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TMI Blog1988 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... price at which the packets of cigarettes can be sold had been communicated to the trade clandestinely and a declaration had been made on the packages at which such packages will not be sold. This will clearly be a case of both suporessio veri and suggestio falsi. If on the basis of such mis declaration of the maximum retail price, excise duty is levied and paid, the provisions of Section 11-A of the Central Excises and Salt Act, 1944, are clearly attracted. This will be a case of short levy and also short payment by reason of "fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or the Rules". [paras 98, 99 & 150] Cigarettes - Declaration of sale price, less than actual maximum price, on packages for retail sale of cigarettes - Levy of Excise duty on "adjusted sale price" - Notification No. 201/85-C.E., dated 2-9-1985, as amended by Notification No. 210/85-C.E., dated 20-9-85, issued under Rule 8(1), not construable to frustrate the charge under charging Section 3 of the Central Excises & Salt Act, 1944. - The argument that if tax has been levied and collected in accordance with the declaration of maximu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 18lh August, 1987 an interim order was passed by Bhagawati Prasad Banerjee J. to the effect that the respondents were allowed to proceed pursuant to the aforesaid show cause notice. It was further directed that the petitioner would be at liberty to submit their reply to the show cause notice without prejudice to the rights and contentions of the petitioner in the writ petition. The respondents were given liberty to conclude the proceedings and pass a final order on the proceedings. But the respondents were directed not to give any effect to or act upon or communicate the final order to the petitioner without leave of the Court. 2. The writ petition came up for hearing before Bhagabati Prasad Banerjee J. On 14th August, 1987 a rule Nisi was issued on the writ petition. But ultimately the writ petition was dismissed and the rule was discharged by an order dated December 24, 1987. All interim orders were vacated. 3. The writ petitioner, I.T.C. Limited, has now come up in appeal against the judgment and order passed by Bhagabati Prasad Banerjee J. on December 24,1987. 4. The impugned show cause notice was issued on 27th March, 1987 by which the writ petitioner was required to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as undergone a sea change in the Appeal Court. The main attack in the appeal against the show cause notice has been that the facts alleged in the show cause notice are not correct. The allegations of facts that have been made in the show cause notice cannot be justified. All the documents that were seized had not been correctly read and/or understood. The inferences of facts that have been drawn are vitiated because of non-application of mind to the facts of the case. The fact-finding authority has approached the case with a closed mind. Relevant evidence has been ignored. Irrelevant evidence has been relied upon. Documents have been misconstrued. 9. The allegations in the writ petition may be briefly summarised. The ITC Limited, hereinafter described as the Company, manufactures cigarettes at its five factories situated at Calcutta, Munger, Saharanpur, Bangalore and Bombay. The Company also contracts out from time to time the manufacture of cigarette to various other manufacturers who are seven in number. The Company manufactures and sells cigarettes in bulk on an average. Each of the 12 factories produced and sold one million to fifty millions of cigarettes per day. The cigarett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control the retailer from charging excessive retail selling price. If the retailer sold cigarettes at a price higher than the maximum retail price printed on the packets, proceedings could be taken under the provisions of the Standard Weights and Measures (Packaged Commodities) Rules, 1977. 11. Although the duly of the manufacturer was to print the maximum retail price on the packets of cigarettes which were sold to the WSDs, there was no statutory guideline as to how the price was to be arrived at. The prices charged by the retailers were fluctuating and varied from place to place. The manufacturer had not laid down any price higher than the price printed on the cigarette packet at which the cigarettes were to be sold by the retailers. The company paid the following excise duly during the relevant period: (Rs. in Crores) 1983-84 475 1984-85 557 1985-86 669 1986-87 740 12. Sometime in February, 1967 [i] search and seizure proceedings took place in the various offices and establishments of the company. This was followed up by the show cause notice dated 3rd April, 1987 issued by Sri N.K. Bajpai, the Director, Directorate of Anti-Evasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication the price printed by the manufacturer as the maximum price printed on the packages had to be taken as the excise value of the cigarette. No statutory rule had been laid down as to how the printed price was to be arrived at. So long as the cigarettes were so priced as to make the cost to the retailer, no higher than the printed price, the letter and the spirit of the law were complied with. No other interpretation of law could be made. Administrative interpretation of fiscal law was of paramount importance and the Government issued the Notification with full awareness of the true position in the cigarette industry. Any irrationality in the interpretation of law had to be avoided. The respondent No. 3 will not be able to conduct the enquiry with an objective mind. There was a real likelihood of bias. The respondent No- 3 was the Investigator and the Prosecutor in this case and was committed to finding. A potential witness was disqualified from being an adjudicator. 17. A number of grounds were also taken challenging the jurisdiction of the respondent No. 3 to initiate or continue the proceedings on the strength of the Notification dated 27th March 1987 as the same was ultra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bhagwati Prasad Banerjee J. were confined to legal grounds only. In other words, the case that was made out before the Court below was within the compass of the allegations of facts made in the writ petition. In the judgment, the arguments advanced by Mr. Nariman, the Advocate, on behalf of the writ petitioner, have been summarised as under: "(a) That the respondents have acted illegally and without jurisdiction in issuing the impugned show cause notice dated 27th March, 1987, inasmuch as, there was no short levy and/or short payment of excise duty on the part of the petitioner company and in any event there was no mis-statement and/or mis representation made by the petitioner company in the matter of printing the sale price on the packages of cigarettes for the purpose of payment of excise duty. (b) That on the basis of rules of interpretation contcmporanea expositio (contemporary exposition) the respondents had no jurisdiction to attribute a different meaning to the definition of the words 'sale-price' after a lapse of so many years and to claim that the prices were not correctly declared and that for not correctly declaring the sale price there had been evasion of excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n affidavit. 