reasonable to expect the same to be communicated to retailers lest they sell the packets at such excessive prices as to adversely affect volumes. The EPs shown in A37(B) must have been visualised, if not fixed by ITC. A11 dated 1-10-1984 at page 26 of paper book 4A A79 dated 5-10-1984 and enclosures at pages 156 to 158 paper book 4A 134. Both the documents were seized from the Bombay branch of ITC. A11 is a letter written by U.K. Shukla, Ahmedabad Branch Manager to A. Dutt (called Tubby), Bombay Branch Manager referring to Head Office price list dated 26-9-1984 and seeking to know the trade prices applicable to Bombay so that he may adopt the same in Ahmedabad Branch. The price list must necessarily contain the price to WD and PP. The tenor of A11 and the information sought therein clearly probabilies that it was the ITC practice to fix or visualise trade prices even other than wholesale price and PP. 135. According to Revenue, A79 dated 5-10-1984 was sent by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen at page 158 did not record merely observed prices; they recorded prices visualised, if not fixed by ITC. A49 dated 17-9-1984 at page 112 of paper book 4A (Period G) 136. A49 is a note from S. Misra, Marketing Manager, regarding prices sent to the Indian Tobacco Division Board (ITDB) marked strictly private and confidential . Clause (AA) of the note clarified that no price changes, not even minor changes can be made without approval of Board. The price objective was to achieve profit without jeopardising market share or standing. Clause D indicated increase in unit price of the seven ITC brands specified therein had been sanctioned with effect from the date indicated against each brand. Clause F indicated financial implications of the contemplated changes in PPs, referring to the attached statement provided by ITD (Finance). Clause G provided information supporting the contemplated revision of PPs and postponement of change of PPs of certain other brands. The Adjudicating Authority held that the Board whose approval was necessary for price changes was Board of ITC and not ITDB. This does not appear to be correct on a reading of clauses A and D. Clause D makes it cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel cannot be accepted in the light of the language used in A21. The letter made a suggestion to change the PP to ensure that the packet sells at ₹ 5.00. The suggestion was ultimately implemented in a modified form by fixing PP at ₹ 4.80. The suggestion came from a responsible officer of ITC in charge of a branch and was partly accepted ultimately. The purpose evidently was to ensure EP of ₹ 5.00. It may be that this was based on the expectation that PP of ₹ 4.80 would result in EP of ₹ 5.00. This definitely indicates fixation or visualisation or expectation of a particular EP for a particular brand and quantifying a particular PP to ensure a particular EP was concomitant part of the pricing logic or strategy of ITC. A22 dated 29-2-1984 at page 59 of paper book 4A 138. A22 is letter dated 29-2-1984 from A. Dutt, Bombay Branch Manager to Member, Marketing on price alternatives for WILLS ROYAL vis-a-vis rival brands since ITC brand was price-sensitive and will be affected in case ITC raised the PP from ₹ 1.15 to ₹ 1.35 when it will sell at 20 paise per stick. He made two suggestions, one to maintain the PP of WILLS ROYAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PP of ₹ 2.00 duty was ₹ 147 for 1000 cigarettes. According to him, two days would be sufficient to observe EPs in market restricted to Ambala town. He pointed out that IMRB prices for November and December, 1983 were ₹ 1.85, 1.90, 2.00, 2.10 in Madras, ₹ 1.90 and ₹ 2.00 in Calcutta as seen at pages 747 and 748 of paper book No. 34 and page 731 of paper book No. 26 and page 1856 of paper book No. 34. We have rejected the contention of EP being observed price in connection with other launch reports and for the same reasons, we reject the similar contention regarding A25 also. The EP in A25 must have been EP visualised, if not fixed by ITC. A73 dated 22-11-1983 at page 146 of paper book No. 4A (Period E) 140. A73 is letter dated 22-11-1983 from Madras Branch Manager to the Bangalore District Manager on the subject of special discount in October, 1983 for supply to Railways. The letter contained a request to arrange payment of the amount of special discount extended by a WD at Madras to Railways. There is no dispute that ITC was extending special discounts to some clubs, Railways and other prestigious retail outlets to enable or encourage the outlets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. This step was resorted because in the first week retailers were selling stick at 20 paise which would have defeated the very purpose of price reduction, namely, to ensure stick price of 15 paise. There was consumer awareness programme regarding 15 paise per stick to force retailers to sell at 15 paise which proved effective. A27 indicated that some SWDs were disappointed about their low margin. The Adjudicating Authority held that A27 indicated the control which ITC was exercising on intermediate prices and prices to smokers. 142. Learned Counsel for appellants pointed out that word of mouth publicity was not directed at the trade chain or retailers but at smokers and the entire attempt of local officers was to bring down the stick price to the smokers evidently because a rival brand in the same price segment was selling at 15 paise per stick and sale at 20 paise would affect volume. The attempt, it is pointed out, was not to push up the price to smokers. These submissions appear to be correct. But question of organising consumer-resistance to stick price of 20 paise and such resistance forcing retailers to sell stick at 15 paise could have arisen only when retailers were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confusion and it was important to study brand trends. If the parameters mentioned in the last column (guidelines) were not observed, according to him, consumers perceptions about brands could change and ITC would be required to rethink about several factors. A14 dealt with only brands which were highly sensitive to price competition. Even accepting all these statements as correct, the inevitable conclusion must be that ITC was, as part of marketing and pricing strategy, visualising EPs higher than PPs and taking steps to monitor the same so as to take corrective action. Such visualisation of EPs was at the heart of the strategy. A80 at page 159 of paper book No. 4A (Period C) 145. A80 is a document styled PRICING - BRANDS - STOCK DURATION - ACTION PLANS seized from the Bombay office of ITC. A80 suggested dates on which circulars of WD price and Trade prices - SWD-Retailers-UP were to be issued. While the action plan suggested definite dates or periods for issue of circulars fixing WD prices, the suggestion regarding other trade prices and UP (unit price) was to issue circular as necessary in each branch. Suggested action plan was spelt out in the remarks column. Sugg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailers realisation may be the retail price actually charged by retailers. ITC contended before the Adjudicating Authority that A84 was an exercise conducted by A. Dutt of Bombay branch to estimate the EPs which he felt might prevail in Bombay city if proposed revision of price to WD was implemented. The Adjudicating Authority rejected this contention on the ground of similarity of prices in A6 and A84, the connection between A36 and A84 and the inherent improbability of the case and held that the EPs in A84 were visualised or fixed in advance by ITC. These conclusions are challenged