i.T.C. Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. these appeals have been filed against order-in-original no. 3/95, dated 29-12-1995 passed by the commissioner of central excise, delhi.following are the particulars of the appellants :______________________________________________________________appeal no. name of the appellant referred to ase/ 209/ 96- a m/s. i.t.c. ltd. itce/210/96-a j.n. sapru -e/211/96-a j. narayan -e/288/96-a m/s. asia tobacco ltd. atce/289/96-a m/s. hyderabad deccan cigarette hdcf factory ltd.e/290/96-a m/s. lakshmi tobacco co. ltce/291/96-a m/s. reliable cigarettes rcti and tobacco industriese/292/96-a m/s. master tobacco co. mtce/293/96 m/s. crown tobacco co. ctce/294/96-a r. bhoothalingam 2. the particulars of demand of duty proposed in the show cause notice for the period 1-3-1983 to 28-2-1987 and demand.....

Judgment:
1. These appeals have been filed against Order-in-Original No. 3/95, dated 29-12-1995 passed by the Commissioner of Central Excise, Delhi.

Following are the particulars of the appellants :______________________________________________________________Appeal No. Name of the appellant Referred to asE/ 209/ 96- A M/s. I.T.C. Ltd. ITCE/210/96-A J.N. Sapru -E/211/96-A J. Narayan -E/288/96-A M/s. Asia Tobacco Ltd. ATCE/289/96-A M/s. Hyderabad Deccan Cigarette HDCF Factory Ltd.E/290/96-A M/s. Lakshmi Tobacco Co.

LTCE/291/96-A M/s. Reliable Cigarettes RCTI and Tobacco IndustriesE/292/96-A M/s. Master Tobacco Co.

MTCE/293/96 M/s. Crown Tobacco Co.

CTCE/294/96-A R. Bhoothalingam 2. The particulars of demand of duty proposed in the show cause notice for the period 1-3-1983 to 28-2-1987 and demand confirmed and penalty imposed on the assessees are as follows :-_____________________________________________________________Concern Duty proposed Duty confirmed Penalty Penalty (in rupees) (in rupees) in rupees under Rule under 209______________________________________________________________I.T.C.279,83,88, 279,03,10, 14 Crores 20 Crores 692.08 328.45ITC 112,70,42, 112,08,90, 5 Crores 4.5 Crores 540.04 897.492.ITC 69,42,10, 67,80,89, 3 Crores 3.5 Crores 874.20 865.15ITC 159,76,26, 159,21,99, 6.5 Crores 8 Crores 710.92 235.92ITC 64,11,13, 63,39,12, 1.5 Crores 3 Crores 047.50 125.75MTC 19,39,84, 19,33,94, 25 Lacs 40 Lacs 485.00 394.40CTC 9,88,88, 9,79,60, 12 Lacs 20 Lacs 782.00 007.00ATC 43,07,01, 43,07,00, 2 Crores 1 Crore 080.00 580.00RCTI 26,60,43, 26,60,43, 12 Lacs 12 Lacs 577.57 577.57LTC 1,77,25, (Same as pro- 25 Lacs 40 Lacs 550.00 posed)HDCF 15,14,29, (Same as prop 1.5 Crores 40 Lacs 171.20 osed) The particulars of penalty imposed on the Directors are as follows :-____________________________________________________________Individual Penalty in rupees under Penalty (in rupees) Rules 9(2) & 52A(5)(c) under Rule 209.____________________________________________________________S.K. Mehta 25 Lakhs 50 LakhsJ.N. Sapru 25 lakhs 50 LakhsJ. Narayan 25 Lakhs 50 LakhsS. Ghosh 15 Lakhs 20 LakhsA. Basu 15 Lakhs 20 LakhsR. Bhoothalingam 10 Lakhs 10 Lakhs____________________________________________________________ Confiscation of land, buildings and other assets of the several assessees, though proposed in the show cause notice, was not ordered.

3. Different units of ITC Ltd. (for short ITC) are engaged in the manufacture of cigarettes of various brands. The other concerns who are also appellants manufacture cigarette as job workers of ITC. Cigarettes fell under erstwhile T.I. 4(11) (2) and presently fall under Chapter 24 of Central Excise Tariff. Central Excise duty on cigarettes was ad valorem prior to 1-3-1983 (except under Notification No. 30/79 which provided for effective rate of duty based on value and number with effect from which date it was made specific with different slabs based on the "adjusted sale price" (for short, "ASP"), that is, the unit sale price arrived at by dividing by the number of cigarettes in each package the maximum retail price (for short, MRP), exclusive of local taxes only, at which the package may be sold in accordance with the declaration printed on such packages. The appellants were printing maximum retail price on the packages and paying excise duty on the basis of the appropriate slab during the period from 1-3-1983 to 28-2-1987. With effect from 1-3-1987, the scheme of exemption was changed by adopting specific duty structure based on the length of cigarettes.

4. Tariff rate of duty during the relevant period was as follows :-___________________________________________________________Date Basic Duty Additional Duty Special Excise Duty________________________________________________________________1-3-1983 Rs. 440.00 per Rs. 160.00 per thousand or Nil thousand or 300% ad 110% ad valorem plus Rs.1-3-1984 Rs. 440.00 per Rs. 260.00 per thousand or Nil thousand or 300% ad 175% ad valorem plus Rs.17-3-1985 -do- -do- -do-25-3-1985 -do- -do- 10% of Basic2-9-1985 -do- -do- Nil__________________________________________________________________ Partial exemption was granted under successive Notification Nos. 36/83 dated 1-3-1983, 211/83 dated 4-8-1983 (as amended by Notification No.271/83), 14/84, 100/85 dated 25-3-1985, 134/85 dated 24-5-1985 and 201/85 dated 2-9-1985 (as amended by Notification No. 210/85 dated 20-9-1985) and 78/86 dated 10-2-1986. Some changes were brought about by Notification No. 100/85. The slabs and rates were altered by Notification No. 201/85. The concept of approval of packages was incorporated in Notification No. 210/85, providing for approval of surface design of the package but not of the declaration relating to sale prices.

5. During the said period, ITC and job workers were availing the benefit of the notifications and discharging central excise duty. On the basis of information gathered by Revenue Intelligence that ITC had been evading payment of very large amounts of central excise duty, searches were carried out at various premises of ITC and of wholesale dealers and incriminating documents were seized. ITC deliberately ensured that actual retail sale prices of cigarettes to consumers were higher than the declared and printed sale prices (for short, PP) and for this purpose fixed and clandestinely circulated 'effective prices' (for short, EP) to be adopted by the cigarette sale chain from time to time. PPs printed and declared on the packets were false and were so printed only with the ulterior motive of availing lower rates of duties relevant to the lower slabs and to defraud the Government of revenue.

Even while declaring PPs, ITC visualised and expected that cigarettes should sell at prices higher than such prices. ITC envisaged EPs besides printed prices. EPs so envisaged were higher than the PPs. ITC fixed higher EPs and took steps to ensure that such EPs prevail in the market. ITC did not expect the packets to be sold at the printed prices. The pricing strategy adopted by ITC was to ensure EPs higher than the declared PPs. The documentary evidence and the statements recorded from various persons connected with ITC showed the above dual pricing strategy. The prices and margins at various levels were fixed by ITC. Margins were being varied from time to time to suit such design. Prices and margins were being monitored by ITC. Immediately after the budgetary changes in 1983, ITC while increasing the sale prices and realisation, deliberately reduced the margins available in the sale chain. Margins allowed to retailers were reduced to an extremely low rate of ten paise per thousand cigarettes to create a situation in which retailers would be constrained to sell at prices higher than the PPs. This strategy ensured that EP for each brand was higher than the PP. PP was deliberately lowered. There was wilful mis-declaration of ASP with a view to claim assessment of duty at lower levels under lower slabs. These facts were allegedly discovered during investigation.

6. Accordingly show cause notice was issued to ITC, the job workers and Directors of ITC, reciting the above facts in detail and the circumstances brought out in the course of investigation and alleging violation of Rules 9(1), 52, 52A of Central Excise Rules, 1944 (for short, C.E. Rules), attracting Rules 9(2), 52A(5), 209 and 214 of the same Rules. Demand of differential duty was proposed on the basis detailed in Annexure 'C to the notice. The notice also levelled corresponding charges against the job-workers invoking the aforesaid penal provisions. It was further alleged that ITC and the job workers rendered themselves jointly liable for the differential duty. Penalty was proposed on several officers of ITC. Confiscation of assets of all the concerns was proposed. The larger period of limitation under the proviso to Section 11A(1) of the C.E. Act was invoked. Corrigendum notice dated 3-4-1987 was issued to all the concerns and individuals enclosing copies of certain statements and clarifying the manner in which amount of differential duty had been calculated and annexing a chart known as "DDC Chart".

7. The various concerns and individuals resisted the notice on merits and on the ground of limitation. The Adjudicating Authority overruled these contentions and confirmed the demand and imposed penalties as indicated in para 2 above, but did not order confiscation of the assets of the concerns on the ground that Rule 209 of C.E. Rules became applicable in the last one year of the period covered by the notice and keeping in view the facts and circumstances of the case. This order is challenged by the appellants.

8. The following submissions have been made on behalf of the appellants :- (i) The background in which Notification No. 36/83 was issued clearly indicates that the Central Government intended to switch over from ad valorem basis to a system which did not involve any valuation dispute and by which duty could be levied on a definite and certain basis with reference to an amount or figure available from time to time, (ii) The plain language of the notification clearly shows the intention to impose duty based entirely on the "maximum price" declared and printed on the package and does not warrant an intention to levy duty on the "maximum price" which should have been declared or printed on the package. The Adjudicating Authority erred in taking the price which, according to him, "should have been printed" as the "sale price" for the purpose of the notification.

The interpretation placed on the notifications by the authority is contrary to the plain language of the notification.

(iii) The interpretation placed by the Adjudicating Authority on the words "may be sold" occurring in the definition of "sale price" is erroneous. These words have been used only in view of the requirement regarding "maximum price" as is evident on a reading of various other exemption notifications.

(iv) The Adjudicating Authority was in error in holding that duty can be levied on the basis of "maximum sale price" printed on the package only if the package is actually sold at that price.

(v) The Adjudicating Authority was in error in holding that the slab applicable is governed not by the "maximum sale price" actually printed on the package but on the maximum sale price actually realised by the retailer or other person from the consumer.

Substitution of words in a statute is not permissible.

(vi) Even if the words "may be sold" are understood as "capable of being sold", since admittedly no sale is made to retailers at a price higher than the printed price, the view that it would not be possible for the retailers to sell the product at the printed price and the goods are not capable of being sold at that price is erroneous.

(vii) The Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (for short, PC Rules) have to be taken into consideration in interpreting the exemption notifications.

(viii) The notifications are based on P.C. Rules, according to which sale of a packet or package at a price higher than the printed price is a penal offence and hence such higher price which is unlawful cannot be regarded as the price at which the goods may be sold. The decisions in regard to property tax support this view.

(ix) The interpretation adopted by the Adjudicating Authority is wholly unworkable and commercially unviable.

(x) There are no guidelines for determination of "printed price" by the manufacturer and Revenue cannot go behind the printed price.

(xi) The notifications do not contemplate approval of printed prices by any authority. The amendments introduced by Notification 210/85 clearly exclude the need for approval of the price. This would indicate that the printed prices cannot be reopened.

(xii) Assuming that actual price is required to be shown as declared printed price, the notifications do not indicate that price on each day is to be so shown. Therefore such an interpretation cannot be accepted.

(xiii) Newly introduced Section 4A of the Act would support the interpretation canvassed by the assessee.

(xiv) The basis of the show cause notice is one of fixation and circulation by ITC of higher market price, while the order is based on the price that "should have been printed" being the price prevailing in the retail market and visualised by ITC. (xv) The documents relied on have not been correctly understood by the Adjudicating Authority.

(xvi) The documents or statements relied on do not evidence fixation of higher EPs to consumers and ensuring implementation of such prices by ITC and hence the demand must fail.

(xvii) Prices in different markets charged by retailers in different areas are different. Notification requires a single All India price to be declared. Hence actual prices which are varying and different cannot be the basis for determination of sale price or ASP. (xviii) The impugned order is based on purported actual retail prices prevailing in the market which was not the basis of the demand in the show cause notice and the corrigendum notice. The actual prices vary from place to place and from retailer to retailer and the order has adopted the highest of these prices as the price which should have been printed and declared on the basis of which ASP is to be determined. This is illegal.

(xix) The confirmation of demand for the period beyond six months is not lawful, particularly since the excise authorities were in the know of all relevant circumstances which ITC was bringing to their notice.

(xx) There is no justification for demand of any differential duty from ITC. (xxii) There is no justification to impose penalty on Directors of ITC. (xxiii) The classification of different periods is arbitrary and illegal.

(xxiv) What is the correct price which should have been printed during each period and what, if any, is the differential duty payable for each period.

(xxv) There is no justification for demand against the job workers who printed the price on the instructions of ITC and there is no cause of action against the job workers.

(xxvi) There is no justification for imposition of penalty on the job workers.

9. Point No. (i): According to the appellants, Revenue is not entitled to go behind the printed price declared on the cigarette packets or to demand duty on the basis of what is called the "prices which should have been printed on the packets" as held by the Adjudicating Authority. It is pointed out that the background in which the Notification No. 36/83 dated 1-3-1983 was issued clearly indicates that the Government intended to switch over from ad valorem basis to a system which would not involve any valuation dispute and by which duty could be levied on a definite and certain basis with reference to a certain and definite amount available from time to time. Learned Counsel referred to the history of litigation and disputes between the cigarette manufacturers on the one hand and the Government and the excise authorities on the other, mainly on the question of determination of "assessable value" under Section 4(l)(a) of the C.E.Act on which ad valorem duty was required to be paid. ITC has 600 wholesale dealers (WD) and 60,000 secondary wholesale dealers (SWD) and one million retailers. Till the Voltas case 1977 E.L.T. J 177 ITC was paying duty on the prices charged by WD to SWD. After the Voltas case, duty was paid on the ITC prices to WDs. Price Lists of ITC were being approved provisionally and on account of litigation, assessments could not be finalised for the period 1973 to 1983. ITC filed eight writ petitions in various High Courts in 1974-75. After the amendment of C.E. Act with effect from 1-10-1975, ITC had to file ten writ petitions in various High Courts during the period from 1975 to 1981. Some matters were taken to the Supreme Court. There were amendments to the Central Excises Act, 1944 (for short, the Act) in 1982 and these amendments were also challenged. Notification No. 30/79 provided partial exemption by basing effective rate of duty on value and number.

This was withdrawn with effect from 30-11-1982 and, thereafter duty payable was at the tariff rate, which allegedly cast a heavy burden on the Cigarette Industry. On 28-12-1982, ITC suggested to the C.B.E.C.that ad valorem rate may be replaced by specific rate linked to the length of cigarettes to avoid disputes about determination of assessable value.

10. After a long delay, the Central Government attempted to meet the manufacturers half way by a scheme promulgated under Notification No.36/83 dated 1-3-1983. This notification exempted cigarettes of the description specified in column (1) of the Table thereto from so much of excise duty as is in excess of the amount calculated at the rate specified in the corresponding entry in column (2) of the Table. The Table had two Columns, one of description and the other of rate. The rates were in three slabs depending on the corresponding ASP in column (1). The determinate factor in column (1) was the adjusted sale price (ASP) for 1000 cigarettes packed in packages not exceeding Rs. 50, exceeding Rs. 50 but not exceeding Rs. 60 and exceeding Rs. 60 respectively. ASP in relation to each cigarette contained in a packet meant the unit price arrived at by dividing the "sale price" of such package by the number of cigarettes in such package. "Cigarettes packed in packages" meant cigarettes which are packed for retail sale in packages which contain 10, 20, 50 or any higher number (being a multiple of 50) and bear a description specifying the maximum sale price arrived at as the amount specified in the declaration plus local taxes only. "Sale price" in relation to a package of cigarettes meant the maximum price (exclusive of local taxes only) at which such package may be sold in accordance with the declaration made on such package.

The Finance Minister's Budget Speech, 1983-84 referred to the above rates as "specific rate of duty" linked to retail sale prices printed on cigarette packets. It is pointed out that Sub-rule (3) of Rule 8 was introduced with effect from 1-3-1983 enabling the Government to grant exemption by providing for levy of duty at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable. The Explanation to the Rule indicated that the "form or method" meant the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which duty is leviable.

11. Notification No. 36/83 increased the duty burden on the industry which made repeated representations against it to C.B.E.C. and the Government, pleading for totally specific rate of duty. It was complained that effectively duty was increased from 62% to 73% and retailers were selling cigarettes to smokers at prices higher than the printed prices. It was also complained that the notification allowed no deduction for post manufacturing expenses. The Public Accounts Committee (PAC) scrutinised the notification. Learned Counsel also referred to the 34th Report of the PAC 1985-86 incorporating the evidence given by the Chairman as well as the Member (Budget) CBEC describing the above rates as "specific rates" of duty. The Member (Budget) appears to have stated that they were interested in collecting a certain amount of duty from a particular industry and the rate of duty was accordingly fixed. The Member also indicated that they were conscious of the fact that there could be overcharging of prices by the retailers. According to P.C. Rules, retailers are bound to sell packaged goods at the printed price and if the price charged was more, there is a legal provision for taking action against the retailers.

Reference is also made to the evidence of the Member (Budget) to the effect that so far as the Cigarette Industry is concerned, there is no strict correlation between the cost of individual brand and the price that is printed on the package, because each company is having a particular percentage of share of the market in relation to a particular brand of cigarettes. The Member also indicated that they had put particular targets for various commodities and as long as the targeted amount is coming from that commodity, they should not worry themselves on this account. There is certain extent of avoidance or contravention of law relating to the selling of cigarettes at a price higher than the price printed, but that was nothing new. It existed even before the new notification. After taking into account all these factors, according to the Member, a decision was taken that instead of keeping large amounts of revenue blocked, they should move over to a different system on a purely experimental basis. He also indicated that in the years during the period 1979-1983, excise duty collected on cigarettes was Rs. 583 Crores, Rs. 613 Crores, Rs. 686 Crores, Rs. 687 Crores respectively and in 1983-84 when Notification No. 36/83 was in force, the collection rose to Rs. 908 Crores. He explained that the Government opted for taking printed prices for determining duty at specific rate since printed price on packages is a legislative requirement. According to him, Notification No. 30/79 based on value and number did not work well and ad valorem duty created enormous problems. He stated that if the basis is justifiable, it has to be explained in Court and it is easier to explain it to the assessee than to the Court.

12. Reference is made to the note submitted by the Ministry of Finance, Department of Revenue, extracted in 34th Public Accounts Committee (1985-86). The note referred to the requirement under the PC Rules and indicated that this declared price has been taken as a basis for determining the slab at which excise duty would be charged under Notification No. 211/83 dated 4-8-1983, that if the retailer sells a packet of cigarettes at a price higher than the declared price, it is an infringement of the PC Rules which is being enforced by the State Governments and the Union Territories and only if there is evidence to show that the difference between the declared price and the higher price charged by the retailer or any wholesaler flows back to the manufacturer in some form or the other, the question of application of the central excise law would arise.

13. In this connection, reference is also made to Sub-rule (3) of Rule 8 of CE Rules, 1944 introduced with effect from 1-3-1983. Sub-rule (3) clarifies that an exemption under Sub-rule (1) or (2) may be granted by providing for the levy of duty 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 shall have effect subject to the condition that the duty of excise chargeable shall in no case exceed the statutory duty. According to the Explanation to the Rule, "form or method" in relation to rate of duty means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable. Apparently, this Sub-rule was incorporated in order to enable the Government to grant exemption in a form or method different from the one based on determination of assessable value under Section 4 of the CE Act, such as value, weight, number, length or volume etc.

14. Learned counsel also referred to various representations submitted by ITC Ltd. and the industry to the Finance Minister, the Chairman of the Board and other authorities. These representations were submitted during the period from March, 1983 to October, 1986, i.e., after the promulgation of Notification No. 36/83. The substance of these representations is as follows :- Prior to 1983 Budget, cigarettes were by and large being sold at the correct prices. 1983 Budget raised the average duty percentage from 62% to over 70% of the consumer price and this included even equalised freight, trade discounts and special packing for calculation of duty and this inevitably led to squeezing of trade margins resulting in cigarettes being sold by retailers at a price higher than the marked price. On the lines of the exemption notification in respect of Patent and Proprietary medicines, deduction of 25% on the prices to the consumers should be provided to cover distribution costs and trade margins in which case the revenue and the trade margins can be safeguarded and retailers can sell cigarettes at printed prices. Alternatively, it was proposed that duty should be based on the length of the cigarettes including the filter. This will also safeguard revenue and trade margins and render printed prices effective.

At page 181 of book No. 39 is a copy of a letter dated 19-1-1985 of the Ministry of Industry to all cigarette manufacturers. The letter deals with complaints regarding sale of cigarettes at higher prices than the printed prices. The letter makes it clear that the scheme of the notifications was evolved with a view to remove the difficulties of the administration caused on account of ad valorem duty structure bearing in mind the fact that cigarettes come within the purview of the PC Rules. The Government have been receiving reports that retailers are selling cigarettes at higher prices than the printed prices and in a few cases WDs have collected from retailers prices higher than the printed retail prices and stated that there was definite pattern in regard to overcharging. The Ministry sought cooperation from the Industry while ensuring necessary action under the PC Rules.

In response to an objection of the Chairman of CBEC that specific duty based on length of cigarettes would substantially narrow the price range and would not protect the vast majority of consumers and may create an impression of benefiting higher income bracket, ITC suggested that ad valorem duty and duty related to cigarettes length may be averaged. At page 190 of book No. 39 is the proposal of ITC Ltd. for duty structure based partly on length and partly on printed price.

15. Reference is also made to the evidence given by Chairman and some of the Directors of ITC Ltd. in the course of the adjudication proceedings. The evidence of Shri J.N. Sapru, the then Chairman of ITC Ltd. is seen in book No. 19. The parts of evidence adverted to by the learned counsel can be summarised thus :- He met the Chairman and Members of CBEC in May/June, 1983 and discussed the issue with them. They wanted a detailed memorandum which was submitted in due course. He also suggested in August, 1983 that Government may stipulate margins and give set off. He pleaded with the Government to provide relief by moderating the rate of excise and giving set off so that trade margins could be enlarged and overcharging by the trade could be controlled. The Chairman, CBEC stated that the Government's primary interest was in getting its budgeted revenue and if that was met, the overcharging was a matter which fell within the purview of the State Governments and from the Revenue's point of view, as long as the manufacturers did not charge or sell at prices higher than the printed prices, there was no revenue implication. The industry volume was suffering because the Government was not taking any steps to contain overcharging and implementing the PC Rules and if no action was taken, it would have revenue implication as volume of trade would decline. It did not appear that the Government was concerned with overcharging or the trade margins. With the increase in excise duty, reduction in trade margins had taken place and while this was not the cause of overcharging, it may have been one of the factors that aggravated it, as overcharging had become a phenomenon for the past decade or so. It was not feasible for any single manufacturer to determine margins in isolation. If it was the feeling that the margins were inadequate, Government should stipulate margins so that it would become binding on all manufacturers. It was in this view that set off was requested. No single manufacturer can determine margins in isolation since the market situation was highly competitive. If uniform trade margins had been prescribed for the entire industry, industry volume would have declined, but the relative position of each brand would have remained more or less in proportion.

Evidence given by Shri S.K. Mehta, the then Director of ITC Ltd. seen in book No. 18 is more or less on the same lines as the evidence given by the Chairman. So also the evidence of other Directors, Shri J. Narayan seen in book No. 15 and Shri S. Misra in book No. 11. Learned Counsel emphasised that the witnesses were not cross-examined on the above aspects.

16. On the basis of the above materials, it was contended that while there was always a tendency for some retailers to increase trade margins by selling cigarettes to consumers at prices marginally higher than the printed prices, this tendency became widespread after the sharp hike in excise duty rates with effect from 1-3-1983 under the notifications. That was because the steep hike in excise duty compelled ITC Ltd. to reduce the trade margins at various levels so as to keep printed prices within a particular slab and the retailers tended to increase trade margins by selling cigarettes in retail at prices higher than the printed prices. According to the learned counsel, the changeover brought about on 1-3-1983 by the scheme of exemption geared to the scheme of PC Rules clearly showed the anxiety of the trade and the intention of the Government to remove all uncertainties and ambiguities in the matter of computation of duty which may be created by the need for determining the assessable value or any other value and to relate the rate of duty to a certain criterion such as length of cigarette or printed price. It is pointed out that the industry had placed three suggestions before the Government. The first suggestion was to give discount of 25% on the printed price to cover the distribution and other expenses and trade margins. Second suggestion was to relate rate of duty to length of cigarettes and the third suggestion was to relate rate of duty to printed price. The Government initially went by the printed price and in 1987 went over to the basis of length of cigarettes. All these circumstances, it is contended, clearly indicated that the scheme of the notifications under consideration was to enable levy of duty on a definite and certain basis with reference to an amount or figure available from time to time, namely, printed price and, therefore, the notifications cannot be understood as enabling the excise authorities to go behind the printed price and proceed on a roving enquiry regarding the actual retail price.

17. Learned counsel appearing for the Revenue rebutted the above contentions. According to him, Rule 8(3) was incorporated to serve the general purpose of enabling broad-based exemption to be granted and has nothing to do with the dispute in the cigarette industry. The cigarette industry had not made any complaint in the context of PC Rules about retailers overcharging and all the materials referred to by the appellant came into existence much after the earliest exemption notification. If the language of the notifications is clear, there is no justification to examine the contemporaneous exposition, if any, by the Finance Minister or the Board or the officers of the Board. He also contended that the contemporaneous exposition 'relied on' does not suggest that the intention of the Government was that the cigarette manufacturers would be at liberty to print any prices of their choice without reference to the real market conditions or with the fraudulent intention of evading the higher slab. The principle of "contemporaneous exposition" can be used only in the interpretation of old statutes.

18. We have examined all the materials with care. The representations referred to, the report of the PAC and other materials came into existence subsequent to the earliest notification. The PAC report itself came to be prepared a few years subsequent to the earliest notification. All that can be said is that the Members of the Board were aware of the possibility of retailers not sticking to the printed prices and overcharging. The Finance Minister referred to the rates in the notification as specific rates of duty. The description is literally correct, inasmuch as the effective rate of duty under the notification was based not on the assessable value but on the number of cigarettes, that is, 1000. It is evident that the determination of assessable value under Section 4(l)(a) of the Act, so far as cigarettes were concerned, created enormous complications, disputes and litigation. This necessarily would suggest that, according to the Revenue, there was large scale attempted evasion of duty by the cigarette industry even while the industry was complaining of excessive and unreasonable valuation and the like. What is evident from the Budget Speech is the anxiety of the Government to cut the Gordian knot by a scheme of effective rate of duty related not to assessable value but to the number of cigarettes. Therefore, an elaborate scheme was worked out under Notification No. 36/83 relating effective rate of duty to the number of cigarettes. If rate of duty is unconnected with the price structure, the burden of duty would fall equally on cheaper cigarettes and more expensive cigarettes. In fact, the Board had pointed out this aspect to the industry when it wanted effective rate of duty to be related to length of cigarettes. Necessarily,, while relating the rate of duty to the number, slabs were prescribed so that there would be lesser duty burden on cheaper cigarettes and higher duty burden on more expensive cigarettes. This was the reason for introducing the concept of ASP based on the "sale price". There is nothing in the Budget Speech or other materials relied on by the appellant to show any intention on the part of the Government to base duty structure on whatever price the manufacturers choose to declare or print, irrespective of the real state-of-affairs. It cannot be said that the Government intended to send a message that the industry was at liberty to print and declare whatever prices it chooses and the Revenue would be bound to accept the same. The materials relied on by the appellant do not lead to the inference that the Government intended to create a situation where the prices declared and printed on the packets would be the last word and could not be examined with reference to actual conditions prevalent. Tendency of retailers to overcharge was possibly known to everybody concerned and evidently the authorities were not worried about it. This does not mean that the Government or the Board knew that ITC may be instrumental in some way or the other ensuring or visualising packets being sold at effective prices higher than printed prices and would knowingly print lower prices and yet thought that the excise authorities should not be bothered about it. In this view it is not necessary to refer to the conflicting case law on the applicability of the principle of cotemporaneous exposition in the interpretation of the words of a statute and the contention that the principle applies only in the context of an ancient statute except to indicate that a Constitution Bench of the Supreme Court in State of Mysore v. R.V. Bidap, AIRState of M.P. v. G.S. Dal and Flour Mills, AIR 1991 SC 772 expressed doubt about the applicability of the principle to modern or recent statutes.

19. Point Nos. (ii) to (v) : The adjudicating authority has held that the language of the exemption notification is clear and unambiguous as to the description of the goods to which it is applicable, the different slabs and the corresponding rates and meaning of terms. It is common case that what was declared and printed on the cigarette packages was the maximum retail price (local taxes extra) up to which retailers could charge for sales to consumers. The language of the notification does not indicate that the manufacturer would be at liberty to declare and print any maximum retail price (MRP) he pleases and the same cannot be questioned by the Department. This is so even if the P.C. Rules are looked into. The scheme of the notification makes it clear that the manufacturer has the obligation to declare and print the correct MRP. If the manufacturer knows that it would not be possible for retailers to sell at the printed MRP, he cannot plead that it cannot be subjected to scrutiny. The object of the P.C. Rules and the parent statute is protection of consumers of packaged goods. It is reasonable to hold that manufacturer does not have unrestricted liberty and discretion in declaring and printing MRP. If he prints a very low price, it may constrain retailers to charge higher price and thereby contravene P.C. Rules. The obligation to declare and print MRP is not an empty formality. The manufacturer has to determine MRP properly and correctly by taking into account cost of manufacture, distribution and other expenses and the margins. The discretion has to be exercised honestly. The contention that the words "may be sold" have been used only because the price is only the maximum price and the retailer has discretion to sell below the maximum price and that "may be sold" means "may be sold lawfully" and since any price higher than the declared and printed price which may be fixed by ITC or at which retailer may effect sales is unlawful in the sense that such a retailer is liable for penalty under the P.C. Rules and such higher price cannot be taken cognizance of for implementing the notification is not sustainable, as it would amount to adding words to the notification. The actual words used in the notification cannot be ignored. If the declared PP is a price at which it is not possible for retailers to sell, then it is not a price at which it "may be sold" in accordance with the declaration.

Any contrary intention cannot be gathered from the language of the notification. The printed price cannot be regarded as a statutory price contemplated in proviso (ii) to Section 4(l)(a) of the C.E. Act. Both P.C. Rules and the notification contemplate declaration and printing of correct MRP. It must be correct to the knowledge of the manufacturer; only then can it be regarded as MRP at which it may be sold in accordance with the declaration. Any deviation means that the declaration is of MRP at which it may not be sold. Notification being self-contained, it is unnecessary to look into the P.C. Rules.

Contemporaneous exposition is relevant only in the case of ancient statutes and not in the case of Modern statutes. The materials relied for contemporaneous exposition do not support the view that the wrong price deliberately declared is final and not susceptible to scrutiny.

It is open to scrutiny and only the correct price can be taken as the basis for finding the slab applicable. The requirements of the notification are satisfied in the instant case and department is competent to take the correct MRP, select the correct slab applicable and quantify the demand. The question of going back to tariff rate does not arise. If the declared printed price is lower than what it should have been, that involves no contravention of any "condition", the packets of cigarettes remain covered by column (1) of the table to the notification and correct ASP has to be determined on the basis of MRP which should have been declared and printed. If duty has been paid on a wrong slab, that has to be corrected by the department. If the manufacturer makes a false declaration and can escape liability that will amount to the wrongdoer taking advantage of his own wrong.

Assuming that the notifications and P.C. Rules do not contain guidelines for determination of MRP it does not follow that the manufacturer can declare and print any price as he pleases; he has to do it in a reasonable manner. We have in this paragraph summarised the reasoning and finding of the adjudicating authority. Learned Counsel for appellant has challenged the same, while Learned Counsel for the Revenue has broadly supported the same.

20. The Table to Notification No. 36/83 contains two columns, column (1) relating to description and column (2) relating to rate.