25. This case arises out of a show cause notice. The law is well-settled that if a show cause notice is issued by a statutory authority relying upon some facts, that notice can only be challenged before the Writ Court only on the ground that even if the facts are assumed to be correct, no case has been made out against the petitioner. If a prima facie case has been made out in the show cause notice, it is for the adjudicating authority to finally decide all the questions including questions of fact. 26. Several decisions were cited on the question whether correctness of the facts stated in the show cause notice can be investigated by a Writ Court on a challenge to the show cause notice itself. In the case of Lakshminarayan Ramniwas v. Collector of Customs and Others - A.I.R. 1961 Calcutta 616, it was held following an earlier judgment of this Court in the case of East India Commercial Company Limited v. The Collector of Customs - AIR 1957 Calcutta 606 that where the Assistant Collector of Customs had issued a show cause notice to the petitioner to show cause why penalty should not be imposed upon the petitioner for an offence of unauthorised importation of goods unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Sea Customs Act, read with the provisions of the Imports and Exports Act, 1947 the proceedings were quasi-judicial in nature. Whether a statute provides for a notice or not, it was incumbent upon the Collector to issue a notice to the importer disclosing the circumstances under which proceedings were sought to be initiated against him. Any proceedings taken without any notice would be against the principle of natural justice. It was observed: "If on a reading of the said notice it is manifest that on the assumption that the facts alleged or allegations made therein were true, none of the conditions laid down in the specified sections was contravened, the respondent would have no jurisdiction to initiate proceedings pursuant to that notice". 29. In that case, the question was whether breach of the condition of an import licence amounted to infringement of an order issued under Section 3 of the Imports and Exports (Control) Act, 1947. The allegation in the show cause notice was that because of the infringement of a condition of licence, a contravention of the order had taken place and as such, penalty was imposable under Section 167(8) of the Sea Customs Act. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .S. Hegde JJ. Hegde and Bachawat JJ. were of the view that the notices issued to the writ petitioners were invalid as the offences alleged did not fall within the scope of Section 23A of the Sea Customs Act. Sikri J. took a contrary view. 36. But there was no difference of opinion on the question that the facts stated in the show cause notice must be taken to be correct in a proceeding challenging the validity of the show cause notice. Sikri J. observed at page 160B, paragraph 27 of the report: "Taking the facts as alleged by the Customs authorities to be true, as they must be taken to be true for the purpose of this application under Article 226, it seems to me that no case for the issue for a writ of prohibition has been made out". 37. Hegde J. (with whom Bachawat J. agreed) was also of the view that the facts alleged in the show cause notice must be taken to be correct. It was observed by Hegde J. that "the only question that arises for decision in these appeals is whether on the facts set out in the show cause notices which facts have been assumed to be correct for the purpose of these proceedings, the respondents can be held to have contravened Section 12(1) which reads... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s challenged by Asia Tobacco Company Limited, the argument was confined to certain legal issues only. No disputed questions of fact was raised. 44. Asia Tobacco Company Limited was one of the companies which was served with an identical show cause notice dated 27th March, 1987. Being served with the show cause notice, Asia Tobacco Company Limited moved a writ petition in the Madras High Court for quashing the notice on certain legal grounds. That case (Asia Tobacco Company Limited v. Union of India and Others - W.P. Nos. 5084 and 5822 of 1987) was dismissed by Mohan J. on 8th September 1987. A Division Bench of the Madras High Court on appeal affirmed the judgment. 45. A similar show causc notice issued to Duncan Agro Industries Limited was challenged in the Delhi High Court on certain points of law. That was the case of Dun can Agro Industries Limited v. Union of India and Others - 1989 (39) E.L.T. 211 (Del.) C.W.P. No. 1039 of 1987. There, a Division Bench of the Delhi High Court observed that the Director (Audit) is bound to hear and adjudicate the case of the petitioner. It was recorded in that judgment that "In all fairness to Mr. Venugonal, he did not pursue the arguments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve rendered themselves liable for penalties under the provisions of Rule 209-A and Rule 221 in as much as they had devised ways and means to suppress effective prices of all their brands of cigarettes, at which the cigarettes were sold in retail, fixed trade prices and trade margins right upto the retailer/smoker, communicated 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 and decided level which they knew and had reason to believe were higher than the prices printed on the cigarette packets, on which duty was paid at lower rates as a result of which duty had been evaded on the cigarettes which were liable to confiscation under the said Act and the said Rules. They, as the Directors of ITC, were fully and finally responsible for fixing and declaring the retail prices, .for communicating the same down the line up to the retailers and for deliberately keeping them at lower levels and the fraudulent intent to evade payment of the appropriate duty leviable on the cigarettes". 51. The main thrust of the arguments on behalf of ITC has been that the documents and the evidence do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to analyse the actual sale prices of various brands of cigarette sold by the ITC and the comparative brands of the rival manufacturers. If any particular brand of cigarette manufactured by ITC was being sold at a rate very much higher than the rate at which a similar brand of cigarette manufactured by a rival company was being sold, the ITC stood to loose its share of the business in the market. That is why the ITC had constantly to watch the effective price level in the market not only of the cigarettes sold by ITC but also cigarettes sold by the rival companies. 