by learned Counsel for ITC who relied on the evidence of J. Narain at pages 192 and 198 of paper book No. 15 that A84 was an exercise conducted by A. Dutt. Learned Counsel also pointed out that Bombay is an area with strong influence of retailers association. We find it difficult to accept that A84 was the result of an isolated action on the part of the Bombay Branch Manager. The details seen in A84 could not be mere observed prices and margins. BTL and rebate referred to in A84 must necessarily have been planned and offered by ITC. We find no reason to conclude that the trade prices and margin shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not merely the price to WDs and PP. The price to the retailer was fixed in such a manner as to squeeze the retailers margin drastically so as to constrain retailers to sell packets at prices higher than PPs. There are other ITC documents already referred showing fixation of intermediate prices by ITC. A38 dated 30-6-1982 at page 94 of paper Book No. 4A 149. A38 was a price list dated 30-6-1982 effective from 30.6.1982, sent by the Head Office to all Branch Managers, ITDB members and other ITC officers, long prior to Notification No. 36/83. Attached to the circular was a slip containing three sets of prices. The prices at the extreme right side of the slip tally with the PP of three brands, GOLD FLAKE FTK, SCISSORS and CAPSTAN FLAKE shown in the circular. The slip did not indicate what the prices were but there is no dispute that they represented price to WD, SWD and retailer as also PP. A.C. Sarkar gave evidence about A38 at page 89 of paper book 89. A59 (page 126 of paper book No. 4A), price list w.e.f. 23-12-1982 also furnished three prices as also margin at all trade levels and price to consumer. A35 and A60 also furnished intermediate prices. Learned Counsel for ITC st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin available to retailer was got squeezed and consequently retailers may choose to sell cigarettes to smokers at prices higher than PPs. In such cases, it has to be proved further that such higher prices at which retailers sell cigarettes to smokers was fixed by ITC. The fact that ITC fixed intermediate prices does not lead to the inference that the higher prices charged by retailers were fixed by ITC. If there is independent evidence in this regard of fixation by ITC of such higher prices, fixation of intermediate prices has no relevance. It is admitted that ITC squeezed retailers margin on account of squeezing of the total margin available to the trade as a consequence of the exemption notification. Since this is admitted, fixation of intermediate prices by ITC has no relevance. In fact, ITC was pointing out to CBEC and the Government that retailers margin had been squeezed. Most of the documents particularly the unsigned documents showing intermediate prices do not refer to EPs. If ITC had fixed, EPs, the same would have been shown in such unsigned documents. We find it difficult to accept the above submissions as we have indicated earlier. Fixation of intermediate prices, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation offered by J. Narain would challenge the averment in para 7.1 at page 29 of the show cause notice that reduction of margin of SWDs and retailers which generated extra margin in the hands of WD is BTL. The notice alleged that the scheme of negative and positive BTL was devised to ensure that cigarette packets were sold at the EP and excess money so generated on account of BTL was used for various purposes by WDs according to the instructions of ITC. The scheme is seen explained in A42 seized from the Bombay office of ITC. A42 is an explanatory note prepared by A.S. Bhatia, District Manager, West at Bombay. He explained the basis of the overall pricing strategy. He mentioned the case of CAPSTAN FTK where we have built in a negative BTL to ensure that the ₹ 3.00/30p. price prevailed for the good of the brand. Margin of SWD was not lower than in the past as the segment had considerable clout in the distribution chain. Price to retailer was at least Re. 1.00 below the PP. BTL was minimal and calculated to offset unavoidable non-LOA prom. expenses as far as possible. Hence regional trade disparities were fewer than earlier and were virtually split into four segments, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch refers to BTL of 1 paise for brands with varying market prices. One brand with three different regional market prices had the same BTL of 15 paise. These submissions are rebutted on behalf of the Revenue. 153. We have considered the documents referred to above and the rival submissions. A42 itself makes out BTL has a definite role to play in controlling prices to smokers. A42 asserted that we that is, ITC district office had built a negative BTL to ensure that the ₹ 3.00/30 paise price prevailed for the good of the brand . What was good for the ITC brand will certainly be good for ITC. It was also used to reduce regional disparities. Negative BTL was one of the devices useful in maintaining retail prices at certain levels which would obviously be in the commercial interest of ITC. 154. The contention that the positive BTL fund would be entirely at the disposal of WDs is belied by the contents of A7 seen at pages 16 to 19 of paper book no. 4A. A7 dated 29.11.1983 was written by A. Dutt, Bombay Branch Manager to the Member Marketing in the Head Office under the caption Field Budget 1983/84 . There was a cut back in the budget for three western district branches. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing EPs higher than PPs- A28, A4, A5, A3, A1, A2, A26, A55B, A20, A37B, A11, A79, A21, A22, A25, A24, A64 and A23. (2) ITC was fixing or visualising trade prices at all levels - A80, A74, A38, A44, A41, A74 and A84. (3) Visualising EPs was part of ITC strategy of marketing and pricing - A14. (4) EPs were considered as part of planning strategy - A13. (5) At any rate, ITC was aware of higher prevailing retail prices - A29. (6) ITC was actively involved in pushing new brands in the market by consumer contact - A24. (7) It was the policy and practice of ITC to propose PPs at levels lower than established or visualised or expected EPs - A18 and A19. (8) ITC was using the strategy of granting rebate or discount to maintain such higher EPs - A41, A73, A40, A84 and A68. (9) ITC was prone to act in ensuring certain retail prices - A40, A27, A67 and A20. (10) ITC was ensuring supplies with rebates and discounts to select outlets where packages could be sold at PPs - A70 and A73. (11) ITC was monitoring implementation of visualised EPs - A14. (12) ITC was popularising EPs - A26; and (13) ITC was using the strategy of BTL to ensure sales to smokers at desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which cigarette packages may be sold to smokers. It is true that direct oral evidence is lacking in this behalf and almost all WDs and officers of ITC examined before the Adjudicating Authority spoke against the case of circulation. These are witnesses with long-standing loyalty to ITC. Their evidence, it is contended by Revenue, cannot stand when tested on the touchstone provided by documents relied on by Revenue and broad probabilities. 