In a move that is seen as a major setback to tobacco major ITC, the government has armed itself through an ordinance with powers to modify past excise rules in an apparent attempt to recover arrears of Rs 803 crore (Rs 8.03 billion) from the company.
The Ordinance issued on January 25 amends the Central Excise Act empowering government to make rules retrospectively.
This follows the legal battle between excise department and ITC in Supreme Court, which gave a verdict in favour of the Kolkata-based cigarette maker last year.
The apex court had quashed an order passed by Customs, Excise and Gold (control) Appellate Tribunal (CEGAT), which had rejected ITC's plea for Rs 803 crore excise duty relief for the period 1983-87.
Based on information from revenue intelligence, excise department had slapped the duty on the ground that ITC had sold cigarettes at a price higher than the maximum retail price printed on the packets.
The definition of 'sale price' was the bone of contention and CEGAT found that ITC was actually printing a lower maximum retail price (MRP) than it actually charged from customers on cigarette packets and it was not permissible.
But the Supreme Court took a different view by observing that the notification had introduced a system of levy on an experimental basis. If the experiment was a failure for whatever reason, it was for the government to do away with it by some other definition as it did in 1987, the court had said.
The Ordinance has amended Section 37 of the Central Excise Act to change the definition of 'sale price' and implement it on a retrospective basis from March 1, 1983 to February 28, 1987.
Based on information gathered by revenue intelligence that ITC was selling cigarettes at a price higher than the maximum retail price printed on the cigarette packages, show cause notices were issued and adjudicated.
The issue covers the period from 1st March, 1983 to 28th February, 1987 during which period excise duty was levied on cigarettes based on the MRP declared on the cigarette packets.
The government had issued several notifications for different periods to give effect to this system of levy, the first of them being Notification No. 36/83-C.E., dated March 1, 1983.
These notifications defined sale price as '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 on such package.
It was this definition of sale price that was the bone of contention. The Tribunal found that ITC was actually printing a less MRP than what is charged from the customers on their cigarette packages and it was not permissible.
The Tribunal held that the department can go behind the printed prices to find out the actual prices. It also observed that the sale price should be the price at which the goods are actually sold even if a lower price is printed on the package.
The Tribunal further observed that a wrong doer cannot be allowed to take advantage of his own wrong.
However, the Supreme Court took a different view by observing "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."
Additonal inputs: PTI