55. The case of the Excise Authorities is that the ITC not only fraudulently printed lower prices as maximum retail sale price on their packets. The margins allowed to the retailers were clandestinely communicated. The retailers adhered to the effective prices communicated by the company. It has been alleged in the show cause notice after analysing the evidence on record that it appeared that while ITC claimed that the transaction of sale of cigarettes were on principal to principal basis with their wholesale dealers, they were controlling the margins/prices of wholesale dealers, secondary wholesale dealers and retailer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being higher than the effective prices fixed by them (which were higher than the printed prices) to reduce the prices to be desired level; that ITC did not expect their brands to be sold in general at the printed prices is evident from the fact that they have been giving special discount to special customers/special outlets to enable the brands to retail at the printed prices; that ITC directed the consumers who complained about non-availability of their brands of cigarettes at marked prices to their nearest wholesale dealers/special outlets who were given special discounts so that such agitated customers could buy the requirements at market prices. 56. Of the long list of allegations made in paragraph 11.1 there is no dispute about the fact that at a certain stage the ITC was allowing the retailers a margin of 10 paise only per thousand cigarettes. In other words, a retailer had to sell one hundred cigarettes to make a profit of one paise. To look at the problem in another way, a retailer had to invest an amount of more than Rs. 990.90 paise for a brand like India King for the purpose of making a profit of ten paise. This prima facie, appears to be unreal. It has been argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appraise the evidence. Since I am of the view that all the questions of fact should be agitated before the Adjudicating Authority. I have decided not to deal with the evidence in depth or in detail. But I am of the view that on the facts of this case, it will not be proper to shut out the adjudication proceedings at this stage. 61. I shall now examine some of the points of law that have been urged. It has been contended that even if the allegations of fact made in the show cause notice are taken to be correct, the Excise Authority has no jurisdiction to proceed with this case. 62. The first contention is that the show cause notice under Section 11-A of the Central Excises and Salt Act, 1944, has been issued by Sri Narendra Kumar Bajpai, the Director, Directorate of Anti-Evasion (Central Excise), Block No. 8. It has been contended that the alleged evasion of excise duty has taken place all over India. Only a Collector of Central Excise has been given jurisdiction under the proviso to Section 11-A to issue a show cause notice where an assessee is guilty of fraud, collusion or any wilful misstatement or suppression of fact or contravention of any of the provisions of the Excise Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the Central Excise Rules and it was contended that the Notification would be ultra vires the Act read with the Rules. 67. The Rules have been framed by the Central Government in exercise of powers conferred by Section 37 of the Act. Section 37(1) empowers the Central Government to make rules to carry into effect the purposes of the Act. Section 37A is as under :- "Section 37A. Delegation of powers. - The Central Government may, by notification in the Official Gazette, direct that subject to such conditions, if any, as may be specified in the notification - (a) any power exercisable by the Board under this Act may be exercisable also by a Collector of Central Excise empowered in this behalf by the Central Government; (b) any power exercisable by a Collector of Central Excise under this Act may be exercisable also by a Deputy Collector of Central Excise or any Assistant Collector of Central Excise empowered in this behalf by the Central Government; (c) any power exercisable by a Deputy Collector of Central Excise under this Act may be exercisable also by an Assistant Collector of Central Excise empowered in this behalf by the Central Government; and (d) any power exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea of jurisdiction of a Collector. Rule 4 and 5 are as follows :- Rule 4. Appointment of Officers - The Central Board of Excise and Customs may appoint such persons as it thinks fit to be Central Excise Officers, or to exercise all or any of the powers conferred by these rules, on such officers. Rule 5. Delegation of power by the Collector - Unless the Central Government in any case otherwise directs, the Collector may authorise any officer subordinate to him to exercise throughout his jurisdiction, or in any specified area therein, all or any of the powers of a Collector under these rules. 72. The Board under Rule 4 can appoint any person to be the Central Excise Officer and invest such Officer with all the powers under the rules. There is no territorial limitation laid down in this rule. 73. The Notification No. 215/86-Central Excise, New Delhi dated 27-3-1986 has conferred upon the Officers of the Directorate of Anti-Evasion (Central Excise) jurisdiction to exercise various functions of the Officers of the Central Excise. The Director can exercise all the powers of a Collector. Similarly, the Deputy Director can exercise powers of a Deputy Director. The Assistant Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director will be inclined to uphold the allegations of excise fraud. There is an element of pecuniary interest involved in this case. 79. The second part of the argument is misconceived because the Director himself will not get any reward if the Department succeeds in this case. 80. It has been contended on behalf of the appellants that the Director may be influenced by the prospect of some of the Officers of his Department getting the remuneration. 81. If the Director has no personal pecuniary interest in the matter, one fails to see how he can be charged with having any interest in the matter. If this argument is taken to its logical conclusion, so long as the reward scheme subsists, no Officer of the Excise Department, however, high his position may be, can hear any case of excise fraud. 