159. We have already adverted to the note by P.K. Sinha of ITC (pages 73 to 80 of paper book No. 79). Central to the excise (sic) of fixation of prices was the ITC perception of the thinking of the smoker as to whether he was getting value for his money , fierce competition in the market and the extreme price-sensitivity of cigarette packages. Sales volume forecasts were prepared on the basis of assumed PPs and specifications and for a given range of assumed PPs, certain EPs were predicted and consumer-spending was arrived at. Thereafter variables and fixed costs were calculated and the targeted profit was added. Net turnover arising from volumes forecast and total duty payable on assumed PPs was arrived at for each brand and on this basis g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in parts of the country, there are strong associations of retailers which desire to ensure high profit for retailers and try to dictate high retail prices or local conditions dictate such higher retail prices. The nature and extent of competition for particular brands in particular price-categories may also vary from one region or locality to another. The nature of business strategy adopted by retailers may vary; it may be profit-intensive or volume-intensive. All these factors may cause variation in prices at which cigarette packages are actually sold by retailers to smokers in different localities. But, ITC cannot think of implementing their strategy without communicating the visualised EPs to retailers and making all efforts to ensure that such EPs are adhered to. Viewed in this light, it is highly probable that visualised EPs were being communicated to the trade. 161. There are documents emanating from ITC and reflecting intermediate prices and margins of traders at all levels as also higher EPs, whatever be the nomenclature used, namely, whether price lists or action plan or marketing plan or launch reports or reports or whether they are unsigned blind notes. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicates all prices and margins, including Head Office price to SWD and retailer s margins in terms of EPS and also speaks of rebate to maintain margins of SWD and retailers. A6, which is an ITC document refers to existing and proposed prices and margins at all levels, BTL and market prices and of implementation of such prices with effect from the date specified therein. Such implementation cannot, in our opinion, be without effective circulation of prices in the trade. A7, A9, A77 and A84 also provide circumstantial support to the case of circulation EPs. A84 prepared by the Bombay Office bears the date 31-10-1983. A6 contains proposed prices implemented w.e.f. 3-11-1983. The proposed prices for the II period in A84 (from 25-8-1983) correspond to existing prices in A6. A6 revised prices said to be effective from 1-11-1983 were revised after revised official price list was issued w.e.f. 29-10-1983. A6 furnishes existing and proposed PPs and market prices which, in the circumstances could only mean EPs. A6 prices could not have been implemented without circulation and other efforts. A7 letter of Bombay branch to ITDB indicates revised pricing was accepted w.e.f. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of PPs. It is not in dispute that splitting of total margin in documents emanating from Head Office was on the basis of PPs and in documents emanating from district offices and branch offices was on the basis of EPs. This is seen from the branch documents A6, A8 and A84. A43 (page 104 of paper book No. 4A) was an amendment suggested by K.S. lyengar, Bangalore Branch Manager. The amendment was to the heading showing unit price, price to WD and margins at three levels. The prices in A43 at page 105 of the paper book tally with the prices in A53 which is a Head Office document and with prices shown in A83 which shows Bombay prices. A83 has no date and hence was not relied on by the Adjudicating Authority. But the result of comparison of prices in these three documents of which dates are known of two documents leads to the inference of circulation to the trade of intermediate prices and margins based on EPs. 166. DAE 1271 (page 1122 of paper book No. 29) is an lTC official price list w.e.f. 5-4-1985. A2 which is an ITC document w.e.f. 5-4-1985 seized from a WD at Calcutta shows Head Office prices to SWD, PP and EPs in E.T. areas and N.E.T. areas. A37B furnished prices and margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of A26 to A28, A67 and A80 regarding word of mouth publicity also indicate circulation and communication of EPs to the trade. All these documents establish the ITC practice of communicating EPs to the trade. 169. We have now considered all the relevant documents in the light of conclusions drawn in respect of each document and contents thereof and drawn certain legitimate inferences and conclusions. On the basis of these conclusions and inferences, we uphold the finding of the Adjudicating Authority that ITC was visualising, envisaging or expecting, as the case may be, higher EPs, circulating the same to the trade and taking steps to ensure that cigarettes packages were generally sold to smokers at EPs higher than PPs. Points are answered accordingly. Point No. (xvii) 170. It is contended that retail prices charged by retailers in different areas were different, and the exemption notifications contemplate a single All India price to be declared and, therefore, actual prices which were varying and different cannot be the basis for determination of maximum retail price or ASP. Paper book Nos. 26, 34 and 36 contain lMRB prices at different places at different times for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected retailers generally to sell cigarette packets at a particular higher price even while declaring and printing a lower PP, the slab applicable has to be determined on the basis of such higher EP. It is true that learned Counsel for Revenue, while supporting finding of the Adjudicating Authority of determining duty on the basis of higher EPs fixed or visualised or envisaged by ITC, alternatively contended that the slab must be determined on the basis of the actual retail prices at which retailers sold the packages. This alternative contention sought to support the view of the Adjudicating Authority referred to earlier in this paragraph. We have already rejected this view. 171. We are clear in our mind that under the exemption notifications, the actual prices charged by retailers all over the country cannot be treated as the maximum retail prices at which such packages may be sold in accordance with the declaration; it is impossible for manufacturers to declare and print on the packages such actual retail prices. Therefore, the fact that retailers, almost one million in number, charge different prices for the same brand and the absence of a common or single actual price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct price on the basis of which the appropriate rate of duty is to be applied for quantification of duty. We do not agree with the thrust of the contention of ITC reflected in point No. (xviii). Point answered accordingly. Points (xxiii and xxiv) 173. Annexure-C to the Show Cause Notice quantifies the amount of duty short paid in respect of all the five factories of ITC as well the factories of six job workers. However, Annexure-C does not explain the basis on which qantification of duty short paid had been made. The basis has been provided in the chart annexed to the corrigendum notice. This chart has been referred to earlier as DDC chart and documents relied on for the purpose of quantification have been referred to as DDC documents. The period covered by the demand is from 1-3-1983 to 28-2-1987. The total period is divided into 12 periods, des- cribing them as period A to period L, the particulars of which are as follows :- Period Dates Number of Brands DDC Document relied on Period A 01-03-83 to 31-03-83 18 brands A81F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he documents are as follows :- Period Document Origin and nature Speciality of the locality Price adopted by the