Calcutta High Court
I.T.C. Ltd. vs Union Of India (Uoi) on 12 October, 1988
Equivalent citations: 1991(53)ELT234(CAL)
Author: Suhas Chandra Sen
Bench: Suhas Chandra Sen, Umesh Chandra Banerjee
JUDGMENT Suhas Chandra Sen, J.
1. This case arises out of a show cause notice being F. No. 574/CE/3/87 dated 27th March 1987 issued by the Directorate of Anti-Evasion (Central Excise). A writ petition challenging the aforesaid notice was moved before Bhagawati Prasad Banerjee J. On 18th 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 show cause in writing within 30 days of the receipt of the notice to the Director, Directorate of Anti-Evasion (Central Excise) as to why :-
"(a) Central Excise Duty short paid as aforementioned for the period as detailed in the annexure to this Show Cause Notice should not be demanded under the provisions of Section 11-A of the said Act and Rule 9(2) of the said Rules.
(b) Penalties should not be imposed on them under the Rule 9(2), 52A(5), 209, 210 and 221 of the said Rules and
(c) the land, building, plant, machinery and materials should not be confiscated under the provisions of Rule 209(2) of the said Rules."
5. The show cause notice was collectively issued to a number of other companies including I.T.C. Limited, the writ petitioner. The companies which were served with the show cause notices were :-
1) M/s. ITC Limited, Virginia House, 37, Chowringhee Road, Calcutta-71.
2) M/s. ITC Limited, Kidderpore, Calcutta.
3) M/s. ITC Limited, 287, Dr. Ambedkar Road, Parel, Bombay-12.
4) M/s. ITC Limited, Fraser Town, Bangalore-5.
5) M/s. ITC Limited, Saharanpur (UP).
6) M/s. ITC Limited, Monghyr (Bihar) and their Chairman, Directors and their 7 O.CMs. namely :-
a) M/s. Asia Tobacco Co. Limited, Hosur
b) M/s. Deccan Tobacco Manufacturing Company, Hyderabad
c) M/s. Crown Tobacco Company, Bombay
d) M/s. Master Tobacco Company, Bombay
e) M/s. Lakshmi Tobacco Company, Bhilai
f) M/s. Reliable Cigarette and Tobacco Industries, Bhopal
g) M/s. Sikkim General Industries Corporation Private Limited, Gangtok, Sikkim.
6. Although the show cause notice was served as early as on 27th March, 1987 requiring the petitioner to reply within 30 days, this writ petition was moved only on 14-8-1987. There is no plausible explanation for this inordinate delay.
7. It also appears from the judgment under appeal passed by Bhagabati Prasad Banerjee J. that the facts stated in the show cause notice were not in dispute before the court below. The arguments that were advanced were on certain legal issues. The contention was that the show cause notice could not be justified in law and will have to be quashed even if the facts were taken to be correctly stated in the notice. The notice was assailed on a number of legal grounds as well as on the ground of bias. This stand taken at the hearing was in keeping with the case made out in the writ petition.
8. But the case has 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 cigarettes are sold on principal to principal basis to approximately 620 Wholesale Dealers (hereinafter described as WSD) spread throughout the country. The WSD in their turn sell the cigarettes purchased by them from the company to Secondary Wholesellers (hereafter referred as the S.Ws.) approximately 50,000 retailers. WSD also occasionally sell cigarettes to about 10,00,000 retailers throughout the length and breadth of the country. These retailers range from five star hotels to pan-bidi shop owners as well as pavement hawkers. Although the sale is ultimately effected to the consumers through the retailers, the company has privity of contract only with the WSD and has no privity of contract with the S.Ws. or the retailers.
10. There were various disputes about determination of the excisable value of the cigarette on which excise duty had to be levied. The cigarette industry is the largest single contributor of revenue in the private sector. Under the Standard of Weights and Measures (Packaged Commodities) Rules, 1977, the manufacturer was bound to print either maximum price exclusive of local taxes or maximum retail price on the cigarette packets. Although neither of these prices related to the wholesale price charged by the manufacturer, i.e. price at which the manufacturer sold the cigarettes to its WDS, the Government decided to adopt a maximum price printed on the cigarette packets as providing an objective and indisputable standard for levying a tax. This was done to avoid all controversy. The maximum retail price printed on the cigarette packets was treated as the basis on which excise duty was to be levied on and from 1st March 1983. A Notification was issued by the Government to the above effect. The purpose of the Notification was stated by the Finance Minister in his Budget Speech on 28th February, 1983. The minutes of the 34th Public Accounts Committee (85-86) showed the full awareness of the fact that the cigarettes were being sold by the retailers to the consumers at prices higher than the printed price on the packets. The Government with full knowledge of these irregularities done by the retailers chose to accept the maximum retail price as printed on the cigarette packets as the basis of levy of excise duty. This phenomenon of excessive charging by the retailers was known to the trade as well as to the excise authorities. The manufacturer could not 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 duty 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 duty during the relevant period :
(Rs. in Crores) 1983-84 475 1984-85 557 1985-86 669 1986-87 740
12. Sometime in February, 1967, 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-Evasion (Central Excise), the respondent No. 3, requiring the company to show cause why duty allegedly short levied should not be recovered under Rule 9(2) read with Section 11A(1) and also to show cause why assets of the company should not be confiscated under Rule 209 of the Rules and penalty should not be imposed on the Chairman/Director and former Directors under Rule 209A read with Rule 221 of the Rules. A Corrigendum dated 3rd April, 1987 was issued to the show cause notice dated 27th March, 1987. A copy of the show cause notice dated 27th March, 1987 along with the Corrigendum dated 3rd April, 1987 was annexed to the petition. Annexures to the show cause notice were, however not included in the petition for the sake of brevity.
13. It was alleged in paragraph 16 of the petition that the impugned notice contained allegations which were irrelevant for the purposes of assessment. The correct interpretation of the Notification that the printed price is the only relevant price has not been made. Even though the allegations in notice were not admitted, the same were irrelevant to determine the issues raised in the petition.
14. The show cause notice was issued by the respondent No. 3 and was made returnable to himself. The respondent No. 3 was disqualified from initiating or continuing the proceedings initiated by the show cause notice on a number of grounds including the ground of bias.
15. It was further submitted in paragraph 10 of the petition that the impugned show cause notice has been issued without jurisdiction, without the authority of law, discloses non-application of mind, is arbitrary and capricious, in breach of the principles of natural justice and fairplay, and in violation of Articles 14, 19, 265, 300A and 301 of the Constitution of India and is void ab initio and inoperative in law nor can any proceedings be commenced or continued thereunder.
16. A number of grounds have been taken in paragraph 19 on the basis of which the prayer for quashing the proceedings initiated by the show cause notice has been made. In the grounds as also various sub-headings under the grounds the petitioners have raised a number of legal issues. But no ground has been raised challenging the findings of fact and/or inferences drawn from facts made by the respondent No. 3 in the show cause notice. It has been stated that on a true interpretation of the Exemption Notification 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 vires the Act and the Rules and also Article 14 of the Constitution.
18. A few grounds were taken also on the correct interpretation of the Standard of Weights and Measures Act, 1976 as also the Packaged Commodities Rules read with the impugned Notification. There was also an allegation of arbitrariness. A ground was taken that there was no flowback from the retailers to the manufacturer. It was emphasised in the ground (r) of paragraph :
"For that although the issues in this petition do not involve disputes of facts it is submitted that the show cause notice is without jurisdiction and disregards the following features of the trade".
19. The special features of the trade were enumerated in the petition. The cigarette industry was highly competitive and extremely price sensitive. The company maintained and constantly conducted analysis of market information through various sources considering the magnitude of turnover and the number of WSD, SWs., retailers and other outlets, it was neither practicable nor feasible for the company to have control or supervision over 10,00,000 retail outlets. The Company had a field staff of barely 200 people to work in the market. By the very nature of cigarette industry the sale price of cigarettes varied from place to place in the retail market and could not be controlled by any manufacturer. There were three unique features in the cigarette trade. These were (a) Tied Sales, (b) Stick Sales and (c) Coinage. The convenience of coinage ensures that in the retail trade transactions take place at readily acceptable coinage such as 10p., 20p., etc.
20. Lastly, the ground was taken :-
"For that in the premises aforesaid the impugned show cause notice purports to initiate proceedings to levy and collect a tax without authority of law and to deprive the petitioners of their property without the authority of law. The impugned show cause notice is therefore, violative of Articles 265 and 300A of the Constitution of India".
21. No ground was made out in paragraph 9 that the allegations of fact contained in the show cause notice were based on irrelevant evidence or the inferences of fact had been drawn by disregarding relevant evidence or are based on no material at all. In fact, neither directly nor indirectly any conclusion or inference of fact has been challenged in the writ petition.
22. The arguments that were advanced before 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 misrepresentation 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 contemporanea 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 duty.
(c) On a true interpretation of the provision of Section 11A read with the provisions of Sections 35A, and 35EE of the said Act the impugned notice is liable to be set aside inasmuch as, the power under Section 11A of the said Act could not be invoked in a case where payments have already been made on the basis of the price list and the matter was finally concluded and that the provisions of Section 11A of the said Act would only be invoked as a machinery provision in aid of the powers conferred on the appellate and revisional jurisdiction under Sections 35A and 35EE of the said Act.
(d) That the Notification No. 215/86 Central Excise New Delhi dated 27-3-1986 was ultra vires the provision of the Act and did not and could not confer any power upon the respondent No. 3 - Sri N.K. Bajpayee to - exercise the powers of the Collector under proviso to sub-section (1) of Section 11A of the said Act and as such the impugned show cause notice issued by Sri N.K. Bajpai, respondent No. 3, is on the fact of it, was illegal and without jurisdiction.
(e) That the respondent No. 3 had disqualified himself to act as an adjudicator in the matter, inasmuch as, after the search and seizure he had made certain prejudicial statements in the press and that under the reward rules the respondent No. 3 and the officers working under him were entitled to a reward thereby created an interest in favour of the respondent No. 3 and his department and further the entire search and seizure throughout the country was made under the supervision and control of the respondent No. 3 who had occasion to know the affairs of the petitioner company not only from the materials recovered from the search and seizure but also from other sources including the Intelligence Report and as such on the ground of bias and 'personal interest' the respondent No. 3 should not be allowed to act as an adjudicator in the matter".