82. So far as the question of press statement is concerned, an affidavit has been filed by Narendra Kumar Bajpai, the Director, Directorate of Anti-Evasion (Central Excise) and has stated in his affidavit that on 17th February 1987, searches were carried out all over the country by the Officers of the Directorate of Anti-Evasion (Central Excise) and the Central Excise Officers of severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person not entitled to the refund. The proviso to Section 11A lays down that where short levy or short payment or erroneous refund of excise levy has taken place because of fraud, collusion or any wilful misstatement or suppression of fact or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty, then the Collector of Central Excise will have jurisdiction and the period of limitation of six months will stand extended to Five years. Sub-section (2) of Section 11A specifically provides that the Collector of Central Excise, after considering the representation, if any, made by the person on whom a notice is served under sub-section (1), may determine the amount of duty of excise due from such person. Therefore, the Collector who issues the show cause notice will have to hear and decide the points raised in the show cause notice after considering the representation of the person on whom the show cause notice was served. Merely because a prima facie view has been taken about the controversy, does not disqualify the Officer who has issued the show cause notice to hear the case finally. 84. The Director of the Directorate of Anti Evasion ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings under Section 11A of the Act, a Collector has to combine the role of the party as well as the Judge. Although the show cause notice has been challenged as ultra vires in this case, the validity of Section 11A of the Central Excise Act, has not been challenged. Section 11 A of the Central Excise Act, envisages that if there is any short levy or short payment of tax occasioned by, inter alia, fraud or wilful misstatement, then the Collector will issue the show cause notice under Section 11(1) and pass a suitable order under Section 11 (2) after hearing the representations made by the per son on whom the show cause notice has been served. 86. Therefore, having regard to the scheme of the Revenue Laws in general and the Central Excise Act, in particular, I am of the view that the point of the Director being a Judge of his own case made out in the show cause notice is also devoid of any merit. 87. The question of bias was also agitated before the Madras High Court in the aforesaid case of Asia Tobacco Company Limited, in respect of this very show cause notice. Chandulkar CJ. has repelled this contention in paragraph 6 of his judgment. 88. In the judgment under appeal, Bhagab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92. In the Standards of Weights and Measures Act, 1976, the term "Adjust Sale Price" has not been defined. The terms "retail sale price" and "sale price" have been defined in the Standard of Weights and Measures (Packaged Commodities) Rules, 1977 and are as under :- 'retail sale price' means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer, inclusive of all taxes, transport charges and other dues'; 'sale price' in relation to any commodity in packaged form means any one of the following prices, namely: (i) Price inclusive of freight but exclusive of local taxes, and where such price is mentioned on the package, there shall be printed on the package the words Max. Price.... local taxes extra"; (ii) retail sale price, and where such price is mentioned on the package, there shall be printed on the package the word "max. retail price"; Explanation I. - Each of the prices specified in this clause shall be inclusive of all other taxes other than those specified in sub-clauses (i) and (ii) and shall also be inclusive of commissions payable to wholesale dealer and retail dealer and all other charges including advertisement, delivery, pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exeed rupees one hundred and seventy One hundred and twenty five rupees per one thousand; (iii) exceeds rupees one hundred and seventy but does not exceed rupees three hundred Two hundred and twenty five rupees per one thousand; (iv) exceeds rupees three hundred but does not exceed rupees five hundred fifty Four hundred rupees per one thousand; and (v) exceeds rupees five hundred and fifty Six hundred rupees per one thousand. Explanation. - For the purposes of this notification - (1) "adjusted sale price" in relation to each cigarette contained in a package of cigarette, means the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such package : Provided that where the cigarettes are packed in packages (whether or not containing the same number of cigarettes) but the unit prices of the cigarettes in different packages as arrived at in accordance with the foregoing provision of this Explanation are not the same, the adjusted sale price in relation to each cigarette in every such package shall be the highest of such prices; (2) "cigarettes packed in packages" means cigarettes which are packed for retail sale, in packa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the manufacturer whose duty was to print the maximum retail price cannot be held liable. There is no infraction of law on the part of the manufacturer. If there is any lacuna in the Act, the manufacturer must get benefit of that. In a taxing statute, the benefit of doubt always goes to the taxpayer. It is well settled that the taxing statute would be strictly construed. A large number of cases on construction of taxing statutes were cited in this connection. 97. In my view, a simple matter has been sought to be made complex by elaborate citation of case laws and lengthy arguments. 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". The definition makes it clear that adjusted sale price will mean the unit price arrived at by dividing the sale price of such package by the number of cigarettes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claration. If the case made out in the show cause notice is true, then the maximum retail sale price at which the packets of cigarettes can be sold had been communicated to the trade clandestinely and a declaration had been made on the packages at which such packages will not be sold. This will clearly be a case of both suporessio veri and suggestio falsi. 99. If on the basis of such misdeclaration of the maximum retail price, excise duty is levied and paid, the provisions of Section 11A of the Central Excises and Salt Act, 1944, are clearly attracted. This will be a case of short levy and also short payment by reason of "fraud, collusion, or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or the Rules". 