adjudicating authority 1 2 3 4 5 A A81F W.D. Bombay No entry tax Price of no-Entry tax area B A81A -do- -do- -Ditto- C A37A Bombay Branch ITC (A) Bombay City (2 to 3% Entry Tax) (B) U/C Maharashtra and Gujarat (4 to 5% entry tax) (C) Goa (no entry tax) Price of `C No entry tax area D A83 Bombay Office ITC Head office -Ditto- E A6(33) -Ditto- A, B, C -Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.30 5 Wills Light (FK) 20/10 4.00 4.50 4.00 4.40 7.60 8 50 7.60 6 Wills FTK 3.45 4.00 3.45 4.00 3.60 4.00 3.60 4.20 7 Wills FT 3.25 3.75 3.25 3.75 3.35 3.70 3.35 8 Capstan FTK 2.50 2.85 2.50 3.00 2.65 3.00 2.65 3.00 9 Bristol FT 2.00 2.30 2.00 2.50 2.20 2.00 2.30 10 Gold Flake 1.90 2.20 1.90 2.10 1.85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avy Cut 1.90 1.85 1.85 26 Capstan Flake FT 1.35 1.35 1.35 27 Wills Virginia FT 1.25 1.25 1.15 1.15 28 Embassy FT 1.15 29 Capstan Medium 1.25 1.25 1.50 1.15 1.25 1.15 1.35 30 Players Navy Blue 1.00 0.85 31 Elephant 1.00 0.90 0.90 32 Passing Show T 0.60 0.80 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 India Kings 18.00 18.00 2 Classic International 15.00 14.00 3 Classic FTK 12.50 12.50 4 Gold Flake FTK 6.00 4.80 5.50 5 Wills Light (FK) 20/10 8.50 3.60 3.75 6 Wills FTK 4.00 3.75 7 Wills FT 3.75 3.30 3.50 8 Capstan FTK 3.00 2.60 2.75 9 Bristol FT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.80 2.50 2.10 2.25 25 Wills Navy Cut 1.85 2.00 26 Capstan Flake FT 1.35/1.40 1.50 27 Wills Virginia FT 1.15 1.15/1.40 1.50 28 Embassy FT 1.15 1.15 1.25 29 Capstan Medium 1.15 1.25 1.15 1.25 1.25 30 Players Navy Blue 0.85 1.00 1.15 1.10 1.25 31 Elephant 0.90 0.90/1.00 1.15 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PP EP PP EP PP EP PP EP BRANDS 1 India Kings 17.00 18.50 18.00 20.00 18.00/20.00 24.00 30.00 2 Classic International 14.00 15.00 15.50 17.00 15.50 17.00 3 Classic FTK 13.00 14.00 15.00 16.00 15.00 17.00 17.00 4 Gold Flake FTK 4.80 5.00 5.15/5.50 6.00 5.50 6.50 6.50 5 Wills Light (FK) 20/10 3.75 4.00 5.15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gold Flake FT 2.55 2.75 2.85/ 2.95/3.00 3.25 3.00 3.50 3.50 19 Flight 20SC 20 Combat 21 Wills Royal (K) 22 Berkeley FT 2.00 1.70 2.00 2.00 23 Bristol FTK 3.50 3.50 24 Scissors Select FTK 2.35 2.50 2.75/ 2.85 3.25 2.85 3.25 3.25 25 Wills Navy Cut 1.95 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.75 39 Bear Special 40 Tiger 41 Wills Flake FTK 2.10 2.25 2.80/ 2.90/3.00 3.25 3.00 3.50 3.50 42 Capstan 1.30 1.50 43 Wills Golden Star 1.10 2.00 1.55 1.75 1.75 44 SS 2.00 2.00 2.00 45 Scissors Select FT 3.25 2.85 3.25 2.85 3.25 46 NOW (FTK) 10S 2.00 1.70 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the DDC chart, as also IMRB reports, which show EPs different from those shown in the DDC documents. It is pointed out that IMRB reports show that at several places, retailers had sold cigarettes at prices higher than or lower than the so-called EPs. According to him, either all the prices must be rejected since no single All India price at which retailers all over the country sold packets of cigarettes to smokers is available or the lowest amongst the various prices alone could be taken to be the price which the ITC was required to declare and print on the packets on the basis of which ASP and the slab applicable could be determined. Learned Counsel for Revenue rebutted this contention and argued that where there are such variations, the demand cannot be regarded as unsustainable, but must be based on the highest of the available prices. He placed reliance on provisos (a) and (b) to explanation (1) to each of the notifications. Provisos (a) and (b) to explanation (1) of Notification No. 36/83 read as follows :- For the purpose of this notification - (1) Adjusted sale price , in relation to each cigarette contained in a package of cigarettes, means the unit price arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of packages containing 10 or 20 cigarettes at such prices that ASP would be different. For example, the maximum retail price of a packet containing 10 cigarettes, could be fixed at ₹ 10.00, while that of a packet containing 20 cigarettes could be fixed at ₹ 19.00, depending on the market conditions. It is also possible for a manufacturer to manufacture packets of cigarettes of a particular brand to be sold at a particular price and to manufacture deceptively similar packets to be sold at a lower price with the intention of evading duty. It is possible for a manufacturer to have different maximum retail prices in different regions for the same brand of cigarettes in the face of competition in different regions. The purpose of the above provisos is to indicate which of the prices is to be regarded as the maximum retail price on the basis of which ASP is to be determined in such special circumstances. If there is a case put forward by Revenue that ITC declared and printed different prices for packages containing the same number of cigarettes or different number of cigarettes of a particular brand, the proviso may apply. But the show cause notice did not set up such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation the circumstances that retail prices in the western region were the highest, the retail prices in Calcutta were the lowest and the prices varied in other regions. This is true of EPs also as can be seen from EPs A2 in comparison with EPs in A37B and as can be seen in the discussion regarding periods H and I. Therefore, while adopting EPs of Bombay city or Western region, due adjustment has to be made to arrive at the All India EP. The adjustment could be to the extent of 5%. Sale prices as defined in the notifications is the maximum price (exclusive of local taxes only) at which package of cigarettes may be sold in accordance with the declaration made on such package. It is open to a retailer to sell package of cigarettes for a price equal to PP plus local taxes (mainly entry tax) though local tax may have been paid by the WD or SWD and not by the retailer. But when an EP higher than PP is fixed or visualised or envisaged by ITC, retailer would be required to sell the package at the EP without collecting any amount extra as local tax. Therefore, the real EP which should have been declared and printed on the package would be EP as shown in A81F less 3% being the quantum of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. That is natural since A37A emanated from Bombay Branch of ITC, A81E was recovered from WD at Goa and A82 was recovered from another WD. The department had no case that the prices shown in A74 were fixed, visualised or envisaged by ITC. A74 merely reported prevailing prices in Bangalore. The EPs in A81E and A82 would only indicate variations brought about in different regions by regional offices of ITC or WDs. The Adjudicating Authority adopted the prices for Goa in A37A for the purpose of quantification of differential duty. A37A would suggest that there was no Entry Tax in Goa. Therefore, any adjustment based on Entry Tax is not called for. But the fact that EP accepted for this period is of western region has to be taken into consideration and on that account, deduction of 5% has to be given instead of remanding the case. We hold that the All India maximum retail price for period C has to be arrived at by adopting the unit prices shown in A37A less 5%. Quantification of differential duty for this period has to be done afresh. Period D 183. This period covers September, 1983 and October, 1983. The demand in the Show Cause Notice for this period was based on A83. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell packages at prices less than the MRP declared and printed, depending on local conditions, the state of competition and individual business methodology. Therefore, the fact that IMRB prices vary slightly below or above the EPs cannot have any impact on the determination of differential duty. However, the reasons which weighed with us in directing deduction of 5% in respect of periods A to C from the Goa price will apply to period E also. We, therefore, hold that the EPs in respect of period E shall be the Goa prices in A6 adopted by the Adjudicating Authority less 5%. Quantum of differential duty for this period has to be worked out afresh. Period F 185. The period is 1-2-1984 to 30- -1984. The DDC chart refers to nine ITC brands. It is seen that in respect of six brands the EPs for periods E and F are the same and in respect of two brands the EPs for period F are marginally lower than the corresponding EPs for period E. In respect of one brand the EP for period F is marginally higher than the corresponding EP for period E. The DDC document for this period is A8 seized from the Bombay District Office of ITC. A8 also furnishes three sets of prices for A, B and C and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides have placed before us charts for comparison of prices. One chart compares A12 prices with the available IMRB modal prices in five different cities; obviously there are some variations with reference to modal price in one city or the other which is natural considering various factors operating on the retailers in choosing to sell cigarettes at particular prices. There are three charts furnished with reference to period 1. One chart compares prices in A2, A37B and A10. The prices in A2 are equal to or less than the prices shown in A10. The prices in A37B are in most cases higher than the prices in A10. A2 was seized from WD at Calcutta and prepared by Calcutta branch of ITC. A37B relates to Bombay area. We have seen in other instances also that prices in Calcutta were perhaps the lowest prices among all regions. It is obvious that after receipt of All India prices of Head Office, Regional Offices and Branch Offices brought about some variations to suit local conditions. In the case of A4, a document seized from a WD at Calcutta, we have held (para 115) that the prices must have been fixed or envisaged by ITC. The chart comparing the EPs in A4 with those in the other three docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clined to attach significance to such comparisons. Learned counsel for ITC has also furnished a chart comparing A86 prices with four other District West forecast exercises on record as DAE 120D, DAE 165 and DAE 166. Unfortunately the dates on which these exercises were made are not available. Revenue has furnished a chart comparing A86 prices with certain available IMRB prices for this period. We find that there are some variations. Revenue has also furnished a chart comparing A86 prices with prices available in A4, A19 and A23 which also shows some variations. 190. A4 is a document seized from a WD at Calcutta. A19 is a letter from the Bombay District Office of ITC to Head Office suggesting introduction of new brands and referring to EPs of existing brands. A23 is an action plan suggested by Jaipur Branch of North District in regard to six brands referring to new EPs higher than new PPs of the brands. We have held that these documents broadly corroborate the case of the department that ITC was visualising or envisaging higher EPs while declaring and printing lower PPs. A chart furnished by Revenue shows that A86 prices for some brands were the same as or more than or less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be worked out on this basis. Period L 192. This period ranges from 1-1-1987 to 28-2-1987. The DDC chart did not refer to any specific document for this period, but followed A85 which also indicated EPs for earlier months of 1987. Two charts furnished by the assessee show variations in IMRB prices. We find that the EPs projected for January to June, 1987 in A85 are in some cases more than and in some cases equal to the projected EPs for the earlier period in A85 accept in one case with a difference of one paise. The Adjudicating Authority has adopted for period L, EPs shown in A85 for the period November and December, 1986, which is, therefore, more advantageous to ITC. Since A85 emanated from District West deduction of 8% has to be given for A85 prices to arrive at the correct EPs for period L also. ASP, appropriate slab and differential duty have to be worked on this basis. 193. The following is summary of our findings and directions under points No. (xxiii) and (xxiv) : (i) Classification of period under demand into twelve periods A to L is not arbitrary or illegal. (ii) Maximum retail sale prices exclusive of local taxes, which should have been declared and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or visualisation of higher EPs by ITC while printing lower PPs on packages. We will deal with both aspects presently. 196. It is argued that ITC bona fide believed that whatever PPs were arrived at by them had to be declared and printed on the packages in terms of the notifications and this was the understanding of the Department, the Board and the Central Government and quantification of duty on the basis of PPs by ITC was bona fide and cannot be regarded as a wilful act with the intent to evade payment of duty. In support of this contention, learned Counsel referred to various documents relied on for the purpose of invoking the principle of contemporaneous exposition. We have already referred to these materials in paragraphs 10 to 18 supra and held that all that can be said is that the Members of the Board were aware of the possibility of retailers not sticking to the PPs and overcharging, that determination of assessable value under Section 4(1)(a) of the Act created enormous complications, disputes and litigations and what was evident from the budget speech was the intention to cut the Gordian-Knot by a scheme of effective duty related not to assessable value but to the num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th R.C. Misra, Member, CBEC, J. Dutta, Chairman, CBEC and others to highlight their difficulties. These meetings were in the period 1983 to 1985. According to J.N. Sapru, the reaction of the CBEC Member was that the primary interest of the Department was in getting budgeted revenue and as long as this objective was being met, overcharging was a matter which fell within the purview of the State Governments under PC Rules and from the point of view of the Department, as long as manufacturers did not charge or sell at prices higher than the PPs, there were no revenue implications. J.N. Sapru also spoke about the similar impression he gathered from such discussions. It has to be remembered that these statements were given in 1991 and discussions took place nearly a decade earlier. It is also pointed out that notification No. 36/83 was amended and substituted repeatedly in later years but at no stage was any attempt made to change the basis of duty from PP to actual price. Even when notification No. 201/85 was amended on 20-9-1985 providing for approval of surface design, no provision was introduced for approval of PPs and clearances were permitted on the basis of PPs in spite of the kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that there was overcharging in the retail market as a result of squeezing the margin by ITC consequent on the issue of Notification No. 36/83 and thus the department was aware of overcharging by retail trade on account of the act of ITC in squeezing market. It is contended that disclosure of this information was sufficient to initiate action under Section 11A of the Act. 200. Learned