Description in column (1) is of cigarettes packed in packages of which the adjusted sale price (ASP) per thousand (i) did not exceed Rs. 50, (ii) exceeded Rs. 50 but did not exceed Rs. 60 and (iii) exceeded Rs. 60. The rate correspondingio (i) was Rs. 35 per thousand. The rate corresponding to (ii) was Rs. 35 per thousand plus Rs. 3.50 per thousand for every increase of Rs. 5 or fraction thereof in ASP in excess of Rs. 50. The rate corresponding to (iii) was Rs. 42 per thousand plus Rs. 3.75 per thousand for every increase of Rs. 5 or fraction thereof in ASP in excess of Rs. 60. The Central Government exempted under Rule 8(1) of the Central Excise Rules, 1944, cigarettes of the description specified in column (1) of the Table from so much of excise duty as is in excess of amount calculated at the rate specified in the corresponding entry in Column (2) of the Table. According to the Explanation, ASP in relation to each cigarette in a package meant the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such package. "Cigarettes packed in packages" meant cigarettes packed for retail sale in packages which contain 10, 20, 50 or any higher number (being a multiple of 50) of cigarettes and bearing a declaration specifying the maximum sale price thereof as the amount specified in the declaration plus local taxes only. "Sale price" meant the maximum price (exclusive of local taxes only) at which such package may be sold in accordance with the declaration made on such package. Notification No. 211/83 as amended by Notification Nos. 271/83 and 14/84 was similar to Notification No. 36/83 except that in the definition of "cigarettes packed in packages" it was indicated that cigarettes should be packed for retail sale, in packages which contained 10 or 20 cigarettes. Notification 100/85 specified five slabs in Column No. (1) of the Table. ASP not exceeding Rs. 50, between Rs. 50 to Rs. 60, between 61 and Rs. 300, between 301 and Rs. 500 and as exceeding Rs. 500. The rates in Column (2) were also revised suitably.

Notification 134/85 was more or less on the same lines as Notification No. 100/85.

21. Notification No. 201/85 as amended by Notification No. 210/85 and 78/86 brought about more changes. The Table to the Notification was as follows:_________________________________________________________________Description Rate__________________________________________________________________ (1) (2)__________________________________________________________________Cigarettes (being packed in approved(i)does not exceed Rs. 60 Rs. 42 per 1000 cigarettes(ii)is between 61 to 170 Rs. 125 per 1000 cigarettes(iii)is between Rs. 171 to Rs. 300 Rs. 225 per 1000 cigarettes(iv) is between Rs. 301 to Rs. 550 Rs. 400 per 1000 cigarettes(v) exceeds Rs. 550 Rs, 600 per 1000 cigarettes___________________________________________________________________ The main part of the definition of ASP in Explanation (1) continued without change. Explanation (2) defined "cigarettes packed in approved packages", as follows: (b) bear a declaration specifying the maximum sale price thereof as the amount specified in the declaration, plus local taxes only; and (c) have surface designs approved by the Director (Audit) in the Directorate of Inspection and Audit (Customs and Central Excise): Proviso was introduced to the above definition indicating the authority of the Director (Audit) in the matter of granting or refusing approval to the surface deign. Proviso (3) reads as follows :- "(3) "design" includes elements such as colour, typography, illustration and any lay-out or combination in any form, style or manner of any of these elements, whether with or without any other elements, but does not include the declaration relating to sale price;" "(4) "sale price", in relation to a package of cigarettes, means the maximum price (exclusive of local taxes only) at which such package may be sold in accordance with the declaration made, in print, on such package;" "(5) "surface design", in relation to any package, means the design on the surface of the package visible to a person seeing the package; "(6) a surface design shall be deemed to be deceptively similar to another surface design if it so nearly resembles that other surface design as to be likely to deceive or cause confusion." 22. The scheme and content of Notification No. 201/85 with reference to which learned Counsel advanced arguments, are clear and simple. The effective rate of duty on cigarettes was specific, that is, so many rupees per 1000 cigarettes. The specific rate of duty was not uniform.

Uniform rate of specific duty would result in imposing heavy burden on less expensive cigarettes. Hence rate of specific duty was in five slabs depending on the quantum of ASP per thousand cigarettes packed in approved package of 10 or 20 cigarettes which bear a declaration specifying the maximum sale price thereof as the amount specified in the declaration plus local taxes only. The effective rate of duty increased as the ASP increased. ASP is the unit price arrived at by dividing the sale price by the number of cigarettes in such package.

"Sale price" of a package meant the maximum price, exclusive of local taxes only, at which such packages may be sold in accordance with the declaration made on such package. P.C. Rules require the maximum price or MRP to be printed on such packages. In short, the effective rate of duty depended on the ASP which, in turn, depended on the maximum price at which the packages may be sold in accordance with the declaration on such package. At first blush it would appear that the declared printed price was to be taken as the 'sale price' for determining unit price or ASP and the slab applicable in a given case. It is obvious that maximum sale price is to be quantified by the manufacturer. As pointed out by learned counsel for appellants, the notification has not prescribed specific guidelines or norms for such quantification of maximum sale price by the manufacturer. It is contended that the scheme and language of the notification did not contemplate ASP to be based not on the declared and printed maximum sale price but on maximum sale price which should have been declared and printed. This contention is rebutted by learned counsel for Revenue. We have already indicated the reasoning and conclusion of the adjudicating authority.

23. At an earlier stage ITC challenged the show cause notice before the High Court of Calcutta. The writ petition was dismissed by the learned Single Judge and this order was challenged in letters patent appeal before a Division Bench. The two learned Judges by separate judgments found no merit in the appeal. The Division Bench dismissed the appeal leaving it to the adjudicator to proceed with the adjudication proceedings in accordance with law, allowing both sides to urge all questions on facts and law before the Adjudicator. Justice Shri Suhash Chandra Sen (as his Lordship then was) indicated in paragraph 91 of the judgment that the provisions of the Standards of Weights and Measures Act, 1976 and the P.C. Rules should be entirely overlooked even where there is no specific provision in the Notification. It was further observed as follows in paragraph 97: [1991 (53) E.L.T. 234] "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" ...Therefore the duty of a manufacturer is to specify the maximum sale price of the cigarettes as the amount specified in the declaration....

Therefore the law requires that declaration must be made on the packages of the maximum price at which such packages of cigarettes may be sold in retail sale." "98...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." "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." "105...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." "107...These notifications must not be construed in a way that frustrates the charge." "108...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 printed on the packages. The phrase "in accordance with the declaration made on such packages" 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." "110. It this argument is to be taken to its logical conclusion, it will mean that if a manufacturer prints the wholesale price or a figure less than the wholesale 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...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 with 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 11A 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 tact 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 packages." "113...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." "115... 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." 24. In the judgment prepared by Justice Shri Umesh Chandra Banerjee, it was observed as follows : " 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. 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 "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." "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 maintains 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".

25. It is true as pointed out by the Learned Counsel for the appellant that the Calcutta High Court has left all relevant questions of fact and law open for decision by the adjudicating authority. At the same time, it has to be seen that the contention of the writ petitioners was that the show cause notice has no validity inasmuch as duty has been paid at the rate appropriate to the slab of ASP calculated on the declared printed price and therefore question of shortlevy would not arise and the Department has no jurisdiction to make a demand for short levy. This contention was repelled by the High Court holding that it is the duty of the manufacturer to declare the maximum price on the packages and if a higher maximum sale price has been fixed and circulated by the manufacturer the lower printed price cannot be regarded as the maximum retail price at which such package "may be sold in accordance with the declaration made" but it will be "maximum price at which such package may not be sold in accordance with the declaration made" and the provisions of Section 11A of the Act will be attracted. The High Court held that the notification must not be construed in a way that frustrates the charge. The High Court did not accept the contention that in such circumstances the Government has no option but to accept the actual printed price as the maximum retail price and levy duty as such a construction duty lead to absurdity. It was also indicated that if it was not possible to sell the packages in accordance with the declaration made to the knowledge of the manufacturer or the manufacturer has fixed or connived at fixation of a higher retail price than what had been actually printed on the packages, it cannot be said that the manufacturer had declared a maximum price in accordance with which such packages may be sold. It was pointed out that 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 so fixed, no proceedings can be taken against the manufacturer under Section 11A of the Act. However, 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, 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 contained in the package. These views of the High Court, even assuming that they do not, as contended by the appellants, fetter the hands of the adjudicating authority, have persuasive value, and must be followed by the adjudicating authority and appellate authority, unless contrary position can be clearly established.

26. According to the appellants, contrary position is clearly made out if the language of the notifications in the background in which they came to be issued and the surrounding circumstances are taken into consideration. We have already considered the background of the notification and the surrounding circumstances and have taken the view that this cannot lead to the inference that the Government intended to create a situation whereby the price declared and printed on the packages would be the last word and could not be examined with reference to the actual conditions prevalent. The notification applies to all cases where cigarettes are packed in packages and contain the number of cigarettes stipulated in the notification and the packages bear declaration specifying the maximum sale price thereof as the amount specified in the declaration plus local taxes only and have surface design approved by the competent authority. Once it is seen that the cigarettes manufactured and cleared by the manufacturer fall within the meaning of Explanation (2), the application of the notification is attracted. What remains to be done at this stage is determination of the slab as per column (1) of the Table so as to determine the rate of duty as per Column (2) of the Table. The slab in Column (1) of the Table depends on the quantum of adjusted sale price per one thousand cigarettes. Rate of duty payable is different in the case of each slab. "Sale price" means the maximum price (exclusive of local taxes only) at which such packages may be sold in accordance with the declaration made, in print, on such package as per proviso (4) to Explanation (2) of the Notification. ASP is the unit price arrived at by dividing the sale price of the package by the number of cigarettes.

On a superficial view the contention that slab depends on the ASP, ASP depends on the sale price and sale price has relation to declared and printed price, and hence the slab can be determined only on the basis of declared printed price and nothing else may appear attractive but on a proper consideration of the provisions of the notification and the language used the view cannot be accepted as correct.

27. The intention underlying the Notification was to get over hassles arising on the question of determination of assessable value under Section 4(l)(a) of the Act and the admissible deductions by switching over to a system of quasi-specific duty, i e. system of varying specific duty dependent on a factor based on the price-factor and not to switch over to a system of specific duty simpliciter. If the intention was to switch over to a system of specific duty simpliciter, the duty structure would have been based only on form or criterion such as weight, number, length, area or volume etc. as contemplated in Rule 8(3) of the Central Excise Rules, 1944. Such, however, is not the basis of the notifications. Effective rate of duty, of course, is specific inasmuch as it is fixed per 1000 cigarettes. The rate, however, is not uniform; it is on a slab system based on ASP which is based ultimately on the maximum retail price (exclusive of local taxes). There is nothing in the language of the notifications indicating that ASP is based on the maximum retail price seen printed on the package. On the other hand, ASP is based on the maximum retail price "at which such package may be sold in accordance with the declaration made in print, on such package." If the language of the notifications is that ASP is based on the maximum retail price, "declared, in print, on such package", it would have been possible to argue that ASP depends on the price printed on the package, whatever it may be and howsoever it may have been arrived at and such printed price is final and cannot be subjected to scrutiny in any manner by the excise authorities. But such is not the language used in the notifications.

"the maximum price (exclusive of local taxes) at which such package may be sold in accordance with the declaration, in print, on such package." There is no dispute that "maximum price"means maximum retail price to the consumers. According to learned counsel for the appellants, the words "may be sold in accordance with the declaration" have been used only because the price referred to is the "maximum price". If what is printed is the maximum price, it is argued, the retailer has the option to sell the package at any commercially viable price less than the printed maximum price. The printed price represents, it is argued, the maximum or the upper ceiling and the retailer has freedom to sell the package at any price not exceeding the maximum price. Therefore, it is contended, the words "may be sold in accordance with the declaration" have been used instead of the words "the maximum price printed on the package". We are not able to agree with this contention. "Sale price" as defined is not a varying price subject to the maximum. "Sale price" in regard to a particular brand of cigarettes is the same, i.e., it is uniform irrespective of the fact that different retailers may sell the packages at different prices not exceeding the maximum fixed. For the same brand "sale price" isnot different depending on the actual prices at which packages are sold by different retailers. When millions of packages of cigarettes are sold every day or week, it cannot be that "sale price" for each brand is not a single price but multiple prices based on the different prices at which different retailers effect sales. The single price is not the price which happens to be printed on the packages. It is the price at which such packages may be sold in accordance with the declaration. These words have been used not in the context of the words "maximum price" found in the Explanation. These words have been used to effectuate a different intention. These words clearly suggest that the declared printed price must be such that the packages may be or can be or are capable of being sold at such price.

The declared price may be such that the packages may not be or cannot be or are not capable of being sold at such price. In such a contingency the printed price is not the "sale price" and ASP cannot be based on such printed price; "sale price", in such a contingency will be the maximum price at which the packages may be, can be or are capable of being sold at the price, irrespective of whatever be the price actually declared or printed on the package. Any other view would mean that the notification contemplated a situation where it would be open to a manufacturer to declare and print a price at which he knows the packages will not or cannot be or are not capable of being sold; in other words, a situation where a manufacturer can deliberately and successfully "under declare" the price by declaring a price less than the price at which he knows the package may be sold. Such cannot be intention of the Government gatherable from the language of the notification. This, it appears to us, is the true import and the meaning of the words "may be sold in accordance with the proviso". Such words would be totally redundant if the intention of the Government was to treat the declared printed price, whatever it is, even the under-declared printed price, as the "sale price" for the purpose of determining the ASP for choosing the slab applicable to a given brand.

29. Learned Counsel for the appellants referred to certain notifications under the Essential Commodities Act, 1948 and the language of those notifications to contend that the words "maximum price at which-------(commodities) may be sold" have been used therein and these words do not lead to any particular significance as contended by Revenue with reference to the exemption notifications relating to cigarettes. The words used in the notifications under the Essential Commodities Act, 1948 are as follows :-__________________________________________________________________Notifications Relevant Clause1. The Cinema Carbons Clause (4) The Controller may fix the (Control) Order, 1961 maximum price at which any Cinema Carbons may be sold.2. The Cotton Textiles Clause 22. The Textile Commissioner (Control) Order, 1948. may specify; the maximum ex-factory price, wholesale and retail at which3. The Fertiliser Clause 3. The Central Government may.... (Control) Order, 1955 fix the maximum prices or rates at which any fertiliser may be sold by a dealer...4. Iron & Steel Clause 15. The Controller may ...fix (Control) Order, 1956 the maximum prices at which any iron or steel may be sold.5. Cotton (Control) Clause 3. The Textile Commissioner Order, 1955.

may fix the maximum or minimum prices at which any cotton....6. The Jute (Licensing Clause 8. the Jute Commissioner may..

and Control) ..fix the maximum or the minimum Order, 1961.

prices at which ...7. The Colliery (Control) Clause 4. The Central Government may Order, 1945.

fix the sale price or the maximum or the minimum sale price or both8. Coconut Husk (Control) Clause 10. The Licensing authority Order, 1973.

may... fix the price The language of a particular notification cannot be interpreted in the light of the language of another notification unless the context and language are identical. The concept of "declaration of sale price" or "printed price" which are integral to the exemption notifications under consideration have no place in the notifications under the Essential Commodities Act, 1948 which contain only the words "price" or "maximum price at which the particular commodity" may be sold. The words contained in the exemption notifications under consideration refer to the maximum price at which the packages may be sold in accordance with the declaration in print contained in the package, which words are foreign to the scope of the price control notifications. Hence the language of these notifications can have no relevance in understanding the language of the exemption notifications under consideration.

30. Learned Counsel also referred to proviso (ii) to Section 4(l)(a) of the Central Excise Act, 1944 to compare the language of the proviso with that of the exemption notifications. Proviso (ii) to Section 4(l)(a) of the Act reads as follows :- "Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof." It is pointed out that the proviso contemplates a situation where price or maximum price is fixed under any law for the time being in force and the assessee sells the goods at such price. If both these circumstances exist, the price or the maximum price shall be deemed to be the normal price thereof in relation to the goods so sold. The price fixed shall be deemed to be the normal price of any goods only if the particular goods are sold at such price. The attempt is to contrast the language of the proviso with the language of the definition of "sale price" in Explanation (4) to the exemption notifications under consideration. It is contended that the Explanation or any other provision of the exemption notifications do not require that the declared printed price shall be the "sale price" only if the goods are actually sold in retail to consumers at such price and in the absence of such a specific term, the "printed price" has to be accepted for the purpose of determining ASP and the slab of ASP and rate of duty under the exemption notifications. This contention ignores the true import of the words used in Explanation (4) to the notification, namely, "may be sold in accordance with the declaration in print contained in the package".

These words, in the context of the scheme of the exemption notifications have their own significance, as we have indicated earlier. The contention based on the language of proviso (ii) to Section 4(l)(a) of the Act is not acceptable.

31. A plain reading of the language of Explanation (4) containing the definition of "sale price" and the scheme of the notification clearly shows that the manufacturers of cigarettes are required to declare the correct price at which they expect or visualise the packages to be sold in retail to consumers; in other words, there must be an honest exercise by the manufacturers to determine the price which is to be declared and printed and the printed price must reflect such honest exercise. If it were not so, the notification will serve as premium for dishonesty and tax evasion. Retailer who sells the packages at a price in excess of the printed price, is liable for prosecution under the P.C. Rules. However, a manufacturer who so arranges his pricing strategy that a retailer cannot or may not or will not be in a position to sell the packages at a price equal to or less than the printed prices, cannot be dealt with under P.C. Rules since he does not violate the P.C. Rules in any manner. The intention of the Government, as is evident from the language of the notification, is not that the manufacturer should be in a position to evade a part of the correct duty payable under the notification. The terms of an exemption notification cannot be interpreted so as to promote evasion of duty, unless the language is clear and such an interpretation necessarily and logically flows from the language. We are not able to agree that the language of the notification is such that the interpretation sought to be placed on it by the assessee logically and definitely flows from it.

We therefore hold that while ordinarily the price printed on the package is to be taken into consideration for the purpose of determining sale price and the ASP, the Department is not precluded from going behind the printed prices in appropriate cases. It is not necessary for us to indicate exhaustively the various circumstances under which the Department can go behind the printed prices. Going by the allegations in the show cause notice, the ITC fixed effective prices at which retailers were expected to sell packages to consumers at a level higher than the printed prices and declared and printed prices at a level lower than such effective prices and circulated the higher prices to the trade channel and ensured that retailers sell the packages at such effective prices higher than the printed prices.

Alternatively, the show cause notice also alleged that at any rate ITC in the wake of the earliest of the exemption notifications brought about substantial change in the trade margins allowed at various levels and in particular the margins allowed to the retailers so as to bring down the trade margins allowed to the retailers to a negligible level, and visualised or envisaged or expected retailers to sell the packages at effective prices substantially higher than the printed prices as also circulated such higher prices. In other words, trade margins were squeezed to such an extent that retailers could not reasonably be expected to sell the packages at the printed prices and necessarily would sell the packages at prices higher than the printed prices, thereby rendering the printed prices ineffective, while at the same time the manufacturer took advantage of the duty structure based on the lower printed prices. Both these formulations in the show cause notice would, in our view, be situations where going by the language of the notifications, it would be open to the Department to go behind the printed prices and find out the effective prices at which the retailers may sell the packages to consumers and treat such prices as the printed prices for the purpose of determining the slab applicable for the purpose of determining the rate of duty applicable.

32. We do not think that the above interpretation would amount to substitution of words of the notification, as contended by the Learned Counsel for the appellant. It is contended that such an interpretation would amount to substitution of the words "printed prices" by "effective prices", "prices fixed and circulated by the manufacturer" or "prices at which the manufacturer visualises or expects the retailers to sell packages to consumers". It is not a question of adding words or substitution of words. It is a question of finding out the true meaning of the language used. We have already indicated that the true meaning of the language used is that the sale price is the maximum retail price at which packages may be sold in conformity with the declared printed prices. Where the manufacturer does not expect or visualise that retailers may be in a position to sell packages at the printed price or visualises or expects that the retailer would be likely, on account of low margin allowed to him, to sell the package at a price higher than the printed price, "sale price" should be such higher visualised or expected price and not the lower printed price,.

We have already indicated that any other interpretation would lead to opening the floodgates for massive evasion of duty, which could not be the intention of the Government.

33. It is contended that the Adjudicating Authority was in error in holding that duty can be levied on the basis of maximum sale price printed on the packages only if the same is sold at that price. We quite appreciate the contention of the assessee that the manufacturer has limited or little control over the actions of the retailers who are, in the case of ITC, about a million in number and the assessee cannot be held responsible for the tendency of the retailers to charge higher than the printed prices so as to secure larger margin. We are also mindful of the situation in certain parts of the country where, it is said, there is a strong and effective Association of retailers which advises the retailers on the prices at which they may sell the packages to consumers. Learned Counsel for the assessee has drawn our attention to several documents showing that retailers of Bombay Region District West, Bangalore, etc. invariably sold the packages at prices higher than the printed prices as advised by the Association and did not stick even to the "effective price" allegedly fixed or visualised or expected by the ITC. These, in our opinion, are individual aberrations which are quite possible in a vast country like ours with a phenomenal number of retail outlets. In this sense, manufacturer cannot be held responsible for the aberrations of retailers. We are inclined to accept the contention of the assessee that it is not lawful or logical to go by actual price which a number of retailers may actually change the consumers. But this understanding of the notification cannot apply to a situation where the manufacturer by his deliberate actions or omissions constrains the retailers to sell the packages at prices higher than the printed prices. One such situation is where manufacturer drastically curtails the margin of retailers, as alleged in the present case. There is no dispute that prior to 1983, ITC visualised margin varying from 6 to 6.8% to retailers and with the coming into force of the earliest of notifications under consideration price strategy was so altered as to increase the margin of manufacturer, evidently to cover the larger duty incidence and squeeze the margin of retailers drastically bringing it down by stages to 10 Paise per thousand cigarettes. In these circumstances, it is logical to infer that drastic reduction in the margin allowed to retailers would have been made with a view to constrain the retailers to sell the packages at prices higher than the printed prices. If, as alleged by the Department, ITC visualized this situation and expected retailers to sell packages at prices higher than the printed prices, such higher prices cannot be regarded as due to the volition or aberrations of retailers but it must be regarded as entirely due to the actions of ITC and ITC must be bound by the consequences of their actions. In such circumstances, though it is not a question of determining the sale price or ASP on the basis of actual retail price, the average or, at any rate, the lowest actual price in the country could throw light on the price at which ITC visualized or expected retailers to sell the packages to the consumers. In this sense, actual prices may have relevance.

34. This interpretation, according to the Learned Counsel for the appellant, involves substitution of words of the notification. We have already indicated that there is no substitution of words as alleged. It is only a question of fully comprehending the language of the notification in the light of the scheme of the notification. The view we have taken of the intendment and import of the notifications is in accordance with the prima facie view expressed by the High Court of Calcutta in the Writ Petition filed by ITC challenging the show cause notice.

35. Under the P.C. Rules, the manufacturer of cigarettes to be sold in packages, is required to print the maximum price at which the packages are to be sold to consumers. The subject notifications were issued taking advantage of the requirements of P.C. Rules and postulating slabs based on ASP which, in turn, are based on the maximum price exclusive of local taxes, at which the packages may be sold in accordance with the printed declaration on the packages. If the manufacturer of cigarettes packs cigarettes in numbers as contemplated in the notifications and the packages contain declaration in print of the maximum retail price, exclusive of local taxes and as contemplated in the later notification the design of the packages is approved by the designated authority, the packages attract the operation of the notifications. The ASP relating to each brand of cigarettes has to be reckoned as per the prescribed formula and the appropriate slab of ASP determined. The rate of duty appropriate to the slab so determined will be the effective duty payable. "Sale price" is the maximum price exclusive of local taxes at which the packages may be sold in accordance with the printed declaration on the packages. This declared printed price is referred to in the show cause notice and the impugned order as the "printed price". We have indicated that on the plain language of the notifications the manufacturer is not at liberty to print any price of his choice irrespective of real commercial considerations so as to fit any particular brand of cigarettes in a lower slab so as to evade a part of duty otherwise payable under the notification. What is the duty of the manufacturer under the notifications? The duty is to determine the price structure based on genuine and real commercial considerations. The manufacturer will naturally work out the cost of raw materials, manufacturing cost, cost of distribution, margins due to WDs, SWDs and retailers and excise duty payable. It is on taking into consideration all these relevant factors that the manufacturer will arrive at maximum sale price exclusive of local taxes which is to be declared in-print on the packages. Where the maximum retail price exclusive of local taxes is printed on the packages, under the P.C. Rules any retailer who sells the packages at any higher price renders himself liable for prosecution and punishment.

The basis of the subject notifications is that the manufacturer determines the price to be printed in a proper and honest manner. This, of course, has to be done after taking into consideration relevant commercial considerations and trade practices. The printed price must be such that the packages may be sold in accordance with such price. If there is a misdeclaration of price by printing a price at such a level that the packages will not or cannot or may not be sold at the printed price, such price cannot be accepted as the "sale price" for the purpose of the Explanation (4). If there is a proper and honest estimate of the maximum retail price after taking into consideration all relevant commercial considerations and trade margins, and the same is declared and printed, such printed price has to be accepted as the maximum retail price exclusive of local taxes at which the packages may be sold in accordance with the printed declaration. If the printed price is such that the packages may not be sold at any such price, it cannot be accepted as the "sale price" under Explanation (4) on the basis of which ASP and slab applicable can be determined. If the manufacturer has fixed or visualised a different price higher than the printed price at which the packages may be sold in retail, such higher price should have been declared in print on the packages; in other words, such higher price has to be taken to be the declared price and ASP and slab determined on that basis. Any other construction would, as indicated by the High Court of Calcutta, lead to absurd results and in our opinion go against the plain tenor, language and scheme of the notifications. We are quite conscious of the tendency on the part of a section of retailers to try to sell the packages at prices higher than the printed prices. Such conduct on the part of the retailers cannot affect the slab or duty liability of the manufacturer, if he has made an honest estimate of the "sale price" and declared such 'safe price' on the packages. If the manufacturer actually fixed a higher effective price or visualised or expected the retailers generally to sell the packages at a higher price even while printing a lower printed price, that will be a fraudulent attempt to evade duty legitimately payable under the notifications. Any interpretation which facilitates such fraud, even if it is a possible interpretation, cannot be accepted. The interpretation which discourages perpetration of such fraud has to be preferred. Effective duty has to be worked out on the basis of the "sale price" which should legitimately and reasonably have been declared in print. To this extent and in this manner, printed price is open to scrutiny and correction and the excise authority is entitled to subject the same to scrutiny and correction.

36. Learned Counsel for the appellants contended that if the declared printed price is not to be acted upon, the notifications will cease to apply and the effective duty under the notifications will not apply and duty will be payable at the tariff rate. The show cause notices and the corrigendum proceeded in denial of the validity or acceptability of the price declared and printed by the manufacturers in these cases and therefore no demand could have been made of differential duty at the effective rate of duty under the notifications and demand should have been made of differential duty based on tariff rate of duty. Since notifications will not apply and show cause notices and corrigendum are not based on tariff rate of duty the demand must wholly fail. We are not able to agree with the submission. The manufacturers in this case attracted the application of the notifications by manufacturing cigarettes in packages as contemplated in the notifications. The show cause notice and the demand was under the notification. At no stage prior to the show cause notice had the appellants taken the stand that they were governed by the tariff rate of duty. The contention that the notifications will not apply in view of the alleged misdeclaration of printed price by the appellants will, if accepted, and under the circumstances amount to allowing the wrong-doer to take advantage of his own wrong and such a consequence cannot be allowed to pass muster.

Points (ii) to (v) are held against the appellants.

37. Point No. (vi) : It is further pointed out that the department has no case that sale had been made to retailers at prices higher than the respective declared printed prices and there is evidence to show that since coming into force of the earliest of the subject notifications, the margins of the retailers had been reduced to 10 Paise for 1000 cigarettes. In other words, during the subject period, the retailers were enjoying some margin, however small it was and therefore it was not a case where it would not have been possible for the retailers to sell the packages at the printed prices or the packages were not capable of being sold at the printed prices. If the retailers sold the packages at higher prices, the manufacturers cannot be held responsible. This is not an aspect arising on the interpretation of the notification; it is an aspect arising on the factual situation. Since Learned Counsel has urged this contention in the course of his submissions regarding the interpretation and scope of the notifications, we will consider the same at this stage.

38. The contention of the appellants is that there is only one situation where the retailers can be effectively prevented from selling the packages at prices equal to or less than the declared printed prices and that is where the pricing strategy is adopted in such a manner that the packages are sold to retailers at prices equal to or more than the printed prices. Only in such a case, it is argued, that it can be said that the sale price declared and printed on the packages is a price at which the packages may not be sold in accordance with the declaration. It is admitted by both sides that prior to the earliest of the subject notifications, the pricing strategy adopted by the ITC was such as to allow Retailers a margin ranging from 6% to 6.8% of the printed prices in respect of various brands of cigarettes. It is also admitted that ever since the earliest of the subject notifications, the pricing strategy was so altered as to leave a higher margin to the manufacturer and to squeeze the margin of retailers in stages to 10 Paise per 1000 cigarettes. This has to be appreciated in the light of the circumstance that the printed prices of various brands ranged from Rs. 1.10 to Rs. 16.00 per packet of ten cigarettes and the margin was 6.6 paise to Re. 1 per package of 10 cigarettes. Taking the minimum printed price of Rs. 1.70 per packet of ten cigarettes, margins of 10 Paise per 1000 cigarettes will work out to 0.01 Paise per packet of ten cigarettes, which is practically nothing. The question whether printed price is one at which the package can be sold in accordance with the declaration is a matter which has to be considered not in the light of physical possibilities but in the light of commercial viability and trade practices. Learned Counsel for the appellant has two contentions in this behalf. One is that the restriction of maximum price applies only to packages and not to loose sticks. According to appellants 70% of sales by the retailers are in the form of loose sticks and only 30% of the sales are in packages. But A. 26 shows it is exactly the contrary. It is contended, the absence of profit in sale of packages can be made up by the higher profit generated in the sale of sticks. It is pointed out that when sticks are sold, the tendency is to sell at a rounded off price, say 20 Paise, 25 Paise, 30 Paise, 35 Paise and the like. If the printed price of a package of 10 cigarettes is Rs. 1.70, stick will be ordinarily sold at 20 Paise, thereby earning Rs. 2 per packet which will mean a margin of 30 Paise per package. It is contended that local taxes are paid not by the retailers but by the wholesalers and local taxes such as octroi need be paid only once and it is open to the retailers to collect local taxes from the consumers in addition to the printed prices.

39. Let us look at the matter from the perspective of commercial considerations. Retailers were getting margins ranging from 6% to 6.8% on the printed prices prior to the earliest of the notifications. The margin was squeezed to 10 Paise per 1000 cigarettes. Even assuming that retailers are dealing in other products in their outlets and should not mind absence of profit, it is not commercially reasonable to expect the retailers to sell any product at no profit or even at a marginal loss.

Retailers are there to earn profit as much as the manufacturers of cigarettes are there to earn profit. From the point of view of commercial considerations, it has to be accepted that from the manufacturer to retailer down the line, everyone will be expecting a reasonable profit. The retailers who also are justified in expecting a reasonable profit may not find it possible to sell the cigarette packages at the printed prices if their margin is to be restricted to 10 Paise per thousand cigarettes. We are therefore not able to agree that if any sale is made to retailer at a price equal to or slightly lower than the printed price, it must be possible for the retailer to sell the packages at the printed price or that the packages are capable of being sold at that price.

40. Point No. (vii): Learned Counsel for the appellants referred to the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (for short, P.C. Rules) framed under Section 83 of the Standards of Weights and Measures Act, 1976 (Central Act 60 of 1976)). Rule 2(v) of the P.C. Rules defines "retail sale price" as maximum price at which the commodity in packaged form may be sold to the consumer, inclusive of all taxes, transport charges and other charges. "Sale price" is defined in Rule 2(s) as price inclusive of freight but exclusive of local taxes. Where such price is mentioned on the packages, the words "maximum price--------local taxes extra" or "maximum retail price" as the case may be should be printed on the packages. Explanation I to Rule 2(s) indicates that prices specified in this clause shall be inclusive of other taxes, commissions to dealers, charges for advertisement, delivery, packing, forwarding and the like. Rule 6 requires plain and conspicuous declaration to be made on every package as to the unit sale price if the retail sale price is mentioned on the package or the sale price of the package, and certain other particulars. Rule 23 as amended in 1992 bars manufacturers, packers, wholesale dealers and -etail dealers from selling any commodity in packaged form unless the package complies in all respects with the provisions of Central Act 60 of 1976 and Rules. Retail dealers and other persons are barred from making any retail sale of any commodity in packaged form at a price exceeding the retail price thereof.