100. Therefore, if the allegations of facts made in the show cause notice are taken to be true and the company had fixed an effective price of the cigarettes sold by it different from the printed price and the effective price was higher than the printed price, then the provisions of Section 11A are clearly attracted. It will not be necessary for the Revenue to establish how back of the excess realisation to the manufacturer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys a vexed question. In the instant case, it has been decided to take the "adjusted sale price" of cigarettes as the basis for levy of excise duty. It was left to the manufacturers to fix the maximum retail price at which cigarettes may be sold by the retailers. But the retail price as declared by the manufacturers was to be the basis for levy of excise duty. Even under the Notification "cigarettes packed in packages" have been defined to mean in Explanation 2(b) of the Notification as cigarettes which are packed for retail sale, in packages which bear a declaration specifying the maximum sale price thereof as the amount specified in the declaration plus local taxes only". Therefore, the manufacturer is required to make a declaration specifying the maximum sale price of a packet of cigarette. 104. Since this was the main plank of the argument advanced by Mr. Deb, the Notifications will have to be examined closely to understand the full implications thereof. The Notifications were issued under Rule 8. The scope and effect of Rule 8 has also to be kept in view in order to grasp the full implications of these Notifications. "Rule 8. Power lo authorise exemption from duty in special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the taxable event is the manufacture of cigarettes. The Notifications under Rule 8 could not be issued unless the manufacture of cigarettes came within the scope of the charge imposed by Section 3 of the Act. The Notifications issued under Rule 8 are only machineries for effectuating the charge. The Notifications provided the rates of duty and also the method of calculation of duty. The well-settled rule of construction is that the provisions which deal with the machinery of assessment should not be subjected to rigorous construction but should be construed in a way that makes the machinery workable. It is to be borne in mind that the Notifications do not create any charge of excise duty on manufacture of cigarettes nor do they have any effect of creating an artificial or vicarious liability to duty. These Notifications must not be construed in a way that frustrates the charge. 108. The Notifications will have to be examined bearing in mind the aforesaid basic principles of laws of construction. Though there are some minor variations, basically under the scheme of the Notifications, a manufacturer has to declare the maximum retail price at which such packages may be sold. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification leaves no room for doubt that the manufacturer will have to declare the maximum price and that cannot be any price other than the price Fixed by the manufacturer at which such packages may be sold in accordance with the declaration made. 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 price as maximum price in accordance which such packages will not be sold or may not be sold. 112. If the manufacturer honestly estimates the maximum price and declares such price as the maximum retail price and thereafter the retail traders decide not to adhere to the price line fixed by the manufacturer, no proceedings can be taken against the manufacturer under Section 11-A of the Act because in such a case it cannot be said that there was any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be recovered from the company. 116. It must, however, be noted that in a case of any penal provision, even in a taxing statute, the onus of proving false declaration or fraud must be on the revenue. Whether the onus has been discharged or not, however, is a question of fact. 117. It was fairy suggested that the provisions of Section 11A can only be applicable to a case of incomplete assessment or no assessment. The language of Section 11A is clear and unambiguous. Whenever there is a short levy or short payment of duty the section is clearly attracted. Whether there was a complete assessment or incomplete assessment is not relevant for this purpose. In this context the distinction sought to be drawn between the short-levy or short-payment is also of no merit. In the facts stated in the show cause notice, the case made out is that the short-levy was occasioned by false declaration and this led to short-payment. 118. Lastly, it was contended that the differential duty calculation has not been made on any substantial basis. The amount mentioned in the show cause notice approximately Rs. 803 crores cannot be justified by any real calculation. 119. On behalf of the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the judgement under appeal. The appeal is dismissed. All interim orders are vacated. There will be no order as to costs. [Order per : Umesh Chandra Banerjee. J]. - I have had the privilege of going through the judgment of my learned Brother and I respectfully record my concurrence with the conclusion reached, but since the matter has been argued at great length for days together, my judicial conscience prompts to record my own reasons in the matter. 124. Basically the writ court does not and ought not to interfere with the Findings of fact. As early as in 1964 the Supreme Court in Syed Yakub's case (Syed Yakub v. K.S. Radhakrishanan reported in AIR 1964 SC 477) observed that a writ of Certiorari can be issued for correcting errors of jurisdiction committed by inferior courts or Tribunals. The Supreme Court observed that a writ can also be issued wherein exercise of jurisdiction conferred on it the court or the Tribunal gives decision illegally or improperly. There is no doubt, however, that the jurisdiction to issue a writ of Certiorari is a supervisory jurisdiction and the Findings of fact by the inferior court or Tribunal as a result of appreciation of evidence cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While dealing with the matter the Supreme Court in the last noted case considered in extenso the views expressed by Lord Radecliffe in Edward v. Bair Stow (1956) A.C. 14 as also the views expressed by Viscount Simonds in (1955) 3 WLR 410. Lord Radecliffe in the case noted above observed : "As I see it, the reason why the Courts do not interfere with Commissioner's findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the Commissioners of great experience in matters of business or any other matters. The reason is simply that by the system that has been set up the Commissioners are the First tribunal to try an appeal and in the interest of the efficient administration of justice, their decisions can only be upon wrong appeal if they have been positively wrong in law. The Court is not a second opinion, where there is reasonable ground for the First. But there is no reason to make a mystery about the subjects that Commissioners deal with or to invite the Courts to impose any exceptional restraints upon themselves, because they are dealing with the cases that arise out of facts found by Commissioners. Their duty is no more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into an adjudicating authority - no proof as such is required but merely some evidence on record to show that there exists a prima facie case for the adjudicator to adjudicate on the basis of the show cause notice. In the event the revenue is successful in its bid to show that a prima facie case has been made out for adjudication, the Court's jurisdiction ends at that juncture. But in the event however the Court comes to a conclusion that there exists no evidence whatsoever and the issuance of a show cause notice is a mere perversity or in colourable exercise of power the Court ought not to hesitate to strike down the show cause notice, as harassment cannot be the basis of issuance of a show cause notice since Governmental action must be fair and reasonable. 