ORDER
Jyoti Balasundaram, Vice-President
1. The above appeals arise out of the order of the Collector of Central Excise, Delhi adjudicating 3 show cause notices as under:
(i) Confirming duty demand of Rs. 7,43,84,000/- on adjudication of show cause notice dated 25th March, 1986 issued by the Assistant Collector of Central Excise, Vadodara.
(ii) Confirming duty demand of Rs. 4,02,23,000/- on adjudication of show cause notice dated 22nd September, 1986 issued by the Assistant Collector of Central Excise, Vadodara;
(iii) Confirming duty demand 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, 19.86 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 price of Rs. 1.70 per pack of 10s and Rs. 3.40 per pack of 20s as maximum retail price [exclusive of local taxes only] at which cigarettes would be sold. The specimens were approved accordingly. GTC separately filed proforma statements to the Central Excise Authorities declaring the above prices for the cigarettes. Cigarettes manufactured and cleared by them were assessed on the basis of the above declaration and adjusted the sale price for different brands of products had been worked out and accepted as the basis for charging duty under the Notification. In the Gate Passes for clearance of cigarettes, GTC declared such adjusted sale price and rate of duty at which cigarettes were chargeable to duty. The investigations revealed that the declaration of adjusted sale price/maximum retail price in regard to this brand was not true, as cigarettes were being sold during the relevant period in retail at the prices higher than those prices declared on the packages. The department was of the view that the declarations were made deliberately false, as GTC sold cigarettes to Retailers leaving them a margin on which it would not be economical for them to act as Retailers. The margin indicates that GTC had never believed it is reasonable that the Retailers would sell the cigarettes in accordance with the price declared and GTC therefore, had full knowledge that retail packet would not be sold in accordance with the price declaration made thereon.
3.3 That extra money over and above the prices shown in the invoices was being collected in respect of sale of various brands of cigarettes and extra amount so collected by the Salesmen were passed on to the Retailers and Wholesale Dealers and subsequently in cash to the Super Buyers.
3.4 GTC was also recovering part of extra money collected through some other methods – various Super Buyers and Wholesale Dealers were made to spend large amount of money for undertaking the activities of advertisement of GTC’s products, market surveys, distribution and expenses of mobile van etc used for sale of cigarettes. There was no reimbursement of these amounts by GTC to the Wholesale Dealers or Super Buyers. Secondly, as alleged in the show cause notice issued by the Collector of Central Excise, Bombay dated 4th April, 1986, GTC had devised a scheme of security deposit at which GTC would pay interest at the 10% on the deposit made by the buyers, 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 : F. Retailers (Continued) :
1 Binod Kumar Sitani 22 Sekhar Narayan Shetty
2 V.P. Kanodia 23 Sanju Kanchen
3 Puran Singh Bisht 24 Rajendra Y. Bulbule
4 Dhan Singh 25 Sudhakar S. Shetty
5 Ramesh Khandelwal 26 Kanta N. Parab
27 Sri Kant Monappa Chougule
B. Wholesale Dealers : 28 Parasram Muthgekar
6 P.S. Money 29 Chandrashekar T. Kanchan
7 K. Azhakianambi 30 Narayan F. Chougule
8 K.K. Chandramohan 31 Hamid Khatal Nalband
9 Ipe Jacob 32 Pramod S. Chougule
10 Ashok Kumar Agarwal 33 I.K. Desai
11 Surinder Kumar Bhutyani 34 Vishwanath Pujari
12 Smt. Basiran 35 Narayan M. Madiwal
36 Ram Pujari
C. Cycle Salesmen of Wholesale 37 Shankar Narayan Rao
Dealers : 38 Abdul Rehman
13 S. Salaluddin 39 H. Shankara
14 K. Muralidharan 40 R.S.P. Jayrakshakan
15 K. Praneshchary 41 P.K. Nanda
16 M. Palanichami 42 M.N. Naseer
D. Employee of Wholesale 43 A.T. Siddique
Dealers : 44 G. Moiduddin
17 Gyan Prakash Dangwal
E. Company's Representative :
18 S.N. Gangopadhayay
19 M.H. Farook
F. Retailers :
20 Vishwanath G. Shetty
21 Sanjeev Ram Serigar
Statements of Wholesale buyers
5.1 Shri Puran Singh Bisht in his statement recorded on 20th January, 1986, he admitted that M/s. Puff Trading Company, Hyderabad in which he was a proprietor was selling the cigarettes at the price higher than the price fixed for him, but the bills are issued to the extent of the prices decided for wholesale buyers. He has also admitted one instance of payment of Rs. 1 lac extra to the supply of cigarettes without mentioning this in his account. He has stated that out of the payments made by him, GTS adjusts some money as supply account and the balance under deposit account; that he will get 10% interest on the deposit account while GTC will charge him interest at the rate of 27% for outstanding due from him to GTC; that he has also paid advertisement charges of GTC brand cigarettes. He has also stated that it is not economical to sell the said cigarettes at the price fixed for wholesale buyers, as he made additional expenditure on behalf of GTC towards packing expenses, freight, advertisements, banking charges and interest in addition to paying very high interest on so called outstanding. He also stated that GTC has not provided him any printed price.
