TMI Blog2005 (12) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... 17% interest, the super buyer can make profit in view of its very high turnover. The deposit scheme was started sometime in 1978-79, which is well before the issue of Notification No. 210/85, dated 20th September, 1985. Therefore, it cannot be alleged or found that the scheme was evolved only in order to indirectly receive the excess amount, which may be collected by the retailers from the consumers, and, eventually by super buyer. Even in the case not covered by deposit scheme and where the payment was not made in time, interest at the rate of 18% was being charged by GTC, which is more or less corresponding to differential interest under security deposit scheme. Therefore, the differential interest cannot be considered a ploy to indirectly receive a part of the alleged extra collection received by the super buyer. We, therefore, hold that there is no link between security deposit schemes and so called extra collection. Alternative argument of GTC is that even if flow back was involved, the Central Excise Authorities are bound to accept the MRP printed on the price list during the period when Notification No. 201/85, was in force. This argument is based upon the Apex Court s deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 13,82,88,800/- and penalty of Rs. 4.15 crores under Rule 209 of the Central Excise Rules and Rs. 10 lakhs under Rule 9(2) on adjudication of show cause notice dated 4th April, 1986 issued by the Collector of Central Excise, Mumbai. 2. The Collector has also adjudicated show cause notice dated 23rd April, 1986 issued by the Collector of Central Excise, Hyderabad against M/s. Sri Chandra Tobacco Limited and M/s. Suvarna Filter Tobacco Products and since no demand was confirmed against or penalty imposed upon M/s. GTC Industries, no appeal has been filed against adjudication of this notice. 3.1 The basic allegations made in the show cause notices adjudicated by Order-in-Original dated 17th January, 1995 are as follows:- 3.2 That GTC Industries Limited had been claiming the benefit of concessional rate of Central Excise duty during the different periods mentioned in the show cause notices under Notification No. 201/85, dated 2nd September, 1995 and 78/86, dated 10th February, 1986 on Golden's Style Filter King brand of cigarettes. While sending samples of the packets of cigarettes of the said brand for approval by Central Excise Authorities, the Appellants declared the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers, but simultaneously recover interest at rate of 27% on the amounts due from the buyers to GTC; buyers were made liable for the amount outstanding to GTC, by GTC s adjusting the amounts remitted by the buyers for purchase of cigarettes towards security amount. The security amounts were fixed arbitrarily by GTC without any uniform policy and were increased from time to time depending upon how much money was considered as due to GTC. While up to the level of the first buyer from GTC, the extra amount illegally collected by sale of cigarettes over and above the printed prices was recovered stage by stage in cash and by draft between GTC and the first buyer, the adjustment in the balance amount was by difference in the interest rate [17% difference]. 4. The Collector has relied upon the statements of 44 witnesses, who were allowed to be cross-examined by GTC. A. Wholesale Buyers : 1 Binod Kumar Sitani 2 V.P. Kanodia 3 Puran Singh Bisht 4 Dhan Singh 5 Ramesh Khandelwal B. Wholesale Dealers : 6 P.S. Money 7 K. Azhakianambi 8 K.K. Chandramohan 9 Ipe Jacob 10 Ashok Kumar Agarwal 11 Surinder Kumar Bhutyani 12 Smt. Basiran C. Cycle Salesmen of Wholesale Dealers : 13 S. Salaluddin 14 K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver and above the price paid by the wholesale buyers to GTC for purchase of cigarettes]. He has also stated that he used to spend Rs. 5000/- per month on an average towards publicity of cigarettes on behalf of GTC, which is not reimbursed to him by GTC. The Collector has held that this is another method by which extra money was being paid back to GTC by Shri Kanodia. 5.3 Shri Binod Kumar Sitani [Shivani Traders (P) Ltd, Trivandrum] elaborately described the pattern of purchase and sale of cigarettes and their distribution in the areas, which are looked after by him. Statements of Wholesale Dealers 6.1 Shri K. Azhakianambi, Managing Partner of M/s. Karpagam Traders, stated that Super Buyers at Trivandrum met him and told him that GTC is facing some financial problems and desire to under invoice their goods and that if any existing dealers are not in favour of their proposal, they have no other option, but to start their own business. They proposed to give the firm a commission at the rate of 5% of the differential amount collected as a result of under invoicing. He stated that all wholesale dealers in Kerala including his firm agreed to this proposal out of fear the loss of leadersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .70. They have not been given any bill. 10.1 The Collector has held that up to the level of the first buyer from GTC, the extra amount illegally