130. The concept of fair play and reasonableness in a Governmental action is no longer in the realm of judicial consideration, but a well-settled principle of law. Fair play and fair treatment ought to be the most accepted methodology in all Governmental actions. The Supreme Court of New South Wales in the case of Asmond v. Public Service Board of New South Wales & Anr. reported in 1985 LR (Commonwealth) 1041 after noticing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip with the secondary wholesalers or the retailers. The appellant contended that in terms of the requirement of law, the company has paid from 1983 to 1987, a total sum of Rs. 2441 crores as and by way of excise duty. This duty admittedly has been paid by the company on the basis of the price printed on the cigarette packets as per the requirement of law. The appellant contended that the money paid was duly accepted without any protest and demur. 133. As appears from the record, prior to 1st March, 1983 the rate of excise duty for cigarettes was required to be determined with reference to value, that is, the wholesale cash price or the normal price of the goods charged by the manufacturer to his customer as per Section 4 of the Central Excises and Salt Act under the Standard Weights and Measures (Packaged Commodities) Rules, 1977, the manufacturer was bound to print either a maximum price exclusive of local tax or a maximum retail price on the cigarette packet. Subsequently, however, on and from 1st March, 1983 under various Exemption Notifications issued under Rule 8(1) of the Rules framed under the Central Excises and Salt Act, 1944 excise duty on cigarettes was determined at sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company has rendered itself liable for payment of duty short paid in respect of all its five factories to the extent of Rs. 8,03,77,96,850.46 p. 136. Subsequent to the said show cause notice, a Corrigendum was issued by the self-same officer wherein it has been stated that the concept of effective prices has been arrived at on the basis of various prices actually fixed by ITC and circulated through its private and confidential prices circulars from time to time. 137. As appears from the show cause notice, the substance of the charge is that during 1st March, 1983 and 20lh February, 1987 the appellant had paid excise duty on clearance of cigarette at lower rates by incorrectly declaring lower sale price. Whereas the revenue authorities contended that the appellant-company had a duty to declare correct sale price of cigarettes to consumers on the cigarette packet itself, and has deliberately failed to do so, the appellant contended that the question of mis-declaration or wrong declaration of sale price does not and cannot arise. The appellant contended that there was no restriction nor any mandate of law to print a particular price on the cigarette packet. It is the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the similar vein Mr. R.C. Deb appearing for the appellant in the appeal preferred by the shareholder also submitted that manufacturers' freedom to mark maximum price on the basis of the appropriate commercial consideration was not restrictive in nature and the Packaged Commodities Rules read with the Notifications expressly excluded approval of price thereby rendering a free hand to the manufacturer in the matter of fixation of maximum price. In other words, Mr. Deb contended, approval of price was expressly excluded on payment. It was contended that had it been the intention to levy duty on the basis of actual price charged to consumer, there was no difficulty in providing the same as a measure of duty in the Exemption Notifications. The price at the point of sale to the consumer was used as a measure of duty in various Exemption Notifications issued under Rule 8(1) of the Central Excise Rules in respect of wireless, receiver etc. under the purview of Tariff Item No. 33A. This was not deliberately adopted in the case of cigarettes. In line it was contended on behalf of the appellant as regards legal defence against the show cause notice that since there was no statutory direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notice will show that the basis of the principle allegation in the show cause notice is that the ITC had fixed effective price for its different brands clandestinely simultaneously with the printed price and had communicated the same down the line to the retailers for their compliance. On this aspect the show cause notice itself relies upon certain working sheets of branches as also of the wholesale dealers, certain blind notes, the sales analysis sheets and the launch reports together with the oral evidence of several persons. It is the submission of the appellant that the same does not amount to any evidence at all. Mr. Sen's definite case is that question of ITC's fixing an effective price does not and cannot arise, since ITC has had no control over the price fixed by the retailers, neither there is any privity of contract between ITC and the secondary wholesalers and retailers. ITC's function ends upon delivery of goods to the wholesaler and it is the wholesaler who does the rest of the job, viz., sells it to the secondary wholesaler or to retailer and the retailers charge the ultimate consumers being the smokers as per their own price fixation and in this conext Mr. Sen al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be said that there exists no evidence whatsoever for the issuance of a show cause notice. 