23. The argument in the Court below was confined only to certain legal issues. No disputed question of fact was raised at all. The Counsel, appearing for the writ petitioner, did not venture into the domain of disputed questions of fact.
24. In my judgment, the disputed questions of fact sought to be raised cannot be urged in the Appeal Court for the first time. Moreover, unless the disputes are raised in the petition, the respondent does not get a chance to refute the contentions on 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 Ors. - it was held following an earlier judgment of this Court in the case of East India Commercial Company Limited v. The Collector of Customs - 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 under Section 167(8) of the Sea Customs Act, a writ application challenging the show cause notice ought not to be entertained. Since the Assistant Collector had ample jurisdiction to decide whether the facts set out in the notice constitute an offence, it was open to the petitioner to take this objection before him and such objection would be decided by him according to law.
27. In that case, the arguments advanced by Mr. R.C. Deb, appearing on behalf of the writ petitioners, was that upon facts stated in the show cause notice itself, it appeared that the conclusion must inevitably be that no offence had been committed under Section 167(8). Mr. Deb's contention in that case was "even assuming that the facts stated in the show cause notice are true, the matter did not come within the purview of Section 167(8) of the Sea Customs Act and that the show cause notice and the proceedings initiated thereby were without jurisdiction." This argument was repelled by this Court and it was held that the Assistant Collector of Customs, who had issued the show cause notice, had jurisdiction to deal with this point and decide it. He had merely issued a show cause notice and asked for an explanation. The petitioner may take the objection which he had taken in the Writ Court.
28. The contention of Mr. Deb in that case that it was open to the writ petitioner to establish that even if the facts stated in the show cause notice were assumed to be correct, no case had been made against the petitioner and in such a case the show cause notice could be quashed in exercise of writ jurisdiction was accepted by the Supreme Court in the case of East India Commercial Company v. Collector of Customs -. There, a show cause notice was issued to a licence holder under the Imports and Exports Control Act, 1947. The show cause notice called upon the importer to show cause why the goods or the money substituted in the place of the goods should not be confiscated because there was a breach of the conditions of the licence. The show cause notice was challenged and the case ultimately went up to the Supreme Court on appeal from a Division Bench judgment of this Court. The case was heard by a bench comprising of A.K. Sarkar, K. Subba Rao and J.R. Mudholkar JJ. Subba Rao and Mudholkar JJ held that where a Collector of Customs proposed to take action under the 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.
30. It was held by the majority of the Judges in that case that a breach of condition laid down in the licence did not amount to contravention of the import control order restricting the import of goods and, therefore, it was held by Subba Rao and Mudholkar JJ. that "It follows that on the assumption that the allegations made in the notice are true, the tribunal has no jurisdiction to proceed with the inquiry under S. 167(8) of the Sea Customs Act".
31. In the dissenting judgment, Sarkar J. held that a breach of a condition of licence amounted to breach of an order and the conditions in the licence had to be treated as conditions contained in the order itself under which the licence was issued.
32. But there was no difference of opinion on the basic proposition that if a show cause notice has to be challenged, it has to be shown that nothing has been made out in the show cause notice which calls for an answer even if the allegations of fact are taken to be true and correct.
33. This view was reiterated by the Supreme Court in a number of cases later on. If a person is served with a show cause notice by a statutory authority, he is entitled to challenge the show cause notice on the limited grounds that even on the basis of the facts stated on the show cause notice no case has been made out against him and, therefore, the proceedings set in motion by the show cause notice must be quashed at the very beginning. But disputed questions of facts cannot be agitated in Writ Court even before the questions have been gone into and finally decided by the statutory authority.
34. In this connection, reference may be made to a judgment of the Supreme Court in the case of Union of India and Ors. v. Rai Bahadur Shreeram Durga Prasad (P) Ltd. and Ors. - .
35. In that case, the Customs Authority had issued several notices to the writ petitioners asking them to show cause why action should not be taken against them for contravention of Section 12(1) and Section 23A of the Foreign Exchange Regulation Act, as well as Section 19 read with Section 167(8) of the Sea Customs Act. The validity of the show cause notices were successfully challenged before the Madras High Court. On appeal, the judgment of the Division Bench of the Madras High Court was upheld by the Supreme Court. The case was heard by a Bench comprising of S.M. Sikri, R.S. Bachawat and K.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...."
38. Hegde J. reiterated this principle after recounting the allegations of facts made in the show cause notices by observing "if these allegations are correct which we have to assume to be correct for the purpose of this case, then it is obvious that the declarations given by the respondents do not comply with the requirements of Rule 5".
39. Hegde J. was of the view that "if the allegations mentioned in the show cause notices come within the scope of Section 23A, then it necessarily follows that they will be governed by the provisions of Section 19 and Section 167(8) of the Sea Customs Act, 1878".
40. In view of the aforesaid principles of law laid down by the Supreme Court, I am of the view that this Court cannot embark upon an enquiry about the validity or correctness of the facts alleged in the show cause notices.
41. Moreover, it appears from the facts alleged in the show cause notice that inferences of facts have been drawn from various other facts gathered by examination of witnesses and also on examination of various documents seized in course of search and seizure proceedings. This is not a case of there being no evidence or material in existence on the basis of which the show cause notice could be issued. The only question if whether correct inferences have been drawn from the evidence that have been gathered. There is also a question of what weight is to be attached to each piece of evidence. I am of the view that the Writ Court cannot at this stage reappraise the evidence and come to a conclusion contrary to the conclusion drawn by the statutory authority. The adjudicating authority will go into all questions of fact and will decide whether inference from the facts that have been drawn correctly or not.
42. A statutory enquiry can be stopped at the threshold only if it can be established on undisputed facts that the writ petitioner should not have been put in peril at all. But if a prima facie case has been made out in the show cause notice on the basis of allegations of facts which calls for an answer, it will not be proper for the Writ Court to intervene. In my judgment, the impugned show cause notice cannot be challenged on the allegation that correct inferences of facts had not been drawn.
43. It is of interest to note that not only in the Court below but also in the Madras High Court where the same show cause notice was 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 Ors. - 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 cause notice issued to Duncan Agro Industries Limited was challenged in the Delhi High Court on certain points of law. That was the case of Duncan Agro Industries Limited v. Union of India and Ors. - 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. Venugopal, he did not pursue the arguments on merits of the allegations contained in the impugned show cause notices, when told that the disputed questions of fact have first to be investigated, gone into and determined by the authorities under the Act".
46. A large number of documents were seized from the various offices of the petitioner company all over India. Some documents were also seized from the W.S.Ds. A large number of persons including the Officers of the company, W.S.Ds. S.Ws., and retailers were examined. It is not possible in the writ jurisdiction to examine all the documents and evidence and find out whether correct conclusions of facts were drawn at the time of issuance of the show cause notice.
47. This show cause notice really belongs to the domain of natural justice. In a case like this, the petitioner can only succeed in invoking the writ jurisdiction if he can establish that on a reading of the show cause notice, it will appear that the petitioner should never have been put in peril at all. This the petitioner has singularly failed to do. The petitioner cannot assert that on the facts stated in the show cause notice that no case has been made out against the petitioner.
48. It has been contended on behalf of the petitioner that if the Court reads those documents carefully and also considers the evidence on record, the Court will come to quite a different conclusion. This, in my judgment, is not the way to deal with the show cause notice. The Court cannot deal with the facts and decide for itself what should be the proper inference of fact from the facts and documents brought on record.
49. In this connection, it will be useful to briefly note the allegations of fact made against the petitioner in the show cause notice which has been set out at pages 73 to 146 of Volume I of the Paper Book. The allegation in paragraph 12 of the show cause notice is that the ITC has wilfully suppressed the fact that the price printed on the cigarette packets were false and had been deliberately so printed to facilitate payment of duty at lower rates as per various Exemption Notifications issued. The ITC had made wilful misstatement regarding the adjusted "sale price per thousand cigarettes" and "sale price" of their cigarettes.
50. This is the basic charge in the show cause notice. It has been specified in sub-paragraph (e) of paragraph 12 :
"The Chairman/Directors/former Directors of I.T.C. have 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 dowa 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 not bear out allegations of fact ultimately made in paragraph 12. The evidence referred to in paragraph 1 to 11 do not support the contentions that have been drawn in paragraph 12. It has been argued that in coming to the conclusion of fact mentioned in paragraph 12 of the show cause notice, N.K. Bajpayee, the Director, Directorate of Anti-Evasion (Central Excise) had relied on irrelevant evidence, had ignored material evidence and also had on some points acted without any evidence. The figure of evasion of approximately Rs. 800 crores have also been arrived at without any substantial evidence.
52. The basic question of fact raised is whether the rates of effective prices given in various charts found in the branch offices of the petitioner company and also in the offices of the W.S.Ds. and various other places were laid down by the ITC to be enforced by the WSD, S.Ws., and also the retailers.
53. The argument advanced on behalf of the ITC is that these documents emanated from the various branch offices of the ITC. These charts were prepared by the various branch offices to find out at what rate the cigarettes were actually being sold by the retailers. These charts were really products of market research made by the various branch offices. These were neither price lists nor guidelines issued by the Head Office to the Branch Offices or to the WSDs for the purpose of implementing the price lists. The petitioner relied on various statements made to the Excise Authorities in course of examination of seized documents. The contention of Mr. Sen is that the evidence given by the Officers of the company as also the WSD as well as other evidence on record will go to show that the ITC never laid down what was described as "effective price". The ITC's intention at all material times was that the cigarettes would be sold at the price marked on the packets of cigarettes. The ITC had no privity of contract with the retailers and could not stop the retailers from charging a higher rate than the marked prices. The cigarettes were sold in packets and also by sticks. The retailers often charge more than the marked price for such stick sales and sales by packet. For this, the ITC could not be blamed. There was no flowback of any excess amount collected by the retailers to the ITC.