Manufacturers, packers and wholesale dealers are also barred from making any sale at a price exceeding the retail sale price. A sale by a wholesale dealer to a retail dealer or other person would be a "retail sale". Under Rule 39, any person contravening Rule 6 shall be liable to punishment of fine which may extend to Rs. 2000. Contravention of Rules in any other manner is punishable with fine which may extend to Rs. 2000. It is contended that P.C. Rules prohibit retail sale to consumer at a price in excess of the "maximum price" or "maximum retail price" and impose no restriction on the manufacturers in determining such price. We do not think that P.C. Rules have any particular bearing on the interpretation of the exemption notifications under consideration except that these notifications devised a scheme of exemption taking advantage of the scheme of the P.C. Rules in force and the fact that cigarettes are sold in packages and therefore are governed by the P.C.Rules.

41. Point No. (viii): It is contended that since sale of a package at a price higher than the declared printed price is a penal offence under the P.C. Rules, it is not open to a retailer to lawfully sell the package at such higher price and a price which is unlawful cannot be regarded as a price at which goods may be sold within the meaning of Explanation (4) of the exemption notification. Learned Counsel for the appellants relied on certain decisions of the Supreme Court in support of this contention. Some of these decisions arose in respect of the provisions of Municipal Acts of various States which defined "annual value" for the purpose of determining the building tax, as gross annual rent at which the building may reasonably be expected to let from year to year subject to certain specified deductions. One decision arose under the provisions of Punjab Municipal Act and another under Delhi Municipal Corporation Act, both being governed by rent control statutes which contemplated fixation of standard rent in accordance with prescribed formula and precluded the landlord from collecting anything in excess of such standard rent. Reference is made to the decision in Dezvan Daulat Rai Kapoor and Ors. v. NDMC - 1980 (2) SCR 607, which referred to a large number of earlier decisions and was followed in Dr.

Balbir Singh and Ors. . v. Municipal Corporation of Delhi - 1985 (2) SCR 439. The question arose whether annual value for the purpose of Municipal Acts can be fixed at an amount in excess of the standard rent which could be fixed under the Rent Control Act. The Supreme Court has consistently held that the annual value of a building governed by the Rent Control Act is limited by the measure of standard rent determinable by that Act as the landlord cannot reasonably be expected to get more than the standard rent payable and where standard rent has not been fixed by the Rent Controller, the assessing authority under the Municipal legislation has to arrive at his own figure of the standard rent by applying the principles prescribed in the Rent Control legislation for determination of standard rent as part of the process of assessment. This would be the position even if the tenant would, on account of bar of limitation, be precluded from making an application for fixation of standard rent. The decision proceeded on the basis that the norm of reasonableness in regard to the rent payable is prescribed in the Rent Control legislation and any re. which exceeds this norm of reasonableness is regarded by the legislature unreasonable or excessive. The same principles would apply where premises are occupied by the owner himself and not let out to a tenant. Reference is also made to the decision in Sheila Kaushik v. CIT, Delhi -1981 (31) ITR 435 (SC) where "annual value" of house property liable to be charged as income from property under the Income-tax Act is defined as the sum for which the property might reasonably be expected to let and the Supreme Court following Dewan Danlat Rai Kapoor (supra) held that even if standard rent has not been fixed by the Rent Controller under the relevant Rent Act and the period of limitation for making an application for fixation of standard rent has expired, the "annual value" must be held to be the standard rent determinable under the Rent Act and not the actual rent received by the owner.

42. The contention is that it would be unlawful for a retailer to sell the package of cigarettes to consumers at a price higher than the declared printed price and therefore such a price must be regarded as unreasonable or unlawful and such unreasonable or unlawful price cannot be the basis for determination of the slab or quantum of duty under the exemption notifications. We do not think that the decisions relied upon support the broad proposition canvassed before us. The provisions in the various Municipal Acts define "annual value" as the sum for which the property might reasonably be expected to let. What the legislature itself prescribed as standard rent should be regarded as "reasonable rent". The question of reasonableness or lawfulness does not enter the picture so far as exemption notifications are concerned. Explanation (4) to notification speaks of maximum price at which the package may be sold in accordance with the declaration. Unlike in the case of Rent Control legislation, there is no statutory printed price, nor is there any price which is required to be fixed on the basis of any statutory formula. The act of retailer in selling the packages at a price in excess of the printed price may render him liable for prosecution but that will not render the price at which package is sold unlawful by itself. Acceptance of this contention would put a premium on tax evasion, since in a case where manufacturer so regulates the price structure and squeezes the margin of the Retailer to such an extent that the Retailer is constrained to sell the packages at a price higher than the printed price, the retailer can be punished and the manufacturer is allowed to escape by payment of lesser duty than the duty which would have been payable had the proper price been declared and printed on the package. In circumstances, we do not accept the contention as valid. The point answered accordingly.

43. Point No. (ix) : Learned Counsel for the appellants contended in relation to Notification No. 201/85, as amended by Notification No.210/85, which covers the bulk of the period involved in the present demand, that if the printed price is to be ignored and the so-called effective price is to be treated as printed price, the slab system is unworkable. The slab and the rate of duty under this notification are as follows :-________________________________________________________________Description Rate of duty per 1000 Cigarette's________________________________________________________________ (1) (2)________________________________________________________________Packages of cigarettes(i) does not exceed Rs. 60 Rs. 42 per 1000(ii)is between Rs. 61 and Rs. 170 Rs. 125 per 1000(iii)is between Rs. 171 and Rs. 300 Rs. 225 per 1000(iv) is between Rs. 301 and 550 Rs. 400 per 1000(v) exceeds Rs. 550 Rs. 600 per 1000________________________________________________________________ 44. The slab and duty structure are stated to be unworkable. Learned Counsel for the appellant has illustrated the above with the following diagram:Effective price Rs. 3.50 ------------------------------|Printed price Rs. 3.00 ----------------| |Duty Printed price | |per packet Duty Printed Price | 225 300 350 Duty 400 It is explained that if slab is determined on the printed price of Rs. 3 /-, the duty is Rs. 2.25 leaving a surplus of 75 Paise which will be sufficient to cover the cost of raw materials, manufacturing cost, distribution and other expenses, profit margin of the manufacturer and chain of dealers but this will not be so if the so-called effective price of Rs. 3.50 is treated as the printed price of the purpose of determination of slab in which case the duty itself will be Rs. 4 per packet. Similarly, it is pointed out that if the printed price is Rs. 1.55 as against the so-called effective price of Rs. 2, the duty based on the printed price will be Rs. 1.25 per package and the duty based on the so-called effective price would be Rs. 2.25. According to the Learned Counsel representing Revenue, total margin in the case where the printed price is shown as Rs. 1.55, is 30 Paise, and if the effective price is to be the basis for determining the slab, the manufacturer has to print the price as Rs. 2.55, that is duty of Rs. 2.25 and margin of 30 Paise, in which case there is no change of slab.

This, according to the appellants, may not the feasible commercially.

Learned Counsel for Revenue further pointed out that this kind of difficulty will be faced not merely by the manufacturer in the present case but by all manufacturers of cigarettes and therefore no particular manufacturer can gain any advantage. According to the learned Counsel for the appellants, cigarette market is highly competitive and every manufacturer tries to increase his volume at the expense of rivals and even slightest disproportionality in price can cause serious injury to the volume.

45. In Century Manufacturing Co. Ltd. - 1992 (60) E.L.T. 3 (SC), the Court had to deal with the jurisdiction of the Government under Section 3 of the C.E. Act in prescribing tariff value. The Court pointed out that specific rates under Section 3(1) of the Act need not have any relation to manufacturing cost and profit and Section 3(2) is a general provision which gives full liberty to Central Government to determine the value in cases where the First Schedule prescribed an ad valorem levy. Section 4 does not control or limit the power of the Government to fix rates under Section 3(2). Discretion has to be exercised in accordance with the guidelines inbuilt in the Statute and value may be derived with reference to the wholesale price, retail price or the average price or even by the price at which the goods are sold by any particular person or at any particular place or at the highest of such prices and the fact that the weighted average exceeds the manufacturing cost and profit of a particular manufacturer is no reason for doubting its validity. The purpose of Section 3(2) is to enable the Revenue to free itself from the shackles of Section 4, inter alia, in cases where the Government feels that the application of that section would lead to difficulties and harassment. The Central Government has the undoubted power to enhance the rates and the validity of a notification having such an effect is not open to challenge even if it is done under the guise of fixing a tariff value. In Pankaj Jain Agencies - 1994 (72) E.L.T. 805 (SC), dealing with sharp increase in tariff rate of duty, the Supreme Court observed that mere excessiveness of tax is not by itself violative of Article 19(l)(g). Learned Counsel for the appellants in another context referred to a few decisions to contend for the proposition that freak cases cannot be the basis for testing validity of law. See Goodrike Group Ltd. - JT1994 (7) SC 577. Learned Counsel also referred to the decision in Smith v. East Ellen Rural District Council 1956 - All. E.R. 855 for the proposition that even if the clear language of a statute leads to strange results, that has to be accepted and the Court cannot add words to the statute to change the result. In Smt. Sita Devi v. State of Bihar JT -1995 (1) SC 411, it was noticed that the clear language of Bihar Agricultural Produce Markets Act, 1960 showed that "agricultural produce" includes product of animal husbandry. It was held that the absurdity or irrationality of bringing the enumerated items of agricultural produce within the sweep of the legislation is not a principle of interpretation of the statute and the Court cannot strike down the Act on that basis.

46. It may be as suggested by the Learned Counsel for the appellants that for some of the numerous brands belonging to ITC, alleged effective prices or the prices allegedly fixed or visualized or expected by ITC are more than the printed prices and the higher prices lead to next higher slab prescribing rate of duty higher than the printed price or the wholesale price. We do not think this should weigh with us in interpreting the notification in a correct manner. Printed price is one chosen by the manufacturer and when the manufacturer chooses a particular printed price at a particular level, he does so after taking into consideration all factors and risks. It is for the manufacturer to modulate the manufacturing activity and the pricing strategy in such a manner as to avoid such adverse consequences. We hold that the alleged unworkability which may be brought about by this interpretation cannot affect the tenability of interpretation which we are placed on the notification.

47. Point No. (x) and (xi) : It is contended for the appellant that the notifications do not contain any guidelines for quantification of maximum retail price by the manufacturer and do not contemplate approval of the declared printed price by any governmental authority and therefore it must follow that the department is not enabled to go behind the maximum retail price printed by the manufacturer. It is true that notifications do not contain any express guidelines governing the quantification of maximum retail price. However, we have indicated that the scheme and language of the notifications do not enable any manufacturer of cigarettes to declare and print any price. The price declared and printed must be a price at which it may be sold in accordance with the declaration in print made on the packages as seen from the definition of "sale price" contained in Explanation 4 to the notifications. The words "the maximum price...at which such package may be sold in accordance with the declaration made, in print..." clearly spell out the guidelines, namely that it must be a price determined honestly on the basis of relevant commercial considerations and market conditions and not a mere pretence. A price determined ignoring market conditions or commercial considerations cannot be regarded as the price at which the package may be sold in accordance with the declaration in print; such a price is only a pretence and does not reflect reality.

Notification No. 210/85 introduced certain changes in Notification No.201/85. Explanation 2 was amended introducing the concept of approval of surface design by the Director (Audit) in the Directorate of Inspection and Audit. "Design" includes elements such as Colour, Typography, illustration and layout or combination in any form, style or manner or any of these elements, but does not include the declaration relating to sale price. The Director (Audit) shall not refuse approval of any surface design unless he is satisfied that such surface design is deceptively similar to any other surface design approved under the notification. The approval given shall be subject to the condition that the package with such surface design shall not be used for packaging of cigarettes bearing declarations of different sale prices. On the breach of this condition, the approval granted shall cease to be operative. "Surface design" shall mean the design on the surface of the package visible to a person seeing the package. If a surface design so nearly resembles another surface design, it shall be deemed to be deceptively similar to it. The concept of approval of surface design was introduced mainly to prevent different brands of deceptively similar packages with different levels of printed prices resulting in smokers being deceived into purchasing a lower priced package as such an exercise may have revenue implications in absolute terms. Care has been taken to make it clear that the requirement of approval did not apply to printed price. Appellants have placed before us a copy of CBEC circular dated 29-10-1986. The circular directs that the specimens of all wrappers, labels relating to cigarettes shall be submitted to the Collector for his approval and the manufacturers should declare before the Collector the sale prices of all brands of cigarettes as per Notification No. 201 /85 and these prices have to be verified by the Collectors concerned before the clearances of approved brands of cigarettes are allowed. Collectorate Trade Notice No. 185/85 dated 25-9-1985 required manufacturers of cigarettes to submit declaration showing particulars of all brands and also declaration of sale prices of cigarettes to be sold to consumers for approval of prices by the Collector. The trade notice also contained the proforma of the declaration of sale price. The verification contemplated in the Board circular was of a limited nature. The Collector has to verify the correctness of the retail price declared on the package with reference to retail sale price mentioned in the declaration submitted to the Collector. The approval contemplated was of this limited nature.

Approval of printed price after examining the cost data and market considerations would be a very complicated and time-consuming impractical exercise and such a requirement was rightly not provided for. This does not and cannot mean that licence was conferred on the manufacturers to print any price of their choice, ignoring commercial considerations and market realities. No inference as suggested by the appellants can be drawn from the circumstances referred to above.

Points answered accordingly.

48. Point No. (xii) : According to the appellants the adjudicating authority held that "actual prices" were required to be printed on the packages. It is also urged that this is the contention raised by Revenue before us. We have been taken through different portions of the impugned order. We do not understand the adjudicating authority as having held that the manufacturer should find out the "actual prices" and print the same on the packages. The adjudicating authority has held that the price at which package of cigarettes may be sold in accordance with the declaration is the effective price prevailing in the market.

This formulation has been supported by the Learned Counsel for Revenue.

We see a difference between the two formulations. It is contended for the appellants that it is impossible to print the "actual" or "prevailing" price on the packages. Prevailing on what date? Manufacture of cigarettes takes place continuously on all days or in all periods. Similarly, manufacture of packages takes place continuously, directly or through job workers or others. Clearances take place on all days or in all periods. These packages reach the retail market after an interval of time, however short it may be. The question posed by the appellants is, the actual or prevailing price on what day or date is to be declared and printed on the packages? Learned Counsel for Revenue said that relevant date is the date of clearance.

This, it appears to us, is not a practical proposition.

49. The price or prices at which retailers actually sell the packages to smokers are dependent on several factors such as - (c) commercial considerations such as availability of a particular brand of cigarettes and degree of competition offered by competing brands and the retail prices of brands of competitors etc.

(e) Nature of business carried on by the retailers, namely turn-over oriented or high profit oriented.

(g) Intervention of Association of retailers as seen from the evidence available of such associations in Bangalore and Bombay circulating retail price lists of their own creation.

Many of the above are within the control of the manufacturer, though a few are outside their control. IMRB is a research organisation which has been carrying out price studies for ITC. Copies of such studies for several periods have been produced before us. These studies show that different retail prices prevail in different areas. In other words, the actual price prevailing all over the country is not the same. In the light of the scheme and language of the notifications and the factors highlighted above, the view that the manufacturers are required to declare and print "actual prices" prevailing in the market on any particular day is not sound. We have indicated earlier that it is unnecessary to set out exhaustively all situations covered by the definition of "sale price" in the notifications. We have also indicated that the situations referred to in the show cause notice, namely the manufacturer fixing higher retail price and circulating the same to the trade chain or visualising or expecting retailers to sell packages at prices higher than the printed prices are situations where it can be held that such higher prices are prices at which the packages may be sold and such higher prices should have been printed on the packages, in which case such prices are prices at which the packages may be sold in accordance with the declaration in print made on the packages. But it is reasonable to hold the manufacturers are not required to declare or print "actual prices" prevailing on any particular day. This however does not mean that "actual prices" or "prevailing prices" have no relevance in the context under consideration. If there is acceptable evidence to show that a manufacturer has fixed prices (higher than printed prices) and circulated such prices to the trade chain or the retailers, there can be no doubt that the lower prices actually printed are only pretended prices and are unacceptable and the manufacturer who fixed higher retail prices and circulated them to the trade chain should have declared and printed on the packages such higher prices and appropriate slabs have to be decided on the basis of such higher prices. In our opinion, the same result should follow where retail prices were not fixed and circulated, but "visualised" or "expected" or envisaged. The scheme and language of the notifications require the manufacturer to declare and print prices at which they "visualise" or "expect" the packages may be sold in retail to smokers and slab applicable has to be determined on the basis of such "visualised" prices and not on the basis of lower prices actually declared and printed which are unreal and pretended prices. But in considering the quantum of such visualised prices, actual prices may have some relevance. "Actual prices", as we have seen, depend on factors partly within the control of the manufacturers and partly beyond their control. Even the factors which are out of the control of the manufacturers may be within the knowledge of the manufacturers. Market conditions and tendency of retailers to overcharge would be within the knowledge of the manufacturers, though local coin shortage and exact prices which some retailers' association prescribe may or may not be within the knowledge of the manufacturers. Visualisation and expectation, if any, by the manufacturers would take into consideration all factors within their knowledge and such visualized prices should be declared and printed on the packages and such prices have to be regarded as prices at which the packages may be sold in accordance with the declaration printed on the packages. The actual or prevailing prices in a region or during a time frame may have some relevance in determining the "visualized price" or "expected price" if direct evidence of the latter is not available. The prices visualized or expected during a time frame will be the basis for working out the duty liability under the notifications. Point answered accordingly.

50. Point No. (xiii) : Learned Counsel for the appellant has placed reliance on Section 4A of the Act, incorporated in 1997. The provision enables the Government, in case of goods requiring declaration on the package of the retail price under the provisions of Standards of Weights and Measures Act, 1976 or the P.C. Rules, to specify any such goods. If the goods are chargeable to duty with reference to value, the value shall be deemed to be the retail sale price less such amount of abatement, if any, as the Central Government may by notification allow.

According to Explanation I retail sale price is the maximum price at which excisable goods in package form may be sold to the ultimate consumers and includes all taxes local or otherwise, freight, transport charges, commission payable to dealers, charges towards advertisement, delivery, packing, forwarding etc. Where more than one retail price is declared, the maximum of such retail prices shall be deemed to be the retail price for the purpose of the section. We do not think the provisions of Section 4A can throw any light on the understanding of the subject notifications; that is because the scheme of Section 4A is quite different from the scheme of the notifications. Section 4A rests on 'assessable value' though the formula adopted for arriving at such assessable value is quite different from the one adopted in Section 4 of the Act. To avoid disputes, as far as possible, retail sale price is taken as the starting point and assessable value is to be arrived at by working backwards by abatement of appropriate elements. This is quite foreign to the scheme of the notifications, according to which duty is not to be with reference to value but on the number of cigarettes and only slab depends on ASP. Therefore, Section 4A cannot help in arriving at a correct understanding of the notifications. Point answered accordingly.

51. Point No. (xiv) : Learned Counsel for the appellants strenuously contended that the basis of the show cause notice is only fixing of effective price to consumers and circulation of the same to the trade chain by ITC but the impugned order is based not on any such fixed or circulated price but on the price which should have been printed being prices prevailing in retail market and visualized by ITC. Since the basis of the order, it is contended, is quite different from and contrary to the basis of the show cause notice, the impugned order and the confirmation of demand made thereunder cannot stand.

52. We have carefully analysed the averments in the show cause notice as well as corrigendum notice". In paragraph 4.2 of the notice, it was alleged that ITC consciously and deliberately ensured that actual retail prices of some of their brands were higher than the declared and printed sale prices and for ensuring sales at such higher prices, ITC circulated clandestinely effective prices to be adopted by the sale chain from time to time and declared printed prices were false made deliberately with the ulterior motive of availing benefit of lower rates of duties. It was also alleged that while printing sale prices, ITC expected sale at prices higher than the printed prices and that the pricing strategy of ITC visualized effective prices higher than the printed prices. In paragraph 4.4 it was alleged that seized documents give particulars of the higher effective prices fixed by ITC from time to time. These prices were circulated within ITC's marketing formations and the trade chain for compliance. Paragraph 4.4 referred to documents evidencing "dual pricing" adopted by ITC and circulation of effective prices to the trade. It was alleged in paragraph 4.5 that trade margins at various levels were fixed and monitored by ITC. It was alleged in paragraph 4.7 that the documents seized showed pricing strategy adopted by ITC visualized that higher effective prices should prevail. The documents evidenced intention to keep effective prices at desired level in comparison with the effective prices of competitors. For analysis of sales on the basis of price categories and estimation of consumer spending, effective prices have been used and not printed prices and such higher effective prices would accurately reflect the prices which retailer may be expected to charge normally. ITC operated on the basis that effective prices will be higher than printed prices. It was alleged in paragraph 5.1 that ITC envisaged effective prices besides printed prices while planning new brands at higher price level and prepared Action Plan indicating only effective prices for certain brands, with the first objective of establishing brands at the new prices with minimal loss in value. Effective prices were generally conveyed down the line through unsigned slips or letters or through word of mouth. ITC field officers submitted launch reports indicating effective prices which were seen by ITC Board and Members. ITC officials with the assistance of staff of wholesale dealers undertook the launching of certain brands in certain areas and on some occasions cigarettes were sold from the floats at effective prices higher than printed prices. It was alleged in paragraph 5.2 that trade prices and trade margins at various levels like Wholesale Dealers, secondary wholesale dealers and Retailers were so fixed and varied that retailers had to sell at higher effective prices fixed by ITC in order to remain in business and to earn reasonable return. ITC carried out market operations in order to stabilise cigarette prices at the desired level of effective prices. Prices and margins were circulated on the basis of formula adopted by Head Office and field officers implemented these prices at various levels. In paragraph 5.4 it was alleged that trade margin was a means used ruthlessly for enforcing effective prices in the market. Trade margins and in particular margins of retailers were brought down substantially after the budgetary changes in 1983, without changing unit prices. What SWDs and retailers lost, ITC gained, as can be seen from simultaneous upward revision of invoice prices. Reduction of margins of retailers led to enhancement of contribution for every 1000 cigarettes to ITC. In paragraph 6.1 it was alleged that ITC undertook market operations periodically to control abnormal swing in the prices to ensure that the prices remain close to the desired effective price level. In paragraph 6.2 it was alleged that ITC was giving price rebate to wholesale dealers to maintain the effective prices at a pre-determined level. Similarly special discount schemes to special customers were introduced which enabled retailers to conform to the printed prices. The scheme of positive and negative below the line adjustment (BTL) was devised to ensure sale at effective prices.

53. It was alleged in paragraph 5 of the corrigendum notice that effective prices have been arrived at on the basis of prices fixed by ITC and circulated from time to time. Reference was also made to documents evidencing such exercises.

54. The above averments in the show cause notice and the corrigendum notice would no doubt show that great emphasis was placed on the allegation that ITC fixed and circulated effective prices at levels higher than printed prices and ensured implementation of the same by the retailers at various levels. At the same time show cause notice does contain several averments to the effect that after the budgetary changes in 1983, ITC adopted a strategy of squeezing the margins of retailers to such an extent as to make them sell various cigarette packages at prices higher than printed prices, while at the same time increasing the contribution to ITC. Show cause notice referred to various documents to substantiate these averments. The notice also specifically stated that ITC visualized effective price higher than printed prices. It was also alleged that while printing such prices, ITC expected that cigarettes should sell at prices higher than printed prices and this strategy was adopted to secure the benefit of lower rates of duty and to defraud the Revenue of excise duty legitimately due to it. The corrigendum has to be read along with the show cause notice and on reading the material averments in both the notices it is clear that the case of the department rested not merely on the ground that ITC fixed and circulated effective prices but also on the ground that ITC visualized and expected sale by retailers of packages at effective prices higher than the printed prices. We are therefore not able to agree that on the failure of the department to prove that ITC fixed and circulated higher effective prices, the demand must fail. The demand can be supported by one of the other alternative formulations contained in the show cause notice. To what extent any of the alternative formulations has been established is a matter which requires consideration at the appropriate stage. The point answered accordingly.

55. Point Nos. (xv) & (xvi) : We now turn to the evidence relied on by the Department and accepted by the adjudicating authority in proof of the case set up by the Department in the show cause notice and corrigendum notice. The show cause notice did not furnish the basis for the demand of differential duty, apart from referring to various documents and furnishing copies of various documents. The basis of the demand was furnished in the corrigendum notice. The corrigendum notice refers to Annexure C to the show cause notice as containing the calculation of differential duty. The corrigendum notice was accompanied by a chart showing effective prices. This chart is seen referred to in the adjudication order as "DDC Chart". Copy of the chart is seen at pages 80 to 83 of Paper Book No. 3. This chart refers to the "effective prices" for various brands of cigarettes manufactured by ITC during the entire period of demand divided into 12 sub-periods (A to L). It is seen that in respect of some of the brands no effective prices were given during some of the periods. At the end of "DDC Chart" are remarks referring to the documents supporting quantification of effective prices for each of the periods. The documents are respectively A81(F), A81(A), A37(A), A83, A6 and A33, A8, A78, A16 and 17, A12, A10, A86, A85 and A23. Numbers of these documents are according to the serial numbers in Annexure A to the show cause notice which contains list of documents. Apart from these documents, copies of various other documents were also furnished to the appellants documents relied on by the Department. These documents are A23, A28, A29, A24, A19, A18, A72, A40, A70, A44, A4, A64, A65, A3, Al, A2, A10, A26, A41, A55(B), A19, A67, A20, A13, A55(A), A37(B), All (A79), A49, A21, A22, A25, A73, A27, A14, A80, A84, A74, A72, A30, A35, A88, A38, A35, A59, A61, A45, A51, A32, A36, A43, A43, A47, A48, A52, A53, A60, A63, A65, A68, A5, A81(B).

56. Learned Counsel for the appellants also referred to documents marked on behalf of ITC before the adjudicating authority in DAE and other series. Reliance was also placed in the course of arguments on statements of various persons recorded during investigation under Section 14 of the Central Excises Act, 1944 as also evidence given by various persons before the adjudicating authority. We will consider the various documents in the same order in which they were dealt with by the Learned Counsel for the appellants.

57. A81(F) is the document relied on in the "DDC Chart" for period 'A'.

A copy of the document is seen at page 168 of paper book no. 4A. A photocopy is at page 170. It was seized from M/s. Coronation Cigar Co., Bombay, a wholesale dealer of ITC. Shri A.P. Bilimoria is a partner of the wholesale dealer and signatory to A81(F). It is in two sheets of paper, one headed "post-budget" and the other headed "pre-budget". It refers to 18 brands of ITC cigarettes. Columns 1 to 7 in the first sheet refer to price to secondary wholesaler, secondary wholesaler's margin, price to retailers, retailers' margin, unit price, stick price and percentage of retailers' margin respectively. The second sheet refers to prices to secondary wholesaler, secondary wholesaler's margin, price to retailers, retailers' margin and unit price. The Adjudicating Authority has acted on this document though there is no discussion seen of the various contentions which may have been raised by ITC. It is pointed out that Section 14 statement of A.P. Bilimoria was recorded but not relied on in the show cause notice since he stated that he had collected information from his field staff and collated the same in A81(F). There is no dispute that the budget referred to in the document was 1983 Budget which led to the issue of the earliest subject notifications. A.P. Bilimoria explained the headings of various columns and stated that unit price referred to unit price charged by retailers and retailers' margin was calculated as per their price lists. When he was cross-examined for the appellants he stated that A81(F) was his document prepared as a result of survey conducted before and after 1983 and market price was shown as unit price. Market price varies from locality to locality. A81(F) shows average market price or the unit price. Unit prices were fixed neither by him nor by ITC. Actually these prices were fixed by Bombay Bidi Traders Association. He also stated that these prices may not necessarily be the same as actual prevailing prices. He referred to Exhibit DAE 191 seen at pages 22-27 (Book No.37) said to be a copy of A81(F) and stated that it was a field survey report and did not mention Association prices separately. What is seen mentioned is general price prevailing in the market as found by the field staff. He agreed that after the budget, invoice prices and retailers' margin came down because of change in excise duty pattern.

He made it clear that unit price referred to was not the printed price but the prevailing retailers' price to smokers which was above 15% more than printed price. He asserted that ITC circulated price lists containing only price to wholesale dealers and printed price and wholesalers in turn arrived at price to SWs and suggested retail price to smokers according to the situation. He said that A81(B) seen at 161 of Book No. 4A is one such price list. DAE 127-1 is ITC's official circular at pages 1122 to 1129 of Book No. 29. According to him, the WDs issue price list furnishing the price to SWDs and the suggested retail price to smokers based on their pricing logic and printed price.

He claimed that ITC never communicated to the trade effective prices higher than printed prices to be enforced in the market. According to him, A81(B) contains prices to retailers suggested by them to SWDs who were at liberty to follow the suggested prices or not and generally the suggested prices are followed by SWDs. After ITC declares printed prices, the WDs consult the Bombay branch office of ITC about intermediate prices and the latter suggest such prices which are not followed always. The WDs fix their own prices to SWDs. He referred to market survey reports (DAE 189,190) at pages 2225 and 2226 of paper book 37 which furnish the actual prices in three localities in Bombay and these prices are different. Learned Counsel referred to market information relating to Bombay and Himachal Pradesh at page 46 of Paper Book No. 8 which shows that actual prices to smokers in Bombay were higher than prices prevailing outside Bombay.