Counsel appearing for Revenue rebutted these contentions and pleaded that duty structure being based on prices actually prevailing in the market was only an alternative plea both before the Adjudicating Authority and before us and Revenue throughout had stuck to the case set out in the show cause notice of fixation, visualisation and envisaging of higher EPs by ITC while declaring lower PPs on the packets. He contended that disclosure by ITC and knowledge on the part of the Board and the department about the phenomenon of overcharging by retailers was one thing, but the deliberate design of printing lower PPs on the packages while fixing or envisaging higher EPs and circulating the same to the trade was a different matter. If it was a mere case of overcharging by retailers, the show cause noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gher EPs to the trade had been disclosed to the department and not been deliberately suppressed, the department would have been in a position to issue show cause notices for various periods within the time limited by the main provision in Section 11A of the Act i.e., six months. The deliberate suppression of this crucial fact and the attempt to throw the entire blame for higher retail prices on the retail trade effectively prevented the department from coming to know the true state of affairs and initiating action within the shorter period of limitation under Section 11A of the Act. In these circumstances, the proviso and the larger period of limitation contemplated thereunder would be clearly attracted to the facts of the cases. Mere knowledge of the department of the phenomenon of overcharging by retailers would not have enabled them to demand differential duty from ITC since the scheme of the notifications did not rest on prices actually charged by retailers to smokers but rested on PPs honestly and scrupulously arrived at by the manufacturers. That the department was all along aware of squeezing of trade margin by ITC also is besides the point since that has no direct bearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be necessary to examine the basis and scope of the show cause notice. Pages 5 to 22 of the show cause notice refer to the state of affairs revealed by various documents seized during investigation. Pages 22 to 39 refer to various acts committed by ITC in perpetrating fraud on Revenue. Pages 39 to 66 refer to statements of officers and WDs of ITC and one of the job workers, namely, Asia Tobacco Company Ltd. Hosur. Pages 66 to 68 refer to allegations against ITC. Paragraph 12 (pages 68 to 73) refer to the tentative conclusions of the statutory authority issuing the show cause notice. Sub-paragraphs (a) to (d) refer to ITC and sub-paragraph (e) refers to the Chairman and Directors of ITC. Sub-paragraph (f) invokes the proviso to Section 11A of the Act. Sub-paragraph (g) at page 71 alleges joint contravention by ITC and the job workers of the provisions of Rule 9(1), 52, 52A and 209. Sub-paragraph (h) refers to the liability for penalty on the part of ITC and job workers. Sub-paragraph (i) refers to joint duty-liability of ITC and the job workers. Sub-paragraph (j) refers to the invocation of the larger period of limitation against job workers. 204. The findings of the Adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal of the cost of raw materials, the manufacturing cost and the manufacturing profit of the job worker and not the price at which the supplier of raw materials and the receiver of finished products sells them to wholesale dealers. 206. The ratio of the above decisions would apply to the job workers of ITC and they must be regarded as the manufacturers of cigarettes supplied to ITC. If ad valorem duty was payable by job workers, assessable value would be determined not on the basis of the wholesale price realised by lTC from their wholesalers but on the basis of the formula approved in the Ujagar Prints cases, that is, the sum total of the cost of raw materials, manufacturing cost and the manufacturing profit of the job workers. Job workers in these cases availed the benefit of the exemption notifications and fulfilled the basic condition stipulated, namely, clearing cigarettes in packages declaring the printed price and therefore were entitled to the benefit of exemption. We have already seen that excise duty payable under the notifications was geared to the printed price of cigarettes but in different slabs dependent on the quantum of the ASP. Just as the job workers would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h requires job worker to subject such particulars to scrutiny and verify the correctness of the same or go behind those particulars and declare and print PP of his choice. The invocation of illustration (f) to Section 114 of the Indian Evidence Act, in the instant case, was completely misplaced. If at all, the illustration can be invoked in support of the job worker who, as a matter of trade practice, relied entirely on the particulars furnished by the owner of the manufactured cigarettes who was marketing the same. Under Section 114 of Evidence Act, a Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in relation to the facts of the particular case. Illustration (f) enables a Court to presume that the common course of business has been followed in a particular case. The show cause notice did not indicate the factual basis giving rise to an inference of common course of natural events or private business. Considering the relationship between the supplier and the job worker, it is consistent with common course of natural events and common course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 210. The show cause notice alleged that there was fraudulent collusion between ITC and the job workers. It is axiomatic that one who alleges fraud must furnish particulars of fraud and prove fraud, either by direct evidence or by circumstantial evidence. The department did not furnish particulars of fraud nor produce any evidence to prove collusion between ITC and the job workers or of any fraudulent act or intent on the part of the job workers. It was the ITC which quantified lower PPs while fixing or envisaging higher EPs. There is nothing on record or the circumstances to indicate that the job workers were party to this exercise or had the least knowledge about it. We have already held that MRP cannot be equated to the actual retail price prevailing in the market in which case perhaps the liability of the job worker may merit consideration. Our finding against ITC rests on the basic conclusion that the ITC envisaged or visualised higher EP while declaring and printing lower PP. It has not been shown that the job workers were party to such fraud or at least had knowledge of such fraud. In these circumstances, the demand of differential duty made on the job workers must fail. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation about the number of removals said to have been provided by respective Commissioners under whose jurisdiction ITC factories fell. Show cause notice also required ITC to show cause why penalty should not be imposed under Rule 210 but no such penalty has been imposed. According to ITC, no penalty could have been imposed under any of the three rules referred to above as ingredients of the rules are not satisfied. 