54. It was emphasised that the cigarette market was a fiercely competitive market. The ITC had 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 retailers, they were fixing the margins and varying the same to suit their convenience and designs; they had chosen to communicate such margins/trade prices in a clandestine manner; ITC drastically reduced the margins available to the wholesale dealers/secondary wholesale dealers/retailers immediately after the budgetary changes of 1983 while they increased their sale prices and sales realisation; the margins allowed to the retailers so clandestinely communicated were reduced to an extremely low level of 10 paise per thousand cigarettes; ITC unofficially fixed 'effective prices' for their various brands of cigarettes and communicated the same down the line in a clandestine manner; even while introducing new brands (which obviously could not have market prices in advance) conceived of effective prices for such brands; the price strategy evolved by ITC had envisaged certain effective prices for each brand which were generally higher than the printed declared prices; the price revisions were based on proposals by the field officers which clearly indicate effective prices' for each brand were higher than the printed prices; ITC had knowingly and fraudulently printed lower prices as maximum retail sales prices on their packets; ITC deliberately mis-declared adjusted sales prices before the proper officers of Central Excise in charge of their factories with a view to claim assessment of duty at the lower rates; ITC caused misdeclaration of adjusted sale prices by the OCM (outside contract manufacturers) through whom they had also got their brands of cigarettes manufactured; ITC were responsible for fixing higher effective prices than the printed prices inasmuch as they themselves had envisaged the same right from the initial stages; ITC suppressed the fact of the control on prices/margins of various trade levels; they failed to declare the correct sale prices even after knowing fully well that the prices they have declared and printed were not the actual sale prices (actual sale prices being effective prices fixed and enforced by them); ITC declared and deliberately printed false prices on the packets which they themselves did not expect to be the sale prices; ITC have made every effort to maintain and enforce the effective prices fixed by them; they had undertaken direct retail sales at effective prices; ITC resorted to giving price rebate in the event of the market price 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 that the ITC could not possibly have expected the retailers to sell the cigarettes at the printed price. ITC clearly expected the retailers to sell the cigarettes at a price higher than the printed price. The 'effective prices' were bound to be higher than the prices marked by ITC on the packets.
57. To that the reply of Mr. A.K. Sen was that it was for the retailers to decide whether to lift cigarettes at the margin fixed by the ITC or not. Mr. Sen has also exphasised that the phenomenon of charging a higher price than what was fixed by the company was known to the Government or at least higher officials in the Government and my attention was drawn to the Budget Speech of the Finance Minister in the year 1983 and also to the proceedings of the Public Accounts Committee (1985-86).
As against that, the Advocate-General has argued that the phenomenon of excess charging by the retailers was admittedly confined to the Bombay region and was of a very limited nature and not a general practice. After the introduction of the new system of taxation, the company started squeezing the margins to an absurdly low level and resorted to the practice of fixing effective prices. There is evidence to show that this practice of charging a higher rate than the printed price for cigarette became rampant only after the introduction of the new system of levy of excise duty.
58. These are questions which can only be gone into and decided at the adjudication proceedings. I am not expressing any final opinion on this controversy. The only point to remember is that the dispute basically is what is the correct inference to be drawn from the materials that have been gathered. A point was taken that some of the retailers who have given evidence are interested parties. The Advocate-General has contended that it has also to be borne in mind that the employees of the company were equally interested in upholding the stand of the company.
59. What weight is to be attached to the evidence that have been adduced is also a question of fact which must also be decided at the adjudication proceedings. It cannot be said at this stage that no case has at all been made out and the adjudication proceedings should be stopped at the very threshold.
60. It has been contended by the Advocate General that every allegation in show cause notice is backed up by evidence. Mr. Sen has invited the Court to re-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 as a result of which excise duty has not been levied or paid or has been short levied or short paid. Sub-section (2) of Section 11-A makes it clear that the Collector of Central Excise is the only authority which can determine the amount of excise due in such a contingency. It has been argued that under the provisions of the Central Excise Rules, a Collector exercises its jurisdiction in certain areas. The jurisdictions of the Collectors have been specified in Rule 2. It has, therefore, been contended that one single person cannot be invested with the jurisdiction of a Collector all over India
63. I am unable to uphold this contention. All that the impugned Notification dated 27-3-1986 has done is to invest certain Officers of the Directorate of Anti-Evasion (Central Excise) with all the powers of the Officers of Central Excise. The power to be exercised is throughout the territory of India and is commensurate with the rank of the Officer concerned as stated in the Table given in the Notification :-
TABLE _________________________________________________________________________________________ Serial No. Officers of the Directorate of Anti Evasion (Central Rank of the Officers Excise) of Central Excise _________________________________________________________________________________________
1. Director Collector
2. Deputy Director Deputy Collector
3. Assistant Director Assistant Collector
4. Senior Intelligence Officer Superintendent
5. Intelligence Officer Inspector _________________________________________________________________________________________
64. It will, therefore, be seen that the Director of the Directorate of Anti-Evasion has been invested with all the powers of a Collector. A Central Excise Officer under Section 2(b) of the Central Excise Act means any Officer of the Central Excise Department or any person invested by the Central Board of Excise and Customs "with any of the powers of a Central Excise Officer under this Act."
65. Therefore, the powers of the Collector of Central Excise under the Central Excise Act may be exercised by a person like the Director of Anti Evasion when the Director has been authorised to exercise such power by the Notification. The Central Excise Act does not lay down that a Collector cannot exercise jurisdiction throughout India. The word 'Collector' has not been defined in the Act. There is nothing in the Act which requires the Central Government or the Board to divide the country into several zones and appoint Officers of limited territorial jurisdiction to exercise power only within the specified zones.
66. On behalf of the appellant, reference was 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 exercisable by an Assistant Collector of Central Excise under this Act may be exercisable also by a Gazetted Officer of Central Excise empowered in this behalf by the Board".
68. The provisions of Section 37A clearly go to show that the Central Government may invest a Collector of Central Excise with all the powers exercisable by the Board itself. There is no geographical limitation to the powers exercisable by the Board. If that be so, it is difficult to see why a Collector who can be authorised to exercise all the powers of the Board itself throughout the territory of India cannot be empowered to act as a Collector throughout the country. There is nothing in the Act to suggest that the jurisdiction to be exercised by a Collector or any other Officer of the Central Excise must be confined to a certain District or a certain State or a particular area of the country.
69. For the sake of administrative convenience, the Central Government may divide the country into various administrative zones and place each zone under one Collector. The Central Government may also place certain types of cases or a particular assessee having a network of manufacturing facility all over India under one Collector.
70. Section 14 of the General Clauses Act, lays down that all statutory powers may be exercised from time to time as occasion requires. Merely because under the rules certain administrative zones have been created and a Collector has been placed in charge of each such zone, it cannot be concluded that the power of the Central Government in the appointment of Collector is exhausted. Rule 2 specifically provides that a Collector will include "an Additional Collector and any Officer specially authorised under Rule 4 or 5 to exercise throughout any State or any specified area therein all or any of the powers of a Collector under these rules".
71. The rule does not say that any one Officer cannot be specially authorised to exercise jurisdiction throughout the territory of India. It is open to the Central Government to specify the area within which the specially empowered Officer will exercise jurisdiction. The Central Government may specify a District or a State or several States or the entire territory of India as the area in which the Collector will exercise his jurisdiction. The Central Government under the Rules has a free hand to decide and specify the extent of the area 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, Senior Intelligence Officers and Intelligence Officers have been empowered to exercise the powers and functions of Assistant Collector, Superintendent and Inspector respectively. In the Notification, it has been expressly stated that the Officers have been given jurisdiction to exercise their powers throughout the territory of India. There is nothing in the Act or the Rules to show that such authorisation is not possible.
74. It is also not the case of the petitioner that the petitioner is prejudiced by this notification in anyway. In fact it will be more advantageous to the petitioner as also the Revenue if there is one adjudication proceeding to deal with all the allegations. Several piecemeal proceedings all over India by a number of Officers will only create confusion and lengthen the proceedings.
75. This aspect of the case was examined at length by Bhagabati Prasad Banerjee J. in the judgment under appeal. The Delhi High Court in the case of Duncan-Agro Industries Limited v. Union of India and Ors. - = C.W.P. No. 1039 of 1987 has also examined the case in great detail and has held that the impugned Notification is intra vires the provisions of the Act. The Delhi High Court in the case of Duncan-Agro Industries Limited v. Union of India and Ors. - = CWP No. 1039 of 1987 has specifically referred to and agreed with the view expressed by Bhagabati Prasad Banerjee J. in the judgment under appeal.
76. A Division Bench of the Madras High Court has also taken the same view in the case of Asia Tobacco Company Limited v. Union of India - = Writ Appeal Nos. 1801 and 1802 of 1987.
77. I am in respectful agreement with the views expressed by the Division Bench of the Delhi High Court and also the Division Bench of the Madras High Court in the aforementioned cases on this point.
78. It was next argued that the Officer who had issued the show cause notice has made up his mind as evidenced by the show cause notice itself. He has also made a press statement about the alleged evasion. It has been contended that the Director, who has been invested with the powers of a Collector throughout the territory of India, will approach the case with a closed mind. It has further been contended that since there is a scheme for rewarding the Officers for any detection of any excise fraud, 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 several Directorates in the premises of the ITC Limited and Ors.. He was not personally involved in these search and seizure investigations. He has further stated that :
"I state that I neither made any statement indicating amounts alleged to have been evaded by the petitioner-company nor did I make any announcement justifying the raids. I was never personally associated in the raid or investigations or made statements involving any findings. It is true that I did answer certain queries of a press reporter who contacted me on the telephone. I respectfully state that in the press report appearing in Deccan Chronicle dated 19-2-1987 (Annexure 'E') to the petition, I have been quoted out of context without reproducing the questions that were posed to me. On being asked by the press reporter over the telephone as to what was the extent of evasion, I had merely replied that it was too early to determine the extent of evasion. Again, in reply to a question whether anything had been seized, I replied that a number of documents had been seized and were being examined. It appears that the raid and consequent search and seizure, generated sufficient publicity and all kinds of press reports appeared. I did not summon any person for recording any statement. I have not launched any prosecution against the petitioner-company. I state that I am not entitled to any reward under the scheme or otherwise. On the basis of the documents seized and statements recorded, which were placed before me, and after careful consideration of all the material and being prima facie satisfied, I issued a show cause notice on 27-3-1987 inter alia, to the petitioner calling upon it to show cause".