58. Learned Counsel for ITC referred to the oral evidence given by G.Agarwal, A. Gupta and S. Ahmed, WDs at Kharagpur, Ajmer and Roorkee respectively (at pages 13, 29 and 55 of Book No. 14) to the effect that ITC did not fix any price to be charged by retailers to smokers except the printed price and they had not received from ITC any document similar to A81(F). Reference is also made to oral evidence of four officers of ITC, namely, J. Narain (Director of ITC and Member, Marketing of ITD, (Indian Tobacco Division of ITC), who later became Chairman, ITD, A.C. Sarkar, (Market Research Manager, ITC), R. Noronha (Branch Manager, Ernakulam) and A. Dutt (Branch Manager, Bombay). J.Narain denied A81(F) to be an ITC document. Learned Counsel pointed out that the margins shown in A81(F) and A48 which gives "pricing logic" by ITC in 1983 are different and argued that the difference in margins would show that ITC was not fixing effective prices to retailers and difference in figures would not be present if ITC was fixing such prices and margins. It is contended that the adjudicating authority did not properly consider the above aspects which clearly show that prices and margins in A81(F) were not fixed or circulated by ITC.59. A81(F) bears the signature of a WD. There is no direct evidence to show that the prices and margins to SWD and retailers, unit price, stick price etc. shown therein had been fixed and circulated by ITC.There is the evidence of ITC Director that A81(F) is not an ITC document. This evidence has to be accepted in the absence of specific contra evidence. The more important question is what was the source of the prices and margins shown in A81(F). A.P. Bilimoria, gave contradictory evidence as to the source, namely, that his field staff collected the figures on market survey and the figures were those fixed by the retailers' association. He admitted that WDs fix prices to SWD and suggest retailers' prices to smokers and WDs consult Bombay Branch office of ITC about intermediate prices. If intermediate prices and unit price are known, obviously margins of SWD and retailers can be worked out. Unit prices shown in A81(F) were prices charged by the retailers to smokers and the same were about 15% higher than the printed price. Even going by the oral evidence of A.P. Bilimoria the intermediate prices were fixed by WDs after consulting ITC Branch Office. Having regard to common course of events, it is highly improbable that ITC would expect each branch office to make its own suggestions and without reference to any Policy devised by the Head Office. Accepting that the unit prices in A81(F) claimed to be observed market prices which are higher than the printed prices for the period are not proved to have been "fixed" and circulated by ITC, the necessary inference is that the intermediate prices and margins must have been suggested by the Bombay Branch of ITC only after knowing the wholesale price to WDs fixed by ITC and the prevailing unit prices (called effective prices in the show cause notice and the order). ITC witnesses (See S. Misra, Book No. 11, page 177) have explained that intermediate prices and margins are worked out on the basis of the available trade margin which, according to them, is the difference between the wholesale price to WD and the printed price. A81(F) refers not to printed price but unit price said to be prevailing price to smokers. It is clear that intermediate prices and margins shown in A81(F) were worked after knowing the available trade margin representing the difference between the prices to WD and the prevailing price to smokers. Even accepting that the exercise in A81(F) was made by WD it was made in consultation with Bombay office of ITC. ITC which arranges for market survey by IMRB would certainly be aware of prices to smokers prevailing from time to time. There is evidence that WDs of ITC have long standing relationship with ITC. Besides relying on IMRB reports, an organisation like ITC must also be expecting and requiring collection and transmission of information from WDs. A81(F) was prepared by a WD in consultation with the ITC Bombay office and with reference to the total available margin based on unit prices. That being so, it must follow that the suggestions of ITC Bombay office were also based on the higher prevailing prices. The system followed was such that WDs having long standing relationship with ITC adopt pricing logic based not on printed prices, but on higher prevailing prices. If ITC was adopting a system of determining total available margin based on lower printed prices, it cannot be that WDs adopted pricing logic based not on printed prices, but on higher prevailing prices. It is accepted that with the coming into force of the first of the subject notifications, ITC increased their margin and reduced the margin of retailers vis-a-vis the printed prices from 6.8% to absorb the higher duty liability and progressively increased their margin and reduced the retailers' margin vis-a-vis printed prices so as to bring it down to ten paise per 1000 cigarettes. It is not disputed that the natural tendency of retailers would be to sell the packages at prices higher than printed prices so as to maintain their pre-existing margin or so as to earn a reasonable margin. These circumstances clearly establish that these intermediary prices and unit prices higher than printed prices, had been visualized or envisaged or expected by ITC. In such circumstances ITC should have declared and printed such higher prices on the packages. The unit prices shown in A81(F) are prices in Bombay Region. We do not agree that the unit prices in A81(F) were those fixed by ITC; they were visualized or envisaged or expected by ITC.60. This document was seized from A.P. Bilimoria, WD, Bombay. Copy is seen at page 160 of Paper Book 4A. It mentions 1983 price of 37 brands of cigarettes of ITC. It mentions printed price, union price, stick price and the market price. The document contained the signature of A.P. Bilimoria. It is seen that lowest prices are the printed prices, the highest prices are the union prices and the market prices are in between the two prices. The finding of the Adjudicating Authority in regard to A81(A) is the same as that for A81(F). The contentions urged by the appellant in regard to this document are also similar to those urged in relation to A81(F). The author was not questioned about this document. Explanation given for this document was similar to the one he gave in respect of A81(F). This is seen at pages 24, 38 and 78 of Paper Book No. 12. Three other wholesale dealers, G. Agarwal, A. Gupta and S.Ahmed also gave general evidence as already indicated and as seen at pages 13, 30 and 55 of Paper Book No. 14. J. Narayan also gave similar evidence against the allegation of fixation of price by ITC at page 31 onwards of paper book No. 15.

61. No doubt A81(A) was authored by W.D. The document supports the contention of the appellants that retailers' union or association of Bombay was publishing a separate price list of its own, but then the document clearly shows that in respect of no brand was the market price equal to the union price. It was always less than union price and more than the printed price. The circumstances which weighed with us in recording a finding regarding A81(F) will mutatis mutandis, apply to A81(A) also. It must therefore follow that market prices shown in A81(A) though not fixed by ITC must necessarily have been visualised, envisaged or expected by ITC and that being so ITC should have declared and printed such higher prices in packages. We will separately consider whether ITC should have declared regional prevailing prices or All India average price. However, we do not agree that the prices shown as union price or market prices in this document were those fixed by ITC.62. This document was seized from the Bombay Branch of ITC. Genuineness of this document is not in dispute. A copy is seen at page 91 of Paper Book No. 4A. At the top are the following words :After 1st May 1983 Bombay Branch 21-6-1983A = Bombay City (Retailers Association -Maharashtra/Gujarat Markets, with 10% to 12% profit and 3% to 2% E.T.B = U/C Maharashtra/Gujarat Market with 15% The document mentions the price of 20 ITC brands separately in each of the regions A, B, C. Figures mentioned are the prices to WD, BTL (below the line), Margins to SWD, Price to Retailer, percentage of margin to retailers and unit price and stick price to smokers. Though A and B relate to Maharashtra including Bombay City and Gujarat the prices are different since the profit margin of retailers together with entry tax was more in 'B' than 'A'. Prices for all the three regions are given only in respect of two brands, namely, Capstan FTK and Combat. Prices in two regions are given only for two brands, namely, Chinar FTK and Scissors. It is observed that retailer's margin in 'B' was highest and that in 'C was lowest, margin in 'A' being the mean. There is no dispute that unit price to smokers shown in this document was higher than the corresponding printed price. To take an example, retailer gets India FTK package for Rs. 15.87, the printed price being Rs. 16 and the same was being sold to smokers at Rs. 18.50, Rs. 19 and Rs. 17.50 respectively in the three regions for package of 20 cigarettes.

Retailer's margin for this brand based on PP was Rs. 0.13 per packet and based on EP ranged from Rs. 1.63 to 3.13 per packet. Learned Counsel for the appellants pointed out that pre-1983 retailer's margin as seen at A46 (page 107 of the Paper Book 4A) ranged between 6% to 6.8% on the printed prices. Taking the example of India FTK, retailer's margin on printed prices was reduced from about rupee one per packet to 13 paise per packet. The adjudicating authority has held that the prices, margins and unit prices and stick prices to consumers were "visualised", "envisaged" and "fixed" by I.T.C.63. Learned Counsel for appellants contended that the prices and margins shown in A37(A) could not have been fixed by I.T.C. If I.T.C.had fixed them, mention would not have been made of profit as 10 to 12%. The period referred to as "After 1-5-1983" started earlier than the date of the document, namely, 21-6-1983. A37(A) contains two prices for (UC) Maharashtra/Gujarat and it is unlikely that I.T.C. would have fixed two sets of prices and margins for the same geographical area.

The show cause notice and the order proceeded on the basis of the lowest of A, B, C prices, that is, C prices. These prices have been adopted for period C for the whole country without any evidence of prices allegedly visualised, envisaged or fixed by I.T.C. for other regions. A37(A) does not purport to represent prices fixed for the whole country. Learned Counsel placed before us a chart for comparing the Goa prices in A37(A) and the lowest IMRB observed prices and the same are not uniform. It is argued that if I.T.C. fixed and implemented higher EPs, the actual prices reported by IMRB must be equal to the prices so fixed and the variance observed would not have been present.

A37(A) is a branch document and, it is contended, there is no evidence to show that it originated from or had the consent of the Head Office.

A37(A) takes into consideration 15% margin fixed by retailers' association and therefore, it is argued, the prices could not have been fixed by ITC. The same contention has been urged on the basis of the reference in A37(A) to "Markets with 10 to 12% profit" and "2% E.T." and "4 to 5% E.T.". The "unit prices" include profit of retailers and the element of entry tax and there was no entry tax in Goa. There are variations in percentages of profit indicated in the document, it is pointed out. It is also contended that higher EPs adversely affect volumes of sales and it will be against the interest of ITC to fix higher EPs which bring down volumes. Learned Counsel illustrated this with reference to the data seen at page 1249 of Paper Book No. 29 and page 12 of Paper Book No. 39 which show that for certain brands when price to smokers went up, volume of sales came down and at a particular level of increase in price, the volume of sales came down drastically and when the price was restored the volume of sales also increased. The margin of retailers shown in A37(A) ranges from 14.9% to 19.7% in region A, 18.3% to 22.8% in region B and 6.2% to 13.4% for region C, calculating percentages on the basis of unit prices (that is, higher effective prices) while the pre-1983 retailers' margins based on printed prices ranged from 6 to 6.8% for various brands. The effect of higher prices on volumes has been spoken to by J.N. Sapru, Chairman ITC (Book No. 19 pages 19, 66, 67, Book 11, pages 184 to 188), A.C. Sarkar (Book 19, pages 45 to 51). S.K. Mehta, Chairman, ITDB (Book No. 18, pages 16,17), R.S. Noranha (Book No. 13, pages 242) and N.K. Mukherjee (Book No. 13, pages 272,274). Cigarettes, it is said, are highly sensitive to prices and ITC would not deliberately increase prices to smokers as that will reduce volume of sales. All these submissions have been made by learned Counsel to establish that prices and margins shown in A37(A) are prices and margins observed in the market and not those fixed by ITC. It is pointed out that unit prices of a few brands noted in A37(A) for Goa are different from such prices noted in A81(E) at page 166 of Book No. 4A, a document seized from a WD of Goa. Reference is also made to the evidence of Venkat P. Lolinkar, partner of WD in Goa who claimed that they sell cigarettes to SWD and also to retailers at prices fixed by them. A74 (at page 147 and 148 of Book No. 4A) sent by Bangalore Branch Manager of ITC contains "prices prevailing as on 2-5-1983" and states that trade prices up to level of retailer had been announced by the respective companies and the prevailing packet and stick prices were as per the price list issued by retailers' union and followed by the retailers. Learned Counsel relied on this document to show that effective prices to consumers, other than printed prices, were not being fixed by ITC. But the very document relied on for this purpose by appellants, namely, A74 establishes that the manufacturers fix prices up to the level of retailers. Learned Counsel referred to evidence showing variations in prices to smokers in different regions and also in the same region as seen from other documents such as A74, A82. He referred to a chart showing the variations with reference to A37(A), A74, A81(E) and A82. The chart is seen at pages 138 and 139 of paper book No. 42. Reliance is placed on the evidence of A. Dutt, Branch Manager, ITC Bombay (Book No. 10, pages 6), K. Ramanath (Book No. 10, page 216), S. Misra (Book No. 11, page 132), S.K. Mehta (Book No. 18, pages 38, 39) and J. Narain (Book No. 15, page 32) claiming that A37(A) prices and prices in other documents were not fixed by ITC and they were observed or modal prices. Learned Counsel complained that none of these submissions made before the Adjudicating Authority had been considered specifically. These submissions are rebutted by learned Counsel for Revenue, according to whom the finding rendered by the Adjudicating Authority is correct.

64. A37(A) was seized from Bombay Branch Office of ITC and the genuineness is admitted. Obviously, it is a list of prices to WD, SWD and retailers, BTL, unit prices to smokers (i.e., EPs higher than printed prices) and percentage of profit of retailers based on such higher unit prices. There is no specific evidence that these prices and margins had been fixed and circulated by ITC. The explanation of appellants is that the prices and margins are observed data and not imposed by anyone. We have, in connection with A81(F) referred to the evidence of A.P. Bilimoria to the effect that WDs arrive at prices to SWDs and suggested retail price to smokers after knowing the wholesale price and printed price and this exercise is conducted in consultation with Bombay branch of ITC. It is, therefore, not possible to accept that prices and margin shown in A37(A) were only observed or modal prices and margin. A37(A) prices must necessarily have been fixed or suggested by ITC as otherwise the contents have no relevance or purpose. Variations referred to by learned Counsel for appellants are seen because the prices arrived at in A37(A) may not be rigidly adhered to by SWDs and retailers. The most significant aspect of A37(A) is the mention of unit prices and percentage of retailers' margin based on higher unit prices and not lower printed prices. This shows that pricing strategy of ITC was based on the fact that retailers sell packages at prices higher than printed prices. A37(A) had taken into consideration certain features in the market. Retailers' association in Bombay was insisting on 15% profit. Retailers in Gujarat and remaining part of Maharashtra were classified into two classes. In certain areas with 2 to 3% burden of entry tax, the scheme was to so devise unit price that retailers have margin of 10 to 12% and in other areas with 4 to 5% entry tax burden retailers were to receive 15% margin. Those who devised this strategy obviously took into consideration realities of market. The dates 21-6-1983 and 1-5-1983 do not necessarily indicate that the prices and margins were observed prices and margins. The dates are not inconsistent with the conclusion that the prices were arrived at or suggested by ITC. The strategy underlying A37(A) was based on EPs higher than printed prices. Variations are bound to be present at the ground level depending on a variety of circumstances even though ITC had fixed or visualised the prices. It is difficult to accept that the pricing strategy or logic reflected in A37(A) was not sanctioned by ITC. As seen from A74, prices up to level of retailer were admittedly announced by manufacturers. ITC must have announced prices up to the level of retailers and in this case even the retail prices to smokers; or the price to shopkeepers could have been worked out by those in charge of districts or branches under ITC or it would have been visualised by ITC. It may be true that pricing logic has to take into consideration several factors including the factor that sometimes increase in price to smokers may affect sales. This cannot be a factor applicable to all situations, brands or periods. It depends partly on the popularity of brands and pricing logic of competitors. We have no doubt, when ITC adopts a pricing strategy fixing wholesale prices and printed prices and visualises, envisages or expects sale of packages to smokers at certain prices higher than printed prices, all relevant factors would be taken into consideration. We hold that the unit prices seen in A37(A) were visualised, envisaged or expected by ITC.65. A83 (for period D) : A copy of A83 is seen at pages 171 to 176 of paper book 4A. This document was seized from Bombay Branch of ITC. It is unsigned and contains no date. It contains various particulars such as price to WD, to SWD and retailers and margins of WD, SWD and retailers as also BTL, total trade margin, retailers margin (MKT) in real figures and percentages and unit and stick market prices. This document has been relied on in the DDC chart for eight brands, though the document referred to 21 brands. For 13 brands the adjudicating authority adopted prices prevailing for those brands in previous period C. According to the learned Counsel, the Adjudicating Authority did not act on this document as it did not indicate the effective date or bear any date and, therefore, he did not address any arguments.

Nevertheless, in our opinion, A83 has some significance supporting our earlier conclusion regarding A37(A). The document was seized from the custody of ITC branch. The only explanation offered by ITC is that A83 shows only observed prices and margins, a contention similar to the one urged regarding A37(A) which we have rejected. A83 thus probabilises that it was the practice of ITC and the units of ITC to fix or visualise or envisage such prices and margins including the retailers' margin and unit prices which were higher than printed prices. To this extent A83, though undated, has relevance.

66. A6 was seized from Bombay district office of ITC. A copy of A6 is seen at pages 13 to 15 of Paper Book 4A. It contains a note at the top right side as follows : "Implemented on 3-11-1983 after discussion with S.K. Mehta on 1-11-1983" S.K. Mehta was the then Chairman of ITDB. Areas are seen classified as A, B, C. A is "Bombay, u/c Maharashtra and Gujarat: 10 to 12%, 2-3% Entry Tax". B is "u/c Maharashtra, Gujarat: 15% profit ave. 4% Entry Tax". C is Goa. The heading of the list is "Revised prices effective 1-11-1983". The document indicates prices to WDs, SWDs, Retailers, margins to WDs, SWDs and retailer as well as total trade margin, percentage of retailers profit and market prices -unit and stick. There is a note to the effect "communicated to Ahmedabad/NGP". NGP stands for Nagpur. It contains the prices and margins for nineteen brands. For each brand, prices and margins were separately shown for four different categories, namely, "Existing city", "A", "B" and "C". The adjudicating authority held these prices were visualised, envisaged and fixed by ITC.67. Learned Counsel for appellants stated that on the basis of ITC prices to WDs, district offices and branches of ITC prepare internal estimates of how the "total margins" (i.e. price to WDs less printed price) allowed by ITC get adjusted in the trade channel. Exhibit A6 is one such internal assessment based on observed prices. He also explained that the column "retailers margin market" shows retailers' margin based on observed unit market price to smokers. Reference is made to the percentage of retailers' margin based on market prices as ranging from 8.3% to 23.2%. Since it was an internal document, it is contended, it was not circulated to the trade chain. Learned Counsel referred to the evidence of S. Dutt, Branch Manager ITC, Bombay (Book No. 10, pages 3 to 12, 35, 41 and 43) to the effect that he regularly did market survey in his jurisdiction, i.e. Bombay city, Maharashtra, Gujarat and Goa which has a highly competitive market, that there was a strong retailers' association in Bombay city, there was influence of retailers' association and high Entry Tax in area B and retailers' association desired a lower margin in Goa compared to other areas in the district. The market-data was allegedly collected by his staff. He admitted that the market prices were higher than printed prices. He also claimed that prices shown in A6 were "modal prices", i.e. prices at which cigarettes were sold in maximum number of sales. He stated that the observed retail prices may or may not agree with the retailers' association prices. According to him, the note "implemented w.e.f. 1-11-1983" related only to ITC prices to WDs and not to intermediate prices or retailers' prices to smokers. The author of A6 had a discussion with S.K. Mehta since he wanted to hold back delivery to his WDs after the price revision of 29-10-1983. After discussion, wholesale price was implemented w.e.f. 3-11-1983. He stated that prices to SWDs and retailers were obtained from WDs and market prices were collected from the market place by his staff. He selected modal prices out of several market prices. He claimed that ITC never fixed market prices as any such exercise would be impossible and ITC never circulated any such prices. He had not sent A6 to the Head Office, and he also stated the market survey trend was sent to the Head Office.

According to him the word "proposed" in A6 qualifies only the price to WD and not the other prices. "Existing" means the position in the market prior to the particular period. Evidence of A.P. Bilimoria (Book No. 12 page 16), S. Misra (Book 11, page 132), S.K. Mehta (Book 18, pages 153-155), R.S. Noronha (Book 13, pages 179 onwards) and N.K.Mukherjee (Book 13 page 299), K. Ramanath (Book 10, pages 187,216,265) and J. Narayan (Book 15, page 32) was to the effect that ITC did not fix prices to smokers other than printed prices. Reference is also made to evidence of certain WDs at Shimoga, Howra, Mandya and Kharagpur at pages 59, 96, 69 of Paper Book 12 and page 15 of Paper Book 14 regarding the absence of fixation of such prices by ITC. Learned Counsel referred to the chart at page 1623 of Book 31 indicating IMRB prices for the period which are at variance with A6 prices. These contentions are rebutted by learned Counsel for Revenue, according to whom the prices to smokers shown in A6 were those fixed or at any rate visualised, envisaged or expected by ITC.68. We are not able to agree with the conclusion or reasoning canvassed by learned Counsel for appellants. The evidence relied on, in particular, the evidence of A.S. Dutt appears to be too artificial and improbable. A close study of A6 can result only in the conclusion that the intermediate prices and margins, retailers' margin and prices to smokers (higher than printed prices) shown therein could only have been worked out and fixed by Bombay district office, as per the practice followed in ITC. This could not have been without the knowledge or consent of the Head Office. It is highly improbable that the prices and margins were merely observed prices and margins. The preponderance of probability is in favour of the conclusion that the intermediate prices and margins were fixed by the Bombay District office and the prices to smokers were envisaged, visualised or expected by ITC.69. We may, in this connection, refer to certain other documents which throw light on the modus operandi followed by ITC. ITC explained before the adjudicating authority the process of arriving at PPs. This is seen at pages 73 to 80 of paper book No. 45. The process can be summarised as follows :- In revising PPs. regard must be had to volumes and market share a brand will achieve at the revised PP. Information regarding the performance of competing brands in the same price cluster and the context of PP related excise duty structure w.e.f. 1-3-1983 must be considered. If trade margins (TM) had been kept at the pre-1983 levels, volume would have been badly affected and PP would have been increased manifold with disastrous impact on volumes. Minimum volume necessary to avoid loss was 30,000 million cigarettes. Every brand has an established value for smokers' money. If the price was such that the smoker felt he was not getting value for his money, he will stop smoking the particular brand and switch to another brand.

Marketing department prepares sales volume forecast for ITC and rival brands on assumed PP for ITC and other brands and assumed product specifications for ITC brands. For certain assumed PPs, certain EPs would be predicted by educated guess work, for the whole Industry. Consumer spending for the Industry (volumes forcast multiplied by predicted EPs) would be compiled volume forecast would be verified by observing rate of increase in consumer spending and volume forecast for previous periods. The data would be handed over to the finance department (FD). FD calculates the variable costs and fixed costs and the required profit target. This gives net turnover (NTO) arising from such sales forecast. Total duty would be calculated by multiplying volume forecast for each brand with duty payable on PP assumed for the brand. NTO is added to duty amount to arrive at gross turnover (GTO). Then forecasted volume of each brand would be multiplied by assumed PP to arrive at the gross money available at the PP (GVPP). If this process does not give rise to the preferred best fit between divisional profit target and divisional volume share objective, marketing department repeats the exercise in respect of further sales volume forecast based on different assumed PPs or changed product specifications or even the fixed costs. If PP has to be scaled down, product specifications are altered to reduce variable costs. Volume forecast could change since reduction in PP could result in increase in volume. Saving in fixed costs could be by reduced advertising which could affect sales which could have impact on profits. The exercise is carried out till the best fit among a variety of options is reached.

Basic to the above exercise is as accurate an estimate of "consumer spending" as possible. Consumer spending being the total amount of money which may be spent by smokers on purchase of cigarettes, the basic factor in the above exercise is the actual cost to the smoker, that is, the effective prices to the smokers and not the PPs. Thus prediction of EPs would be central to the sales forecast exercise. It is clear that ITC, interested in sales forecast would be visualising or envisaging or expecting particular or specific EPs and having done so, ITC would certainly be interested in creating conditions to ensure that cigarette packages are sold to smokers at such EPs, as otherwise sale volumes and profits may be affected.

70. Learned Counsel for Revenue stressed on certain documents to support the above inference. A51 (page 117 of paper book 4A) seized from ITC Head Office related to some of the 42 ITC brands. This price list w.e.f. 22-8-1983 contains unit price (PP), margins to WD, SW and retailer, price to WD. A51 shows it was prepared on the advice of S.K.Mehta, Chairman ITDB and signed by "Chandu" (S. Misra). This Head Office document worked out prices and margins on the basis of PPs. A51 proposed profit rebate on certain brands in North/Central/West districts. These margins had been worked out on 17-8-1983, before issue of price list w.e.f. 22-8-1983. A36 (page 90 of paper book 4A) is a similar document seized from ITC Head Office, checked and corrected by S. Misra. A36 contains prices for 19 ITC brands w.e.f. 29-10-1983 based on prices revised on 27-10-1983. A14 (page 31 of paper book 4A) sent by district manager, South to branch managers explains the pricing strategy, indicating certain guidelines given by Chairman, ITDB regarding eleven ITC brands. The guidelines were definitely linked to effective market prices of packages and sticks and not PPs. It is clear that pricing logic or strategy is based on EPs and not PPs. A42 (page 100 of paper book 4A) seized from Bombay office of ITC refers to means to ensure that particular price for a brand prevails in the market and refers to "percentage margins", "retail profit" provided by HO, "SW margin" provided by "us". A42 indicates that for some brands prices to retailers were the same as PP and in some cases below PP. Unit price referred to in page 102 is EP and not PP. Reference can also be made to A80 Action Plan (page 159 of paper book 4A). A42 indicates that "Trade prices beyond WDs" were to be released later, "Trade price" implementation will be piecemeal and WDs were to be used to implement UP effectively through "word of mouth". All these documents make it clear that ITC was adopting pricing strategy involving specific prices and margins at all levels and EPs. While issuing wholesale price and PPs, various officers of ITC were fixing or suggesting intermediate prices and margins to SWDs and retailers, and EPs at levels higher than PPs. This conclusion is further supported by reference to "HO price to SWD" and other prices and margins in A2 (page 2 of paper book 4A) giving the benefit of absence of entry tax to SWDs and retailers and not to smokers. Margin was indicated in A2 in terms of EPs and not PPs.

A84 (page 177 of paper book 4A) seized from ITC WD at Bombay referred to HO price to SW, retailers' realisation and retailers' margin based on EP. A84 refers to "proposed price" effective from 29-10-1983. Price shown for 25-8-1983 corresponds to "existing price" in A6 (A33).

'Proposed price' of A84 and A6 are the same. The revised price list w.e.f. 29-10-1983 is seen in DAE 127C at pages 114 and 115 of paper book No. 29. Prices to SWD shown in A84 correspond to HO's price to SWD. It is thus probable that EPs in various documents are not observed prices, but prices fixed or suggested, envisaged or visualised by ITC.A7 (page 16 of paper book 4A), A9 (page 21 of paper book 4A) and A77 (page 154 of paper book 4A) also support this view. These documents and the tell-tale circumstances contained therein fully support our conclusion on A6.

71. A copy of A8 is seen at pages 20 and 155 of paper book 4A. The document was seized from the Bombay District office of ITC. The heading of the document is: By PCPL is meant price list. A8 relates to seven ITC brands of cigarettes and furnishes prices to WD, SWD, and retailer, margins of WD and SWD, retailers' margin based on printed price, BTL, total trade margin, "Retailers margin MKT" i.e. retailers' margin as per 'market price', percentage of such margin and "market prices" for unit package and stick. It is significant that while retailers' margin based on printed price was uniformly 5 paise for 1000 cigarettes, retailer's margin based on market prices was shown as ranging from Rs. 7.2 to Rs. 50.05 per 1000 cigarettes, the percentages ranging from 7.2% to 23.2%.

Prices and margins have been furnished separately for "A", "B" and "C" which letters obviously carry the same connotation as in A6, A37(A) and A83. "Head Office price list" dated 9-2-1984 seen at page 22 of paper book 4A was noted as "strictly private and confidential" and signed by R.N. Roy for Marketing Manager. It was sent to Branch Manager (T-M) and copies were marked to Chief Accountant (ITD), district manager, north/south/east/west/Central branch managers (production) at the ITC factories and Commercial Manager, Bangalore. This price list furnishes price per 1000 cigarettes to WDs and maximum price per unit "recommended in tax free markets". By "tax free markets" is meant areas without local taxes (such as Goa). This price list has been shown as effective from 11-2-1984 and relates to 21 ITC brands. There is no dispute that the prices shown in Head Office price list contain only wholesale prices and printed prices and not unit or effective prices and on the basis of these prices, the Bombay district office worked out total margin, intermediate prices, margins at different level, retail market prices and retailers' margin based on lower printed prices and higher retail market prices. Learned Counsel for ITC submitted that the submissions made by him regarding A6 and A37(A) apply to A8 also. A.Dutt gave evidence (Book No. 10, page 14 and 39) that A8 was prepared on 11-2-1984 based on Head Office price list dated 9-2-1984 and after observing market conditions. Reference is made to the evidence of K.Ramanath, the district manager, west at pages 217, 218 onwards of Book 10, to the effect that A8 was prepared taking into consideration wholesale prices fixed by ITC and printed prices and prices observed in the market. J.N. Sapru in his evidence seen at pages 334 to 347 of Book No. 19 tried to explain that A8 is a branch working sheet recording observed prices. J. Narayan (Book No. 15, page 32), R.S. Noronha (Vol.

13 page 178), officers of ITC and certain WDs, A.P. Bilimoria (Book 12, pages 19 and 42), I. Habent (Book 2 page 59),V. Sreeramulu (Book 12, page 69, 70), P.N. Shaw (Book 12, page 96) and S.K. Agarwal (Book 14, page 15) stated that A8 prices were not circulated to the trade.

72. The question is whether all the prices and margins in A8 (other than wholesale price and printed price which were admittedly fixed by ITC) were merely observed prices and margins or something more. A8 was prepared by the district office on 11-2-1984 after receiving Head Office price list dated 9-2-1984. According to the adjudicating authority it would not have been possible for observing the impact of the revised wholesale price and printed price circulated by the Calcutta Head Office of ITC on 9-2-1994. This conclusion is assailed by learned Counsel according to whom two days would be sufficient to observe market conditions and prepare a detailed statement like A8. We find it difficult to agree with this submission. The wholesale price and printed price were revised by ITC only with effect from 11-2-1984, though they were communicated as price list dated 9-2-1984. The impact on the market of wholesale price and printed price revised with effect from 11-2-1984 could not have been observed by the field staff all over Maharashtra, Gujarat and Goa, collected at the district office, tabulated and margin worked out and A8 prepared on the very same day.

Preponderance of probability is that on coming to know of revision of wholesale price and printed price with effect from 11-2-1984, the district office of ITC distributed the total margin based on printed price to WDs, SWDs and retailers and fixed unit and stick prices or at any rate, arrived at the suggested unit and stick prices to be followed in the market, that is, by retailers. There is no other logical and acceptable explanation for A8. The explanation attempted by the witnesses relied on by learned Counsel for appellants is artificial, illogical and improbable and cannot be accepted. The fact that actual retail prices for the period as seen at page 143 of Book No. 12 are not exactly the same as the unit prices in A8 cannot matter as prices fixed or visualised by ITC may not be rigidly implemented by the trade levels. We are satisfied that the unit prices seen in A8 were those fixed or, at any rate, visualised, envisaged or expected by ITC to be charged by retailers to smokers. The reasoning we have followed regarding A37(A) and A6 would apply to A8 also.

73. Copies of A16 and A17 are seen at pages 38 and 45 respectively of Paper Book 4A. A16 dated 26-7-1984 is a letter addressed by A.C.Sarkar, market research manager in the Head Office of ITC to all district managers and branch managers with copies to Member (Finance) ITDB, Member (Marketing) ITDB. The heading of A16 is :- Price categories Revision The letter stated that change in the effective price mix to consumers since November/December 1982 and volume mix with steady erosion in the lower categories has created need to revise price categories. The revision should help obtain sharper focus on contemporary brand trends and identified segments of prices. The letter stated that in consultation with district managers it has been decided to formalise the pricing categories as indicated in the letter effective from Sales Analysis outputs pertaining to July, 1984 onwards. The letter indicated four classes Premium, High, Medium and Low corresponding to six specific price categories, namely, Premium, High, Medium Upper and Lower and Low upper and low. The letter indicated categorisation based on "effective price to consumer" for package of 10's and stick. In other words, the earlier four price categories were replaced by six price categories and brands were fitted into the price categories on the basis of effective pack price to consumers generally prevailing in the country as per the enclosure. The letter cautioned that the six categories will not accurately reflect deviations which are limited to certain segments, namely, Bombay, Calcutta, Pune (all due to retailers' association) or Gujarat (high octroi) etc. or deviations caused regionally by competitors' tactical multiple-pricing by printing different packet prices for the same brand. The enclosure (pages 40 to 44 or A15 at pages 34 to 37) to the letter indicated the revised price categories w.e.f. 1984-85 and the corresponding "July, 1984 effective pack price" for 10s. Price category-wise particulars are seen at A16 seized from Bombay branch office.

74. A copy of A17 dated 13-8-1984 is seen at pages 45 and 46 of Paper Book 4A. This document was seized from Bombay branch office. It is a clarification issued by the market research officer to all district managers, all branch managers, officers of ITDB. The clarification related to A16 revision of price categories w.e.f. July, 1984. A17 amended A16 in regard to a few brands, changing the category and also the effective pack price for ten brands. These amendments were made due to a change in the methodology for determining the effective pack price. The earlier method or basis was "effective pack price to consumers generally prevailing in the country". The changed method or basis was "pack price at which we expect it should sell to consumers".

It was stated that with price change on new brand introduction, decision regarding fitment of brands into price categories would emanate from marketing department. It was also clarified that "effective pack prices" for specified brands remain as per the enclosure to A16. Consumer expenditure should be computed on the basis of "effective pack prices" in addition to the current method of computation based on printed pack price. The district managers and branch managers were requested to bear with the author for these initial aberrations.

75. Learned Counsel for appellants referred to the evidence of K.N.Grant who was then working as Assistant Market Research Manager in the Head Office, seen at pages 115,116 of Book No. 13 and of S.N. Wanchoo, then working in the research department seen at pages 14 to 143 of Paper Book No. 13. Their evidence can be summarised thus :- Marketing department in Head Office has the responsibility of preparation and dispatch of price categorisation circulars, assisting in preparation and compilation of volume forecast on the basis of price categorisation analysing the market on the basis of price segments to determine gaps in potential brands etc. K.N. Grant prepared DAE 76 dated 20-4-1987, a price categorisation circular.

Categorisation of brands by price was an established method of segmenting the market for proper analysis and effective forecasting and is a tool or mode of market analysis. Criteria used are by price, by companies and by types of cigarettes such as filters, plain ends, king size etc. Cigarette pack prices range from Rs. 2 for 10s to Rs. 18 for 20s, there being a differential of 450%.

Comparing these two brands for purpose of sales analysis would be meaningless. Meaningful analysis and comparison must be of cigarettes which compete with each other from the point of price.

The entire market is divided into price segments. This exercise was being done at least since 1943. DAE 159 shows categorisation on the basis of companies also i.e. for products of different competitors.