214. Rule 9 of the Rules deals with time and manner of payment of duty as also penalty and confiscation. Sub-rule (1) of Rule 9 reads thus :- No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form . Sub-rule (2) of Rule 9 reads thus :- If any excisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learing manufactured excisable products without payment of duty on the ground that the goods were covered by exemption and it was subsequently found that the exemption did not cover the goods. The proper officer was permitting removals also under the belief that the goods were exempt. One of the questions which arose for consideration was whether penalty could be imposed on the manufacturer under Rule 9(2) of the Rules. The Supreme Court held as follows :- The question is whether the demands could be justified under Rule 9(2). Even here we find considerable difficulty in sustaining the notice under this rule. Sub-rule (1) of Rule 9 provides for the time and manner of payment of duty. In this case there is no controversy that whenever goods were cleared with respondents, necessary applications had been made to the officer concerned and the latter had passed orders of assessment to nil duty. To attract sub-rule (2) to Rule 9, the goods should have been removed in contravention of sub-rule (1). It is not the case of the appellants that the respondents have not complied with the provisions of sub-rule (1). We are of the opinion that in order to attract sub-rule (2), the goods shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after application to the proper officer, obtaining his permission and paying Central Excise duty as determined at that stage, Rule 9(2) of the Rules will not be attracted merely on the ground that duty paid was not correct. There was nothing clandestine in the removals effected by ITC during the period in question and therefore penalty was not imposable under Rule 9(2) of the Rules. In this view we find it unnecessary to consider the other submissions made on behalf of the ITC against the penalty imposed under Rule 9(2) of the Rules. However, we would like to take note of serious lacuna in the quantification of number of removals made by the Adjudicating Authority. The show cause notice did not indicate the number of removals during the period in question. ITC was not called upon to furnish to the Adjudicating Authority the total number of removals during the period in question or any part thereof. The Adjudicating Authority appears to have gathered certain information from the concerned Commissioners. On the basis of such information he quantified penalty, without informing ITC about the information and without giving an opportunity to ITC to have their say in regard to the numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of factory, PLA number, name and tariff sub-heading of excisable commodity, number and date of notification under which any concessional rate of duty is claimed, variety of goods, number and description of packages, identification marks and serial numbers of goods, average contents per package, total quantity, total assessable value or tariff value, rate of duty, total duty paid, serial number of date of debit entry for duty in PLA, name and address of the consignee, manner of transport, certification that the particulars are correct, place, date and time of preparation of gate pass and signature of the licencee or his authorised agent. It is not the case of the department that with the issue of earliest of the notifications under consideration or any of the subsequent notifications, the Government or the Board or any of the Collectors prescribed a different proforma for Gate Pass-1 to be used by cigarette manufacturers. In other words, during the relevant period, ITC was not required to incorporate in G.P. 1 the quantum of PP, actual or prevailing retail price, adjusted sale price or slab applicable under the respective notifications or any other particulars contemplated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 164/86, dated 30-7-1986 prescribing a proforma for declaration. The proforma was amended by Trade Notice No. 172/86, dated 20-8-1986, bringing it on line with the proforma prescribed by Hyderabad Collectorate. The Superintendent of Central Excise, Bombay, furnished a copy of the same proforma to the ITC factory at Bombay. The proforma referred to in the trade notices relates to declaration and not Gate Pass-1 or ITC delivery invoice, challan or advice. Thus we find the Board circular and trade notices do not help Revenue to establish that ITC was required to show the correct PP in G.P.1, delivery invoice etc. and had shown false PP in the said document. Hence Rule 52A(5)(c) of the Rules could not have been invoked against ITC. Further, penalty under Rule 52A(5)(c) is on any person who enters false particulars in the gate pass. It appears that the sub-rule (5)(c) seeks to rope in individuals who are responsible for gate passes with false particulars and not the manufacturer as such, unless the manufacturer is an individual and has personally entered such false particulars in the gate pass. For these reasons, we hold that the penalties imposed on ITC under Rule 52A(5)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by money order shall allow the goods to be cleared. The requirement of the rule is making of an application in proper form before the proper officer prior to the removal of goods. 221. The show cause notice did not allege that ITC had removed any quantity of cigarette packets without making an application to the proper officer. On the other hand, it was not disputed that all removals by ITC during the relevant period were covered by applications in proper form to proper officer. In this view it must follow that there was no contravention of Rule 52 of the Rules. 222. According to the Adjudicating Authority penalty in this case was imposable under Clause (a) or Clause (d) of Rule 209(1) of the Rules. Revenue has failed to prove that there was any removal of cigarette packages in contravention of Rule 52 or any other Rule mentioned in the show cause notice. In these circumstances, we hold that penalties imposed under Rule 209 on ITC are not sustainable. We therefore quash the penalty imposed on ITC under Rules 9(2), 52A(5)(c) and Rule 209 of the Rules. Point No. xxii 223. The Adjudicating Authority imposed following penalties against the following individuals connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1988 (b) Member, Personnel ITDB 1983 to 1988 224. Learned Counsel for ITC has furnished the following as the structure of ITC. 225. It would be necessary to see what exactly are the averments contained in the show cause notice against the Directors of ITC. Paragraphs 1 to 11 (pages 1 to 68) and sub-paragraphs (a) to (d), (g) to (k) of para 12 (pages 68, 69, 71 and 72) of the show cause notice deal with the actions and omissions on the part of ITC and the job workers. The only averments against the Directors are seen in sub-paragraphs (e) and (f) of Para 12. Sub-paragraph (e) states that the Chairman, Directors and former Directors of ITC rendered themselves liable for penalties under Rules 209A and 221 inasmuch as they had devised ways and means to suppress effective prices of all their brands of cigarettes at which the cigarettes were sold and retailed, fixed trade prices and trade margins right upto the retailer/smoker, indicated the effective prices to the trade in a clandestine manner, monitored the implementation of the instructions given to hold the effective prices at a desired level which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exonerated all the non-executive Directors and some of the Executive Directors and held J.N. Sapru, Chairman, ITC Ltd., S.K. Mehta, Chairman, ITDB, J. Narayan, succeeding Chairman, ITDB, S. Ghosh, Director, ITC, A. Basu, Deputy Chairman and Director, ITC and R. Bhoothalingam, Member (Personnel), ITC liable for penalty. While imposing penalties the Adjudicating Authority imposed composite penalty (at the rate of ₹ 2000 and ₹ 1000 respectively per transaction of removal) under Rules 9(2) and 52A(5)(c) of the Rules and separately under Rule 209 of the Rules. No penalty was imposed on them under Rule 209A or 221 or 225 of the Rules, though it was indicated in the impugned order that the quantification of penalty under Rules 209 and 209A would be on the same basis. 