83. A show cause notice cannot be issued unless the Officer has come to a finding of fact. Because certain prima facie findings of fact have been made does not preclude the Officer from hearing the show cause notice. If the result of the prima facie findings in a cryptic form has been communicated to the press, it cannot be concluded that the officer has come to a final decision or has made up his mind regarding the dispute. Section 11A authorises a Central Excise Officer to serve show cause notice upon the person chargeable with duty which has not been levied or paid or which has been short levied or short paid. A show cause notice may also be issued in a case where refund has been erroneously made to 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 has carried out the search and seizure proceedings and has come to prima facie conclusions on the basis of the documents found in course of search and seizure proceedings. The conclusions have been reached on the basis of documents recovered from the Offices of the Company and also various other places. A large number of employees of the Company and also other persons have been examined. From the fact that the Director has arrived at certain prima facie conclusions and has communicated these conclusions to the Company in the show cause notice, it cannot be inferred that the Director has a closed mind in this case. If the prima facie conclusions have been briefly communicated to the press or has been stated in an affidavit in any proceedings, that does not mean that the Director will not approach the case judicially when the adjudication proceedings start. Under the Scheme of the Revenue Laws, an Officer has very often to combine the functions of investigating agency and also of the adjudicator. He may have to gather information and call upon a taxpayer to deal with the information that he has collected. After hearing the tax-payer, he has to pass an order in accordance with law upholding or rejecting the contention of the tax-payer. This is the role that has to be played by an Income-tax Officer under the Income-tax Act, the Wealth-tax Officer under the Wealth-tax Act or the Commercial Tax Officers under the various Sales-tax legislations. The statute requires him to make investigation and also to judge the merit of his own case in the light of the representations made by the tax-payer. This peculiarity of the role of a Revenue Officer was described by Sir George Rankin CJ. in the case of Harmukhrai Dulichand v. The Commissioner of Income-tax, Bengal 3 Income Tax Cases 198, 207 in the following words :-
"It has been said that the Income-tax Officer must proceed in a judicial manner and Section 37 has been mentioned in this connection. Fundamentally, no doubt that the Income-tax Officer must proceed in a judicial spirit and come to a judicial conclusion upon properly ascertained facts; though I would point out that the Income-tax Officer is not a court, he has not the procedure of a Court and he is to some extent a party or Judge in his own case".
85. This peculiarity of tax laws is also to be found in the scheme of the Central Excise Act. In the proceedings 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 11A 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 person 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 casue 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, Bhagabati Prasad Banerjee J. has also given elaborate reasons for not upholding this contention and I have no hesitation in upholding the decision of Banerjee J. on this aspect of the matter.
89. The next point that has to be considered is the scope of the Notification dated 27-3-1986. This point has been argued at great length and from several angles. It is the contention of Mr. A.K. Sen, Counsel for the appellants, that the Notification has to be read in the background of the speech of the Finance Minister at the time when the new scheme of excise levy was introduced. The report of the Special Committee has also to be seen for the purpose of understanding the mischief that was sought to be cured by the new method of levy of excise duty. It was emphasised by Mr. Sen that the provisions of the Standards of Weights and Measures Act, 1976 and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 will also have to be read along with the Notification to get a full understanding of the scope and import of the Notification.
90. On behalf of the respondents it was strongly contended that the Notification must be taken as it stands. There was no scope for any external aid when the language of the statute is clear. A large number of cases were cited by both the sides to show when and under what circumstances can external aids be used in construing a statute.
91. In my view, this controversy does not arise in the facts of this case. The mischief that was sought to be remedied by the Notification was the problem of valuation of the excisable commodity, i.e., cigarettes. When the Notification has provided for the method of valuation and the terms used in the Notification like "adjusted sale price", "cigarette packed in packages" and "sale price" have been defined by the Notification, then there is no scope for looking into any other statute or enactment to find out the true meaning of these expressions. If there is any departure from the definition given in any other Act, it must be held that the departure was intentional and the Legislature did not deliberately choose the simple device of reproducing the definition given in some other Act. But it cannot be said that the provisions of the Standards of Weights and Measures Act, 1976 or the Rules framed thereunder should be entirely overlooked even where there is no specific provision in the Notification.
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, package, forwarding and the like.
Explanation II. - For the purposes of Sub-clause (i) "local taxes" include: (i) Sales tax, (ii) Octroi and (iii) Central Sales tax, where leviable and actually paid by the retail dealer under any law in force in a particular area".
"Unit Sale Price" has been defined to mean the sale price per specified unit of weight, measure or number;
93. I was also referred to Rule 23, the relevant provisions of which are as under :-
"23. Provisions relating to wholesale dealer and retail dealers. - (1) No wholesale dealer or retail dealer shall sell, distribute, deliver, display or store for sale any commodity in the packaged form unless the package complies with, in all respects, the provisions of the Act and these rules.
(2) No retail dealer or other person shall make any retail sale of any commodity in packaged form at a price exceeding the retail sale price thereof.
Explanation. - For the removal of doubts, it is hereby declared that a sale, distribution or delivery by a wholesale dealer to a retail dealer or other person is a 'retail sale' within the meaning of this sub-rule.
(3) Where a package intended for retail sale in which a commodity has been pre-packed is opened and the commodity contained therein is sold to one or more persons the price to be charged from the purchaser shall bear the same proportion to the price of the package as the quantity sold to the purchaser bears to the total quantity contained in the package:"
The provisos to Sub-rule (3) and other provisions of Sub-rules (4), (5) and (6) are not relevant for the purpose of this case.
94. The Notification dated 2-9-1985 is not a charging section. By this Notification, the Central Government exempted cigarettes of the description specified in column (1) of the Table from so much of the duties of excise leviable under the Central Excises and Salt Act, 1944 and also the duty leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 as was in excess of the rates specified in the corresponding entry in column (2) of the said Table.
The Table provided in the Notification is as under :-
TABLE ________________________________________________________________________________ Description Rate ________________________________________________________________________________ (1) (2) ________________________________________________________________________________ Cigarettes (being cigarettes packed in 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 One hundred and twenty five rupees does not exceed rupees one per one thousand; hundred and seventy (iii) exceeds rupees one hundred and Two hundred and twenty five rupees seventy but does not exceed rupees per one thousand; three hundred (iv) exceeds rupees three hundred but Four hundred rupees per one thousand; does not exceed rupees five hundred and and fifty
(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 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;
(3) "Sale price", in relation to a package of cigarettes, means the maximum price (exclusive of local taxes only) at which such packages may be sold in accordance with the declaration made on such package."
95. Certain amendments were made to the Table in the Notification dated 2-9-1985 by another Notification dated 20-9-1985. It was specifically provided that the "cigarettes packed in approved packages "had to have surface designs approved by the Director (Audit) in the Directorate of Inspection and Audit (Customs and Central Excise) :"
Ther term "design" was defined to mean in Clause (3) of the Notification :
" 'designs' includes elements such as colour, typograph, 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;"
96. It has been argued by Mr. A.K. Sen and also thereafter by Mr. R.C. Deb, appeared on behalf of one of the respondents, J.D. Majoo, one of the shareholders of ITC Limited, that the duty cast upon the company under the Notifications was to print the maximum retail price. It was contended that because of the second Notification the design on the packet had to be approved by the Government but there was no requirement of getting the sale price printed on the packets approved by the Government. In other words the company was let free to decide what it would print as the maximum sale price and it could print any price according to its decision. In this case, the company had admittedly done what it was required by the Notification to do. No formula has been laid down as in the Drug Control Act for fixation of the maximum retail price. Therefore, there cannot be any question of violation of any law on the part of the company. If the goods have not been sold at the retail sale price printed by the company, the company is not at fault and the statute has not provided for any remedy in a case where the goods are sold at a price in excess of the printed price in retail sale. The reailers are liable to be punished for violation of the provisions of Standard of Weights and Measures (Packaged Commodities) Rules, 1977. But 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 clew 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 such package. Therefore, if a packet of twenty cigarettes is priced at Rs. 20/- then the unit price of each cigarette will be Re. 1/-, and the duty will be levied on adjusted sale price per one thousand cigarettes. "Cigarettes packed in packages" has been defined to mean, inter alia, cigarettes packed for retail sale in packages which bear a declaration specifying a maximum sale price thereof as the amounts specified in the declaration plus local taxes. Therefore the duty of a manufacturer is to specify the maximum sale price of the cigarettes as the amount specified in the declaration. The definition of "sale price" has made it clear that it means the maximum price (exclusive of local taxes) at which such packages may be sold in accordance with the declaration made on such packages. Therefore, the law requires that declaration must be made on the packages of the maximum price at which such packages of cigarette may be sold in retail sale.
98. Having regard to the object and purpose of this Notification and also having regard to the provisions of Rule 23(2) and (3) of the Standard of Weights and Measures (Packaged Commodities) Rules, 1977, it must be held that packages of cigarettes may be sold in retail sale only at the price declared in the packages as the maximum price. The stick sales will also have to be priced in such a way that the total price received by sale of sticks out of a packet of cigarettes does not exceed the printed price on the packet. By dividing such "sale price" of a packet by the number of cigarettes in such packets the unit price per stick can be arrived at, which is to be taken as the "adjusted sale price" for each stick of cigarettes; and when that figure is multiplied by 1000 one can get the adjusted sale price per thousand cigarettes for. calculation of appropriate rates of duty on such cigarettes according to the prescribed slab in which the same may fall. Accordingly, if in a given case a manufacturer has fixed and determined an amount as the maximum sale price for retail sale of a particular brand of cigarette and circulated the same to the trade chain for ultimate sale to consumers, but at the same time has deliberately printed on the packets a lower figure as the maximum sale price of such cigarettes, it will not be declaration of the maximum sale price as required under Explanation 2(b) of the Notification but really a misdeclaration. 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 flow back of the excess realisation to the manufacturer to bring the case within the ambit of Section 11A of the Act.
101. Another argument forcefully advanced by Mr. Deb was that having regard to the scope of the Notification, it cannot be said Section 11A of the Central Excise Act, was at all applicable to a case like this. It was argued that the levy of excise duty under the notification was on "adjusted sale price". "Sale price" has been defined in the Notification and according to that definition, it was the maximum sale price "at which such packages may be sold in accordance with the declaration made on such package". It was, therefore, argued that if tax has been levied and collected in accordance with the declaration of maximum price made on such packages, there cannot be any question of short levy or non-levy of the appropriate amount of tax. The levy was on adjusted sale price. It is not possible to look beyond the exact terms of the Notification and find out what was actually the maximum retail price in the market and levy duty accordingly.