5.2 Shri V.P. Kanodia in his statement recorded on 20th January, 1986, stated that when he took up cigarette selling agency, he was to pay security deposit of Rs. 8 lacs to GTC. It was not paid in lump sump and was increased to build up the amount by crediting major portion i.e. 95% of the amount being paid by him to GTC on account of purchase of cigarettes [Collector has drawn the point that through this method of security deposit, GTC has collected substantial amount from wholesale buyers over 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 leadership. He did not issue any bills for the goods sold to the dealers and the differential amount collected by him from his dealers was being collected by the agent of super buyer namely, Mr. Pandian, Area Manager of M/s. Shivani Trading (P) Ltd. He has also stated that the differential amount was paid in cash at the time of purchase of cigarettes.
6.2 Shri P.S. Money stated that from 1982 the payment for bill amount plus an extra amount in cash was demanded for the delivery of cigarettes of GTC by the super buyers; that he was to contact one Mr. Sitani over the telephone for his requirement of cigarettes and Mr. Sitani arranges delivery of cigarettes and send his representative for collection of cheques for the bill amount as well as extra amount in cash and thereafter he is given delivery order.
6.3 Shri K.K. Chandermohan’s statement is similar to Mr. P. S. Money as stated above regarding extra payment in cash.
6.4 Statement of Shri Gyan Prakash Dangwal [Employee of Wholesale Dealer Shri Bhutyani] stated that the paper recovered from his employer’s shop on 21-1-86 represented the amount which he had collected on sale of cigarettes and which he had handed over to the employer at the relevant week.
Statement of Cycle Salesmen of Wholesale Dealers
7. Mr. K. Muralidharan has stated that the purchase rate of “Style” cigarette and retail rate per 1000 cigarettes from September, 1985 were as follows:
Purchase Rate : Rs. 183.20 Retail Sale Rate : Rs. 185.00 Statement of Company Employees
8. Shri S. N. Gangopadhyay, Factory Manager of M/s. Suvarna Filter Tobacco was a local Field Officer of GTC at Sivakasi. He confirmed that Cigarettes of brand in question are sold in retail market at the price higher than those marked. He indicated that this has sold at Rs. 2/- above per packet as against marked price of Rs. 1.70 per packet; that actual sale price was intimated to the Regional Office in Madras that the price fixation was decided by GTC Officers.
Statement of Retailers
9. The remaining statements are those of retailers. Their statements have not been recorded under Section 14 of Central Excise Act, but they have filed Affidavit. In their Affidavit, they have stated that they have been purchasing GTC cigarettes at Belgaum. The rate charged to them was Rs. 9.45 for 5 packets, which was sold to Rs. 1.89 for one packet whereas actual printed rate on the packet was Rs. 1.70. 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 approximately which in turn, means that the minimum price at which a super buyer would have sold the cigarettes to wholesale dealer was Rs. 1.76 and when the purchase price was Rs. 1.58, the super buyer could have sold only at Rs. 1.81 [packet of 20s]. He has also held that security deposit scheme is artificially created purposely against the accepted principles and practice of commercial transactions and business norms. He has concluded that this scheme was devised by GTC to get flow back of excess amount over and above the price shown in the bill/invoice, which was obviously under priced. He has held in page 394 of his order that although GTC was fully aware that the price printed on the packet of 10s was not the correct retail price and the cigarettes were actually to be sold at a higher price, they deliberately printed the adjusted sale price on the packet of 10s as Rs. 1.70 and devised a scheme to retrieve the excess collection from the retailer in order to avail of inadmissible benefit of concessional rate of duty.