The words "effective price to consumers" and "effective pack price" used in A16, A17 mean the same thing. In November, 1982 pre-existing exemption notification was withdrawn and tariff rates of duty were in force. Consumer prices changed drastically. Earlier price categorisation was done directly on the basis of printed pack price.

Due to change in price mix or consumer price due to overcharging by retailers, price categorisation exercise was decided to be made on the basis of effective prices. In November/December, 1982 there was change in excise duty structure resulting in pushing up prices of most brands and shortage of stock in market leading to overcharging by retailers. Even after restoration of stock position, overcharging did not stop or reduce. Effective prices being higher than printed prices, brands would often fall into higher category according to effective prices. Basic object of categorisation being comparison of brands which interact and compete with each other, categorisation on the basis of printed price became meaningless. After categorisation, brands within a category which compete with each other were analysed for forecasting future volumes on the basis of the category, for determining gaps in specific categories either for introduction of a new brand or re-positioning in terms of price of an existing brand.

Market data was being received through market reports on prices of ITC and competitors such as IMRB or reports received by Head Office from districts and branches.

A15 to A17 gives particulars of ITC and rival brands. Learned Counsel referred to A15 dated 16-7-1984 (at pages 32 to 37 of Paper Book 4A) a price categorisation revision circular with effect from 1984-85 which categorised brands into six price categories on the basis of effective pack price to consumers generally prevailing in the country as repeated in A16 which words are not seen in A17. He pointed out that effective prices are shown in A15 and A16 as "above" i.e. "Rs. 4.51 and above" or "Rs. 3.01 and above". From this circumstance it is contended that effective prices shown in A15 to A17 could not be prices fixed by ITC since if ITC fixed prices, those prices will be definite prices and not in a range. Adverting to the words "effective prices generally prevailing in The country" occurring in the documents, it is contended that these effective prices could not be prices fixed by ITC, but only prices actually observed in the market. The market research department, it is stressed, also took note of deviations in certain areas due to retailers' associations (Bombay, Bangalore and Pune) and in Gujarat due to high octroi incidence.

76. Learned Counsel in this connection referred to A45 price list dated 1-5-1983 (seen at page 108 of Paper Book 4A) sent by branch manager, Coimbatore, evidently to all WDs informing them about the change in wholesale price of Gold Flake FT (lOSs) to Rs. 221.91 per 1000 cigarettes and marking of maximum retail price of Rs. 2.35 per pack of l0Ss to smokers in tax free markets. The reference to tax free markets was to indicate that there would be no local taxes in such markets and the marked price was without inclusion of local taxes. The bottom part of A45 has perforation. The following occurs below the perforation :- Price to SW Rs. 231.25 The marked or printed price was Rs. 2.35 for 10 cigarettes, i.e. Rs. 235 for 1000 cigarettes, leaving a margin of only Rs. 2.00 per 1000 cigarettes or 2 paise per package of 10 cigarettes to the retailers i.e. less than one per cent on the printed price.

77. The methodology of price categorisation in A15 and A16 was based on effective pack prices to consumers generally prevailing in the country.

The methodology was changed by A17 to "pack price at which we expect it to sell to consumers". This according to learned Counsel would not mean that with effect from A17 ITC was fixing effective prices to smokers; that is because A17 contains effective prices of certain brands of competitors also and it cannot be that ITC was fixing effective prices of rival brands also. Reference is also made to the Section 14 statement of A.C. Sarkar, the author of A16, seen in page 10 of Paper Book No. 10 and his evidence seen at page 37 of Paper Book No. 10. He had stated that "expectation" was based on prices at which retailers were normally selling cigarette packages to smokers i.e., ignoring abnormal prices caused by abnormal factors and EPs or expected prices were always higher than PPs. EPs, according to him, were estimated on the basis of actual observed prices in the past based on market information, consumer panel data which varied from region to region, market to market. S. Wanchoo gave evidence that A16 and A17 were never communicated to anyone outside the Head Office or branches. He also stated that in November, 1985, ITC reverted to price categorisation based on printed prices as seen from circular signed by him seen at page 36 of Paper Book No. 36. Learned Counsel stated that since November, 1985, ITC excluded prices in "unworkable" slabs. He also invited our attention to the evidence of K.N. Grant (pages 106, 107 - Book No. 13), N.K. Mukherjee (pages 78-112 and 183-204 of Book No. 13), R. Noronha (pages 250, 251 - Book No. 13), S. Misra (pages 143 to 150 of Paper Book No. 11), S.K. Mehta (pages 88, 90,92-94 - Book No. 18), J.N. Sapru (pages 168 to 171, 186, 187, 223 to 225 - Book No. 19), J.Narayan (pages 33 to 35 of Book No. 15), all officers of ITC generally supporting the contentions of ITC in regard to these documents and the evidence of G. Agarwal, Kharagpur (pages 14, 22 - Book No. 14), Anil Gupta, Ajmer (page 30 - Book No. 14), S. Ahmed, Roorkee (page 56, 57 of Book No. 14), I. Habib, Shimoga (page 59 of Book No. 19), V. Sriramulu, Mandya (page 70 -Book No. 12) and P.N. Shaw, Howrah (page 97 of Book No. 12), all WDs, stating that they had not seen the price categorisation circulars. Learned Counsel referred to the chart at page 144 of Book No. 42 showing actual retail prices different from the EPs shown in A16 and A17.

78. Learned Counsel stated that as follow up of price categorisation, sales analysis was made as seen in the All India price statement prepared on 5-9-1984 for August, 1984 seen at pages 2377 to 2382 of Paper Book No. 38 tabulating volumes and market stock of each brand of ITC and competitors in each price category of brands. He also referred to page 562 of Paper Book No. 25 showing similar sales analysis for Delhi branch, similar quarterly sales analysis reports from branches seen at pages 583 to 590 of Paper Book No. 38 and the explanation of these reports by K.N. Grant seen at pages 125 to 127 of Paper Book No.79. Learned Counsel for appellants assailed the finding of the Adjudicating Authority to the effect that A15 to A17 showed that ITC visualized that higher effective prices should prevail. The order, it is stated, does not hold that A15 to A17 indicate EPs "fixed" by ITC, but indicates the EPs may be "observed" prices. Learned Counsel for Revenue rebutted the above contentions and contended that the documents, established that ITC had "fixed" or at any rate, envisaged or visualised effective prices higher than printed prices at all material times. Price categorisation and sales analysis are vital steps in production and marketing strategy and the strategy during the relevant period was evolved entirely ignoring printed prices and based on higher EPs, which, whether based on prices "fixed" or "observed" from the market by ITC, must be regarded as EPs at which ITC expected, envisaged or visualised retailers to sell packages to smokers.

80. We have considered the materials placed and submissions made before us carefully. Having regard to the nature and purpose of the exercise of price categorisation, reflected in A16 and A17 and the clarification seen in these documents, it cannot be said that the EPs referred to therein were EPs fixed by ITC. It is true that EPs referred to in A16 (and also A15) and the enclosure were EPs stated to be generally prevailing in the country arrived at after ignoring yet higher actual prices due to activity of retailers' association in certain cities and higher octroi incidence in Gujarat. However, the EPs referred to in A17 do not purport to be based on prevailing prices; on the other hand, EPs in A17 were retail prices at which ITC expected the packages "should sell" to consumers and categorisation was also required to be made on that basis. The word "above" in A16 (and A15) has no significance since it is appropriate for indicating various price categories. It is clear that EPs in A17, though not fixed by ITC, were prices at which ITC visualised, envisaged or expected packages should sell to consumers.

Abnormalities in market conditions such as interference of retailers' association and incidence of high octroi were ignored. ITC was receiving market reports from districts, branches and IMRB. Sales analysis and production and market planning must be on the basis of study of market trends as seen from available data. According to K.N.Grant, forecast of EPs was a necessary part of the exercise. Such forecast would be a necessary element in envisaging, visualising or expecting the packages to sell at particular EPs higher than PPs.

Knowledge of hitherto prevailing observed actual prices would be necessary to conduct the exercise of price categorisation. The dominant factor underlying higher EPs was the deliberate act of ITC in squeezing retailers' margin. Thus the visualisation, envisaging or expectation depended mainly on the extent of margins squeezed. A15, A16 and 17 prove such visualisation of higher EPs by ITC, while A45 proves actual fixing of intermediate prices to SWD and retailers by ITC. When ITC fixes a higher price to retailers leaving only a margin of less than one per cent to retailers as against the pre-1983 margin of 6 to 6.8 per cent, it has to be held that ITC visualised, envisaged or expected retailers should sell packages at prices higher than printed prices.

The evidence relied on does not go against our conclusion.

81. Copies of these documents are seen at pages 27 and 24 respectively of Paper Book 4A. A12 is letter dated 2-11-1984 by market research officer of ITC to all district managers and branch managers in connection with revision of price categories with effect from October, 1984. The letter required that consequent on the revision in prices of specified brands, the changes suggested in the letter should be incorporated in the relevant outputs for October 1984 onwards. The letter related to seven brands, five of ITC and two of another company.

The letter intimated enhancement of EPs of each of the brands referred to and change of price category of one brand. Price category of other specified brands did not change in spite of increase in EPs. According to learned Counsel for appellants, EPs referred to in A12 were only observed prevailing prices as referred to in A16.

82. A10 is letter dated 16-4-1985 by market research officer to Information Systems with copies to all district managers, branch managers, marketing manager, advertising manager and certain other individuals. The letter was written in the context of post 1985 budget changes and revised fitment into price categories of ITC brands.

Revised fitment was to be as indicated in the enclosure seen at page 25. The author sought discussion with Information Systems regarding computation of consumer expenditure on sale analysis outputs and ABC analysis. This letter was sent in reply to letter ISD/DI/5201 dated 11-4-1985 of Information Systems, a copy of which is seen at page 135 of Paper Book 8 which sought relevant information. Such information was furnished in the enclosure to A10. This document furnished "maximum price per unit recommended in tax free markets" and "effective pack price per unit" for 37 brands of ITC, the EPs being higher than the former. The 37 brands were divided into five price categories. The second sentence in A10 reads as follows :- "Fitment for ITC brands, for which Post Budget prices have been announced are indicated in the enclosure".

The adjudicating authority indicated that use of the word "announced" clearly indicated that the Post Budget EPs had been fixed and announced by ITC. Learned Counsel for appellants contended that the announcement was, as usual, only of wholesale price and maximum price for tax free markets (that is PPs) as seen in the post budget price list dated 4-4-1985 (page 1120 of Paper Book No. 29) issued by the marketing manager to all branches. This price list, it is pointed out, did not announce EPs at all. It is pointed out that "maximum price per unit recommended in tax free units" shown in A10 tally exactly with the prices shown in the price list referred to by Learned Counsel and the prices obviously were the PPs. In 1985, fitment in price categories was on the basis of EPs as indicated in A17. It is complained that the inference sought to be drawn from the word "announced" in A10 was not referred to in the show cause notice. Learned Counsel assailed the conclusion of the adjudicating authority that EPs seen in A10 had been announced by ITC. Learned Counsel also indicated that the EPs in the two documents are seen to be varying from prices collected by field staff seen at pages 145, 147 and 148 of paper book No. 42. It was further indicated that there is no evidence of circulation of A10 and A12 prices and WDs examined before the adjudicating authority deposed that such prices had not been circulated.

83. A12 and the enclosure to A10 refer to effective pack price for certain ITC brands. There is no specific evidence to show that these EPs had been fixed by ITC and circulated to the trade chain. The very fact that the market research officer furnished such EPs to the field formations in both cases and also Information System - ITD clearly probabilises that these prices had been envisaged, visualised or expected by ITC as prices at which packets may be sold to consumers.

There is nothing in the evidence to indicate the contrary. Hence the probability indicated above has to be accepted. Since these prices had been circulated by the Head Office of ITC, they must be regarded as All India prices.

84. This document came into existence after the issue of Notification No. 201/85. A copy of the document is seen at page 179 of paper book.

It bears no date. The heading of the document is "Sales Forecast District West SF Summary". A86 provides volume for 84/85, Volume, UP, EP, CS for July 1985, August 1985, September 1985, December 1985, January 1986, June 1986, Volume for 85/86, and Volume for August 1986 for eight "high" brands, nine "medium" brands and twenty-three "low" brands. UP is unit price which in this context is PP and EP is effective price. Being a forecast, according to learned Counsel for appellants, the EPs in A86 were not prices fixed by ITC and can only be regarded as prices visualised or envisaged by ITC. He explained that the prices mentioned for July and August 1985 were observed prices which along with observed prices for earlier years were regarded a "historical data" and using such data and other relevant information, EPs for September 1985, and later months were predicted or visualised.

This exercise is regularly conducted to project future trends to help the top management to take decisions for future periods regarding production and pricing. It cannot be, it is pointed out, that in September 1985, ITC would or could "fix" or "visualise" prices for period up to June 1986. The show cause notice made no reference to A86 though DDC chart for period J was based on the document.

85. Learned Counsel referred to oral evidence of certain witnesses. K.Ramanath stated (pages 230-234 of paper book No. 10) that sale forecasts are based on projection of printed prices of various brands in future point of time, a set of assumptions regarding the likely economic conditions that will prevail for the specific future period, history of brand volumes and prices relevant for the area, market prices for ITC and competitor brands, data on the modal market prices provided by IMRB, tour notes and trend reports of staff, price and data by district managers and history of the pattern of growth of consumer expenditure for the area. Past experience of market behaviour and personal knowledge of cigarette business would be relevant. On taking into consideration all the data and aspects, the forecast predicts likely modal market prices at future points of time in relation to projected printed prices, taking into consideration the tendency of the trade to overcharge. According to the witness, such assumed or predicted modal market prices were shown as "Effective Prices" or EP.The modal prices would be predicted as a tool for checking the validity or reliability of a sales forecast. Consumer spending generally increased by 12 to 14% per year. The exercise forecasts volume for future. S. Misra (pages 150 to 155 of Paper Book No. 11) gave similar evidence. He also stated that district manager studies forecasts of branch managers and prepares sale volume forecast for his region independently and those in the Head Office prepare All India Sales Volume forecast. These were "educated guesses" and the formula adopted was "estimated EP multiplied by estimated sales would be equal to consumer spending". K. Ramanath, N.K. Mukherjee, A. Dutt, S. Misra, S.K. Mehta and J. Narayan, all officers of ITC and G. Agarwal, Anil Gupta, S. Ahmed, I. Habib, Sriramulu and P.N. Shaw, all WDs deposed that these documents were not circulated to the trade.

86. Learned Counsel for appellants pointed out that A86 is incomplete and the complete document in four pages is DAE 161 seen at pages 1650 onwards of Paper Book No. 32. A86 is a forecast for west district only but the Adjudicating Authority applied EPs in A86 for sales throughout the country for period 'J'- The procedure for preparation of forecasts by branch manager was as per circular dated 8-2-1985 of the district manager, North seen at page 890 of paper book No. 27. In reply to A86, it is said, branch managers sent replies as seen at pages 897, 904, 916 and 920 of paper book No. 27. The Adjudicating Authority rejected these replies as not genuine because of the dates in the receipt stamp seen at pages 904,916 and 926 as 4-3-1984,26-2-1984 and 13-3-1984 respectively. These letters were deposed to by R.S. Noronha who produced them on 2-12-1988 and he was not cross-examined by Revenue regarding the year 1984. Learned Counsel explained that the mistake was not in altering the year in the rotating date seal before using the date seal. He referred to date seal showing 24-3-1982 in a letter written after the budget proposals of 1983 at page 96 of paper book No.8, a similar mistake in letter dated 8-2-1985 at page 890 of paper book No. 27 referring to 3 year period from July, 1985 and the annexure to the reply (page 897) showing the period as 84-88. The letters doubted by the adjudicating authority had been proved by K. Ramanath as seen at page 236 and 238 of paper book No. 10. He also deposed that All India forecast was based on the average of EPs forecast by all the district managers and the All India figures were quite different from EPs adopted by the Adjudicating Authority. PPs in All India average were rounded off to multiples of 5 but average EPs were not so rounded off.

The average EP was weighted average taking into consideration volumes also, worked out as seen in DIE 124 at page 1054 of paper book No. 28.

The impugned order at pages 1223 to 1225 incorporated a chart showing A86 EPs for various months compared with IMRB prices and stated that by and large the figures tallied. Learned Counsel took us through the documents and showed that the figures tallied only for some brands for some months. A86 was stated to be prepared in September 1985 and so the figures prior to September 1985 being observed figures could obviously tally. The adjudicating authority concluded that the forecast or prediction "agreed" with the observed prices and therefore, ITC must have fixed those EPs and enforced them. According to learned Counsel the premise and conclusion are both erroneous. We find on verification that there are more discrepancies than consistencies between A86 figures and observed actual prices for the period September 1985 onwards. This can be seen from DAE )129A at page 1141 of paper book No.29, DAE 167B at page 1824 of paper book No. 33, DAE 113 at page 809 of paper book No. 26 and written submissions at pages 208 to 210 of paper book No. 42 and the consolidated chart produced by appellants. Learned Counsel also indicated that EPs for period J taken from A86 (as also for periods K and L) fall within the "UN-WORKABLE" areas.

88. We have carefully considered the documentary and oral evidence and the probabilities. In our opinion, EPs indicated in A86 fall in two different categories. If it was prepared in September 1985, EPs for September and December 1985 and January and June 1986 must be EPs predicted or forecast while EPs for July and August 1985 may be observed EPs. These EPs cannot be regarded as EPs fixed by ITC. These EPs had been projected on the basis of several assumptions and PPs estimated or projected for several months for the purpose of estimating future trends in volumes and brand contributions. It can be said that these EPs were visualised or envisaged by ITC for the purpose referred to above and it can be inferred that these EPs were also EPs which would have been visualised or envisaged as pricing strategy. But it must be possible to arrive at the prices which should have been printed on a consideration of EPs projected in A86. A86 indicates that ITC was projecting two sets of retail prices, namely, PPs and EPs. However, the Adjudicating Authority erred in adopting the EPs in A86 as such without any adjustment and without considering the fact that A86 is a document of district west which includes areas with high retail prices on account of influence of retailers' associations and with high octroi incidence.

89. A copy of A85 is seen at page 178 of paper book 4A. It contains various figures for eleven "high" brands, fourteen "medium" brands and thirteen "low" brands etc. The figures provide Volume, UP, EP, CS and expectations for July 1986, August 1986, November/December 1986, January/June 1987. The heading of the document is 'Expectations (West)". K. Ramanath deposed that as district manager (west) he prepared A85 in November, 1986 and it was a summary of sales forecast.

The figures for July 1986, August 1986 and September 1986 were "existing" data. This sixth column under "C.S" represented actuals. The figures for subsequent periods were "estimates". He also stated that A85 was prepared for review of ITC's market position and in view of changing circumstances of competition. UP stood for unit price or PP and "EP" stood for effective price. "CS" represented "consumer spending" i.e. what the consumers spend on purchase of cigarettes. This was arrived at by multiplying volume by EP. At the relevant time, the accounting year of ITC was from July to June. A85 contains other abbreviations such as "NTO" (Net turnover per 1000 cigarettes), "average GTO" (average gross turnover), "VC" (variable cost other than fixed cost of production), "CONT" (contribution of each brand per 1000 cigarettes), "G. CONT" (gross contribution i.e. contribution per 1000 multiplied by volume), "GNTO" (gross net turnover) i.e. NTO multiplied by volume of a brand). At bottom left of A85 are the words "price increase taken into consideration for the exercise" and "worksheet protected except volume and to date NTO/CONT". The Adjudicating Authority held that the word "protected" implied that the EPs in A85 had been "fixed" by ITC, though no such suggestion had been put to the author, K. Ramanath when he gave evidence. Adjudicating authority also held that the words "price increase taken into consideration" and "worksheet protected..." also evidenced fixation of EPs by ITC as also "envisaging" and "visualising" higher EPs while declaring and printing lower PPs. The impugned order indicated that what was forecast in A85 was volume and not EP which along with CS were pre-determined to a level. This inference was on the basis of the words used in A85 and quoted above. The above finding and reasoning are challenged by the appellants.

90. It is explained by ITC that as part of the exercise of forecast evidenced by A85, initially EPs and volumes would be forecast and by multiplying the same CS would be arrived at. J. Narayan deposed (page 229, 230 of paper book No. 15) that EPs in sale forecasts represented the prices generally charged by retailers to smokers in the judgment of the person preparing the forecast and EPs for the future period were probable EPs which retailers were likely to charge and estimated having regard to the pattern of overcharging. He also deposed that sales forecasts were prepared at all levels and ultimately the All-India sales forecast would be prepared by member-marketing at the Head Office. K. Ramanath, the author of A85 deposed (page 249 of paper book No. 10) that A85 was a summary of sales forecast. WDs who were examined and whose evidence were referred to in paragraph 81 above deposed that A85 was never circulated to them.

91. According to Learned Counsel for ITC the word "protected" does not imply that EPs were fixed by ITC, but it is an expression with special connotation in use in computer technology. He referred to "Quick and Easy Learning Lotus 0-1-2-3" by Douglas J. Wolf, second edition, Appendix B at page 156 where it is stated :- "If you wish to display a work sheet but not allow it to be modified, the protection command will do that".

Figure B-7 indicates "Worksheet global protection". The computer can be so operated as to "protect" certain data and such protection can be "disabled" also. It is explained at page R-150 of "The power of Running 1-2-3" by Robert Williams that "protection" facility can be turned on and off. After a spread, sheet has been defined, and is expected to be used by others, cells are protected from changes. While modifying a spread sheet with protection cells, protection has to be turned off while changes are being made. When protection is turned on, cell modification can only be made to cells which had "protection" deleted using the Range unprotect command. Worksheet delete Columns/Rows command cannot be issued while protection is still turned on, but worksheet erase command can be used while protection is turned on. It is unfortunate that Revenue, at the stage of Section 14 statements or oral evidence did not invite the attention of any of the officers of ITC to the word "protected" or seek an explanation or clarification of the same. From the technical books placed before us, we are satisfied that the word "protected" has been used in A85 in the sense that certain data of A85 stored in the memory of the computer was "protected", that is, cannot be changed without deliberately turning off "protection". The relevant words in A85 are :- "The increase in sheet protection into account for exercise except volume of total NTO/CONT" Except those indicated in the above passage, the rest of the data in the computer sheet was "protected", that is, such data could not be changed by any one who did not know the procedure and keyword for changing such data. We find the Adjudicating Authority committed an error in inferring that since the data of EPs in A85 was "protected", the data was fixed by ITC. At the same time, we do not think that protection given to EPs and certain other data could be ignored as being of no consequence. Treating EPs or other items of data as "protected" clearly indicated that the exercise of preparing the data was a complicated and streneous one and those who prepared the same took steps to ensure that the data was not accidentally deleted or erased from computer memory. EPs in A85 must be regarded as EPs visualised or envisaged by Western District Office of ITC and our reasoning regarding A86 would apply to A85 also. However since the EPs were prepared much earlier in point of time, it would be necessary and proper to consider the question of adjustment as we have indicated in paragraph 89 supra in regard to A85.

92. Comparison of EPs in A85 with other prices was attempted to be made by the Adjudicating Authority at pages 1224 and 1225 of the order. He drew the inference that the forecast in A85 came true after comparing only the figures for July to October 1986 (wrongly indicated in the order as 1985), a period prior to November 1986 when, according to K.Ramanath, A85 was prepared. It is contended that EPs shown in A85 for the months prior to November 1986 were observed EPs and therefore the adjudicating authority did not notice any discrepancy with the actuals.

He could have held that EPs visualised in A85 for November 1986 onwards came true only if he had compared them with actuals or observed EPs, which he did not do. Even in the chart at pages 1224 and 1225 of the impugned order, some of the EPs do not agree with the actuals. Learned Counsel for ITC has prepared a chart for comparison of EPs for all the months shown in A85. It is seen that only about 42% of the EPs tally with actuals. Therefore the aspect of adjustment of EPs projected in A85 has to be considered as indicated in the previous paragraph.

93. Learned Counsel contended that though A85 indicated EPs for November and December 1986, the Adjudicating Authority adopted the EPs for July and October 1986 to quantify EPs for the entire period (1-7-1986 to 31-12-1986) and figures for November and December 1986 also should have been taken into consideration. This contention has no substance since it is seen that EPs in A85 for October 1986 were the same as for November and December 1986 except in one case where there was a difference of only one paise.

94. DDC chart and the impugned order relied on A85 for arriving at the EPs for period L also (January and February 1987). Period K consisted of the period 1-7-1986 to 31-12-1986. We have already recorded our conclusions regarding A85. It is complained that the Adjudicating Authority did not compare the EPs in A85 for January and February 1987 with IMRB prices. Learned Counsel has produced a chart of comparison in respect of ITC brands for which IMRB prices have been produced by appellants. IMRB has provided several actual retail prices. In the case of one brand, IMRB price was higher than EP of A85. In the case of four brands, IMRB prices were equal to or higher than EPs of A85 though some IMRB prices were marginally lower. In the case of three brands, majority of IMRB prices were slightly less than EPs of A85 and a few were equal to or more than EPs of A85. As we have indicated earlier, the question of adjustment has to be considered.

95. This is the action plan dated 12-10-1985 suggested by Jaipur branch of north district relating to six ITC brands regarded as priority brands. A23 indicated EPs for these brands. The priority objectives were establishment of the brands at the new price with minimum loss in volume, containing competing R&D FT brand by projecting ITC brand Embassy FT as the alternative and ensuring universal availability of the brands to absorb volume shared by ITC brands WFT, WFTK and FS FTK - all with the object of increasing ITC volumes and market share.

Paragraph 4 contains sales forecast for four ITC brands in seven towns.

Paragraph 5 discusses the distribution strategy; one of the strategy was to ensure fair price selling. Paragraph 6 relates to distribution coverage, including the number of fair price outlets. Paragraph 7 deals with advertising strategy. Para 8 deals with sales promotion activities, including gift for retailers selling at correct prices and retailer and consumer incentives such as presentation of gift. The show cause notice alleged that A23 indicated priority to establish brands at new prices, that is, EPs higher than the corresponding PPs. A23 was prepared after the issue of notification No. 201/85 dated 2-9-1985 which, according to the appellants created slabs with non-workable areas. For these brands, ITC revised PP's with effect from-13-9-1985 or 30-9-1985 as the case may be, as seen at page 3 of paper book No. 43.

The upward revision of PPs was by around 36%. The price lists are DAE 127(L) and (M) at pages 1128 and 1131 of paper book No. 29. It is pointed out that the PPs were revised from Rs. 3.75, Rs. 3.60, Rs. 2.80, Rs. 2.10, Rs. 2.10 and Rs. 1.30 per packet of ten cigarettes to Rs. 5.15, Rs. 5.00, Rs. 3.00, Rs. 2.90, Rs. 2.85 and Rs. 1.70 respectively. The slabs under Notification No. 201/85 were Rs. 60, Rs. 61 to Rs. 170, Rs. 171 to Rs. 300, Rs. 301 to Rs. 350 and above Rs. 350 while the pre-existing slabs were Rs. 50, Rs. 51 to Rs. 60, Rs. 61 to Rs. 300, Rs. 300, Rs. 301 to Rs. 500 and above Rs. 500. The rates were increased substantially. If PP of packet with PP of Rs. 3.50 was not increased, duty payable would have been Rs. 4. It is contended that ITC submitted price lists proposing reduced PPs with lower duty liability as seen in document DAE 127 at page 1128 of paper book No. 29 but since it was not accepted, ITC filed price lists increasing PPs as seen in document DAE 127M at page 1137 of paper book No. 29.

96. Learned counsel argued that A23 action plan dealt with the situation created by the new increased PPs and that EPs shown in A23 were actual prevailing prices. With increased PPs leading to increase in EPs, volumes would have been adversely affected and the action plan was prepared by Jaipur branch manager to counteract the fall in volumes. The Adjudicating Authority concluded that A23 showed that ITC wanted to establish EPs as indicated in A23 and A23 proved fixation of EPs by ITC. According to learned Counsel, A23 was an internal document sent from the branch to the district office and did not refer to PPs since PPs had already been circulated by document DAE 127M etc. A23 was, it is contended, only an exercise to save volumes damaged by increase in PPs. He complained that the Adjudicating Authority ignored the suggestion in A23 to attempt to ensure fair price selling or selling at correct prices. Reference is made to DAE 67 (page 482 of paper book No. 25), letter dated 27-3-1986 by Kanpur branch manager to Membermarketing in the Head Office regarding progress on FTK. The letter indicated the tendency of retailers to overcharge and the authors' attempt to persuade the retailers to sell packages at PPs in view of adequate earning from high percentage of profit from sale of sticks, but that the attempt was not successful in view of high-profit orientation of retailers. According to learned Counsel, "correct" or "fair" price referred to in A23 meant PP. A23 was prepared by S.D.Banerjee. He stated in his Section 14 statement that EPs in A23 were prevailing market prices. Sujan, district manager, east, (page 97 of paper book No. 10) generally stated that EPs indicated in action plans reflected prevailing prices. It is pointed out that both PP and EP of Wills FT and Wills FTK in A23 fell in the same slab and hence visualisation of higher EP had no revenue implication. A23 related to period J. Learned Counsel pointed out that EP of Wills FT in A23 is Rs. 5.25, in DDC chart is Rs. 5.50 and of Wills FTK are Rs. 3.25 and Rs. 3.50 respectively but demand has been confirmed for these brands based on higher DDC chart EPs. He also referred to the evidence of Sujan of ITC to the effect that "new prices" in A23 meant PPs. He gave two reasons in support of this interpretation, namely, that PPs had not changed and ITC had no capacity to establish EPs. S. Misra (Manager, Marketing) deposed (page 223 of paper book No. 11) that ITC was advertising PPs and intimating PPs to State Governments and had opened fair price shops to combat the phenomenon of retailers selling packages at higher prices. All the contentions urged by appellants are sought to be rebutted by learned Counsel for Revenue who supported the finding in the impugned order that EPs referred to in A23 were prices "fixed" by ITC or at any rate, visualised by ITC as prices which should prevail.

97. A23 clearly referred to new EPs which were higher than the new PPs.

The first object of the action plan was to establish the brands at the new prices and at the same time protect sale volumes. A23 did not refer to the pre-existing or new PPs fixed in September, 1985 in the aftermath of drastic changes in duty structure brought about by Notification No. 201/85. A23 did not reveal any concern about changes in PPs; on the other hand, it referred to the new EPs and revealed concern over impact of quantum of "new prices" over sale volumes. The "new prices" referred to could be only new EPs visualised as a consequence of increasing PPs by about 35%. The market could absorb increase in prices only up to a limit without adversely affecting sale volumes. ITC recognised outlets where packages would be sold at "fair prices". If the outlets recognised were intended to sell packages at PPs, A23 would have stated so specifically instead of referring to "fair price selling" or "fair price outlets" or "correct prices". There is nothing in A23 to indicate that the ITC branch considered PPs to be excessive or likely to damage sale volumes. The logical inference is that one of the objectives of A23 was to popularise and implement the visualised EPs while protecting and improving sale volumes. EPs in A23 do not appear to be merely observed prices. A23 appertains to period J.There is a contention that some PPs and the corresponding EPs shown in A23 being in the same slab of Notification No. 201/85, ITC could not have fixed or visualised higher EPs in order to evade payment of excise duty. A23 relates only to a few brands. Fixing of PPs and fixing or visualising EPs is an exercise which takes into consideration prices of competing brands also. Slabs were being changed from time to time to meet situations created suitable adjustment of prices by manufacturer as and when slabs were amended. Manufacturer should, therefore, provide for future changes of slabs also. Hence, the fact that PPs and the corresponding EPs of a few brands fell in the same slab would not affect the question. We agree that EPs in A23 were visualised EPs. The contention that these EPs were marginally lower than EPs seen in A86, the DDC chart document has no particular significance since A23 was prepared by branch in east district (Delhi) and A86 was sales forecast prepared by district west and such region wise differences would be natural and inevitable. Such regional qualification would take into consideration regional factors, such as nature and extent of competition in a particular region or area, the incidence of local taxes etc. We hold that A23 broadly corroborates the conclusion that ITC was visualising EPs higher than PPs.