102. In my judgment, this argument overlooks the basic fact that the charging section is Section 3 of the Central Excise Act. The taxable event is the manufacture of cigarettes. The charge of excise levy on all excisable goods has been brought about by Section 3 of the Act. The levy is on all excisable goods and the duty is at the rates set out in the Schedule to the Central Excise Tariff Act, 1985. Section 3(2) of the Act has enabled the Central Government to fix tariff values of any dutiable articles either specifically or under general heading which are chargeable with duty ad valorem. The Central Government may also alter any tariff value for the time being in force. Under Sub-section (3) of Section 3 it is permissible to have different tariff values for different classes or descriptions of the excisable goods produced or manufactured by different classes of producers or manufacturers. It is well-settled that a charging section should be strictly construed and no one should be charged to duty or tax by implication. Clear words are necessary to make a man liable to tax.
103. The Notifications under consideration in this case do not try to and in fact, cannot supplant the charging section. It merely grants certain reliefs to the ciegrette industry and also lays down a formula for quantification of the charge. The problem of valuation of excisable articles is always 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 to authorise exemption from duty in special cases. - (1) The Central Government may, from time to time by notification in the Official Gazette, exempt, subject to such conditions as may be specified in the notification any excisable goods from the whole or any part of duty leviable on such goods :
Provided...
Provided...
(2)...
(3) An exemption under Sub-rule (1) or Sub-rule (2) in respect of any excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-rule shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty.
Explanation. - "Form or method", in relation to a rate of duty of excise, means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable."
105. The Notifications that were issued under Rule 8 (1) from time to time have the effect of granting certain reliefs to the Cigarette Industry. At the same time, it has provided for levy of duty on cigarettes at rates expressed in a form or method different from the usual method of levy of excise duty. The usual system of levy of ad valorem duty on whole-sale value of the goods has been abandoned. The levy under the Notifications is on 'adjusted sale price' as defined in the Notifications. The rates of duty and a rough and ready method of calculation of the duty have also been provided by the Notifications. This was done possibly to obviate the difficulty of calculation of the wholesale price of the goods.
106. In all the Notifications the rates of duty have been shown under Column 2 of the Table. The levy is on the adjusted sale price per one thousand cigarettes (being cigarettes packed in packages). The method of valuation has also been provided in the excise duty.
107. The point that is to be borne in mind is that Section 3 continues to be the charging section and 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 excise duty payable by the manufacturer is to be calculated on the basis of the declared maximum retail price. The manufacturer has a duty to make a declaration specifying the maximum sale price under Explanation 2 of the Notification. This duty is not absolved by the definition of "sale price" provided in the Notifications. If the maximum sale price is not specified or declared on the packages, then any levy of exicse duty in accordance with the declaration made on the packages by the manufacturer will amount to short levy of excise duty. If the manufacturer circulates a price list specifying a higher retail price than what has been printed on the packages, then it cannot be said that the maximum price at which such packages may be sold has been printing on the packages. The phrase "in accordance with the declaration made on such package" does not improve the case of the manufacturer. The basis on which the duty is to be calculated is the maximum sale price. The manufacturer is under a duty to specify and declare the maximum sale price on the packages of cigarettes. If the maximum sale price is not declared but a false declaration is made, the basis of levy of duty will be wrong leading to short levy or under levy of duty. The manufacturer must indicate a maximum price at which such package may be sold. If the declaration made on the packages are of a price in accordance with which such packages will not or may not be sold, then the declaration would amount to a false declaration. It will be a declaration of price in accordance with which such packages may not be sold.
109. It was agrued that the excise levy can only be on what has been printed at maximum price on the packages by the manufacturer. If the manufacturer had printed as maximum price a figure at which the cigarettes will not be sold, it cannot be said that there has been any short levy or under levy or excise duty because the levy is on the maximum price as declared by the manufacturer.
110. If this argument is to be taken to its logical conclusion, it will mean that if a manufacturer prints the whole-sale price or a figure less than even the whole-sale price as the maximum retail price, then the Government has no option but to accept that as the maximum retail price and levy tax accordingly. This construction will lead to absurdity and cannot be accepted.
111. Moreover, the language of the Notification 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 short levy or short payment of excise duty or making any false declaration. But if the declaration has been made with full knowledge of the fact that the cigarettes will not be sold at a price declared to be the maximum retail price on the packages, in such a case it must be held that the manufacturer has failed to declare a maximum price "at which such packages may be sold in accordance with the declaration made on such package."
113. I make it clear that I have not come to any final finding on the question whether it is a case of the retailers disregarding the price line set by the manufacturer on their own volition as was strenuously argued by Mr. A.K. Sen on behalf of the Company. This is a fact which has to be investigated at the adjudication proceedings. I am, however, unable to uphold the argument that once a price had been printed on the packages of cigarettes as the maximum retail price and excise duty has been paid on the basis of such declaration, it cannot be said, as a matter of law, that there has been any short levy or under levy of excise duty or short collection of excise duty.
114. It was also argued on behalf of the Company that if there is any benefit of doubt in the construction or if two equally good constructions are possible to be given in the Notifications the construction which favours tax-payer must be preferred. But, in my view, there is no doubt about the meaning of the Notifications. Moreover, a construction which leads to absurdity must be avoided.
115. In my judgment, the wording employed in the Notification is quite clear. The duty payable has to be calculated on the adjusted sale price per one thousand cigarettes. "Adjusted Sale Price" means the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such package. If in a given case, the maximum sale price is what is clandestinely notified by the company to the dealers and the printed sale price is less than the actual sale price clandestinely fixed by the company, then the company cannot be heard to say that it has discharged its statutory duty of printing the maximum sale price on the basis of which the excise duty is to be calculated. If the declaration made by the company turns out to be false, then the provisions of Section 11A will be attracted and the amount that has been short levied or short paid because of misdeclaration 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 faintly 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 respondents, it has been contended that the figure of duty claimed has been calculated prima facie on the basis of the materials seized. The effective price has been taken as the basis of the calculation. It will open to the appellants to demonstrate to the Excise Authority that the calculation is wrong.
120. Lastly, it must be noted that a series of cases were cited by Mr. A.K. Sen to emphasise the well-settled law that if a fact-finding authority comes to a determination of fact on no evidence, on irrelevant evidence or by ignoring material or if misconstrues a provision of law in drawing inference from materials placed before it, then the finding is vitiated and such finding must be quashed even by a Writ Court. But in this case, no final finding of fact has been made. Only a show cause notice has been given. The facts that have been alleged in the show cause notice are only prima facie and tentative findings of fact. The show cause notice belongs to the realm of natural justice. After hearing the petitioner and after considering all the materials produced by the petitioner and also the documents advanced, a final decision will be taken. If such decision is vitiated by any of the grounds mentioned hereinabove, it will be open to the petitioner to challenge that decision on any of the aforementioned grounds. But that stage has not been reached as yet.
121. If at the threshold of an enquiry, the petitioner could establish that he should not have been put in peril at all, the Writ Court would have been justified to intervene and stop the enquiry on the ground that statutory power was being abused by the statutory authority. But having regard to the facts of this case, I am not persuaded to hold that the appellate company should not have been put in peril at all. This is not a case where the enquiry should be stopped at the threshold.
122. The case was heard at great length and over a number of days. Many other points were advanced. But I have considered in detail the main points of the arguments. Since I am of the view that the matter must go to the adjudicator and the case must be heard and decided in the adjudication proceedings, I have refrained from expressing any opinion on these aspects of the matter. The adjudicator will be at liberty to go into and decide all these questions.
123. Having regard to all aspects of the case, I see no reason to interfere with the judgment under appeal.
The appeal is dismissed. All interim orders are vacated.
There will be no order as to costs.
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 ) 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 be re-opened or questioned in any writ proceeding, the reason being that the writ court is not entitled to act as an Appellate Court for the purpose of appreciation of evidence or collation of evidence, and this is so even if the writ court can reasonably arrive at a conclusion different from that of the inferior court. The two decisions of the Patna High Court (Bihar Khadi Gramaddyog Samity, Muzaffarpur of Junkunder Colliery of B. Mondal & Co. v. Sahadeo Thakur reported in 1974 Lab IC 417) lend support to the view expressed above.
125. While it is true that appreciation of evidence cannot be had in a writ proceeding, but that however does not deter the Court to intervene or interfere in the event there is no evidence at all. In Yakut's case (supra) the Supreme Court observed that if a finding of fact is based on no evidence or if the Tribunal had admitted inadmissible evidence which has influenced the finding, that would be regarded as an error of law which can be corrected by a writ of Certiorari and it is within these limits that the jurisdiction conferred on the High Court under Article 226 of the Constitution to issue a writ of Certiorari can be ultimately exercised.
126. The state of law as noted above has been the resultant effect of a long catena of cases and the position in law is well-settled. As such, I need not dilate much on that score excepting however noting the observations of the Supreme Court in the case of C.I.T. v. S.P. Jain which seem to be very apposite. The Supreme Court in the last noted decision observed :
"In our view, the High Court and this Court have always the jurisdiction to intervene, if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is matter of law or it has arrived at a finding based on no evidence or where the finding is in, consistent with the evidence or contradictory of it or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record or bases its conclusions on mere conjecture or surmises or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated".
127. 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 than to examine those facts with a decent respect for the Tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado".
128. The Supreme Court also considered the statement of Viscount Simonds and after considering the same observed :
"Whether we adopt the extended view advanced by Lord Radecliffe or the view of Lord Simonds what has to be safeguarded against is that in crystallisation and the views of this Court and its reluctance to interfere with the findings of fact should not make the Tribunals or Income Tax Authorities smug in the belief that as the Courts do not interfere with the findings which form the bed-rock upon which the law will be based, they can act on that assumption or in finding facts or by their mere ipse dixit, as they are findings of fact. Wish it to be so assumed irrespective of whether they are sustainable in law or the materials on record. In a number of cases this Court has set out the principles upon which it will interfere with the findings of fact arrived at by the Tribunal. We need not in this case travel beyond the scope of this principle".