collected by sale of cigarettes over and above the printed price was recovered stage by stage in cash/draft between GTC and the first buyer and the adjustment was by difference in the interest rate. He has relied upon the statements of the witnesses regarding initial fixation of the security amount at an abnormally high level and that none of the dealers could afford the payment in lump sum of such large amount and therefore held that alternative offer by GTC was an artificial creation by way of security deposit account and so called outstanding payment account which was to enable GTC to charge widely varying rate of interest in respect of above mentioned entities. He has also held that super buyers had necessarily to ensure that their margin of profit is so fixed in such a way that they can cover the burden of interest as well to the extent of 17% and therefore, even one adds the minimum of such margin of profit earned by super buyers to their purchase price of Rs. 1.53 for a packet of 10s, it means an addition of about 23 paise approxima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He has also imposed a penalty on GTC while adjudicating the show cause notice dated 4-4-86. Hence these appeals. 11. The relevant notification is reproduced here below : [Notification No. 111/83-CE, dated 1-3-1983 as amended by Notification No. 78/86-CE, dated 10-2-1986] Slab rates of duty on cigarettes. - In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, read with sub-Section (3) of the Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government hereby exempts cigarettes of the description specified in column (1) of the Table below and falling under Sub-heading No. 2403.11 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from so much of the duties of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944) and the Additional Duties of Excise (Goods of Special Importance) Act 1957 (58 of 1957) as is in excess of the amount calculated at the rate specified in the corresponding entry in column (2) of the said Table : Provided that the amount of duty so levied shall be apportioned in the ratio of 2:1 between the duty leviable under the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation shall be subject to the condition that package with such surface design shall not at any time be used for packaging of cigarettes bearing declarations of different sale prices, and upon the breach of the said condition, such approval shall cease to be operative except as respect things done or omitted to be done before such cesser of operation; (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; (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; (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 like to deceive or cause confusion. [Notification No. 201/85-C.E., dated 2-9-1985 as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch dealers or wholesale buyers or super buyers sold the cigarettes. Therefore, they contend that there is no flow back either direct or indirect to GTC of the difference between printed price and higher price charged by the retailer or wholesaler. They contend that GTC had to maintain adequate security deposit in order to maintain safe positions in the market vis-a-vis sales, bad debts, defective goods etc. 14. The Standard terms and conditions of Business with wholesale buyers is reproduced below : 1. The wholesale buyers will place orders on GTC for cigarettes to be purchased by them. Orders so placed and accepted by GTC, cannot be altered and/or counter-amended without GTC's consent in writing. GTC, however, reserves the right to reject any such order wholly or partially in the interest of equitable distribution and shall not be responsible for any damages or otherwise for short supply or non-supply or not timely supply. 2. All orders are accepted for supplies at a price as may be applicable at the time of despatch. 3. GTC can effect deliveries from either its factories at Bombay or Baroda or at the factories of Universal Tobacco Company Limited , Hyderabad, or that of J K C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment account. The security deposit was one time deposit and once the specified amount was deposited, no further appropriations were made and the total amount of payment received was fully credited to the payment account. Hence, there is no basis for the Revenue s contention that there was a net loss in each transaction and that the percentage of each and every single transaction/invoice payment was being appropriated towards the security deposit account. The variation in the quantum of security deposit in different years was mainly due to exit from the scheme of existing wholesale buyers and induction of new wholesale buyers and this is a normal commercial process. The total deposit always remained only a small portion of the total sales in the current year. There is no evidence to show that the final prices [based on those marked on the packets] were fixed by GTC or that ordinarily no super buyer would have opted for the security deposit scheme for consideration of loss of profit. 