98. A28 is a copy of the marketing plan for the brand "NOW FTK 20SC" in Delhi City prepared by Assistant Marketing Manager of Delhi branch and sent to his branch manager with copies to all team members. A28 noted in ink "Printed Price for 20 - Rs. 3.40 (1.70 for 10)". One slab under Notification No. 201/85 ended at Rs. 1.70 for 10 cigarettes. This amount of Rs. 1.70 tallied with the PP in price list DAE 127(J) seen in paper book 29. The brand was a low price brand. The competing brand was STYLE FTK of GTC. A28 indicated that in the low price segment, Style FTK had established a volume of 40 million and the volume was rapidly growing while ITC brand NOW FTK was unrepresented. A26 provided a plan for increasing the sale volume of ITC brand. "KS" means "King Sized" and "FT" means "Filter Tipped". The volume of low price segment in cigarettes was 126 million which represented 45% share of industry in which ITC was poorly represented with EMBASSY FT and WILLS ROYAL FT.ITC share in 20 paise/25 paise category which represented 58% of industry volume was a poor 4%. The plan wanted to project a "value offer" by ITC of a contemporary cigarette for which there was growing demand. Page 76 noted existing volume position of 4 ITC brands and 7 competition brands and the total volume in the industry in the "effective unit price" range of Rs. 4 per packet and stick price of 25 paise. Page 77 referred to estimated sales. The plan required teams to be set up to assist WDs and their salesmen in implementing an aggressive distribution policy. Distribution was to be carried out in 5 or 10 packet lots covering all classes of outlets. Target for distribution was to be fixed. One packet was to be given free to every retailer as introductory offer for sampling. The free sample was to be opened and cigarettes offered to retailers or consumers to demonstrate purpose of free sample. At page 77, it was stated :- "Word of mouth publicity - At every outlet the brands plus points and contemporariness will need to be highlighted - (f) excellent blend of Virginia tobacco offering best value for money at popular price." Sales were to be monitored at WD point as per prescribed format. Branch record format was also prescribed. Inputs and tasks of advertising and promotion were set out at page 78. A team was set up with 40 hired boys to contact consumers. The team was required to conduct sampling and direct sales to targeted smokers who will be offered one packet and an attractive pen for Rs. 5.00. Direct sales at retail outlets were to be conducted through distribution team. Decorated float operations were to be conducted. One hired boy was to conduct sampling/direct sales from the float. Letters to targeted smokers were to be handed over. Salesmen were to be awarded prizes.

99. The significance of A28 lies in that for the particular brand with PP of Rs. 1.70, the marketing plan envisaged value offer of a brand with an EP of Rs. 4.00 for packet of 20 cigarettes and stick price of 25 paise. The adjudicating authority held that A28 proved that ITC envisaged an EP higher than PP and the brand should have a stick price of 20 or 25 paise, though PP divided by 10 would be only 17 paise. He concluded that even if Rs. 4 or 20/25 paise were observed prices or prices forecast, A28 supported the view that ITC knew the prices at which the packages will be ultimately sold to consumers and that ITC was fixing and envisaging EP per packet. Referring to the proposed offer of gift to smokers, the adjudicating authority observed that the gift was to establish the higher EP and direct sales by ITC staff was to enforce the higher EP. The impugned order also indicated that "word of mouth publicity" was to be given to higher EP. The order relied on statements of Mahavir Prasad and Abdul Mannan, retailers in Lucknow city (not Delhi city targeted by A28) to the effect that ITC staff used to come and tell the retailers the price at which they should sell cigarette packages.

100. Learned Counsel for appellants challenged the correctness of the conclusions in the impugned order regarding A28. According to him, "popular price" meant PP and not EP since it is clear that Rs. 3.40 referred to as "popular price" was PP as seen from DAE 67 at page 424 of paper book 25. It was contended that the adjudicating authority was in error in thinking that the "permission" for float operation referred in A28 meant permission from Head Office of ITC for EP. Actually the reference was to permission from police authority for arranging float operation on public road. K.L. Khanna, Assistant (marketing) Delhi deposed (page 30 onwards of paper book No. 13) that before launching NOW FTK, effective price was "forecast" as the price which the retailer was likely to charge. It is stated that the two retailers whose statements were relied were operating in Lucknow and not Delhi. It is contended that one of them, Mahavir Prasad has his shop adjoining the Central Excise Office gate in Lucknow. He stated in cross-examination (page 199 of paper book 12) that he did not know who were the people who came, that they were hawkers (salesmen) who came usually on cycles and sometimes officers of ITC used to come with cyclists/hawkers. The other retailer, Abdul Mannan deposed that sometimes ITC officers and salesmen explained the prices. He claimed that packets were sold at PPs, a claim not even put forward by ITC. Reference is made to the general stand taken by WDs against ITC fixing EPs or giving guidelines about EPs. That was the statement of B. Kishore, Jalandhar in DAE at pages 140,143,144 of the paper book was relied on.

101. One of the objectives of the plan in A28 was to meet the demand for a product with a value offer with EP of Rs. 4.00 per packet and 25 Paise per stick with effect from 26-12-1985. Details of an aggressive distribution policy were provided in A28. Distribution was to be launched through special teams giving special incentives to retailers and smokers. ITC staff were to be actively associated with the programme. That the new brand offered best value for money at a "popular price" was to be publicised by word of mouth. Smokers were to be contacted. Direct sales to targeted smokers were to be effected. A28 clearly visualised, if not fixed, EP of Rs. 4.00. It is, therefore, evident that "fair price" to be publicised was not PP, but EP so fixed or visualised by ITC. This inference supports the case put forward by Revenue.

102. This document seized from a Branch of ITC A29 is progress report for 9-6-1986 to 19-6-1986 sent by the Delhi Branch to Marketing Manager of Head Office on 26-6-1986 for the new brand STRIDE FTK. This report indicated sales to retailers, to SWs and consumer contact. 3800 retail outlets in the city were covered during the period. Retail distribution in key areas had been carried out in concert with ITC staff. Smokers were contacted through 40 hired boys and offered one packet of STRIDE along with a pen and a folder containing a year planner for Rs. 10.00.

Para 8 indicated the prevailing prices as Rs. 6.50 per pack (of 20 cigarettes) and 35 paise per stick. Curiously A29 did not refer to PP which was Rs. 2.50. The adjudicating authority held that the prevailing price was what ITC visualised.

K.L. Khanna, Assistant (Marketing) of Delhi Branch deposed (page 47 of paper book 13) that the prices in Para 8 were observed actual prices.

So also did S. Misra (pages 233 to 238 of paper book 11). Learned Counsel for appellants challenged the finding that the price in Para 8 of A29 was a price visualised by ITC. A29 did not give any indication of any price as fixed or visualise or expected by ITC. Reference was to prevailing price of Rs. 3.25 as against PP of Rs. 2.50. Sales to smokers organised under the guidance of ITC staff were not of mere packages but of packages with two attractive articles for a consolidated price of Rs. 10.00. The contention of learned Counsel for Revenue that ITC staff organised sales to smokers at the prevailing price of Rs. 3.25 per packet of 10 cigarettes is not correct. A29 does not so indicate; on the other hand, it indicates that ITC staff organised sales only of packages containing a cigarette packet and the other articles. We are not able to agree that A29 supports the case of fixation or visualisation of higher EP by ITC. But A29 clearly shows that ITC was aware of the prevailing retail price.

103. This is a launch report dated 5-12-1985 prepared by Saharanpur Branch and sent to the Marketing Manager, Head Office of ITC regarding brand CAPSTAN FLAKE FT. This launch has been referred to in the show cause notice in Para 5.1(b). The objective noted is to make quick extensions of the brand so as to precede the entry of a rival brand, to achieve very high degree of trial by target smokers and to convince them that the successor to CAPSTAN FT superior in quality was now available at a reasonable price. The brand was launched by a team of 7 members of ITC staff aided by WDs staff in the two main markets and by a team of 4 persons in other markets. Each team was divided into distribution team and consumer contact team. A24 reported advertising and sales promotion, booming and consumer contact from floats and otherwise. Extensive sales were made to smokers from the float at Rs. 2 per one package of cigarette, with one match box and a small gift. 3500 packages were sold. There was a stall put up at local 'mela' where 3500 packages were sold. 7000 packages were sold to smokers in a few days.

The brand was well received by the trade. The report indicated extension plan also. In regard to prospect, it was reported that the brand was expected to get a major boost when expected price hike of a rival brand to Rs. 2.80 materialised. The printed price of the packets was Rs. 1.70. The Adjudicating Authority commented on the package sales to consumers at Rs. 2; that is explained by the circumstance that Rs. 2 was collected not only for one packet of cigarette but also for match box and a small gift. The impugned order also indicated that there were direct sales to smokers by ITC, which according to the learned Counsel, is wrong. This submission does not appear to be correct. A24 clearly stated that the contact team consisted of ITC staff, aided by WDs staff. It may be that the team obtained stock from WDs but then it is clear that the ITC's staff were involved in the consumer contact. The adjudicating authority was in error in accepting that Rs. 2 was the visualised or expected price. It appears that there was an old brand CAPSTAN FT with Rs. 1.80 as printed price. According to the Learned Counsel, after notification 201/85 dated 2-9-1985 all brands with PP of Rs. 1.70 fell within "non workable area" and therefore ITC attempted to reduce the price of some brands and filed revised price list but CBEC declined to allow reduction of price and therefore ITC increased the price of the brand to Rs. 2.70 so as to cover the new excise duty of Rs. 2.25. A new brand CAPSTAN FLAKE FT at PP of Rs. 1.70 was introduced and the old CAPSTAN FT at PP of Rs. 2.70 was also in the market. A24 reported that small quantities of CAPSTAN FT lying in the market were not moving at the new price. A24 related mainly to the new brand price of Rs. 1.70. All these details are seen in the minutes of the meeting of the Directors at page 99 of paper book No. 40 and the note by Chairman ITC to Member CBEC seen at page 179. We find that A24 is not helpful to Revenue except to the extent that ITC branches were actively involved in pushing new brands in the market by consumer contact and allied activities.

104. This relates to period J. A19 is a letter from District Office Bombay to Member (Marketing) about the urgent need for a new brand by name BRISTOL FILTER KINGS 20SC. It appears that Bristol Trademark was in grave danger of extinction in the west with sharply declining sales since December 1985, the reason being escalation of price of Bristol FT from Rs. 2 to Rs. 2.85 within a span of six months, September 1985 to February 1986. According to the learned Counsel for the appellants, PP of Rs. 2.25 or less would fall within "unworkable area" since new duty would be Rs. 2.25. According to the letter, the then Bristol FT did not represent adequate value in terms of intensive product and image and there were excellent value offers for rival brands. BRISTOL FT was competing against inherently strong trend towards King Size cigarettes especially in the Rs. 2.80 and above segments. Strength of BRISTOL FT lay in its name built over 17 years. The letter proposed a 20SC King Size version of BRISTOL at Rs. 3 for 10s which will meet consumer needs by providing a rationale for the BFT smoker to move upwards and providing physical value according to the contemporary trends though at a marginally higher price of 40 paise or 35 paise. Details of the particulars are seen at page 49 of paper book 4A. The proposal was to have printed price Rs. 6 for 20 and effective price of Rs. 7.50 for 20 and 40 paise per stick. It may be noted that, at the relevant time, the relevant slabs were Rs. 1.70 to Rs. 3 and above Rs. 3 up to Rs. 5.50 per ten cigarettes. This explains the proposal to keep printed price at Rs. 3 so as to enjoy the benefit of lower slab while having the effective price of Rs. 3.75 for 10 and 40 paise per stick. According to the learned Counsel, effective price referred to in page 49 was only a forecast in acknowledgment of the market reality and nothing more and the proposal was based on estimate. Though the proposal was made in April 1986 it took 6 months to introduce this new brand, which was introduced only in October at printed price of Rs. 3. DDC for period J relied on A85, west district forecast prepared in November, 1986 with effective price of Rs. 3.50 as against effective price of Rs. 3.75 in A19. According to the learned Counsel there were two forecasts. The letter at page 51 stressed test marketing in Ahmedabad city as it represented BRISTOL country and was relatively low cost launch market compared to Bombay city apparently in terms of high octroi. A37A indicated Ahmedabad to be a high octroi area. This according to learned Counsel is relevant since PP was exclusive of local taxes and EP would be inclusive of local taxes. Learned Counsel contended that from the amount of EP local taxes should be deducted and the process of rounding off be adopted. It is also pointed out that A19 proposal was for Bombay region where prices are always higher than other regions on account of strong pressure of retailers association.

105. The adjudicating authority indicated that EP of A19 could not be "observed price" as the brand was yet to be introduced and it was clear that the District Managers were suggesting EP higher than PP for new brand because that was in tune with the ITC strategy. It is also pointed out that the proposal was to introduce a package of 20 cigarettes but actually a package of 10 cigarettes was introduced. K.Ramanath, author of A19, deposed as seen at pages 255 and 256 of paper book No. 10, that EP in A19 referred to model price in view of tendency of retailers to overcharge. It is seen stated in the deposition of J.N.Sapru, Chairman as seen at page 189 of paper book no. 19, that A19 did not represent fixation of price and E.P. can only be PP plus local taxes with rounding off process on account of coin shortage. Since the brand referred to in A19 was a proposed brand, EP mentioned in A19 could not be "observed price". Of course, it could be an estimated EP and as it turned out, the estimate was excessive as seen from DDC document A85 which indicated EP at Rs. 3.50. However, A19 can be safely accepted as indication of the practice of ITC to propose PP less than estimated or visualised or expected EP.106. A18 is a letter dated 4-7-1986 of the District Manager, East, Calcutta to Member (Marketing) ITDB regarding Rs. 1-70 Category. The relevant slabs of ASP under Notification No. 201 /85 were Re. 1 to Rs. 1.70, Rs. 1.71 to Rs. 3.00, above Rs. 3 to Rs. 5.50 and above Rs. 5.50.

The letter was written on the supposition that excise duty structure may be revised and indicated that contributions from brands positioned at an E.P. of Rs. 2.00 will increase. It was supposed that the revised excise structure will not allow positioning brands at a price lower than Rs. 2.00 and A18 indicated that whether price to the retailer was Rs. 1.70 or Rs.1.85, the EP will always be at least Rs. 2.00. It was suggested that the strategy will be to further develop KSFTs with an EP of Rs. 2.00 which will then offer about Rs. 9.00 for 1000 cigarettes as contribution or to increase the value of the existing Rs. 1.70 offers.

It actually transpired that exemption notification slabs were not changed. This was, as suggested by the appellants, a hypothetical exercise. A18 was replied to by a letter seen at page 37 of paper book no. 40, stating that ITC must improve overall value of specified brands at "market price" and informing the District Manager that ITC has obtained permission of CBEC to open a segment at Re. 1.00. The adjudicating authority held that the EP of Rs. 2.00 as against PP of Rs. 1.70 was visualised by ITC as the price which should prevail and A18 showed that the pricing strategy of ITC always visualised EPs higher than PPs as prices which should prevail.

107. Learned Counsel for the appellants contended that the EP referred to in A18 was only an observed price as it was already prevailing in the market. He relied on the evidence of R. Sujan, the author of A8 (pages 88, 89 of paper book 10) that he made the proposal on the supposition that the second slab may go up to Rs. 1.85 in the place of Rs. 1.70 in which case, the duty will be Rs. 1.35 instead of Rs. 1.25 and that the EP referred to in the letter was "modal price". In his Section 14 statement, he stated that EP was an observed price as the brand was generally sold at Rs. 2.00. This evidence appears improbable.

A18 referred to "brands positioned at Rs. 2.00" and the advisability of developing brands with ET of Rs. 2.00. While Rs. 2.00 mentioned as EP of an existing brand may or may not be "observed price", the EP of a brand yet to be developed could not be "observed price". A18 clearly shows that visualising or expecting a brand to be sold at a higher EP while PP was lower was an accepted policy and strategy of ITC.108. A72 contains a list of brands and prices seized from a WD at Madras, Adam Jahi Md. Sait. The prices given were prices to WD, SWD, Retailer and PP. The PP tallies with PP shown in DAE 127L at page 1128 of Paper Book No. 29 and DAE 127M at page 1131 of Paper Book No. 29.

A72 does not indicate EPs. But it shows retailers' margin based on PPs was 10 paise for 1000 cigarettes. A72 offered rebate of Rs. 5 per 1000 cigarettes to SWD and Retailers in the case of one brand and of Rs. 15 in the case of another brand with PP of Rs. 2.90 and Rs. 2.85 respectively and indicated that the rebate will be withdrawn if 30 paise level (for stick) was not implemented. A72 is unsigned and for that reason characterised by the Revenue as "blind note" sent by ITC to DDC. This was after the Notification 201 /85. A72 indicates that ITC would try to influence the retail market by offering rebate to Retailers as an incentive. None connected with A72 was examined before the adjudicating authority. According to learned Counsel, at the relevant time, the PP of the two brands with rebate offer referred to in A72 was Rs. 2.90 and Rs. 2.85 for packet of 10 respectively and retailers' revised margin with the rebate was Rs. 5.40 and Rs. 15.40 per 1000 cigarettes respectively. According to the appellants since retail sale price was not maintained at 30 paise, the rebate was withdrawn. A72 does not have much relevance in considering the price of packages of 10 or 20. It is pointed out that according to DDC chart for period ']', EP of these two brands was Rs. 3.50 and Rs. 3.25 respectively and ITC was apparently trying to maintain stick price of 30 paise, which would be contradictory. If somebody connected with A72 had been examined, some light could have been thrown on these aspects.

Hence A72 does not have much relevance in the context.

109. A40 is letter dated 11-11-1985 from the Ahmedabad Branch Manager of ITC to all members of management and marketing supervisors regarding CAPSTAN FTK. The author agreed that rebate of Rs. 5 should be given so that the brand can be sold by retailers at Rs. 3 for packet of 10 cigarettes and in turn stick could be retailed at 35 paise. The letter suggested publicity for the brand. The relevant PP was Rs. 3.00 for packet of 10 cigarettes. The relevant slab was from Rs. 1.70 to Rs. 3.00. The impugned order held that this was an instance of ITC taking action to ensure desired price level which was visualised and fixed. To the argument that in view of high incidence of octroi in Ahmedabad, 35; paise per stick was the only feasible price, the Adjudicating Authority indicated that there was no evidence regarding incidence of octroi. He also held that the attempt was to bring down the stick price from 40 paise to 35 paise which ITC aimed, visualised and fixed. According to appellants, A40 does not indicate any attempt to maintain EP of packet at any particular level and stick price is outside the pale of the exemption notification. S. Misra in his evidence (paper book No. 11) stated that the PP was Rs. 3.00 and the attempt was to keep down the stick price at 5 paise. A40 does not relate to EP for packet and hence does not support me case of Revenue except that it shows ITC was prone to interfere in ensuring certain stick prices.

110. A70 is letter dated 24-7-1986 of a WD to the ITC Branch Manager at Madras regarding rebate allowed to customers. According to the impugned order, A70 indicates grant of rebate to special outlets to enable cigarettes to be sold at PP and it must follow that if rebate was not given, retailers cannot sell packets at PP. This conclusion is challenged by the appellants. S. Misra (pages 226, 227 of paper book No. 11) deposed that rebate or discount was not given directly by ITC.WDs gave rebate to selected prestigious outlets such as clubs, leading stores, railway institutes and consequently ITC got prominent display space at those outlets. The practice of rebate was in force even in 1947 when S. Misra joined ITC. According to the evidence of Vyasamoorthy, Marketing Supervisor of Madras Branch, when customers complained of excessive price being charged, they were directed to these special outlets where packets were being sold at PPs and WDs gave the rebate and they were reimbursed by ITC. Appellants contended that PPs were being promptly intimated to Civil Supplies Department of State Governments and Directors of Weights and Measures as seen at pages 57 and 62 to 78 of paper book No. 40. It appears that A70 may not evidence fixation of EPs by ITC, but A70 shows that ITC was aware of retailers selling packages at EPs higher than PPs and was ensuring supplies to selected prestigious outlets where packages would be sold at PPs, though such sales must necessarily account only for a very small percentage of total retail sales.

111. This is a blind note pinned to page 107 which is a letter accompanying price list dated 1-7-1986 sent by ITC Branch Manager at Coimbatore to all WDs within his branch with copy to the District Manager, Bangalore and Management (Marketing) Supervisors. The price list indicated the WD price in tax free markets and that under P.C Rules, ITC was obliged to mark the maximum retail price on packets which ITC was then doing. The letter also indicated such maximum prices also in the enclosed price list. The price list seen at page 1125 of paper book No. 29 shows WD price and PP in tax free markets with effect from 1-7-1986. The earlier price list DAE 127 effective from 3-10-1985 and seen at page 1131 of paper book No. 11 shows same or different WDs price, but the same PP. The price to WD was reduced by 45 paise to Rs. 1.47 for 1000 cigarettes of various brands and there was no change for three brands. A44 is an unsigned note saying that "although there has been a change in the invoice prices, please note that price to SWs, retailers and the consumers remains unchanged". According to the Adjudicating Authority, the general contention that various documents reflect "observed" prices and not prices at various levels fixed by ITC was falsified by A44 which showed atleast that it was the practice of ITC to fix intermediate prices to SWD and Retailers.

112. Learned Counsel for appellants rightly pointed out that the official ITC price lists refer to PP and not to EP. According to him, therefore the "price to consumers" referred to in A44 was PP and not EP. It is pointed out that any action of a manufacturer fixing prices to SWDs and retailers would violate MRTP Act and hence the message about intermediate prices not changing was sent by an unsigned note.

The show cause notice referred to A44 as implying the existence of a system of communicating EPs to the trade without leaving any trail by way of blind notes or blind price lists. Learned Counsel contended that intermediate prices conveyed by ITC to the trade were only "suggested" prices and not prices "fixed" by ITC. A44 evidences a similar attempt to communicate intermediate prices to the trade by figures at the bottom of price list with perforation so that the part containing intermediate prices can be removed by the WDs. Learned Counsel agreed that the "suggested" intermediate prices were generally same though there were variations in some cases as seen in the charts at pages 24,43,45 and 46 of paper book No. 43 prepared on the basis of Section 14 statements of WDs not relied on in the show cause notice. In those statements, WDs stated that they themselves fix prices to SWDs keeping in view the prices suggested by ITC and commercial considerations and that WDs were free to fix their own prices. These statements are seen at pages 108 onwards of paper book No. 7. It is suggested that A44 shows by implication that in spite of wholesale price revision with effect from 1-7-1986 there was no change of PP and consequently of EP and this would be contrary to the DDC chart according to which EP's of eleven brands increased from period 'J' to period 'K'.

113. We are not able to agree that intermediate prices were not being fixed by ITC. The connotation of "suggested" prices is not, in the context, different from "fixed" prices. Even if ITC fixes intermediate prices, there will be no absolute certainty that every WD or SWD follows the same. They may still make some changes depending on local conditions. In this sense they may be "free" to fix their own prices.

But when ITC "fixed" or "suggested" intermediate prices, they were generally expected to be and were followed. That there were certain exceptions or variations would not really matter. The statement that there was no change in consumer price, though ostensibly referring to PP as suggested by learned Counsel, was a clear hint that ITC did not fix or suggest or expect or visualise any change in EP. A44 generally supports the case of Revenue.

114. A4 was seized from P.N. Shaw, a WD at Calcutta. Page 4 contains prices to WD, SWD, for direct selling and to retailer as also PPs for certain brands in Non-Entry Tax areas w.e.f. 4-4-1985. Page 5 contains such prices in Entry Tax areas. Page 6 contains prices to SWs, retailers, PPs and EPs w.e.f. 5-4-1985. Pages 7 and 9 contain prices to WDs, SWDs, Retailers, PP and "end selling price" (evidently meaning EPs) in Non-Entry Tax areas. Page 8 contains prices to WDs, Retailers and "selling unit" (evidently meaning EPs) with effect from 4-4-1985.

Pages 10 and 11 contain prices to WDs, Retailers, PP and "recommended end selling price" (evidently meaning EPs) in ET and NET areas respectively. Page 11 also refers to profit rebate of Rs. 10. The Adjudicating Authority held that A4 contains higher EPs fixed by ITC.115. According to learned Counsel for appellants, this finding is contrary to the evidence. The show cause notice [para 4.4(d)] stated that the prices in A4 were admitted by P.N. Shaw to have been received from ITC. P.N. Shaw in his Section 14 statement seen at page 89 of paper book No. 11 stated that he may have received price list from ITC by post and had followed the rates and the prices in A4 had been written or typed by his staff based on ITC circular dated 4-4-1985.

This circular DAE 127-1 seen at page 1122 of paper book No. 29 mentioned only prices to WD and PPs. ITC price list covered 43 brands while A4 referred to only 26 brands. It is pointed out that A4 mentioned the corresponding prices of a few rival brands also. It is contended that ITC could not have fixed prices of rivals. The basic stand taken is that based on the wholesale prices and PP's circulated by ITC, the WDs worked out the intermediate prices and EPs on their own for ITC brands and rival brands and ITC cannot be held responsible for such effort on the part of WDs. P.N. Shaw deposed at page 74 of paper book No. 12 that the EPs in A4 were "observed" prices and not received from ITC and he was keeping ITC informed about market prices and prevailing prices. There is no evidence, it is said, to show that the intermediate prices or EPs in A4 had been fixed or circulated by ITC.Learned Counsel for Revenue pointed out that EPs shown in A2 and A4 are identical and the relevant price list was effective from 5-4-1985 as seen at page 1122 of paper book 11. A2 is an ITC document which snows the Head Office price to SWs, PP and EP in ET and NET areas. Reference is made to the evidence of S.K. Mehta, Chairman ITDB (page 144 of paper book No. 18) that the activity of observing takes seven to ten days and the evidence of A. Dutt that it generally takes five to ten days.

Considering the effective dates shown in some pages of A4, namely, 4-4-1985, 5-4-1985 and 8-4-1985, it appears unlikely that EPs shown for ITC brands could have been mere "observed" or "prevailing prices". The systematic manner in which invoice prices, intermediate prices, PPs and EPs had been written point to the conclusion that all prices must have been communicated by ITC. The evidence of P.N. Shaw appears to be intrinsically improbable. Non-ITC prices may have been observed prices or the other manufacturers also may have circulated the prices. We are inclined to believe that the intermediate prices and EPs for ITC brands in A4 must be prices fixed or visualised or expected by ITC.116. A64 was received from the Ernakulam Branch of ITC. It was an enclosure to the branch letter EB/11578, dated 4-4-1985 to WDs. A64 indicated wholesale prices and PPs and the column in pencil indicated prices higher than PPs, which according to the Revenue were EPs. The impugned order indicates that these higher prices tally with EPs in A4 and this conclusion, according to the appellants, is wrong. We have verified these sets of prices and find that they do not tally except in one instance. The impugned order also indicates that the prices to retailers shown in the first page of A4 and A65 tally and since A65 is an ITC document A4 also must have come from ITC. Learned Counsel for appellants stated these prices really do not tally. He has furnished a chart for comparison which shows that out of sixteen brands, the prices to retailers in A4 and A65 tally for nine brands and do not tally for seven brands. Prices in A65 and those in another page of A4 tally only for two brands. The impugned order also indicates that A65 evidences fixation. The Adjudicating Authority looked into the original file of Ernakulam Branch containing A64 and A65 and found circular dated 4-4-1985 signed by the Ernakulam Branch Manager addressed to WDs and enclosing the usual price list i.e. A64 (containing only wholesale price and PP) an underneath the price list was a cyclostyled document with the heading "price list" (i.e A65) giving intermediate prices and unit prices for 1000 i cigarettes and per pack w.e.f. 4-4-1985 which was the date of the covering letter and he concluded that A64 and A65 must have been enclosed along with the letter. It is clear that the full story of these documents is not before us, but A64 indicates an attempt by the ITC branch to circulate certain prices shown in pencil which were higher than PPs. It may be that these prices could not be implemented by WDs for various reasons. Hence this document broadly corroborates the case of the Revenue.

117. A5 is a price list w.e.f. 14-9-1985 with printed columns filled in and seized from M/s. Tobacco Mart, Siliguri, a WD of ITC. A5 furnishes price to SWs and to retailers as also PP and EP for fourteen ITC brands. The Adjudicating Authority arrived at a finding on A5 similar to the finding on A4 and for the same reasons. Appellants contend that this document cannot be relied on since the author was not questioned under Section 14 or examined in the course of the adjudication proceeding and there was no evidence that A5 was received from ITC. It is difficult to believe any WD would, on his own, arrive at intermediate prices and EP and enter the same systematically in a proforma; these could not be observed prices but prices received from some other source. The WD would know his price to SWD and PP would have been communicated by ITC in the official price list. The details of prices to retailer and EPs also must have come from ITC. This conclusion appears probable and reasonable. Hence EPs shown in A5 would be prices fixed or visualised by ITC.118. A3 was seized from the Calcutta branch of ITC. A3, which is not signed, shows invoice price, price to SWDs and retailers, unit price (equal to PP) and higher EP for two ITC brands. The Branch Manager, D.Roy in his Section 14 statement could not explain the document. These two EPs were seen written by hand in price list circular dated 15-9-1986 found in the same file in the office of the branch. In his evidence, D. Roy stated that A3 was a worksheet prepared after receipt of DAE 127-K approved price list dated 9-9-1986 but he could not say who prepared it. M. Lele, Marketing Supervisor of the branch office stated in his Section 14 statement (page 86 of Paper Book 5) that he received A3 from the Branch Manager and he might have given a copy of A3 to a WD of North Bengal. However, he tried to go back on this admission at the stage of his evidence, by stating that he did not remember about A3. A3 bears the words "Mr. M.L." at the top right side.

S. Misra in his Section 14 statement (page 221 of paper book 5) stated that "Mr. M.L." could be a reference to M. Lele of the branch office.

He stated that after the 1983 budget it was seen that there was the tendency of retailers to sell at higher prices and the phenomena was called "EP" and constantly tracked. He stated that the unit price shown in A3 was the PP and the price at which the brand was generally available to consumers was E.P. According to the Adjudicating Authority A3, like Al and A2, evidenced fixation of EP by ITC. Learned Counsel for appellants contended that Revenue did not adduce evidence of circulation of A3 to the trade and A3 was only an internal document.

The evidence shows A3 was prepared in the branch office after receipt of official price list of ITC indicating wholesale price and PP. The total trade margin for SWDs and retailers would be clear from the price list. A3 must have been prepared in the branch office by apportioning the trade margin and fixing prices to SWDs and retailers as also the EPs to consumers. These cannot be merely observed prices.

119. Al was seized from the Calcutta branch office of ITC. It notes "Mr. M.L" at the top left side. The heading is "Revised Trade Price/Margin - w.e.f. 1.7.1986". Al furnishes price to WD, NM (that is, normal margin for WD), A.V. (that is, additional value margin for WD), INT (that is interest for 29 days for WD), total margin of WD, price to SWD in ET and NET areas, total margin for SWD, prices to retailer in ET and NET areas, total margin of retailer and unit price - PP and EP.Appellants point out that the EPs of nine out of the thirteen brands shown in Al are lower than the EPs in DDC chart and for six out of thirteen brands, PP and EP shown in Al fall in the same duty slab. In the case of two brands out of the nine brands referred to, the EP in Al would take the brand to the higher slab. The show cause notice alleged that Al showed dual pricing policy adopted by ITC. Al is in the handwriting of D. Roy, Marketing Supervisor who deposed that as per percentages given to him, he calculated the price and margin to SW and he had given a copy of Al to a WD, namely, M/s. Hindustan Tobacco Co.

who, he stated, probably wanted to share the information and the same was given to them, S. Misra deposed (pages 177, 240, 259 to 263, 271, 272 of paper book No. 11) that ITC estimated margins which WDs may retain before selling to SWDs, that this would be worked out as per formula seen in Al, that traditionally SWDs retain a little less than 1% margin and on this basis margin of SWD would be estimated and the balance of the total margin would be regarded as margin available to retailers and this was an exercise of estimation based on the difference between wholesale price and PP and not fixation by ITC.These estimates are made, according to the witness, to find a balance between volume and market share objective and profit objective. Several such exercises would be conducted before arriving at an acceptable forecast. Price to WD would be fixed after first arriving at PP and thereafter estimating margins to SWD and retailer and such reports would be sent to ITDB who accept the recommendation. EP, model price, market price shown in various ITC documents, according to S. Misra, were only observed prices. D. Roy stated in his Section 14 statement (page 9 of paper book No. 5) that EP in Al was observed average modal price and Al was a working sheet not circulated to the trade. He stated in his evidence (pages 62, 66 of paper book No. 10) that he prepared Al after receiving fresh revised price list DAE 127J. EP shown in Al was modal price selected after verifying prices prevailing in the market and at which retailers sold packets to smokers and not fixed by ITC, according to the witness. On the question of circulation of Al, Learned Counsel for the appellants referred to the Section 14 statement of D.Roy (page 9 of paper book No. 9), his evidence (page 70 of Paper Book No. 70) denying circulation of Al to the trade except on one or two occasions when he handed over such papers to the senior partner of a WD in Calcutta. Reply to the show cause notice, it is pointed out, referred to statements under Section 14 of several WDs stating that they did not receive copy of Al. The relevant statements are DAE 30 (pages 220, 223 of paper book No. 23), DAE 17 (page 132 of paper book No. 23). The Adjudicating Authority held that Al prices were not observed prices but prices fixed by ITC. According to him, Al and the contents thereof speak for themselves. This finding is challenged by learned Counsel for appellants who relied on the materials referred to above.