129. This, in my view, settles the law and in that perspective I am of the view that Mr. Sen's submissions appearing for M/s. ITC Ltd. being the appellant against the order of the Court below dismissing the writ petition on the ground that the stage has not come as yet for intervention of the Writ Court, on the issue of no evidence or material evidence or consideration of irrelevant evidence cannot be brushed aside but ought to be dealt with in the same spirit and the same vein as was submitted by Mr. Sen. A word of caution however will have to be kept in mind at this juncture that while dealing with the issue of no evidence or consideration of irrelevant evidence, there ought not to be any appraisal of evidence or collation of evidence. But the Court's duty is restricted to the fact as to whether there exists any evidence for the purpose of issuance of show cause notice or whether on the basis of the evidence on record any reasonable man can come to a conclusion for further enquiry into the matter by way of issuance of a show cause notice. The other aspect of the matter ought to be kept in mind while dealing on this score that this is not a trial, neither a High Court can be termed 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 and Anr. reported in 1985 LR (Commonwealth) 1041 after noticing the American and English Law observed that fairness is articulated in terms of inherent necessities of the proper operation of judicial process. The general duty of fairness as regards administrative action has also been accepted as a guiding principle by Meggery J. in the case of Bates v. Lord Hailstorm reported in 1972 (1) All E.R.1201. Fair play and fair treatment, therefore, ought to be given its due recognition in all Governmental actions and in the event Governmental actions suffers therefrom, the Law Court would be within its jurisdiction to extend its judicious hand to grant relief to those who have fallen a prey for reasons of an administrative ipsi dixit and to do so would be a plain exercise of judicial power. This intervention is called for since harassment is opposed to fairness. There ought not to be any harassive and unfair attitude and it is this attitude which has been strongly criticised by Mr. Sen appearing for the appellant. He submitted that no reasonable man can come to such a finding for issuance of a show cause notice on the basis of the materials on record.
131. Having discussed the law on the score as above, let us now turn to the factual aspect and a brief reference to facts at this juncture would be very appropriate.
132. The appellant ITC Ltd. (hereinafter referred to as company) was incorporated in 1910 having its Head Office at Calcutta. The Company manufactures cigarettes at its five factories situated at Calcutta, Monghyur, Saharanpur, Bangalore and Bombay. The company also contracts out from time to time the manufacture of cigarettes to other manufacturers numbering about seven. According to the appellant-company it manufactures and sells cigarettes in bulk and during the relevant period each of the twelve factories produced and sold one to fifty million cigarettes per day. These cigarettes are purchased on principal to principal basis, by approximately about 620 wholesale dealers and the wholesalers in their turn sell the cigarettes to secondary wholesalers numbering approximately 50,000 or directly to retailers. The secondary wholesalers in turn sell the cigarettes to retailers all over India including those in the furthest villages and remotest regions which the company approximates must number about 10 lakhs. The company, it is stated, has privity of contract only with the wholesalers and has no contract or relationship 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 specific rates as per sale price of the cigarettes printed on the packets.
134. Admittedly in the Cigarette Industry, the retailer charges more than price marked on the package. This phenomenon of charging higher prices, the appellant contended, was at all material times and even now known to the trade as well as to the authorities and is also prevalent in goods other than cigarettes. In this context the speech of the Member Budget was relied upon by Mr. Sen appearing for the appellant wherein it has been stated :
"As far as revenue from this commodity is concerned, we have put a particular target for this commodity and as long as it is coming from that commodity, we should not worry too much on this account. There is no doubt that there is a certain extent of avoidance or contravention of the law which relates to the selling of cigarettes at a price higher than what is printed and that is nothing new. This did not come about after our moving over to the retail price as a basis for charging excise duty. It was already there".
135. As regards the Exemption Notification, I will deal with the same a little later, but on the factual score it appears that the company, however, was subjected to search and seizure in February 1987 and show cause notice dated 27th March,1987 was issued to the company with a corrigendum dated 3rd April, 1987 by the respondent No. 3 being the Director of the Directorate of the Anti Evasion, Central Excise. The company was required by the notice, to show cause to the respondent No. 3 as to why duty allegedly short levied should not be recovered under Rule 9(2) read with Section 11(a)(1) Proviso from the company. The show cause notice provides that the appellant-company has contravened the provisions of Rule 9(1), Rule 52, Rule 52 (a) of the Central Excise Rules, 1944 inasmuch as the company falsely and fraudulently declared to the proper officer and on the cigarette packets lower sale price with clear intent to evade payment of appropriate duty and availed itself the exempted rates as applicable to cigarettes with lower sale prices. The show cause notice further records that the company wilfully suppressed the fact that the prices printed on the cigarette packets were false and have been deliberately so printed lower to facilitate the payment of duty as lower rates as per the exemption granted under several Notifications and as such 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 slated 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 20th 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 revenue that the appellant in order to evade excise duty, deliberately printed a price lower than the actual sale price and the concept of effective price has been introduced and has been so fixed by the appellant so as to evade excise duty or at least appellant had a hand in such fixation of a new effective price.
138. Before proceeding further in the matter, however, it is to be noted that as against the issuance of the show cause notice, M/s. ITC Ltd., the appellant herein, moved a writ application before the court below for quashing of the show cause notice mainly on the ground of lack of jurisdiction and bias. But the same did not find favour with the court below and the court below dismissed the writ application. As against the judgment and order of the court below, this appeal has been preferred by M/s. ITC Ltd. The petitioner No. 2 in the court below being a shareholder also filed a separate appeal against the order and judgment of the court below and these two appeals were taken up and heard together.
139. As noted above, Mr. Sen appearing for the appellant contended that there exists no evidence whatsoever as disclosed in the show cause notice on the basis of which a reasonable man can even prima facie come to a finding as regards ITC's involvement in the matter of fixing an effective price apart from the price which appears on the packets itself. Mr. Sen also submitted that assuming there is some evidence, the evidence on record is too insufficient to come to such finding so as to authorise the revenue authority to issue a show cause notice. It was contended that the revenue has taken into account totally irrelevant matters and not considered the relevant evidence in the matter of issuing a show cause notice. Mr. Sen further contended that the Exemption Notifications do not warrant issuance of any show cause notice, since there is first an exemption and secondly as the law stands in terms of the Notification, the appellant was at liberty to fix maximum price on the packet itself and the Central Excise Authority cannot claim realisation of any amount based on actual prices to consumers or effective prices in the retail market as the same was expressly exempted; what price would be marked at the packets, was left entirely to the manufacturer and no intervention, no enquiry, or any adjudication as to the correctness of the market price can be had. 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 fine it was contended on behalf of the appellant as regards legal defence against the show cause notice that since there was no statutory direction for marking particular price on the cigarette packages, nor any legal provision to question the marked price or to go behind them the charge of mis-declaration or manipulation of price or adoptation of dual pricing strategy by the appellant-company in the show cause notice is otios.
140. Before consideration of the legal defence as raised by Mr. Sen and Mr. Deb appearing for the appellant in the two appeals preferred against the judgment and order of the court below, the first point as regards the submission of no evidence, judicial decorum prompts me to record the observations of the learned Judge of the Court below in regard to the objection of the learned Adovate-General. The court below observed :
"Ordinarily a writ petition is not maintainable against a show cause notice inasmuch as when a show cause notice is issued, the party gets an opportunity to place his case before the authority concerned and there is elaborate procedure by way of an appeal and the revision against such order passed in such proceeding. But when a case is made out that the show cause notice was issued without jurisdiction and without the authority of law...the writ court can undertake a limited scrutiny on the point raised in the petition to find out whether there was any jurisdictional error or any legal infirmity in the proceeding."
141. The Court below was pleased to dismiss the writ application and no submission whatsoever was made on the factual serve as is being made very ably by Mr. A.K. Sen in the appeal. The court below proceeded on the basis of the admitted facts. The view expressed by the court below that the writ court can decide a question only in the event of proceedings suffers from a legal infirmity which goes to the root of the case and is not curable during the proceeding, cannot but be accepted to be the correct appreciation of the law on the subject considering the well-settled principles of law. But non-consideration of relevant evidence or procedure without any evidence is an error of law which can be gone into by the writ court while dealing with the show cause notice. It does not amount to collation or appreciation of evidence. Syed Yakut's case (supra) has settled the law on that score.
142. It is at this juncture that the submission of Mr. Sen on the show cause notice itself ought to be noted. Mr. Sen submitted that analysis of the show cause 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 also relied upon various price lists of the retailers' association. It is the definite case of Mr. Sen that ITC has had no hand in the matter of introduction of a price structure called "effective price" and it is a creation of the retailers that the price other than that printed on the package itself in accordance with the Notifications are being charged to the ultimate smokers. It is a market force which is said to be taken into account in the matter of fixation of the price structure of ITC and whenever the market force shows upward tendency, the prices were revised and price list altered accordingly. It was contended that whenever from market survey analysis it is found that effective prices at which any brand of cigarettes were actually selling in the market were higher than the printed price, ITC marked up the printed price on its packets to catch up with such higher effective price and as and when ITC marks up this price, there is a minimum rise in the market effective price since the retailers have been indulging and charging higher price and over charging the smokers. Mr. Sen further submitted that ITC packed its cigarettes in packages and had to declare this retail price in print, but what prices the package will ultimately fetch in the market, cannot be conceived and this unpredictability of the ultimate selling price at a future date, is an impossibility for the ITC to even comprehend before hand, so as to print on the packet itself as to what would be the effective prices by operation of the market forces at a later date. As such question of printing an effective price on the package does not and cannot arise. Furthermore, various effective prices were prevalent in various parts of the country. How could there be one effective price for a particular brand of cigarette? The factum of more than one effective price prevailing in the country would go to show and indicate, it was contended, that the same cannot be the creation of one agency, but of various agencies and it cannot but be a handy work of the different retailers' associations in different parts of the country.
