AI Drafter 
TaxTMI 
TaxTMI 
2005 (12) TMI 367
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....of show cause notice dated 4th April, 1986 issued by the Collector of Central Excise, Mumbai. 2. The Collector has also adjudicated show cause notice dated 23rd April, 1986 issued by the Collector of Central Excise, Hyderabad against M/s. Sri Chandra Tobacco Limited and M/s. Suvarna Filter & Tobacco Products and since no demand was confirmed against or penalty imposed upon M/s. GTC Industries, no appeal has been filed against adjudication of this notice. 3.1 The basic allegations made in the show cause notices adjudicated by Order-in-Original dated 17th January, 1995 are as follows:- 3.2 That GTC Industries Limited had been claiming the benefit of concessional rate of Central Excise duty during the different periods mentioned in the show cause notices under Notification No. 201/85, dated 2nd September, 1995 and 78/86, dated 10th February, 1986 on Golden's Style Filter King brand of cigarettes. While sending samples of the packets of cigarettes of the said brand for approval by Central Excise Authorities, the Appellants declared the 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 ....
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....the amount outstanding to GTC, by GTC's adjusting the amounts remitted by the buyers for purchase of cigarettes towards security amount. The security amounts were fixed arbitrarily by GTC without any uniform policy and were increased from time to time depending upon how much money was considered as due to GTC. While up to the level of the first buyer from GTC, the extra amount illegally collected by sale of cigarettes over and above the printed prices was recovered stage by stage in cash and by draft between GTC and the first buyer, the adjustment in the balance amount was by difference in the interest rate [17% difference]. 4. The Collector has relied upon the statements of 44 witnesses, who were allowed to be cross-examined by GTC. A. Wholesale Buyers : 1 Binod Kumar Sitani 2 V.P. Kanodia 3 Puran Singh Bisht 4 Dhan Singh 5 Ramesh Khandelwal B. Wholesale Dealers : 6 P.S. Money 7 K. Azhakianambi 8 K.K. Chandramohan 9 Ipe Jacob 10 Ashok Kumar Agarwal 11 Surinder Kumar Bhutyani 12 ....
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....rges 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 ....
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....he 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 deal....
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....uch 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 Dut....
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....es 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 ....
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....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 wh....
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.... 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 ....
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.... 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 ....
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....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 contra....
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.... 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 ....
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....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 s....