120. Two prices in Al, that is, price to WD and PP were admittedly fixed and circulated by ITC. It is probable that the margins and other prices in A2 were fixed or visualised by ITC. The reference to the three components of margin of WD, including the interest of 29 days clearly suggest that the margin of WD must have been fixed or visualised by ITC and this would give the price to SWD. It is more probable that the margin of SWD and price to retailer were also fixed or visualised by ITC. D. Roy admitted having given a copy to one WD. Al must have been prepared prior to 1-7-1986 and not after 1-7-1986 if it was an example of recording observed prices and margins. The element of circulation is also in evidence. We hold that Al evidences prices, margins and EP fixed or visualised by ITC.121. A2 was seized from the office of Hari Singh, a partner of a WD, Hindustan Tobacco Coy. A2 contains prices and margins at various levels, PP and EP (as in the case of Al) under the heading "Trade prices and Margins w.e.f. 5-4-1985". According to learned Counsel for appellants, the EPs were observed prices and such EPs for nine brands tally but EPs for four brands do not tally with EPs shown in A37(B).

That may be because A2 is a document of Calcutta region and A37(B) is a document of Bombay area with varying local conditions. A2 was prepared by D. Roy of Calcutta branch of ITC. His stand regarding A2 was similar to his stand regarding Al. The contentions raised by learned Counsel for appellants for Al to A3 were similar. The Adjudicating Authority recorded identical findings for Al to A3. The reasons which weighed with us in taking a view on Al and A3 would apply to A2 also and accordingly we hold that A2 also evidences prices, margins and EP fixed or visualised by ITC.122. A26 is a letter dated 24-4-1985 from the Delhi Branch Manager of ITC to the Member, marketing in the Head Office with copies to three branch managers and seized from the Saharanpur branch. A26 contains progress report of WILLS FLAKE FTK for the period 1-4-1985 to 15-4-1985. The brand had been launched in Delhi city on 18-3-1985 and during the period under report it was available only in Delhi city. The report refers to the number of new retail outlets, sales for display scheme, sales to SWs, repeat sales to retailers, total sale and daily average repeat sales. Part of the stock was sold at new prices after 8-4-1985. The brand was selling at Rs. 3.00 per packet. A26 indicated ITC staff, WDs and WDS' supervisors supervised WDs and also themselves carried stocks to exted distribution to outlets not in the WDS' list and ensured availability of stocks at all retail outlets, prominent display, "word of mouth publicity highlighting brand name /convenient price" etc. Under the heading "consumer reaction" the report stated, inter alia, "convenient price - 2.25 per packet/25 paise per stick".

The report noted that there was actual shortage of 5 paise and 10 paise coins in the market and this gave the brand which sold at 25 paise per stick advantage over the rival brand which was being sold at 30 paise per stick. However, retailers were conscious that they make more profit by selling the rival brand than the ITC brand as explained by the figures given in the report. The figures are:-_________________________________________________________________Brand Price to E.P. Retailers' s profit on retailers per Packet stick Packet sale Stick sale 1000 cigare-R&W FTK Rs. 230 Rs. 2.75 30 p.

Rs.45 Rs. 70(RIVAL)ITC Brand Rs. 210 Rs. 2.25 25 p.

Rs. 15 Rs. 40Charms Rs.215 Rs. 2.50 25 p.

Rs. 35 Rs. 35FTK A26 further indicated that 70% business was in packet sale, consumer preference was 10s pack except in posh localities and they were trying to ensure that retailers open 20SC pack for stick sale. Among the sale promotion and publicity activity resorted was the introductory gift offer direct to smokers, that is, two packets of the brand and cigarette lighter for Rs. 15. Hired boys and girls contacted target smokers at retail outlets and also inside offices and 1700 gift packets had been sold. The Adjudicating Authority held that the words "word of mouth" publicity for "convenient price", "ensured" and the other contents of A26 established that ITC visualised higher EP for the brand at Rs. 2.25 as against PP of Rs. 2.10 and oral publicity was given to ensure implementation of the EP. He also rejected the explanation based on alleged coin shortage.

123. Learned Counsel challenged these findings and stressed that the EPs shown in A26 were observed prices and not prices brought about by any fixation or visualisation of EPs by the manufacturers, but by the high profit motive of retailers and shortage of coins of 5 paise and 10 paise. According to him, oral publicity referred to in A26 related to the advantages of the brand and the stick price and not to any circulation of higher EP which was actually the observed prevailing price and not price fixed and circulated by ITC. He pointed out that the EP of Rs. 2.25 shown in A26 was different from the IMRB modal price seen in DAE 173 and EP shown in A37(B) but the same as the EP shown in A2, A4 and A10 and hence there were variations. He referred to the evidence of the author of A26, K.L. Khanna, Assistant Branch Manager of Delhi branch at pages 26 and 27 of paper book No. 13 that "convenient price" meant convenient from consumers' point of view, that the ITC brand was competing against a strong rival brand "Red and White" which was being sold at Rs. 2.75 per packet and 30 paise per stick, that there was acute shortage of 5 and 10 paise coins and therefore ITC branch office thought that price of Rs. 2.25 was convenient as there was no shortage of 5 and 10 paise coins. To pay 30 paise as price of a stick, the smoker must have coins of 5 or 10 paise which were scarce.

Such convenience of the price of 25 paise fetched consumer support. He stated that by "word of mouth publicity for convenient price" was meant that they hired people to contact smokers to offer free samples of sticks to them with or without branded offers. On the basis of this evidence, learned Counsel contended that the contents of A26 do not support the impugned finding. As per the notification in force at the time there was no higher slab as in the case of Notification No.201/85. It is pointed out that Delhi is an octroi (Entry Tax) area.

Learned Counsel for Revenue supported the finding relying on the contents of A26.

124. We are not inclined to accept as true the explanations offered by K.L. Khanna or the appellants, as they are laboured and contrary to understanding of the contents of A26 from the common sense point of view. A26 related to a new brand then introduced only in Delhi about a month prior to the date of the report. Extensive and intensive sales promotion and publicity campaign had been launched by special teams, as explained by K.L. Khanna, corroded of ITC staff, WD staff and supervisors and their effort established the ITC brand "on a firm basis" in spite of strong competition. Though the PP for the brand was Rs. 2.10, it was being sold to smokers at Rs. 2.25 per packet or 25 paise per stick. This was the EP for the brand. The "convenience" of the brand may have been due to temporary local shortage of coins of 5 and 10 paise and the higher actual retail price of rival brands. Para 4 of A26 refers to consumer support on account of five "plus points", namely, free availability, convenient price, known brand mark, quality and shortage in competition brands. EP of Rs. 2.25 per packet and 25 paise per stick could not be the result of fortuous circumstances; it must have been the result of deliberate design of allowing no margin at all to retailers (price to retailer was Rs. 210 for 1000 cigarettes and PP was Rs. 2.10 per packet of 10 cigarettes) who could, if at all, collect 2 or 3 per cent (i.e., 4 to 6 paise per packet) by way of Entry Tax charges and with the informed knowledge that no retailer would sell the packets to smokers at any price less than Rs. 2.25. ITC was all along aware of the prevalence and consequence of coin shortage and that retailers would sell packet only at Rs. 2.25. This would amount to visualisation of the higher EP by ITC. We have seen that PPs were generally in odd figures (2.35, 3.70, 1.85, 1.60, 1.15 etc.) while EPs were in convenient figures (Rs. 2.50, 2.60, 2.25, 2.00,1.75 etc). ITC knew that if a packet is priced (PP) at Rs. 2.10, it will be generally sold by retailers at Rs. 2.25. It must follow that ITC visualised such higher EP. "Word of mouth" publicity to Rs. 2.25 would definitely indicate that the EP of Rs. 2.25 was being popularised as a convenient price. A26 does not indicate that the sales promotion teams were selling packets to targeted smokers at Rs. 2.10. Even during the short period of one month and with ITC teams actively contacting smokers, retailers were selling at Rs. 2.25. A26 does not indicate that the ITC teams were successfully selling packets at the inconvenient price of Rs. 2.10. The probability is that the sales promotion teams themselves were selling packets to smokers at the "convenient price" of Rs. 2.25, the effective price. There is no escape from the conclusion that the EP was visualised, if not fixed by ITC and the same was effectively popularised at the instance of ITC.124. A41 is a telex message from K. Ramanath, District Manager West, ITC to J. Narayan and S. Misra of ITC Head Office and seized from the Head Office. The telex was sent a short while after the budget changes in 1985, intimating that the rival FOUR SQUARE KINGS brand was selling from duty paid stocks to SWDs at Rs. 347.55 and to retailers at Rs. 350.00, without formal price increase and stick was selling at 40 paise in Bombay city. ITC had not resorted to grant of rebate on the corresponding brand (WFT) as the rival brand was expected to go up to Rs. 3.55 or Rs. 3.60. If such price increase for the rival brand did not take place in the next few days, the West District may resort to grant of rebate to ensure EP for WFT at 40 paise, as it was currently selling at Rs. 4.25 per 10 and 45 paise per stick. Retailers were unwilling to sell stick at 40 paise on PP of Rs. 3.60. K. Ramanath was also trying to persuade retailers to sell ITC brand stick at 40 paise.

According to DDC chart, ITC EP was Rs. 3.85. The Adjudicating Authority considered A41 as an example of ITC intervention in maintaining EPs (in this case, of stick) at a predetermined level. Learned Counsel for appellants referred to the Section 14 statement and oral evidence of K.Ramanath seen at page 190 of paper book No. 5 and pages 254 and 255 of paper book No. 10 respectively. K. Ramanath stated that A41 related to "prevailing retail price" in tile market at Rs. 4.25 per packet and 45 paise per stick consequent on the increase of PP to Rs. 3.60 per packet. He also stated that S. Misra responded to A41 by telling him over the telephone that past experience showed that negotiation with retailers was of no use as the retailers' association was a law unto itself and grant of rebate also would not and never did help ITC.Learned Counsel contended that EP of Rs. 4.25 referred to in A41 as against PP of Rs. 3.60 was only an observed price. But then, Revenue did not seek to rely on A41 to prove 'fixation' of higher EP.125. We agree that ITC was not stopping short of printing particular prices on packets but was maintaining the prices at which packets or sticks were actually being sold to smokers and had adopted the strategy of granting rebate to SWDs or retailers in order to bring down actual prices to smokers so as to protect the volumes of ITC brands. This strategy of rebate and the strategy of squeezing margins to such an extent as to constrain retailers to sell packets or sticks at prices (EPs) higher than PPs were the two faces of the same ITC role of active and effective intervention in the domain of actual prices to smokers.

This conclusion lends general support to the basic case propounded by Revenue. While the purpose and effect of severe squeezing of margins was to ensure that retailers may not or cannot sell packages at PPs and to establish EPs at levels higher than PPs, the purpose and effect of offering rebate was to push down the levels of EPs to levels which ITC considered would not adversely affect ITC volumes. It may also be noted that DDC chart adopted only EP of Rs. 3.85 or this brand for the period.

126. A55(B) contains 'ITC Plan' from 1985-86 to 1987-88 and refers to two brands to be introduced in 1985-86. The brands had camouflaged names "THOMBA LOSS" and "HOLLYWOOD-20SS", the real names as disclosed by learned Counsel for appellants being SCISSORS FT and PALLMELL. (For THOMBAIOSS) the plan suggested PP of Rs. 1.85 and EP of Rs. 2.00. For HOLLYWOOD IOSS in the high price segment, the plan suggested PP of Rs. 7.50 for 20 "to enable effective sale at 40 paise per stick". The Adjudicating Authority held that A55(B) showed that even for new brands, ITC visualised two different prices as PP and EP and rejected the theory of coin shortage as the explanation. He also held that ITC was fixing or visualising EP for stick and suitably adjusting PP.Learned Counsel contended that higher EP indicated in A55(B) was based on prevailing prices for other brands in comparable price segments.

According to him, no witness questioned under Section 14 was asked about A55(B). He relied on the evidence of R. Sujan (pages 95, 96 and 97 of paper book No. 10) that EP of Rs. 2.00 shown in A55(B) was only the market price or prevailing price. It appears that before a new brand is launched, market trend is studied. He also stated that ITC had no intention that the stick price of 40 paise should be followed in the market and ITC was not able to fix price at that level. Having considered the evidence and probabilities, we are not able to accept the evidence given by R. Sujan which appears to be inherently improbable and unnatural. It is clear that a new brand will be launched with a particular PP and a fixed or visualised or suggested higher EP.This conclusion supports broadly the case of Revenue.

127. A67, seized from Ernakulam Branch of ITC, is a letter from the Coimbatore Branch of ITC to the District Manager, Bangalore, with copy to several Branch Managers. The letter seen marked "PRIVATE & CONFIDENTIAL" related to ITC brand SCISSORS IOSS. The letter indicated that price was much higher in adjoining territory and in Kerala which had run dry of stocks, wholesale prices were not coming down. Wholesale prices were generally Rs. 138 to Rs. 140 per 1000 cigarettes. The letter furnished unit prices for packet and stick in Coimbatore, Madurai, Trichinopally and Salem. Packet price ranged from Rs. 1.50 to Rs. 1.75 and stick price ranged from 15 paise to 20 paise. Every attempt was being made through ITC teams positioned in key markets to stabilise SCISSORS around 15 paise through "word of mouth publicity", creation of fair price shops and improved availability. Wholesale prices were not coming down due to scarcity of stocks. The letter stated that if adequate stocks were not available, the price will not come down to 15 paise per stick and stabilise at Rs. 1.60 per packet and 35 paise for two sticks. The letter recommended the strategy of taking the price to Rs. 1.60 per pack and 35 paise for two sticks as the brand can take this price increase and volume loss will not be more than 10% since there was no strong competition. It was also stated that the brand was considered value for money and at the price of Rs. 1.60 and 35 paise, retailers will be assured of high profit and the retailer-push and smokerpull will help the brand. According to the Adjudicating Authority, A67 also revealed the method of oral publicity resorted to directly by ITC teams. The only submission made on behalf of the appellants is that Revenue did not question the Branch Manager or the District Manager about this letter. If there was any explanation, there was nothing to prevent ITC eliciting an explanation through the witness concerned. A67 supports the conclusion already reached by us that ITC was directly intervening in the domain of retail price to smokers as also attempting to control such prices by word of mouth publicity.

128. A20 is a letter sent by Bangalore Branch Manager of ITC to Marketing Manager of ITC recommending revision of price of ITC brand WILLS FLAKE. The letter followed an earlier telex message dated 19-7-1985 suggesting revision of "market price" of the brand from Rs. 1.95 to Rs. 2.05 and of another brand WILLS FLAKE FILTER KING to Rs. 4.40. The author of A20 discussed the desirability of dropping the price to Rs. 1.80 and recommended against it for various reasons including the circumstance that 75% to 80% sales were in sticks and stick price can remain at the current 25 paise. He recommended revision of the price to Rs. 2.05 per packet and suggested that even at Rs. 2.05 the EP could still be pegged at Rs. 2.40 (instead of Rs. 2.25) without significantly affecting volume and stick price would remain at 25 paise. He also made suggestions for the improvement of quality and size of the brands. The Adjudicating Authority held that A20 evidenced the practice of ITC controlling retail prices and visualising higher EPs and maintaining such prices.

129. Learned Counsel who challenged the finding in the impugned order relied on Section 14 statement of the Bangalore Branch Manager K.S.Iyengar and the evidence of S. Misra. K.S. Iyengar stated that his recommendation about the higher EP was based on his observation of how the Bangalore retailers' union was likely to set the final price to the smoker at that figure and any recommendation must take note of the expectation of the final price to the smoker or the EP as was likely to be changed. He had taken into consideration the imposition of Entry Tax in Karnataka. When confronted with P.C. Rules, he stated that ITC was meeting the requirements of P.C. Rules by printing the packet price but had no influence on the final price charged by retailers. S. Misra stated that the Bangalore Retailers' Association was a strong, militant organisation and over-charging by retailers was widely prevalent in Bangalore. He also stated that the Head Office of ITC did not act on the suggestion in A20.

130. When a manufacturer of cigarettes fixes retail prices to smokers, he will naturally have regard to all relevant factors, including market reality and trend. A20 and the large number of other documents already considered clearly show that even while arriving at the maximum retail price to be declared and printed on the cigarette packets, responsible officers of ITC were also fixing, projecting or visualising the EPs or quantifying the price at which they expect the package to be sold actually to the smokers. The recommendation in A20 was made evidently as per the well accepted ITC norms. The repeated explanation that EPs in A20 and various other documents were observed or prevailing prices, even assuming it to be true, cannot help ITC since what is observed was also what was visualised or expected. The Branch Manager knew that as against PP of Rs. 1.95 EP was Rs. 2.25 and when he recommended PP of Rs. 2.05 he knew or expected or visualised that the corresponding EP would be Rs. 2.40 and one of the significant reasons for such expectation or visualisation was the abnormal and drastic squeezing of trade margins and in particular retailers' margin by ITC. We find no error in the impugned finding.

131. This document is the statement of financial assumptions for threeyear plan 1985-86 to 1987-88 prepared by the Head Office of ITC.The Adjudicating Authority considered A13 along with A55(B) and did not record a separate finding on A13. A13 analysed the reasons for poor volume of CAPSTAN FTK. It conceived of excise duty structure continuing without change during the period and contemplated maintaining EP at 30 paise in 1 year with eventual increase to 35 paise by next plan.

Learned Counsel pointed out that A13 did not suggest EP for packet.

According to him, 35 paise per stick was only visualisation and not fixation by ITC. The relevance of A13 is that EP was very much present in the thoughts of ITC at all stages of planning.

132. A37(B) dated 9-4-1985 seized from the Bombay Office of ITC, contains "Prices effective from 9-4-1985" for 18 ITC brands. There was an admitted revision of PPs w.e.f. 5-4-1985 seen from DAE 1271 dated 4-4-1985 seen at page 1122 of paper Book No. 29. It is common case that the date 9-4-1985 was a mistake for 5-4-1985. A37(B) furnished the PP, price to WD, SWD and retailer, margin of SWD and retailer, percentage of retailers' margin on package and stick, price of packet and stick to smoker (admittedly EP) and SQB (sales quantity budget) for 1985-86. The author of A37(B) has not been identified by either side. The Adjudicating Authority held that the "price to smoker" (EP) in A37(B) was fixed by ITC relying on the intrinsic evidence and the surrounding circumstances and the improbability of ITC revising PP w.e.f. 5-4-1985 and being able to observe, collect and tabulate the intermediate prices and margins and EP by 9-4-1985, the date seen on A37(B). This finding and reasoning are challenged by the appellants, after referring to the materials on record referred to hereinafter. Learned Counsel contended that it would be possible to observe and tabulate the data seen in A37(B) before 9-4-1985. Learned Counsel also gave a chart showing the EPs in A2, A10 and A37(B) for period I (1-4-1985 to 1-9-1985). It is seen that the EPs in A2 and A10 are the same except in the case of three brands but these EPs are different from the EPs in A37(B) for fifteen out of eighteen brands. A2 was seized from a WD of Calcutta while A10 emanated from the Head Office in Calcutta on 16-4-1985 and A37(B) emanated from Bombay, but all the three were in the light of the price charged w.e.f. 5-4-1985. The Bombay prices seen in A37(B) were higher than the prices which emanated from the Head Office which tallied mostly with the prices which emanated obviously from the Calcutta Branch Office. In this view, nothing turns on the variations, except perhaps in the context of determining the slab applicable and the quantification of effective duty payable.

133. A. Dutta stated during the course of investigation (pages 219 of paper book No. 5) that the EPs shown in A37(B) were actual prices to smokers prevailing on 9-4-1995 information about which had been collected and that the prices and margins were not determined by ITC.He stated at the stage of evidence (page 10 of paper book No. 10) that the prices shown in A37(B) were collected from the market by his field staff and the market prices shown were modal prices selected by him out of various market prices. He admitted with reference to another document (Al) that total WD margin, price to SW (NET), total SW margin and price to retailer (NET) were part of ITC pricing logic which means that intermediate prices were part of ITC pricing logic. R. Noranha stated (pages 190, 191, 206 and 261 of paper book No. 13) that "retailer's margin" meant the margin actually earned by retailer when he sold packet at the "observed market prices" and A37(B) was a branch working sheet. These officers of ITC, no doubt, tried to stand by the employer. But the answers given by them in favour of ITC appear to be improbable and unnatural. The intermediate prices and margins as well as EPs shown in A37(B) must be part of the pricing logic of ITC and visualised by them. When ITC visualised an EP, it is reasonable to expect the same to be communicated to retailers lest they sell the packets at such excessive prices as to adversely affect volumes. The EPs shown in A37(B) must have been visualised, if not fixed by ITC.134. Both the documents were seized from the Bombay branch of ITC. All is a letter written by U.K. Shukla, Ahmedabad Branch Manager to A. Dutt (called Tubby), Bombay Branch Manager referring to Head Office price list dated 26-9-1984 and seeking to know the trade prices applicable to Bombay so that he may adopt the same in Ahmedabad Branch. The price list must necessarily contain the price to WD and PP. The tenor of All and the information sought therein clearly probabilies that it was the ITC practice to fix or visualise trade prices even other than wholesale price and PP.135. According to Revenue, A79 dated 5-10-1984 was sent by the Bombay District Manager to U.K. Shukla by way of reply to All, a claim not admitted by ITC. A79 at page 156 is a circular addressed to all WDs in the Western District with copies to branches in that district and specified officers of ITC. At page 157 is letter dated 5-10-1984 sent by A.J. Menizes of the West District office to the author of All, enclosing thirteen copies of circular of 5-10-1984 containing price list effective from 5-10-1984 and requesting him to distribute the same among the management and salesmen in Ahmedabad branch. At page 158 is the price list effective from 5-10-1984 (referred to in the letter at page 157) showing present and proposed price to WD, SWD and retailer and margin to WD, to SWD and retailer as also "retailers' margin market" in absolute terms and percentage and unit price. Comparison of prices and margins in 3rd page of A79 (page 158) show that they are revised prices of HONEY DEW about which enquiry was made in All. The circular at page 157 shows the revised wholesale price of HONEY DEW as Rs. 111.17 and PP as Rs. 1.10 in tax free markets. The unsigned price list at page 158 does not refer to the brand name but indicates the "purported" WD price as Rs. 111.17. Thus there can be no doubt that the originals of pages 157 and 158 were sent to Ahmedabad Branch Manager in reply to All. The nature of the information sought in All and furnished in the third page of A79 clearly shows that it was the practice of ITC to visualise, if not fix, intermediate prices and margins and EPs. It is contended for the appellants that ITC circulars and price lists contain wholesale price and PP and not intermediate prices or EP. That was so as far as official price lists were concerned. All and A79 as also other documents already considered clearly show that ITC was visualising, if not fixing intermediate prices and EPs and unofficially or clandestinely circulating them as seen in the third page of A79 unsigned price lists. We are satisfied that list of prices and margins seen at page 158 of paper book 4A was enclosed along with the letter at page 157. The general contention of EP being observed price was urged in regard to A79 also. For reasons indicated in respect of other documents showing EPs we do not accept the contention. We do not say that officers and staff and WDs of ITC were not observing prices. But documents like the one seen at page 158 did not record merely observed prices; they recorded prices visualised, if not fixed by ITC.136. A49 is a note from S. Misra, Marketing Manager, regarding "prices" sent to the Indian Tobacco Division Board (ITDB) marked "strictly private and confidential". Clause (AA) of the note clarified that no price changes, not even minor changes can be made without approval of Board. The price objective was to achieve profit without jeopardising market share or standing. Clause D indicated increase in 'unit price' of the seven ITC brands specified therein had been sanctioned with effect from the date indicated against each brand. Clause F indicated financial implications of the contemplated changes in PPs, referring to the attached statement provided by ITD (Finance). Clause G provided information supporting the contemplated revision of PPs and postponement of change of PPs of certain other brands. The Adjudicating Authority held that the "Board" whose approval was necessary for price changes was Board of ITC and not ITDB. This does not appear to be correct on a reading of clauses A and D. Clause D makes it clear that approval was granted by ITDB which was the Board referred to in clause A whose approval was necessary for any price change. Learned Counsel for appellants stated that usually ITDB Chairman and another Director are Directors of the Board of ITC. That approval necessary was that of ITDB was made clear by S. Misra in his evidence at page 104 of paper book No. 11. CE27, minutes of Board of Directors of ITC (paper book No.40, pages 184 above) shows that ITC Board had never decided on price changes. On the other hand, minutes of ITDB, at page 46 of paper book No. 40 shows that ITDB was deciding on price revision. Nothing turns on this controversy since ITDB is a division of ITC and in control of pricing of ITC products. We find A49 to be of little relevance in deciding the basic controversy in these appeals.

137. This was a letter written by U.K. Shukla, Ahmedabad Branch Manager to A. Dutt, Bombay Branch Manager, pursuant to their telephonic conversation. U.K. Shukla sent the letter enclosing two alternative "forecasts" for ITC and competition brands. Paragraphs 2 and 3 of the letter read as follows :- "If we have to ensure that GOLD FLAKE FTK sells at Rs. 5.00 a pack in the market place then the right pricing would be Rs.4.50 for loss.

We do not sell Berkely FT, hence we have shown no forecast. If Berkely FT has to be sold at 20 P, then the unit price should be Rs. 1.75 for the l0Ss." PP of GOLD FLAKE FTK at that time and even before was Rs. 5.30 for 10 as seen in the price list DAE 127B at page 1117 of paper book 29. Thus, it is pointed out, the suggestion of U.K. Shukla was to reduce the PP from Rs. 5.50 to Rs. 4.50, so that EP could be Rs. 5.00. This suggestion, it is stated, was not accepted but w.e.f. 7-4-1984, PP was reduced to Rs. 4.80 as seen in DAE 1271 at page 119. The Adjudicating Authority held that A21 supported the case of Revenue that ITC "fixed" EPs. U.K. Shukla was not questioned about A21 when his statement was recorded under Section 14. A. Dutt stated that U.K. Shukla was merely giving his assessment or visualisation of what the actual retail prices will be in the market. According to learned Counsel, the assessment was made based on the tendency of retailers to overcharge. The statement of A. Dutt and the contention raised by learned Counsel cannot be accepted in the light of the language used in A21. The letter made a suggestion to change the PP "to ensure" that the packet sells at Rs. 5.00. The suggestion was ultimately implemented in a modified form by fixing PP at Rs. 4.80. The suggestion came from a responsible officer of ITC in charge of a branch and was partly accepted ultimately. The purpose evidently was to ensure EP of Rs. 5.00. It may be that this was based on the expectation that PP of Rs. 4.80 would result in EP of Rs. 5.00.

This definitely indicates fixation or visualisation or expectation of a particular EP for a particular brand and quantifying a particular PP to ensure a particular EP was concomitant part of the pricing logic or strategy of ITC.138. A22 is letter dated 29-2-1984 from A. Dutt, Bombay Branch Manager to Member, Marketing on "price alternatives" for WILLS ROYAL vis-a-vis rival brands since ITC brand was price-sensitive and will be affected in case ITC raised the PP from Rs. 1.15 to Rs. 1.35 when it will sell at 20 paise per stick. He made two suggestions, one to maintain the PP of WILLS ROYAL but reducing the inputs in it and the other to raise the PP of BRISTOL from Rs. 2.00 to Rs. 2.10 for 10 cigarettes as the stick will continue to sell at 25 paise. If these suggestions were implemented, according to the letter, WILLS ROYAL will progress on its present volume in Bombay city and Goa with 5 to 7%. increase in volume.

The enclosure to A22 at page 60 of the paper book contained alternative volumes for several brands identified by code words. PP of BRISTOL is seen in DAE 127I at page 1122 of paper book No. 29. According to learned Counsel, subsequent IMRB report in DAE 174 at page 2145 of paper book No. 36 observed stick price of 30 paise for BRISTOL. The suggestions, it is stated, were not accepted and prediction of A. Dutt regarding continuance of stick price of BRISTOL at 25 paise was falsified. Learned counsel contended that the Adjudicating Authority was in error in holding that A22 proved that ITC was visualising and fixing higher EPs. It is true, as pointed by learned Counsel, that A22 refers to expectation or visualisation about effective stick price and not effective packet price. But A22 shows that visualising effective price was part of the function of responsible officers of ITC.138. A25 is a launch report submitted by P.N. Shangani, Marketing Supervisor to the Saharanpur marketing branch on the launch of WILLS FLAKE FTK 20Ss in Ambala market on 18-11-1983. The letter indicated the price to SWD and retailer, PP, EP and stick price at which the brand was launched. He showed PP as Rs. 1.85 per packet, EP as Rs. 2.00 per packet and stick price as 20 paise. The prices to SWD and retailer were Rs. 183.10 and Rs. 184.60 for 1000 cigarettes respectively, thereby allowing margin of only 40 paise for 1000 cigarettes (that is 0.4 paise per packet) to retailer. He reported about publicity undertaken, trade response, consumers response, prospective volume and effect on rival brands. The Adjudicating Authority held that A25 proved that EP was visualised or envisaged before launch of brands and the EP shown in A25 was not observed price as the report was prepared on the third day of the launch.

139. Learned Counsel for appellants challenged the above finding. On the basis of PP of Rs. 1.85 duty was Rs. 137.75 for 1000 cigarettes and on the basis of PP of Rs. 2.00 duty was Rs. 147 for 1000 cigarettes.

According to him, two days would be sufficient to observe EPs in market restricted to Ambala town. He pointed out that IMRB prices for November and December, 1983 were Rs. 1.85,1.90,2.00,2.10 in Madras, Rs. 1.90 and Rs. 2.00 in Calcutta as seen at pages 747 and 748 of paper book No. 34 and page 731 of paper book No. 26 and page 1856 of paper book No. 34.

We have rejected the contention of EP being observed price in connection with other launch reports and for the same reasons, we reject the similar contention regarding A25 also. The EP in A25 must have been EP visualised, if not fixed by ITC.140. A73 is letter dated 22-11-1983 from Madras Branch Manager to the Bangalore District Manager on the subject of special discount in October, 1983 for supply to Railways. The letter contained a request to arrange payment of the amount of special discount extended by a WD at Madras to Railways. There is no dispute that ITC was extending special discounts to some clubs, Railways and other prestigious retail outlets to enable or encourage the outlets to sell packets at PPs. The Adjudicating Authority concluded that without the facility of such discount, the retailers would have to sell packets at prices higher than PPs and these particular outlets were not prepared to sell packets except at PPs and hence the device of special discount was adopted.

This, according to the impugned order, led to the conclusion that prices higher than PPs had been visualised or envisaged by ITC. Learned Counsel for appellants argued that special discount was given to bring down actual prices and to ensure PPs. This, of course, is correct. The basic contention of the appellants that as long as PP was not more than the price to retailers, PP was a price at which the cigarettes packets "may be" and can be sold to smokers is improbabilised by the scheme of discount or rebate which was being applied to retailers. Special outlets like Railways and Spencers found it not possible to sell ITC cigarette packets at PPs in view of the insignificant margin allowed and they were also not prepared to violate PC Rules by selling at higher prices. Since retail sales at such special outlets had publicity advantage as indicated in another report referred to earlier, ITC found it advantageous to have these special retail outlets for ITC brands and had to offer discount or rebate to persuade the outlets to deal with ITC brands. The inference to be drawn from A25 helps the Revenue in generally establishing the tenability of the factual basis of the demand.