144. Mr. Advocate-General in counter to the submission submitted that the action plan and the pricing strategy of the company unmistakably suggest that it is the ITC's manipulation which brings into existence the concept of effective price which is at variance with the printed price. Mr. Advocate-General further drew the attention of this Court to a document with the Heading "Revised Trade Price/Margin -W.E.F. 1986". This particular document as appears from the evidence has been in the handwriting of one Mr. Debashis Roy of ITC Ltd. and it was seized from ITC's Calcutta Branch office. Whereas, Mr. Sen submitted that this is the resultant effect of market survey which the company is bound to make so as to be in the market and sent to Mr. Lele at Calcutta who is in charge of Siliguri Sector, Mr. Advocate-General submitted that this particular document was also seized from one of the wholesalers meaning thereby that the same was also sent to the wholesalers. Furthermore, Mr. Advocate-General submitted "WEF 1986" would mean and imply that the same is prospective in nature. Strong criticism have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a margin of 10 P. after investing Rs. 900/- which is an absurdity. No person having investment of a sum of Rs. 900/- would be content with a total margin of 10 P. and admittedly this has been the creation of ITC Ltd. and that is also the precise reason, why the retailers have been asked to charge Rs. 19/- per packet of cigarette instead of Rs. 18/- as printed so as to give them a reasonable margin of Rs. 1.10 P. per packet. Mr. Advocate-General submitted very strongly that the same is the creation of ITC and not the resultant effect of the market force - neither this document can be said to be a working sheet, since it is prospective in nature and also been circulated to wholesalers. As a matter of fact, Mr. Advocate-General submitted that even before the launching a new brand, ITC decided upon a particular effective price higher than the printed price and on this score relied on a document dated 24th December, 1985 being a marketing plan for NOW FTK wherein the printed price was fixed at Rs. 3.40 and effective unit price was stated to be Rs. 4/- and stick price 25 P. The date of launch being 26th December, 1985. Further reliance on this score was also placed on a document dated 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factual score, therefore, the allegations in the show cause notice, I am of the view does disclose at least prima facie that there is a case for adjudication before the concerned authority. As such, the contention of Mr. Sen as regards no evidence cannot be sustained. 146. The other aspect of the matter connected with the factual score is that by reason of the Notifications starting from 1st March, 1983 till September, 1985, a determinate standard has been fixed for the purpose of levy of excise duty. To read from the Notification a power for the Excise authorities to levy a duty on the basis of speculative and indeterminate effective prices as found in different markets, it was contended, and ignoring the determinate standard of the printed price would be wholly unauthorised. Mr. Sen contended that the Central Excise Act levied duty on an ad valorem basis leviable on the basis of the wholesale prices charged at the factory gate. This system of levy was followed upto 1-3-1983 and from 1-3-1983 the charge came to be based on a determinate and inflexible standard eliminating the necessity of verifying the prices charged by the manufacturer to the wholesale dealers. The Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te-General contended that Exemption Notifications are complete Code in themselves and have got independent statutory force and the requirements of the Notifications are clear, precise and unambiguous. The clear requirement of the Notifications are to be complied with in order to avail benefit of the exempted rates of duty and no manufacturer can claim any larger benefit in respect of the fiscal liability than what is contemplated under the relevant Notification by adopting dubious methods. Mr. Advocate-General submitted that it is wrong to contend that the Notifications have made the maximum price printed on the packets as the basis of the levy. The charging provisions in the Notification recorded that the "adjusted sale price" per thousand cigarettes is the basis of levy and stipulated rates of duty according to the prescribed slab in which it may fall and in order to ascertain the adjusted sale price for each stick of cigarette, one has to look into the provision contained in the Explanations 1, 2 and 3 containing the definitions of different terms mentioned in the Notification. 147. It would be convenient at this juncture, however, to refer to the Notifications. As it appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in agreement with the contention of Mr. Advocate-General that this definition of sale price cannot be interpreted in isolation from the declaration of the maximum sale price. The charging provision as appears from the table under the Notification provides the rate of duty for cigarettes being cigarettes packed in packages of which the adjusted sale price ought to be taken note of for the purpose of calculation of duly. Having regard to the definition of adjusted sale price, it cannot but mean maximum retail sale price, and a plain reading of Explanation 2 under the Notification of 1983 makes the position abundantly clear that Mr. Sen's contention as regards the definition of sale price 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. In any event, the case of the Revenue Authority is that a fraud has been perpetrated on the revenue by deliberately mis-printing or under-printing the price of retail sale of cigarettes. Fraud undoubtedly has to be proved and the stage has not come. The writ court is also not the proper forum more so in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no guidelines as appears from Drug Control Order, 1977. But on a plain reading of the instant Notification, the manufacturer of a cigarette is left free to allow as much margin as it likes or to fix whatever price as it likes. But the fact remains, it must give a true and correct declaration as regards the price of the package itself and the same cannot but be termed to be an independent obligation on the manufacturer which must be complied with in order to obtain benefit of the exempted rates of duty. 153. The next contention on behalf of the appellant is bias and the consequent disqualification of the respondent No. 3. Mr. Sen for the appellant submitted that from the show cause notice as also the affidavit filed in the Madras High Court on behalf of respondent No. 3 by Sri Veerayan, Deputy Director, Anti-Evasion in Writ Petition Nos. 5004 and 5882 of 1987, the committed and closeness of mind of the respondent No. 3 would be apparent and clear. In order to appreciate the contentions raised, the statement in the affidavit ought to be considered in a little bit more extensively. Sri Veerayan in the counter-affidavit on behalf of the present respondent No. 3 stated : "I deny the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s holding a quasi-judicial office, such as, an Arbitrator. The reason for this clearly is that, having to adjudicate as between two or more parties, he must come to his adjudication with an independent mind without any inclination or bias towards one side or other in the dispute." 