143. In support of his contention Mr. Sen placed various documents, computerised charts as also the evidence taken by the Excise Officers after the search and seizure effected at the ITC Premises. The issue remains to be seen as to whether on the materials available on record, it can 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 also been effected by Mr. Advocate-General by reason of last column, having two bifurcations - one 'printed' and the other 'effective'. As an illustration if one takes up the price range at various levels for India Filter King Cigarette, printed price has been shown at Rs. 18/- and the effective price has been shown at Rs. 19/-. Mr. Advocate-General submitted in the event ITC had not had anything to do in the matter of fixing up the effective price, question of indicating in the document itself of an effective price would not have arisen, though Mr. Sen argued that it is the resultant effect of the market force which has been noted in the document itself and the same is the normal routine business of the company in order to be in the trade itself. Further on the basis of the "revised trade margin - WEF 1986" Mr. Advocate-General submitted that with the increase in the printed price, almost entire amount of the enhancement in printed price per thousand cigarerttes had been mopped up by the ITC by jacking up its invoice price to the wholesalers. The price to the retailers per thousand cigarettes, Mr. Advocate-General submitted, was also enhanced to the equal extent as printed price resulting in their official margin being maintained at an insignificant amount of 10 p. per thousand cigarettes and it is for this reason that ITC introduced the concept of effective price so as to make available to the retailers a resonable margin to be recovered from the market. Thus, it was contended, that manipulation of ITC itself was responsible for further increase in the effective price with the increase in the printed price and it was not a consequence of over charging by the retailers on their own. Relying on the above-noted document, Mr. Advocate-General submitted that the factum of company's intervention at every stage of the price structure is also apparent and clear from the same. As an illustration, Mr. Advocate-General drew the attention of this Court that India Filter King Cigarette is being sold to WD under the Heading "Price to W.D." at Rs. 876.20 and a price of S.W. in non-entry tax area has been fixed at Rs. 895.50 thereby having a total S.W. margin to the extent Rs. 4.40 and the price to retailer has been fixed at Rs. 899.90 leaving the retailers' margin column...(blank). Mr. Advocate-General also commented that with Rs. 899.90, the retailers are left with 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 20th November, 1983 from one P.N. Sangari, Ambala to the Branch Manager, Marketing Branch, Saharanpur, wherein it has been stated that Wills Flake King was launched in the market on 18th November at the following rate - S.W. Rate : Rs. 183.10 P., RTC Rate : Rs. 184.60 P., Unit Printed Rate : Rs. 185/-, Effective Price Rs. 2/- per packet. On the basis of the above noted two documents, it was submitted that these documents would unmistakably go to show that when a brand is launched, the ITC decides the effective price prior to its launch in the market. In this context Mr. Advocate-General further argued that the argument of Mr. Sen of several effective prices also does not hold good since the action plan and the pricing strategy of the company would go to show that each branch has been given the right of authority in the matter of fixing its effective price considering the market conditions. The word of caution at this juncture, however, ought to be remembered that the High Court is not foisted with the responsibility of adjudicating the issue at this juncture. A show cause notice has been issued and it is for the adjudicator to adjudicate as to whether there is any attempt on the part of the company to evade excise duty or not. As noted above, evidence is not to be collated or appreciated and it is within the domain of the adjudicator. The High Court in its writ jurisdiction cannot go into the issue as to the sufficiency or inadequacy of evidence but can only intervene or interfere in the event of there being no evidence. Apart from the documents as above, both Mr. Sen and Mr. Advocate-General had taken us through the entire evidence on record and the documents. The caution is that in the event there is finding of fact the same would have a binding effect on the adjudicator, unless of course it is decided to set aside the show cause notice. The issue remains to be seen as to whether from the above, it can be said that there exists no evidence at all. In the event it appears to Court that there is likelihood of the same being taken into consideration by the adjudicator, the Court will not consider the matter further in that perspective, since the same is within the domain of the adjudicator.
145. From the narration as above, in my view, it cannot be said that it does not disclose even a prima facie case to be gone into by the adjudicator. In the instant case on 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 Notifications clearly pin point the levy to be on the basis of the printed price under the Package Commodities Rules as adjusted and not on the retail prices charged by the retailers or on any alleged effective price prevailing in different markets in excess of the market prices. Admittedly, Mr. Sen contended, price variations in different parts of the country show the utter undependability of the so-called effective price to be based on levy and uncertainty resulting therefrom and the new scheme of excise levy introduced from 1-3-1983 never envisaged or contemplated any enquiry into the genuineness of the marked price on a true construction of the relevant Exemption Notifications and having regard to the manner in which they were administratively construed and given effect to. Mr. Sen contended no guidelines, standards or machinery were provided to embark on an enquiry into the genuineness of such prices and any such enquiry would be contrary to the scheme of levy and without any sanction in law whatsoever. In the absence of such guidelines or machinery, Mr. Sen contended that the authorities are only entitled to see whether excise duty has been paid in accordance with the price printed on the package and has no jurisdiction to go behind the printed price and as such the attempt in the show cause notice to displace the printed price and levy duty on the basis of the so-called effective price is wholly without jurisdiction. While contending about the Notification, Mr. Sen submitted that since the Notification is a fiscal Notification, the interpretation of a fiscal statute is also to be attracted in the facts and circumstances of the case under consideration and the construction most beneficial to the assessee should be adopted even if it results in its obtaining doubts advantage. Mr. Sen added that equitable considerations are irrelevant in interprteing tax laws and there is no scope for any equitable construction to be put on a taxing statute. Numerous decisions have been cited in support of his contention in regard to the above. As regards interpretation of a fiscal statute and equitable considerations being irrelevant, there cannot be any doubt about the same and the law is well-settled on that score and 1 need not dilate much on that. But before proceeding into further, the learned Advocate-General's contention ought also to be noted at this juncture. Mr. Advocate-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 that prior to 1-3-1983, the basic duty was Rs. 440/- per thousand or 300% ad valorem plus Rs. 20 per thousand whichever is higher together with an additional duty of Rs. 16/- per thousand or 100% ad valorem plus Rs. 12/- per thousand whichever is higher. But Notification No. 36/83 dated 1-3-1983, however, prescribed that cigarettes (being cigarettes packed in packages) of which the adjusted sale price per one thousand does not exceed Rs. 50/-...the rate prescribed was Rs. 35/- per one thousand. In that fashion on a graduated scale the duty has also increased. In the Notification adjusted sale price has been defined in relation to each cigarette contained in a package of cigarettes and means the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such packages. Proviso (b) to Explanation 1 of the Notification provides that where such cigarettes are packed in packages containing different number of cigarettes, the unit price for each such package shall be determined by dividing the sale price of each such package by the number of cigarettes therein and the highest of such unit price shall be the adjusted sale prices in relation to each such cigarette. Explanation 2 made it clear as to the meaning of cigarettes packed in packages and lays down which are packed for retail sale in packages. Explanation 2(b) also requires a declaration specifying the maximum sale price thereof as the amounts specified in the declaration plus local taxes only. The Explanation 3 provides that sale price in relation to a package of cigarettes means the maximum price exclusive of local tax only at which such package may be sold in accordance with the declaration made on such package.
148. Taking us through the aforesaid Notification, Mr. Advocate-General submitted that under Explanation 2, the Notifications envisaged an obligation on the part of the manufacturer to make a declaration on the packages of cigarettes for retail sale specifying the maximum sale prices thereof. It was contended that the obligation of the manufacturer in this respect is clear that the maximum sale price as determined by the manufacturer for the retail sale of a packet of cigarette shall be declared on such packets. But definition of the term "sale price" means the maximum price at which such packet may be sold in accordance with the declaration made.
149. I am 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 duty. 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 facts and circumstances of the case to go into the issue of fraud, when the matter is pending adjudication before an Adjudicating Authority. The show cause notice itself records that by deliberate act printed prices have been kept at low so as to evade payment of excise duty.
150. In my view on a correct reading of the Notification there exists an obligation on the part of the manufacturer to print the maximum retail sale price. It is a requirement of law that the manufacturer is directed to give a declaration as to the maximum retail sale price and if there is any attempt on the part of the manufacturer to print a particular sale price, but in the same breath through surreptitious and clandestine means (as the case made out in the show cause notice) communicates another price down to trade chain to the point of retailers, thereby manitains a dual pricing strategy, it cannot but be termed to be a fraud within the meaning of Section 11A of the Central Excises and Salt Act.
151. The further contention of the appellant that Heydon's Rule or Contemporanea Expositio has its due application. I am afraid, I am not in a position to accept the same. The Maxim "Contemporanea Expositio" is now well-settled to be attracted in the matter of interpretation or construction of ancient statutes and not in regard to the interpretation of a modern Act. Mr. Sen's next submission is that it is the duty of the Court to find out what the Legislature meant by the expression used and Court is obliged to construe the terms of the statute in the proper context and it is not the function of the Court to strain the natural meaning of the language used to cover the alleged loopholes. In interpreting the Notification, question of further external aid is not required since the language used in the Notification is clear, unambiguous and unequivocal. The plain meaning of the expression maximum sale price as appearing in Explanation 2 of the Notification, it can only mean retail price and not maximum sale price to retailer and the words "May be sold" appearing in the Notifications ought to be interpreted as ordinarily sold to the ultimate consumer in the market. Otherwise, it would be doing a violent injustice to the language used in the Notification.
152. Strong criticism has been levelled by Mr. Sen as also Mr. Deb appearing for the appellant in the two appeals before us, that there exists 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 averments of the petitioner in paragraphs 22 and 24 of the affidavit and in this regard, I submit that the petitioner company along with M/s. ITC Ltd. have falsely and fraudulently declared to the Central Excise Department as well as made declarations on the cigarette packets lower "sale price" with the clear intent to evade payment of appropriate duty. By the said fraudulent means they availed of the concession illegally and paid duty at lower rates which they were not legally entitled to".
154. Relying on the aforesaid statement, Mr. Sen submitted that the writ petitioner/appellant has reasonable apprehension that it would not get a fair and reasonable opportunity to defend this matter. Apart therefrom Mr. Sen also drew the attention of this Court that the Revenue Authorities have given publicity and made statements before the Press and the factum of which has not been denied. From the News Item in Deccan Chronicle dated 19th February, 1987 published from Hyderabad, it appears that Sri N.K. Bajpai, Head of the Anti-Evasion Wing being the respondent No. 3 herein had stated that number of incriminating documents had been seized and were being examined. From the publication it also appears that Sri Bajpai has also stated that it is too early to determine the extent of evasion. Considering the statement, Mr. Sen stated that there exists an evasion has already been concluded by Sri Bajpai and the statement that incriminating documents being seized also lend support to such a conclusion and on that score Mr. Sen pointed out that Sri Bajpai being the respondent No. 3 has a closed mind and as such discharging function as a quasi-judicial authority does not and cannot arise. It has been stated that by reason of the Press statement and the affidavit of Sri Veerayan, respondent No. 3 has disqualified himself from discharging his function. In support of his submissions, strong reliance has been placed on the decision of the House of Lords in Franklin's case {Franklin and Ors. v. Minister of Town & Country Planning reported in 1948 AC 87) in that decision Lord Thakerton observed :
"I could wish that the use of the word 'bias' should be confined to its proper spheres. Its proper significance, in my opinion, is to denote a departure from the standard of even handed justice which the law requires from those who occupy judicial office, or those who are commonly regarded as 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 and the statements in the Press cannot be said to be of such a magnitude so as to show his bias or pre-judgment of the issue of evasion.