10.2 At page No. 411 he has dealt with th_e interpretation of Notification Nos. 201/85 and 78/86. He has rejected the contention of GTC that Central Excise Authorities are bound to accept the price declared on the package and that declarations were made on the basis of maximum price at which each package should be sold in accordance with the declarations made thereon. He has relied upon the decision of Hon’ble Calcutta High Court in the case of ITC Limited v. Union of India , which held that legal requirement of declaration of maximum retail price at which such package may be sold in accordance with the declaration made on such packages by the manufacturer is not complied with by a misdeclaration of the price. He has held that it is not possible for a retailer to sell the packages in accordance with the declaration made by the manufacturer when the manufacturer had fixed higher retail price than the actually printed price of MRP on the packages. In such a situation, the manufacturer cannot be said to have declared a maximum price at which such packages may be sold and on the contrary, the inference is that the manufacturer had printed the MRP in accordance with which cigarettes will not be sold or may not be sold. He has confirmed the demand on application of the extended period of limitation [page 428 of the order]. 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 Central Excises and Salt Act, 1944 (1 of 1944) and the duty leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), respectively.
TABLE
Description Rate
1 2
Cigarettes [being cigarettes packed in ap-
proved packages] of which the adjusted
sale price per one thousand
(i) Does not exceed rupees sixty Forty-two rupees per one
thousand;
(ii) Exceeds rupees sixty but does not One hundred and twenty-
exceed rupees one hundred and seventy five rupees per one
thousand;
(iii) Exceeds rupees one hundred and sev- Two hundred and twenty-
enty but does not exceed rupees five rupees
three hundred per one thousand;
(iv)Exceeds rupees three hundred but does Four hundred rupees
not exceed rupees five hundred and fifty 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 cigarettes 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 packages which –
(a) contain 10 or 20 cigarettes, and
(b) bear a declaration specifying the maximum sale price thereof as the amount specified in the declaration, plus local taxes only;
(a) have surface designs approved by the Director (Audit) in the Directorate of Inspection and Audit (Customs and Central Excise):
Provided that –
(1) the said Director (Audit) shall not refuse to approve any surface design for the purposes of this notification unless he is satisfied after making such inquiry as he deems necessary and after giving a reasonable opportunity to the person making the application for such approval to represent his case, that such surface design is deceptively similar to any other surface design approved under this notification;
(2) the approval given for any surface design under this notification 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 amended by Notifications No. 210/85-C.E., dated 20-9-1985 and No. 78/86-C.E., doled 10-2-1986.]
12. We have heard both sides.
13. The Collector has found on the basis of statements of super buyers, wholesale dealers etc. that extra amounts were collected in cash by the retailers from their dealers and were passed on to the super buyers [wholesale buyers]. However, we note that during the cross-examination, the retailers and wholesale dealers disowned their original statements, on which reliance has been placed by the adjudicating authority. Therefore, their credibility is substantially eroded. The reasoning of the Collector to discard the stand of the retailers and wholesale dealers in their cross-examination is that their statements have been retracted inter alia after several years. This may be relevant in so far as the confessional statements of accused are concerned, but as far as the statements of witnesses are concerned, such delay is not fatal. In any event, even if it is held that the original statements of wholesale dealers/wholesale retailers/retailers are to the effect that there were realisations of extra payment for sales of cigarettes and that part of excess collection flowed back from the retailers to the super buyers, there is no material on record to establish that there was direct or indirect flow back from the super buyers to the appellants. According to the Department, the flow back was indirect in the form of interest margin that was collected from the super buyers and also the fact that super buyers paid for advertisement of GTC products, which was never reimbursed. There is no finding that any extra amount collected in cash passed on further backwards from the super buyers to the manufacturers. The finding of the Collector that there was a flow back to GTC, is based upon his findings that money flow back is by way of difference in rates of interest under the security deposit scheme as well as by making the wholesale buyers and the wholesale dealers bear the advertisement expenses of GTC without any reimbursement. According to the appellants, the security deposit scheme was created only for the purpose of clearing the interest of GTC vis-a-vis wholesale buyers; that the deposit was in the nature of consideration for giving distributorship rights to the super buyers and that it had absolutely no nexus or relationship with the price at which 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 Cigarettes Limited’, Jammu at its discretion.
4. GTC’s price-list is ex-works at Bombay, Baroda, Jammu, Hyderabad payment against delivery basis. Wholesale buyers are required to pay in advance full value of the goods in cash or by draft/cheque drawn on an approved Bank in favour of GTC payable in Bombay. GTC may at its sole discretion agree to negotiate documents for collection through a Bank or allow deferred or other terms of payment on such terms and conditions as it may be decided from time to time. Interest at the rate of 18% per annum or such other rate as may be decided by GTC from time to time, at its discretion, shall be charged on all such credit allowed by GTC.
5. GTC reserves the right to ask security deposit from the wholesale buyers and to very the amount of such security deposits from time to time at its sole discretion. GTC shall pay interest on such security deposit at the rate of 6% per annum of such rates as may be decided by GTC from time to time.