227. Learned Counsel who appeared for the various individuals contended that the Adjudicating Authority did not really comprehend and entirely misunderstood the principle of lifting the corporate veil and was in serious error in holding these individuals liable for penalty as a consequence of lifting the corporate veil and since all the penalties imposed on them were the purported consequence of lifting the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of ITC and not of these individuals. At any rate, Revenue has no case that these individuals were beneficiaries of evasion of duty. We therefore hold that the principle of lifting the corporate veil has been misapplied in the present case. 230. We have already held that penalty could not have been validly imposed on ITC under Rules 9(2), 52A, 5(c) or 209 of the Rules. If penalty could not have been imposed on ITC, we fail to see how penalty could have been imposed under these provisions on the alleged real persons behind the facade of ITC. 231. Penalty can be imposed under Rule 9(2) of the Rules only against the producer or manufacturer of excisable goods, which in this case was ITC and not the Chairman or Directors of ITC or ITDB. Penalty can be imposed under Rule 52A (5)(c) only on a person who enters any particulars in the gate pass which he has reason to believe to be false. We have indicated that this provision cannot be applied in the instant case even as against ITC. There is no allegation in the show cause notice that any of the aforesaid individuals had entered any particulars in the gate passes. Hence, this provision could not have been invoked against these indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, the Appellate Tribunal may, after giving the parties a resonable opportunity of being heard, confirm, reduce, enhance or annul the assessment or penalty or both, set aside the assessment and remand the case or pass such other orders as it may think fit. It was argued before the Supreme Court that the power to enhance the assessment could be validly exercised even in an appeal filed by the assessee, the only condition being a reasonable opportunity of being heard being given to the assessee. After examining the scheme of the provisions in Section 39 of the Kerala Act, the Supreme Court held as follows :- The normal rule that a party in appealing from a decision must be deemed to be satisfied with the decision, must be taken to have acquiesced therein and be bound by it, and, therefore, cannot seek relief against the rival party in an appeal preferred by the latter has not been deviated from sub-section 4A(1) above. In other words, in the absence of an appeal or cross-objections by the department against the appellate Assistant Commissioner s order, the Appellate Tribunal wislsl have no jurisdiction or power to enhance the assessment. Further, to accept the construction plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard. 234. It is instructive to notice that the Central Excise Act, 1944 does not contain a provision similar to the one contained in Section 39(4) of the Kerala General Sales Tax Act, 1963, specifically enabling the Appellate Tribunal to enhance the assessment or penalty or both. Even in the absence of such a specific provision, the power vested in the Appellate Tribunal of modifying the order appealed against, under Section 35C(1) of the Act, of course on an appeal or cross-objection by the department comprehends such power. The Adjudicating Authority in the present case deliberately refrained from imposing penalty under Rule 209A of the Rules. If the department was aggrieved by this part of the order of the Adjudicating Authority, an appeal should have been preferred against that part of the order. Even without filing an appeal, when the Chairman and Directors of ITC and ITDB filed appeals against the imposition of penalty on them, it was open to the department to have filed cross-objections in each of the appeals challenging the part of the order passed by the Adjudicating Authority refraining from imposing penalty under Rule 209A of the Rules. Having failed to do so, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposition of penalty, whether under Rule 9(2) or under Rule 209, it is necessary to find out whether there was any contravention of Rule 9(1) as the allegation and finding in respect of contravention of Rule 52A(5)(c) has been held to be not valid, with which finding I agree. (ii) As stated in the order of the President, the plea of the appellants against the imposition of penalty is that there was no contravention of Rule 9(1) as the clearances of cigarettes were not clandestine and had been made on applications made before the excise authorities which were allowed by them. Reliance was placed on the decision of the Supreme Court in N.B. Sanjana v. Elphinstone Spinning and Weaving Mills Co. Ltd. wherein it had been held that in order to attract sub-rule (2) of Rule 9 the goods should have been removed clandestinely and without assessment. The goods, in that case having been removed with the express permission of the excise authorities and after order of nil assessment, it was held that the case could not arise under sub-rule (2). It was observed that provision being a penal one is evident from the fact that apart from the duty payable, the party is made liable to a penalty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Out of these decisions it is significant to note that the Tribunal in Mysore Rolling Mills (P) Ltd. v. Collector of Central Excise even without holding that there had been suppression of facts thereby attracting the extended period of limitation of five years had, nevertheless held that Rules 9(1) and 9(2) were not attracted for demanding duty for the period before 6-8-1977 whereafter the amended Rule 10 took care of the situation. It is thus clear that even in a case of suppression of facts, sub-rules (1) and (2) of Rule 9 do not get attracted if the removal of the goods was not done in a clandestine manner. The conclusion drawn by the Adjudicator that where the assessee files a declaration but with incorrect particulars that also would be a case of clandestine removal for bringing it within the scope of Rule 9(1) and consequently of Rule 9(2) cannot be agreed to. (iii) Penalty for short payment or non-payment of duty on account of factors like fraud, collusion, wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty has been provided for under Section 11A(C) of the Central Excises Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pages 64 to 68 (Pages 197-198) (11) Point (xiii) Pages 68, 69 (Pages 198-199) (12) Point (xiv) Pages 69 to 72 (Pages 199-201) (13) Points (xv) and (xvi) Pages 73 to 188 (Pages 201-261) (14) Point (xvii) Pages 188 to 191 (Pages 261-262) (15) Point (xviii) Pages 191, 192 (Pages 262-263) (16) Point No. (xix) Pages 216 to 223 (Pages 279-283) (17) Point (xx) Page 216 (Page 279) (18) Point (xxi) Pages 232 to 243 (Pages 287-293) (19) Point No. (xxii) Pages 244 to 255 (Pages 293-299) (20) Point Nos. (xxiii) and (xxiv) Pages 192 to 215 (Pages 263-279) (21) Point (xxv) Pages 223 to 231 (Pages 283-287) (22) Point (xxvi) Page 232 (Page 287) (23) Operative part of the order Pages 256 to 260 (Pages ..... X X X X Extracts X X X X X X X X Extracts X X X X
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