156. The second limb of the submission of Mr. Sen as regards bias is the affidavit of the Deputy Collector. In my view, the same also cannot be termed to be a evidence or substantial evidence of bias as is contended by Mr. Sen against the appellant-company, and I am in agreement with Mr. Mitter appearing for the respondent No. 3 that the state of mind of the person affirming the affidavit cannot be imputed to the person on whose behalf the affidavit is to be affirmed. In Common English Parlance, 'bias' mean and imply a state of mind. The Court, therefore, has been asked to come to a finding of bias, viz., the state of mind of one officer from the statement of another officer, that is to say, the state of mind of a particular officer will have to be inferred from the state of mind of another person this in my view, is not permissible in law. The affidavit of Sri Veerayan can hardly be stated to be evidence of the state of mind of the respondent No. 3. In any event, the other aspect of the matter ought not to be lost sight of, viz., that the similar allegations have been levelled before the learned Single Judge of the Madras High Court as also before the Appellate Bench of the said High Court. But both the learned Single Judge and the Appellate Court have been pleased not to put any reliance thereon and dismissed the appeal.
157. The third limb of submission of Mr. Sen on the score of 'bias' is, what has been ascribed to be the institutional or departmental bias. Mr. Sen detailed his submission on this score on the 'Reward Scheme' of the Department and it was contended that even if the reward scheme does not directly benefit the respondent No. 3, but since he is highly interested in dispensing the reward scheme amongst his officers which will not be possible, unless this adjudication goes against the appellant, it cannot but be said that the respondent No. 3 is interested in the adjudication proceeding and in coming to a conclusion of evasion of duty to its maximum extent so as to benefit the subordinate staff under him. Though some amount of discrepancy is there in the pleading, viz., in the petition and the affidavit-in-reply, but ignoring the same, however, the issue arises for consideration as to whether there can be any 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-Evasi6n 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 Supreme Court lends assistance to the view as above.
158. In any event the ground of reward scheme was also urged before the Madras High Court in the matter noted above and both the learned Single Judge and the Appellate Court have been pleased to negative such contention. In the decision of the Delhi High Court in the case of Duncan Agro Industries v. Union of India and Ors. in C.W.P. 1939/87 [] the Division Bench of the Delhi High Court has also gone into the question of departmental bias arising from the reward scheme in an exhaustive manner and has held that the petitioner has not been able to make out a case of real likelihood of bias of the adjudication authority by reason of the reward scheme. I am in respectful agreement with the views expressed by both the High Courts as regards the issue of bias.
159. In the view I have taken as regards the appellant's contention of bias, I need not deal with numerous decisions cited on behalf of the appellant on that score, suffice however it to record, that the same are clearly distinguishable on facts and as such has no relevance in the facts and circumstances of the matter under consideration.
160. The other aspect of the matter ought also to be noted at this juncture. It was contended that during the relevant period, there was no statutory requirement of approval by the Excise authorities of price printed on packets by the manufacturer. Regarding the notification, it was submitted that, though requirement for approval of surface design was there, it expressly excluded declaration relating to a sale price. Therefore the price printed by the manufacturer only, was to be taken note of and the revenue authorities cannot possibly go behind the same or question the price. In this context the speech of the Member Budget was also taken recourse to wherein the Member Budget has stated:
"The industry is highly competitive. Each one is trying to hold on to the area where they are having much shares, so we thought that the market force could take care of the situation. As far as revenue from this commodity is concerned, we have to have a particular target for this commodity and as long as it is coming from this commodity, we should not worry ourselves too much on this account. There is no doubt that there is a certain extent of avoidance or contravention 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 aforesaid two statements, it was contended that question of violation of any provision of the Act or Rules framed thereunder, does not and cannot arise, simply because of the fact that the retailers are charging prices higher than that marked in the packets. In this context also Mr. Sen submitted that ITC hadn't had any hand in the matter of price of cigarettes to the ultimate consumer by the retailers. But it is the market force which has created this artificial pricing. Mr. Advocate-General on the other hand, submitted that the dual pricing strategy has been devised and introduced by ITC as it appears from the documents seized and evidences recorded. It is a calculated design to under-declare the real retail price of cigarettes fixed by the company to the Excise authorities. It is a deliberate act to defraud the Public Exchequer. Mr. Advocate-General contended that in the normal course of events, the speech of the Member Budget or the statement of the Minister of Finance could have been taken into consideration, but since a deliberate fraud has been perpetrated as appears from the pricing strategy and the action plan, question of any of the statements coming in aid of the appellant does not and cannot arise. Fraud nullifies and fraud vitiates any favour or advantage to the assessee.
163. The factum of dual pricing of a two-tier pricing being prevalent, there cannot be any dispute. The issue, therefore, is as to whether it is the creation of ITC or the same is the resultant effect of the market force wholly created by the retailers - this in my view, is a pure question of fact which cannot be gone into at this stage of the proceeding as noted above. Though strenuous submissions have been made by Mr. Advocate General and numerous decisions have been placed as also documents and evidences were relied upon to show the appellant's involvement in the matter of a two-tier pricing system, but I am afraid, no observations can or ought to be made at this juncture. Suffice it to record, however, that merely because there is no requirement of law as regards approval of printed price, that by itself does not clothe an assessee to mis-declare a price which is not the actual end selling price.
164. On the issue of differential duty calculation, strenuous submissions have been made by Mr. Sen. But in my view, same cannot be also gone into by the High Court in the writ jurisdiction 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 this Court to decide the issue as more fully noted above. Mr. Deb next urged that at the point of the removal of the goods from the factory gate to the godown of the wholesaler, the excise duty could only be levied on the price printed and as declared by the manufacturer and at that point of time, there cannot be any higher price being charged by the retailer. Therefore, short levy of excise duty does not and cannot arise. Incidentally it is to be noted that facts as stated in the show cause notice is deemed to be correct and as such Court's jurisdiction to intervene is also restrictive in nature. The issue, therefore, arises as to whether on the basis of the facts alleged the show cause notice suffers from any vice? In my view and as noted above, when the fraud has been alleged to be basis of the charge, the matter ought to be gone into in extenso and the court ought not to interfere at this juncture so as to throttle the investigation of facts by the adjudicating authority. Mr. Advocate-General on this score relied strongly on the fact that even prior to launching of any new brand the effective prices were fixed by the appellant : the correctness or incorrectness whereof will have to be seen but by no stretch it can be said to be devoid of any substance at all. It is to be noted however that if two interpretations are possible of a particular document, then it is a matter for the adjudicator to decide and not for the court. But if on the other hand, the conclusion reached on the basis of analysis of documents that no reasonable man can come to such a finding, in that event the finding as recorded would be utterly perverse and the Law Courts would be within its jurisdiction to intervene or interfere even at this early stage of the proceeding but not otherwise. A prima facie case at this stage of the proceeding would be sufficient to direct the matter to be proceeded with before the adjudicator since no proof is required at this juncture.
167. The other incidental issue is in regard to the 'flow back' on which strenuous submissions have been made by the appellant to the effect that unless there is definite evidence of 'flow back' by reason of the over-charging, question of contravention of any statutory provision does not and cannot arise neither any show cause notice can be issued on the basis thereof. A definite case has been made out by the Revenue that ITC 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 regard as well.
169. Before proceeding onto the last contention of the appellant, viz., absence of jurisdiction of the respondent No. 3 in the matter of issuance of the show cause notice, a short submission as regards non-application of mind by reason of shortness of time taken for issuance of the show cause notice ought to be dealt with presently. Mr. Sen submitted that the voluminous documents were seized and evidences recorded and the respondent No. 3 could not have possibly applied his mind to the same, more so by reason of the fact that the evidence of Sri S.K. Mehta was taken as late as 23rd and 24th March, 1987, while the show cause notice was issued on 27th March, 1987. As such question of proper consideration of the materials on record does not and cannot arise and the show cause notice is vitiated by non-application or non-consideration of the proper materials by reason wherefor irrelevant considerations were taken note of and relevant materials were ignored in the matter of issuance of the show cause notice, as such show cause notice is liable to be set aside and quashed.
170. On the factual score it is to be noted, the documents on the basis of which show cause notice was issued were seized more than five weeks before the date of issuance of show cause notice and the evidences also were recorded from 17th February, 1987 onwards. In the counter-affidavit filed by the respondent No. 3, it has been stated that before being prima facie satisfied regarding the justification of the issuance of the show cause notice, he has carefully considered all the materials on record including the evidences of witness placed before him from time to time and as and when they were recorded. It is not that, that the documents and evidences were first collected and then placed before him, but the same were placed before him from time to time as and when they were seized and recorded and relying upon such statement Mr. Advocate-General contended, question of there being any hot haste in the matter of issuance of the show cause notice does not and cannot arise.
171. Expeditious action of a government authority cannot be taken to be non-application of mind. The act or acts on the part of the governmental authority will have to be judged independently and if on the factual score it appears otherwise, then and in that event only the Courts will strike down the action by reason 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 as also the Delhi High Court in the case noted above have gone into the issue in extenso and the contention of invalidity of the authorisation has been expressly nullified. I respectfully agree with the views expressed by both Delhi and Madras High Courts.
In the premises, I do not find any merit in this appeal.
173. The appeal is dismissed. All interim orders are vacated.
174. There will be no order as to costs.
175. The Adjudicator will be entitled to proceed with the adjudication proceedings in accordance with law. It is made clear that both Writ Petitioner and the Respondents will be at liberty to urge all the questions on facts and on law before the Adjudicator and the Adjudicator will be at liberty to go into all the questions arising out of the Show Cause Notice. It will be open to the writ petitioner to demonstrate before the Adjudicator that the quantification of the liability made in the Show Cause Notice is wrong in law and without any basis or erroneous. All the questions on fact and law pertaining to this aspect of the case are left open to be decided by the Adjudicator. On this aspect, if necessary, the appellant will be entitled to adduce evidence before the Adjudicator.
176. Mr. Sen, counsel appearing for the appellant, has prayed that the interim order passed by the Court below as also continued by this Court be allowed to continue for 15 days. Now that the appeal has been dismissed, we see no reason why the said interim orders should be allowed to continue further. Hence the prayer of Mr. Sen is refused.
177. All parties are to act on a signed copy of the minutes of the operative portion of this judgment.