16.1 The figures of security deposit received from wholesale buyers for sale of cigarettes during the period from 1978-79 to 1987-88 have been furnished by GTC under the cover of Affidavit dated 20th De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer. From the affidavit filed by GTC, it is seen that even in the year in which the deposit was made, the turnover of the super buyer was 12 to 15 times of the amount of deposit. However, the deposit scheme was not unique to GTC as several other companies were taking similar deposit and this fact is brought out in the order dated 5th May, 1994 of the Collector of Customs, Mumbai wherein the proceedings raised against GTC were dropped. Even in the case not covered by deposit scheme and where the payment was not made in time, interest at the rate of 18% was being charged by GTC, which is more or less corresponding to differential interest under security deposit scheme. Therefore, the differential interest cannot be considered a ploy to indirectly receive a part of the alleged extra collection received by the super buyer. We, therefore, hold that there is no link between security deposit schemes and so called extra collection. 17. Alternative argument of GTC is that even if flow back was involved, the Central Excise Authorities are bound to accept the MRP printed on the price list during the period when Notification No. 201/85, was in force. This argument is based upon the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g cigarettes, otherwise than, or permits such sale only, in accordance with the printed MRP is the Standards of Weights and Measures Act and the Packaged Commodity Rules, (para 34). (v) If the retailer or manufacturer violates these provisions, he is liable to be proceeded against and may be fined up to an extent of Rs. 2000/- per package under Rule 39 of the Packaged Commodities Rules and Section 67 of the SWM Act, (para 37). (vi) The purpose of printing the MRP on cigarette packages is to achieve a standardisation of prices throughout the country and to inform consumers of the appropriate price of the product. There is no scope for under declaration because the consumer can insist on the retailer abiding by the printed MRP . if adhering the MRP unreasonably narrows the retailer's margins, the retailer can demand a reduction in the price from the wholesaler or desist from selling the product. This applies similarly to the wholesaler, whose feedback to the manufacturer will either force the manufacturer to raise the MRP or lose distributors, (para 38). (vii) The notification does not itself provide for any sanction or prohibition against the retail sale of cigarettes at any rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to exemption] was the printed price, which in any event, was required to be printed on each cigarette pack by virtue of Standards of Weights and Measures Act, 1976 as well as Standards of Weights and Measures (Packaged Commodities) Rules, 1977. ITC cleared cigarettes manufactured by them during the period in dispute after paying excise duty on the basis of Maximum Retail Price, which was exclusive of local taxes printed by them on each cigarette packet. In March, 1987, a show cause notice was issued to ITC Limited and its job workers alleging that the concessional rate of duty under Notification had been wrongly availed of by them and their job workers. The show cause notice alleged that the investigation had revealed that ITC consciously and deliberately ensured that actual retail sale price of these cigarettes [which had been assessed to exempted rates of duty on their declarations] were higher than the declared and printed sale price; that they had been controlling the margins/prices of wholesale dealers, secondary wholesale dealers and retailers; that immediately after the budgetary changes of 1983, ITC Limited had drastically reduced the margins available to the wholesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be, can be or are capable of being sold at the price, irrespective of whatever be the price actually declared or printed on the packages, was contrary to the word used in the notification. The Court held that the Tribunal has shifted the basis the for levy of excise duty under exemption notification from the MRP actually printed on package to the price which is to be deemed to be the printed price in order to avoid what the Tribunal considered could not have been the object of the notification. 20.3 In para 51 of the judgment, the Supreme Court recorded that the shift of basis of levy of duty on cigarettes from assessable value to printed MRP was clearly to do away with the disputes, litigation and consequent delay involved in determination of assessable value of the wholesale price of cigarettes. 20.4 In para 54, the Supreme Court concluded that if the experiment of introduction of system for levy of excise duty on the basis of printed MRP was a failure for whatever reason, it was open to the respondents to do away with it and replace it by some other system as it did in 1987, but as long as notification was in force, it had to be given effect to. 21. The alternate submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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