6. GTC’s responsibility ceases immediately the goods are delivered to the carrier. Wholesale buyers are therefore, requested to check and lodge their claims, if any, with the carrier/insurer for any shortages, dames or non-delivery of the consignment. GTC shall not be responsible for any short-delivery, non-delivery or damages.
7. The wholesale buyer will take delivery of the consignment from the carrier without delay. In any event, the wholesale buyer will be liable for the payment of demurrage/wharfage and other charges, as the case may be.
8. The wholesale buyers shall not act or represent as the agent or factor of GTC and all transactions between GTC and the wholesale buyer shall be on principal-to-principal basis only.
9. The wholesale buyer shall be free to deal or trade in any other commodity or product of any other manufacturers. Similarly, GTC shall have the right to sell its product to any other wholesale buyer/buyers.
10. All disputes or differences, arising out of the dealing between GTC and the wholesale buyers will be subject to the exclusive jurisdiction of the Courts in Bombay City only.
15. We find that right from the inception of the scheme, the practice that was followed was to demand security deposit in a phased manner and initially the payments were almost fully rounded off for credit to the security deposit with only a small amount being credited to the purchase payment 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 December, 2004 of the Deputy General Manager (Finance) of GTC Industries Limited. The chart is as under :
Year Security Deposit Sale Figure
1978-79 158,338,914.00 965,365.977.00
1979-80 147,602,850.00 1,022,177,215.00
1980-81 175,147,445.00 1,218,452,968.00
1981-82 189,727,445.00 1,333,414,914.00
1982-83 243,815,000.00 1,473,196,516,00
1983-84 235,713,450.00 1,528,040,371.00
1984-85 251,926,950.00 1,727,526,467.00
1985-86 257,881,950.00 2,321,385,584.00
1986-87 191,174,450.00 2,299,895,846.00
1987-88 163,364,450.00 1,791,347,869.00
16.2 GTC has also furnished the details of security deposit taken from 3 wholesale buyers during the years 1984-85,1985-86 and 1986-87. The Figures are as under:
Year ended 30th June
Wholesale Buyer 1984-85 1985-86 1986-87
Panama Trading Co 1,00,000.00 1,00,000.00 1,00,000.00
Security Deposit as on 30th June
Sale (Including Debit Notes) 45,86,146.55 68,46,614.65 60,68,137.21
Kaluram Rajesh Kumar 1,00,000.00 1,00,000.00 1,00,000.00
Security Deposit as on 30th June
Sale (Including Debit Notes) 76,05,678.46 75,96,308.68 48,17,930.03
Mitali Corporation 1,00,000.00 1,00,000.00 1,00,000.00
Security Deposit as on 30th June
Sale (Including Debit Notes) 80,41,668.71 72,65,697.87 91,76,194.08
Interest on Deposit @ p.a. 10% 10% 10%
Interest on outstanding @ 27% 27% 24%
16.3 As regards advertisements etc, GTC’s case is that the advertisements were made by the super buyers or wholesale buyers to promote their own sales and they were not directed to charge the expenses to GTC and their expenses including advertisements have no relation to the adjusted sale price.
16.4 As regards security deposit scheme, we note that even after full deposit has been made to GTC towards sale of goods by super buyers the profit of the super buyer cannot be calculated directly in terms of deposit made in excess. The turnover of the super buyer fairly exceeds the deposit amount. Therefore, even after making deposits and paying differential 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. 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’s decision in the case of ITC Limited v. Collector of Central Excise, New Delhi where under the Supreme Court has interpreted Notification No. 36/83, dated 1st March, 1983 and Notification No. 201/85, dated 2nd September, 1985. The Notification, which replaced the 1983. Notification was in similar terms except for the rate of excise duty and the categories of cigarettes, inter alia. On the basis of the above, GTC submits that even in a case of flow back, MRP printed on the packets is to be accepted and no other price can be taken into consideration for determining the slab for applicable rate of duty. Specific reliance is placed on para 54 of the ITC judgment wherein Supreme Court observes that certainty of specified rate, which was sought to be achieved by the notification, has been undone by the adjudicating authority and the Tribunal and the “Notification had introduced the system for levy of Excise Duty on an experimental basis. If the experiment was a failure for whatever reason, it was bound to the respondent to do away with it and replace the system by some other as it done in 1987. But as long as the notification stood it had to be given effect to. In the view we have taken, there is no need to go into other questions debated before us”.
18. We have carefully considered this submission and gone through the Apex Court judgment. Some of the salient findings of the Supreme Court are as follows:
(i) According to the notification it is the declaration made, or the MRP as printed, on the package, which alone is the sale, price and which furnishes the foundation for the calculation of the adjusted sale price. There is no other basis provided, (para 31).