155. At this juncture, however, let us now consider the Press statement in a little bit more elaborately. The respondent No. 3 has not made any statement indicating the amounts alleged to have been evaded by the appellant-company nor did be make any announcement justifying the rate. He only answered certain enquiries of a Press Reporter who contacted him over the phone. The enquiry from the Press as to what was the extent of evasion, he had replied, it was too early to determine the extent of evasion and in the same vein he has said that certain incriminating documents were found and were being examined. In my view, considering the situation with which the Director, Anti-Evasion was placed at the time of raid or immediately thereafter, it cannot be said that he has 'fore-judged' the issue. Incidentally it is to be noted that the respondent No. 3 is to discharge his statutory duty imposed on him by law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... departmental or institutional bias as against the statutory authority, because of a reward scheme. Section 22 of the Central Excises and Salt Act, 1944 provides for penalty in the event of a vexatious search. Can it possibly be comprehended that the Director, Anti-Evasion Directorate would take his reputation and his career with a vexatious search in order to succeed in the remote possibility of obtaining a reward for his subordinate staff - in my view, the answer is in the negative. Incidentally it is to be noted that the Director, Anti-Evasion Directorate has been clothed with statutory power to adjudicate and bias of the nature as noted above by reason of a reward scheme cannot be said to call for any further scrutiny or consideration. There must be proper circumstances so as to create a reasonable apprehension in the mind of the person concerned that there is in fact a likelihood of bias affecting the decision of the adjudicating authority. In the facts and circumstances of this case, however, there cannot be any apprehension far less reasonable apprehension of any bias or any likelihood of any bias affecting the decision of the adjudicating authority. The decision of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the law which relates to the selling of cigarettes at a price higher than what is printed and that is nothing new........after taking into account of these matters and then a conscious decision was taken that instead of keeping large amounts of revenue blocked, we should move over to a system on a purely experimental basis......." 161. The further statement of Minister of Finance, Department of Revenue, to the Public Accounts Committee has also been taken recourse to by the appellant. In that statement it has been recorded: "The declaration of the maximum retail price on all commodities deal with any packaged form including cigarettes is a requirement under the standards of Weights and Measures (Packed Commodities) Rules, 1977. This declared price has been taken as a basis for determining the slabs at which the excise duty would be judged in terms of Notification No. 211/83 dated 4-8-1983. If the retailers sell the packet of cigarettes at the price higher than the declared price, then it is an infringement of the standards of Weights and Measures (Packed Commodities) Rules, 1977 which is being enforced by the State Government and the Union Territories." 162. Relying on the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction as the same is a question of fact to be decided by the adjudicator. In any event, it is only a rough and ready calculation which has been effected by the revenue authority and it is for the ITC to show before the authority concerned that the same suffers from any vice or the calculation is utterly baseless. Stage has not come for intervention for the writ court on this score. 165. Mr. R.C. Deb appearing for the appellant in the Second Appeal on behalf of the shareholder also contended that price printed by the manufacturer on the package itself is the only lawful basis of the levy. As such, question of imposition of further excise duty does not and cannot arise. The matter has been dealt with at length hereinbefore in this judgment and suffice it to record here that fraud unravels everything. The whole tenor of the show cause notice is that a fraud has been perpetrated. 166. In the event the revenue is in a position to justify its stand, certain consequences would follow and if the writ petitioner is successful in its bid to establish that it is the market force or the retailers' creation, the show cause notice itself would be quashed. But at this stage it is not for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Ltd. practised fraud on the exchequer. The revenue went on to say that a dual pricing strategy has been introduced and margin of the retailers has been slashed down to a minimum of 10 P. per thousand cigarettes for all brands would in effect, assuming everything in favour of the appellant, would go to show undue profit on the part of the ITC Ltd. 168. Slashing down the retailers' margin ought to be considered in little more greater detail at this juncture. Whereas, Mr. Sen submitted that it is the new rate of excise duty which could not give any better margin to a retailer and there cannot be any law restricting the profitability of a manufacture. Mr. Advocate-General submitted that the factum of reduction in margin and the BTL (Below the Line Margin) would go to show an increased profit for ITC. Instances were cited where even when there is a reduction in excise duty, margins have been slashed. In my view factum of slashing down the margin of the retailers is a relevant factor which ought to be considered by the adjudicating authority and since any observation of this court would have a binding effect on the adjudicator, I refrain myself from making any observation in that rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the same being vitiated by non-application of mind. The contention of present day sluggish attitude of a governmental authority and assuming it be so, though however cannot be justified does not warrant the law courts to quash a show cause notice on the ground of non-application of mind by reason of the fact that the concerned officer has acted with utmost promptitude. Governmental action must be fair, reasonable and with utmost expedition. No amount of laxity can be allowed on that score. Order of the day as submitted cannot be said to be the basis of a governmental action. As such, I am in agreement with the learned Advocate-General's contention that the show cause notice cannot be set at naught by reason of the fact that a government officer has acted with speed and expedition. 172. The last of the issues raised in the matter is the absence of jurisdiction in so far as the respondent No. 3 is concerned. It has been contended by the appellant that the respondent No. 3 cannot exercise jurisdiction as Collector for the whole country and the same ultra vires the Act and the Rules. I need not dilate much on that score since the Madras High Court in the case referred to above a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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