(ii) What the Revenue have us to due what the Tribunal has in fact done, it to shift the basis for levy of excise duty under the exemption notification from the MRP actually printed on the package to a price which is to be deemed to be the printed price, (para 33),
(iii) According to the notification, the retailer is permitted to sell in accordance with the declaration made on the package. Permission could be contractual or statutory. If the permission were a contractual term, it would have to be established that there was privity between the manufacturer and each retailer. This is not the case of either party, (para 34).
(iv) The statute which forbids the sale of commodities including 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 rate other than the printed MRP. All that it does is to accept that printed MRP according to which the cigarettes are permitted to be sold by the retailer, as the sale price for the purposes of grant of concession under the notification, (para 41).
(viii)The price fixed under any law for the time being in force has to be taken as the normal price of the goods irrespective of the actual amount realised, (para 42).
(ix) In terms of notification, the Excise Authority is required to act on the basis of the printed MRP. The notification does not envisage an enquiry into the correctness of the MRP printed on the packages by the Excise Officer. As far as he is concerned, he is limited to satisfying himself that there is a declaration in the prescribed form. To hold otherwise would not only defect the object with which the notification was introduced but lead to a reversion to the earlier mode of assessing the value of the manufactured commodity, the uncertainly associated therewith and an impossibly chaotic situation, (para 48).
(x) The certainty of specific rates which was sought to be achieved by the notification has been undone by the adjudicating authority and the Tribunal. The notification had introduced a system for levy of excise duty on an experimental basis. If the experiment was a failure for whatever reason, it was open to the respondents to do away with it and replace the system by some other as it did in 1987, But as long as the notification stood, it had to be given effect to. (para 54).
19. The issue for decision by the Apex Court was the interpretation of exemption notification namely; Notification No. 36/83, dated 1-3-1983 and 201/85, dated 2-9-1985. The 1983 Notification for the first time introduced the concept of levying excise duty with reference to the retail sale price of cigarettes instead of wholesale price at which the manufacturer sold the cigarettes at the time and place of their removal under Section 4 of the Act. The retail sale price was defined in the Notifications as “maximum price [exclusive of local taxes]” at which the packet of cigarettes may be sold in accordance with the declaration made on such package by the manufacturers”. According to the appellants, the declaration referred to in the 1983 and 1985 Notifications [which replace 1983 Notification in similar terms except for the rates of excise duty and categories of cigarette entitled 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 wholesale dealers, secondary wholesale dealers/retailers and at the same time, increased their sale price and sale realisations and that by reducing the margins available to the retailers to a level of 10 paise per thousand cigarettes, ITC had unofficially fixed effective prices being the actual price of its cigarettes and communicated the same to the wholesale dealers, secondary wholesale dealers and retailers; that the effective price was generally higher than the printed false price on the packs. The submission of ITC before the Supreme Court was that the Notification of 1983 had to be understood in the light of proisions of Standards of Weights and Measures Act, 1976 and Packaged Commodities Rules, 1977 and that the retailer could not legally sell the cigarettes at a price, which was not in accordance with the price declared on the package. The Revenue contended that the declaration of MRP was required to be an honest one and that the definition of the sale price in Explanation III to the Notification contemplated that a package could ordinarily be sold at the price declared and that the price declared or printed would have to have a co-relation with the price at which such packages was likely to be sold, as otherwise, it would give the assessee the freedom to print any price knowing that the package would not be sold in accordance with the declaration made thereon.
20.1 In para 29 of the judgment, the Supreme Court recorded the contention of the Revenue that MRP should be fixed at a price so that the cigarette packet could be sold by the retailer in accordance with the declaration made. In other words, according to the Revenue, the cigarette manufacturer was bound to print an MRP at which the retailer could and was likely to sell the cigarettes keeping a reasonable margin of profit.
20.2 In para 31 of the judgment, the Supreme Court held that the construction placed by the Tribunal on the price “may be sold” namely that the declared printed price must be such that the packages may be or can be or capable of being sold at such price that the declared price may be such that the packages may not be or cannot be or are not capable of being sold at such price and the sale price in such a contingency, the printed price is not the sale price and ASP cannot be based on such printed price; the sale price in such contingency will be the maximum price at which the packages 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 submission of the appellants based on the above judgment, also merits acceptance.
22. In the light of the above discussion and the Apex Court’s judgment cited supra, which is squarely applicable to the present case, we hold that the benefit of concessional rate of duty under Notification Nos. 201/85 and 78/86 is admissible to the appellants, set aside the duty demand and penalties and allow the appeals.