141. A27 letter dated 27-9-1983 was written by Saharanpur Branch Manager to the Supervisor who sent progress report dated 26-9-1983 for CAPSTAN FT seen at pages 73 to 75 of paper book 4A. PP of this brand had been reduced from Rs. 1.65 for 10 cigarettes to Rs. 1.40 as seen in the evidence of Mukesh Bahri, the author of the report at page 13 of paper book No. 13. The prevailing stick price of 20 paise was felt to be too high and there was an intention to bring it down to 15 Paise.

A27 hinted at restrictions on announcing stick price of 15 paise and suggested vigorous "word of mouth" communication of the stick price.

The report highlighted the vigorous distribution campaign conducted by the team and since stick price of 15 paise could not be announced publicly, "availability" of stick at 15 paise at every outlet was announced. This step was resorted because in the first week retailers were selling stick at 20 paise which would have defeated the very purpose of price reduction, namely, to ensure stick price of 15 paise.

There was consumer awareness programme regarding 15 paise per stick to force retailers to sell at 15 paise which proved effective. A27 indicated that some SWDs were disappointed about their low margin. The Adjudicating Authority held that A27 indicated the control which ITC was exercising on intermediate prices and prices to smokers.

142. Learned Counsel for appellants pointed out that "word of mouth" publicity was not directed at the trade chain or retailers but at smokers and the entire attempt of local officers was to bring down the stick price to the smokers evidently because a rival brand in the same price segment was selling at 15 paise per stick and sale at 20 paise would affect volume. The attempt, it is pointed out, was not to push up the price to smokers. These submissions appear to be correct. But question of organising consumer-resistance to stick price of 20 paise and such resistance forcing retailers to sell stick at 15 paise could have arisen only when retailers were aware of ITC fixed or visualised stick price of 15 paise but were unwilling to go by such stick price.

However, A27 indicates that officers of ITC at different levels were given to monitoring prices to smokers and ITC was fixing stick prices to consumers.

143. A14 is a circular dated 27-4-1983 sent by S. Narayanan, South District Manager of ITC to all branch managers under him explaining the guidelines of pricing strategy in respect of eleven ITC brands as laid down by Chairman of ITDB. The guidelines were vis-a-vis specified rival brands. For example, price of ITC brand WILLS FLAKE FT. packet should always be 25 paise lower than rival brand PANAMA FTK.In regard to some brands, the price was required to be maintained at the same level as that of the rival brand. In regard to certain other brands the price of ITC brand was not to exceed the price of rival brands by the amount specified in A14. The guidelines refer to prices of packets as well as sticks. The following note is seen at the end of the note :- The circular also required the Branch Managers to keep the author informed of changes in prices of rivals. In other words, the circular made it clear that the prices, price differentials and parity were not with reference to PP, but with reference to EPs. The Adjudicating Authority held that the guidelines showed that ITC was not only visualising EPs in advance but also monitoring and controlling the market so as to ensure that visualised EPs should prevail and if it was a case where ITC was not controlling EPs, these guidelines would not have been issued.

144. Learned Counsel for ITC argued that A14 did not indicate "fixation" of EPs by ITC, but was issued only to alert the Branch Managers about the need for furnishing timely information about changes in pricing of rival brands. S. Narayanan, when questioned under Section 14 was not asked any question about A14. In his evidence at pages 119 and 134 of paper book No. 10, S. Narayanan explained A14, stating that it referred to inputs to be collected to take future corrective action by ITC and "Effective market price" referred to was modal price observed in the market. He stated that after the changes in excise duty structure in 1983, the entire cigarette market was in a state of flux and confusion and it was important to study brand trends. If the parameters mentioned in the last column (guidelines) were not observed, according to him, consumers' perceptions about brands could change and ITC would be required to rethink about several factors. A14 dealt with only brands which were highly sensitive to price competition. Even accepting all these statements as correct, the inevitable conclusion must be that ITC was, as part of marketing and pricing strategy, visualising EPs higher than PPs and taking steps to monitor the same so as to take corrective action. Such visualisation of EPs was at the heart of the strategy.

145. A80 is a document styled "PRICING - BRANDS - STOCK DURATION - ACTION PLANS" seized from the Bombay office of ITC. A80 suggested dates on which circulars of WD price and "Trade prices - SWD-Retailers-UP" were to be issued. While the action plan suggested definite dates or periods for issue of circulars fixing WD prices, the suggestion regarding other trade prices and UP (unit price) was to issue circular as necessary in each branch. Suggested action plan was spelt out in the remarks column. Suggestions 5 and 7 read as follows :- "5. Trade Prices beyond WDS to be released later in line with pricing strategies etc.

7. Trade price implementation to be piecemeal and must be accompanied with stock and WD's/WDS's etc. used to implement UP effectively through word of mouth. Implementation will be a component of overall marketing strategy for reasons discussed. This will apply for all brands." "Rebate/remarket with current price stocks. Implement trade prices through WDs urgently and extend as necessary." "Clear old price factory/GDN stocks in May - isolate 1.30 stocks (Bom.). Implement prices w.e.f. 5/6 but arrange heavy shipments 1/6 onwards at new UP." It is pointed out that though copy of A80 was supplied along with show cause notice, the notice did not explain the document. The Adjudicating Authority held that the action plan as indicated in the remarks column envisaged implementation of intermediate prices and UPs (that is, effective prices) through WDs and emphasised word of mouth publicity for implementation of UP (i.e. EP).

146. Learned Counsel for ITC contended that UP in A80 meant only PP and not EP and there was no contrary stand taken in the show cause notice.

He pointed out several documents, namely, A3, A36, A41, A43, A46 to A49, A51, A59, A62, A64, A68, A79, A85 and A88 which refer to UP which were actually PP and not EP. But there are other documents which refer to EP as UP, as can be seen from Al and A37(A). We agree that "unit price" in A80 has not been shown to be EP and not PP. But the statement in A80. that trade prices must be implemented through WDs urgently is a clear pointer to the fact that "trade prices" were visualised, if not fixed, by ITC and such trade prices were made known at least to WDs.

"Trade prices" means prices to trade, that is, intermediate prices to WDs and retailers.

147. A84 price list dated 3-10-1984 for eight ITC brands seized from Bombay Office of ITC indicates prices prior to 25-8-1983, w.e.f.

25-8-1983 and w.e.f. 29-10-1983. A84 furnishes price to WD, Head Office price to SW, price to retailer, margins to WD, SWD and retailer, BTL, rebate, percentage of retailers' margin, retailers' realisation and stick price. "Retailers' realisation" may be the retail price actually charged by retailers. ITC contended before the Adjudicating Authority that A84 was an exercise conducted by A. Dutt of Bombay branch to estimate the EPs which he felt might prevail in Bombay city if proposed revision of price to WD was implemented. The Adjudicating Authority rejected this contention on the ground of similarity of prices in A6 and A84, the connection between A36 and A84 and the inherent improbability of the case and held that the EPs in A84 were visualised or fixed in advance by ITC. These conclusions are challenged by learned Counsel for ITC who relied on the evidence of J. Narain at pages 192 and 198 of paper book No. 15 that A84 was aii exercise conducted by A.Dutt. Learned Counsel also pointed out that Bombay is an area with strong influence of retailers' association. We find it difficult to accept that A84 was the result of an isolated action on the part of the Bombay Branch Manager. The details seen in A84 could not be mere observed prices and margins. BTL and rebate referred to in A84 must necessarily have been planned and offered by ITC. We find no reason to conclude that the trade prices and margin shown in A84 were not visualised or fixed by ITC.148. A74 is a letter dated 2-5-1983 sent by Bangalore Branch Manger to the Marketing Manager in the Head Office with copies to District Manager, Bangalore and Branch Managers under him and enclosing a list of trade prices prevailing on 2-5-1983. The letter indicated that the prevailing packet and stick prices were as per the price list issued by the retailers' union and followed by the retailers. He also indicated that the trade prices up to the level of retailer had been announced by the respective companies. The list of trade prices (page 148) shows the prices to SWD and retailer as well as prevailing rates to consumer for packet and stick in respect of twenty ITC brands and certain rival brands. The Adjudicating Authority held that A74 has to be read with A37A and the intermediate prices to SWD and shown in the list must have been fixed and announced by ITC. Learned Counsel for ITC contended that the intermediate prices were prices suggested by ITC and not fixed by ITC and were not binding on WDs who were free to sell at their own prices. He also pointed out that A74 itself made it clear that the prices to consumers were those fixed by retailers' association and hence the EPs could not have been fixed by ITC. He also pointed out that there was no evidence of circulation of A74 to the trade. It is clear from A74 that the intermediate prices to SWD and retailer had been "announced" by ITC. ITC could not have announced such prices without fixing them. The word "suggested" is only euphemism. It is clear that the prevailing prices were those fixed by retailers' association. Reliance is placed on the Section 14 statements of several WDs to the effect that they fixed prices to SWD or retailer and the prices were not dictated by ITC. Some of them stated that they also sell cigarettes to SWDs at prices suggested by ITC. Reference to these statements is made in the reply to the show cause notice seen at page 108 onwards of paper book No. 7. The word "fixed" or "suggested" is not important. What is important is that intermediate prices were imposed by ITC according to pricing strategy of ITC. In our view fixation of intermediate prices by ITC has considerable significance. Such action clearly shows the effort of ITC to control prices at various levels and not merely the price to WDs and PP. The price to the retailer was fixed in such a manner as to squeeze the retailers' margin drastically so as to constrain retailers to sell packets at prices higher than PPs. There are other ITC documents already referred showing fixation of intermediate prices by ITC.149. A38 was a price list dated 30-6-1982 effective from 30.6.1982, sent by the Head Office to all Branch Managers, ITDB members and other ITC officers, long prior to Notification No. 36/83. Attached to the circular was a slip containing three sets of prices. The prices at the extreme right side of the slip tally with the PP of three brands, GOLD FLAKE FTK, SCISSORS and CAPSTAN FLAKE shown in the circular. The slip did not indicate what the prices were but there is no dispute that they represented price to WD, SWD and retailer as also PP. A.C. Sarkar gave evidence about A38 at page 89 of paper book 89. A59 (page 126 of paper book No. 4A), price list w.e.f. 23-12-1982 also furnished three prices as also margin at all trade levels and price to consumer. A35 and A60 also furnished intermediate prices. Learned Counsel for ITC stated that these documents show observed intermediate prices for 1982 and this practice of observing such prices was being followed prior to 1983 also and the purpose was not to fix EP, but to study market and trade conditions. Reference is made to evidence of S. Misra at page 177 of paper book No. 11 explaining how intermediate prices were worked out.

ATM, (available trade margin) the difference between the wholesale price and PP would be calculated and how much each trade link would retain from ATM would be notionally computed on observation and past experience. We have already referred to the evidence of C. Navaneethan, WD at Erode seen at page 143 of paper book No. 12 that ITC used to send to WDs suggested prices to SWD at their request as they did not want to fix very high price lest sales be affected and did not want to fix low price as WDs may incur loss. WDs obtained from ITC suggested prices to SWDs to be used as guidelines. It is contended that WDs may generally follow these suggested prices, though there may be scope for minor variations. Another WD, Ikhlas Ahmed deposed as seen at page 124 of paper book No. 12 that he obtained from ITC suggested prices to SWD to get an idea of prices at which neighbouring WDs were selling to WDs but WDs were free to sell at their own prices at their discretion. He was obtaining these prices from ITC so that he may follow the suggested prices. He himself was following such prices. We do not think there is any real difference between ITC "fixing" intermediate prices and "suggesting" such prices. These prices were being quantified by ITC, whether one calls the process "fixing" or "suggesting". ITC cannot suggest any price without determining or quantifying the price. Learned Counsel stated that A35, A38, A59, A61 contain intermediate prices prior to 1983, A30, A44, A45, A72 and A88 seized from WDs also refer to such prices sent to WDs in unsigned documents, and A32, A36, A43, A47, A48, A51, A52, A53 and A54 which are documents sent by one ITC official to another also contain intermediate prices. So also, it is pointed out, in A60, A62, A63, A65 and A68 found in ITC files, and other documents.

150. According to learned Counsel for ITC, fixation of intermediate prices by ITC has no relevance. The contention of learned Counsel can be summarised as follows :- Fixation of intermediate prices by ITC may mean that margin available to retailer was got squeezed and consequently retailers may choose to sell cigarettes to smokers at prices higher than PPs.

In such cases, it has to be proved further that such higher prices at which retailers sell cigarettes to smokers was fixed by ITC. The fact that ITC fixed intermediate prices does not lead to the inference that the higher prices charged by retailers were fixed by ITC. If there is independent evidence in this regard of fixation by ITC of such higher prices, fixation of intermediate prices has no relevance. It is admitted that ITC squeezed retailers' margin on account of squeezing of the total margin available to the trade as a consequence of the exemption notification. Since this is admitted, fixation of intermediate prices by ITC has no relevance. In fact, ITC was pointing out to CBEC and the Government that retailers' margin had been squeezed. Most of the documents particularly the unsigned documents showing intermediate prices do not refer to EPs.

If ITC had fixed, EPs, the same would have been shown in such unsigned documents.

We find it difficult to accept the above submissions as we have indicated earlier. Fixation of intermediate prices, whether before or after March, 1983 was part of the pricing logic or strategy adopted by ITC. The basic objective would be to regulate and control the prices at various trade levels so as to protect the interest of ITC. Interest of ITC had two facets before March, 1983, namely, maintenance and improvement of sale volume, market share and contribution on the one hand and profit objective on the other. With the issue of Notification No. 36/83, the pricing logic or strategy was used to fix or visualise or envisage or expect effective prices at levels higher than PPs and conversely to declare and print prices at levels lower than EPs so fixed or visualised or envisaged or expected in order to reduce the ASP, secure the benefit of lower rate of duty and after the Notification No. 201/85 to reduce the ASP and secure the benefit of the lower slab and lower rate of duty. Fixation of intermediate prices at higher levels was an exercise for squeezing margins at the level of SWD and retailer, particularly the level of retailer and fixation of higher EP was to secure adequate margin to the retailer which was drastically reduced by the squeezing of margin and increase in the level of intermediate price to retailer. This is the significant relevance of fixation of intermediate prices. Non-mention of EPs in some of the documents would have been by way of abundant caution.

151. J. Narain explained the concept of ATL and BTL, in the course of his evidence seen at page 178 onwards in paper book no. 15. Persuasive advertising such as, advertising in newspaper, television, hoardings and cinema halls is referred to as expenditure above the line, ATL.

Expenditure for non-persuasive advertising such as posters, streamers and other forms of reminder advertising is referred to as BTL expenditure. Dealers, under BTL, retained either above the normal proportion of the available margin and generated funds in "their" hands which is a case of positive BTL or took less than normal share of available margin in which event they had less money in their hands and it would be a case of negative BTL. Surplus funds are generally used to promote their business. BTL is the difference between the margin retained by the dealer at a particular point of time and what might be the normal amount he would retain. BTL would be the deviation from the normal margin of WD. This explanation offered by J. Narain would challenge the averment in para 7.1 at page 29 of the show cause notice that reduction of margin of SWDs and retailers which generated extra margin in the hands of WD is BTL. The notice alleged that the scheme of negative and positive BTL was devised to ensure that cigarette packets were sold at the EP and excess money so generated on account of BTL was used for various purposes by WDs according to the instructions of ITC.The scheme is seen explained in A42 seized from the Bombay office of ITC. A42 is an explanatory note prepared by A.S. Bhatia, District Manager, West at Bombay. He explained the basis of the overall pricing strategy. He mentioned the case of CAPSTAN FTK where "we" have built in a negative BTL to ensure that the Rs. 3.00/30p. price prevailed for the good of the brand. Margin of SWD was not lower than in the past as the segment had considerable clout in the distribution chain. Price to retailer was at least Re. 1.00 below the PP. BTL was minimal and calculated to offset unavoidable non-LOA prom, expenses as far as possible. Hence regional trade disparities were fewer than earlier and were virtually split into four segments, namely, (a) Bombay city, metro, Ahmedabad, (b) Pune, Nagpur, (c) UP-country and (d) tax free, e.g. Goa. Annexure I to A42 mentioned prices of various brands at different levels. For seven specified brands unit prices mentioned were more than the PPs A42 contained list of 12 brands under the caption, "BTL-83/84" as Annexure I. Different prices to WD, SWD, Retailer, BTL, price per unit and stick and figures of monthly established BTL and total BTL were given separately for Bombay, Nagpur and Ahmedabad. The Adjudicating Authority based on A42 drew the inference that ITC itself wanted higher than PPs to prevail.

152. Learned Counsel for ITC contended that BTL does not prove fixation of EPs by ITC. In the case of positive BTL WD spends the amount to meet local expenses. In the case of negative BTL, he spends out of pocket and he is not reimbursed by ITC. WD may charge slightly higher price to SWD to generate positive BTL only if the brand position in the market is such that it will not affect volume. Negative BTL serves as a sort of price rebate. A42 does not refer to any instance of positive BTL and refers to one instance of negative BTL, learned Counsel pointed out.

Referring to A8 (page 20 of Paper Book 4A) he pointed one instance of positive BTL of only one paise for 1000 cigarettes and one instance of negative BTL of only 15, 20 paise for 1000 cigarettes which would be insignificant compared to retailers' margin of Rs. 20 to Rs. 50 for 1000 cigarettes based on actual market price. Even going by the figures in A42, positive BTL ranged from 50 paise to Rs. 2.80 for 1000 cigarettes and negative BTL was around Rs. 1.40 for 1000 cigarettes as against the retailers' margin ranging from Rs. 21 to Rs. 46 for 1000 cigarettes. Learned Counsel contended that BTL was insignificant and cannot be used as a device to control EPs and the purpose of BTL was not to bring about higher EPs. There was no pattern visible, it is said, since BTL differed from region to region. Learned Counsel contended that negative BTL was to bring down the actual retail prices and not to increase prices. He also contended that there is no worthwhile evidence to show that ITC had any hand in generation of BTL.

He pointed out that among 37 documents containing intermediate prices and/or EPs, only eight documents refer to BTL. He referred to A8 (page 20 of paper book 4A) which refers to BTL of 1 paise for brands with varying market prices. One brand with three different regional market prices had the same BTL of 15 paise. These submissions are rebutted on behalf of the Revenue.

153. We have considered the documents referred to above and the rival submissions. A42 itself makes out BTL has a definite role to play in controlling prices to smokers. A42 asserted that "we" that is, ITC district office had built a negative BTL to ensure that the Rs. 3.00/30 paise price prevailed "for the good of the brand". What was good for the ITC brand will certainly be good for ITC. It was also used to reduce regional disparities. Negative BTL was one of the devices useful in maintaining retail prices at certain levels which would obviously be in the commercial interest of ITC.154. The contention that the positive BTL fund would be entirely at the disposal of WDs is belied by the contents of A7 seen at pages 16 to 19 of paper book No. 4A. A7 dated 29.11.1983 was written by A. Dutt, Bombay Branch Manager to the Member Marketing in the Head Office under the caption "Field Budget 1983/84". There was a cut back in the budget for three western district branches. The budget of the three branches was revised. The shortfall was to be made up by "local ingenuity through local pricing". A grievance was projected that the revised pricing had wiped out the scope for future ingenuity and adversely affected the WD margin the cost which was agreed to be absorbed by the Head Office. It was indicated that local ingenuity netted after negative margins was Rs. 6 lakhs. Nevertheless A7 pointed out shortfall in funds and emphasised the need for more funds. Thus it is clear that funds referrable to BTL were under the control of ITC and not of WDs.

155. Learned Counsel for Revenue referred to certain aspects of the case of Revenue with reference to documents already referred. He referred to the ITC process of decision-making regarding EPs, instances of fixation or visualisation etc., documents supporting the case of Revenue, the nature of such documents, aspect of circulation and ITC concerning itself with EPs and taking EPs into consideration. Learned Counsel for Revenue referred to the answers given by P.K. Sinha on behalf of ITC to the queries raised by the Adjudicating Authority on 8-11-1995 seen at pages 73 to 79 of Paper Book No. 45. We have already referred to the price fixation as stated by P.K. Sinha earlier and indicated that the basic task is to estimate the consumer spending, which can be determined only on the basis of EPs at which cigarettes are available to smokers. It is pointed out that prediction of EPs is an important part of sale forecast exercise.

156. It is true that there is no direct evidence to show that ITC fixed any EP and many of the officers of ITC examined before the Adjudicating Authority had deposed that EPs were not fixed by ITC. The question is whether this aspect has been proved by cogent and satisfactory evidence, documentary or oral. We have considered every one of the documents referred to by all the Counsel and arrived at our conclusions in respect of each document in the preceding paragraphs. The conclusions can be summarised as follows :- (1) A81F, A81A, A37A, A6, A16, A17, A12, A10, A86 and A85 visualised, envisaged or expected EPs higher than PPs.

(2) A83 indicated practice of ITC fixing or visualising or envisaging higher EPs.

(1) ITC was fixing or visualising EPs higher than PPs- A28, A4, A5, A3, Al, A2, A26, A55B, A20, A37B, All, A79, A21, A22, A25, A24, A64 and A23.

(2) ITC was fixing or visualising trade prices at all levels - A80, A74, A38, A44, A41, A74 and A84.

(3) Visualising EPs was part of ITC strategy of marketing and pricing - A14.

(5) At any rate, ITC was aware of higher prevailing retail prices - A29.

(6) ITC was actively involved in pushing new brands in the market by consumer contact - A24.

(7) It was the policy and practice of ITC to propose PPs at levels lower than established or visualised or expected EPs - A18 and A19.

(8) ITC was using the strategy of granting rebate or discount to maintain such higher EPs - A41, A73, A40, A84 and A68.

(9) ITC was prone to act in ensuring certain retail prices - A40, A27, A67 and A20.

(10) ITC was ensuring supplies with rebates and discounts to select outlets where packages could be sold at PPs - A70 and A73.

(13) ITC was using the strategy of BTL to ensure sales to smokers at desired prices - A42.

(1) Pricing logic or strategy is seen from A51, A36, A14, A42 and A80.

(2) While issuing official price lists showing wholesale prices and PPs, ITC was working out intermediate prices to SWDs and retailers to suit the pricing strategy as seen in A2, A84, A6, A7, A77 and A9 and efforts were made to implement such prices as seen in A6.

(3) Retailers' margins were being worked out on the basis of EPs, besides PPs as seen in A32.

(4) Practice of conveying prices by blind notes was being followed as seen in A38, A3 and A44.

(5) Launch reports and marketing plans highlighted EPs as seen in A25, A26, A28 and A29.

(6) Price categorisation was also based on EPs as seen in A10, A12, A15 and A17.

(7) Scheme of rebates and special discounts was being implemented as seen in A40, A41, A68, A72, A73 and A84.

(8) Packages were available at PPs only in special fair price shops and outlets - A39 and A73.

157. The above conclusions clearly establish that ITC was, during the relevant period, fixing or visualising or envisaging or expecting EPs which were higher than PPs and declaring and printing PPs at levels lower than EPs. It is true that pricing strategy was being worked out even prior to March 1983, when Notification No. 36/83 was issued for the purpose of maintaining and improving volumes and facing competition. Such strategy and policy was used during the period in dispute, deliberately bring down duty liability based on misdeclared PPs. It is also clear that PPs during the period were not maximum retail prices at which packages may be or could be sold in accordance with the declaration printed on the packages. It was the requirement of exemption notification as understood by us, that ITC should have printed and declared such higher EPs, determined the slabs applicable and rates of duty payable on that basis and effected clearances of the packages on payment of appropriate duty. ITC did not do so but printed and declared lesser prices as PPs and paid duty under lower slabs appropriate to such slabs, and evaded payment of duty to that extent.

158. Learned Counsel for ITC strenuously contended that, in any event, revenue has totally failed to prove circulation by ITC to the trade of higher EPs said to be fixed or visualised or envisaged by ITC as maximum retail prices at which cigarette packages may be sold to smokers. It is true that direct oral evidence is lacking in this behalf and almost all WDs and officers of ITC examined before the Adjudicating Authority spoke against the case of circulation. These are witnesses with long-standing loyalty to ITC. Their evidence, it is contended by Revenue, cannot stand when tested on the touchstone provided by documents relied on by Revenue and broad probabilities.

159. We have already adverted to the note by P.K. Sinha of ITC (pages 73 to 80 of paper book No. 79). Central to the excise (sic) of fixation of prices was the ITC perception of the thinking of the smoker as to whether he was getting "value for his money", fierce competition in the market and the extreme price-sensitivity of cigarette packages. Sales volume forecasts were prepared on the basis of assumed PPs and specifications and for a given range of assumed PPs, certain EPs were predicted and consumer-spending was arrived at. Thereafter variables and fixed costs were calculated and the targeted profit was added. Net turnover arising from volumes forecast and total duty payable on assumed PPs was arrived at for each brand and on this basis gross turnover of the PPs was arrived at. After repeated exercises based on different assumed PPs or changed specifications on volumes forecast, the best fit between divisional profit target and divisional volume share objective would be arrived at. Thus it can be seen that visualisation or envisaging EPs of all brands was an important element in the exercise of arriving at PPs. So also the exercise of price-categorisation as explained by S.N. Wanchoo of the Research Department of ITC. This was an established method of segmenting the market for proper analysis and effective forecasting. Meaningful market-analysis and comparison must be of brands which compete with each other, price-wise or company-wise. After the change in Central Excise duty pattern, the basis of price-categorisation was changed from PP to EP "due to change in price-mix or consumer price due to overcharging by retailers since categorisation on the basis of PP would be unreal and meaningless". Thus it is clear that production and marketing strategy was based on such EPs.

160. If visualisation of EPs different from and higher than PPs was central to the ITC strategy, it cannot be that such EPs would be kept a secret. Any strategy adopted would need to be effectuated. Monitoring would be necessary not only for effectuating the strategy but also to verify if the strategy was succeeding or not, for in case of failure, strategy would have to be modified with all expedition. Such monitoring was being done through the established network of district managers and branch managers who must necessarily be aware of the visualised EPs.

Cigarettes being highly price-sensitive, any strategy based on EPs higher than PPs can succeed only if it is ensured that retailers follow the EPs envisaged and suggested by ITC; if cigarettes are sold at prices higher than even the EPs, that would adversely affect volumes and consequently affect the profit of ITC-and also popularity of particular brands. Inevitably ITC must take steps to ensure that EPs are adhered to by retailers. This can be achieved only by strict and extensive monitoring by maintaining close contact with the trade, particularly retailers and by discouraging departure from such EPs and whenever and wherever necessary by offering rebate or discount to retailers. This is not to say that ITC would always succeed in their effort; that is because in certain parts of the country, there are strong associations of retailers which desire to ensure high profit for retailers and try to dictate high retail prices or local conditions dictate such higher retail prices. The nature and extent of competition for particular brands in particular price-categories may also vary from one region or locality to another. The nature of business strategy adopted by retailers may vary; it may be profit-intensive or volume-intensive. All these factors may cause variation in prices at which cigarette packages are actually sold by retailers to smokers in different localities. But, ITC cannot think of implementing their strategy without communicating the visualised EPs to retailers and making all efforts to ensure that such EPs are adhered to. Viewed in this light, it is highly probable that visualised EPs were being communicated to the trade.

161. There are documents emanating from ITC and reflecting intermediate prices and margins of traders at all levels as also higher EPs, whatever be the nomenclature used, namely, whether "price lists" or "action plan" or "marketing plan" or "launch reports" or "reports" or whether they are unsigned blind notes. There is one document (A45) with perforation in the lower half below which is seen written some prices.

There is another document where such prices are seen given at the top.

The parts containing the prices can be removed easily. There are documents signed by WDs or seized from WDs which contain such prices.

Prices in A81F and A81A must have been suggested by Bombay Office of ITC as held by us already. "Announcement" of prices up to the level of retailer is seen admitted in A74. A6 indicating "proposed" prices was implemented and was communicated to other branches in the district.

Prediction of EPs by ITC even for the purpose of fixing and revising PPs was admitted (pages 73 to 80 of paper book No. 45). Guidelines issued and seen in A14 were linked to EPs. A42 also shows the role of the Head Office of ITC.162. A51 and A36, seized from the Head Office of ITC evidence pricing logic of ITC fixing or visualising prices and margins at all levels before the issue of revised price lists. A51 prepared on the advice of the then Chairman, also regulates rebate. A36 was seen and corrected by S. Misra, Member, Marketing, ITDB. These particulars must have been sent down the hierarchy and show to the trade. A14, an instance of the issue of guidelines to branch managers as part of pricing strategy relating to EPs, contemplated all efforts to maintain EPs. A42 seized from the Bombay Office also contains prices at all levels as also EPs of several brands and explains the strategy. A42 makes it clear that percentages of margins and retailers profit provided by the Head Office were no longer valid. A42 refers to building negative BTL to ensure that EP for a particular brand prevailed. Providing retailer's margin and ensuring particular EP cannot be effectuated without circulation at lower levels. Action plan in A80 contemplates release of trade prices beyond WD level in line with pricing strategy and implementation of trade prices and "unit prices" through WDs. "Unit price" in the context could mean only EP. These steps could be taken only by circulation and other related efforts. A2 of the Calcutta branch seized from a WD at Calcutta speaks of "Head Office" prices to SWD as well as PP and EP and takes into account areas where Entry Tax is or is not in force. The margins of retailers shown in A2 is seen to be in terms of EP and not of PP. A84 seized from Bombay office of ITC indicates all prices and margins, including "Head Office price" to SWD and retailer's margins in terms of EPS and also speaks of rebate to maintain margins of SWD and retailers. A6, which is an ITC document refers to "existing" and "proposed" prices and margins at all levels, BTL and market prices and of implementation of such prices with effect from the date specified therein. Such implementation cannot, in our opinion, be without effective circulation of prices in the trade. A7, A9, A77 and A84 also provide circumstantial support to the case of circulation EPs. A84 prepared by the Bombay Office bears the date 31-10-1983. A6 contains proposed prices implemented w.e.f. 3-11-1983. The proposed prices for the II period in A84 (from 25-8-1983) correspond to "existing prices" in A6. A6 revised prices said to be effective from 1-11-1983 were revised after revised official price list was issued w.e.f. 29-10-1983.

A6 furnishes "existing" and "proposed PPs" and "market prices" which, in the circumstances could only mean EPs. A6 prices could not have been "implemented" without circulation and other efforts. A7 letter of Bombay branch to ITDB indicates "revised pricing was accepted w.e.f.

3-11-1983". A6 specifically indicates that the prices and margins therein were communicated to Ahmedabad and Nagpur branches.

163. A30 blind note seized from a WD of Delhi contains prices to WD, SWD, retailer and PPs for the ITC brands. These prices tally with the corresponding prices shown for these brands in A32 price list communicated by Saharanpur branch to sales representatives. Price to WD in A32 tallies with the corresponding figures in A36 evidencing ITC pricing logic, except in two instances where discrepancy is seen on account of rebate. It is true, as pointed out by learned Counsel for ITC, that these documents do not refer to EP. But the documents show that intermediate prices fixed or visualised by ITC reach ITC branches and WDs which supports the probability of EPs also reaching WDs.

164. DAE 127D (page 146 of paper book No. 29) is revised official price list effective from 11-2-1984 for two ITC brands, issued by the Head Office on 6-2-1984. Official price lists indicate only wholesale price and PP. The Bombay branch manager who received a copy of the price list wrote A77 letter dated 16-2-1984 to S. Misra, pointing out that the price list showed reduction of total margin by thirty paise without disclosing if the amount was to be cut from the margin of WD or the trade, evidently referring to SWD and retailer. He wrote another letter A9, dated 17-2-1984 referring to the earlier discussion with the Chairman and telephonic talk with S. Misra and stating that he was issuing fresh prices as per marketing departmental circular dated 9-2-1984 (DAE 127D at page 22 of paper book No. 29) reducing retailer's margin, making adjustment in SWD margin allowing what had been approved by the Chairman and leaving margin to WD unaffected. A8, effective from 11-2-1984 had been issued by the Bombay Office showing intermediate prices and margins, BTL as also unit "market prices" higher than EPs.

The statement in A9 to issuing fresh prices can only signify issuing fresh prices to the trade, which is the main method of circulation.

165. A53 (page 119 of paper book No. 4A) is a price list w.e.f.

22-8-1983 seized from the Calcutta Office of ITC. A53 contains unit price (PP), margins of WDs, SWDs and retailers and prices to WDs arrived at on the advice of the Chairman and initiated by S. Misra. The total margin is seen split among different trade levels on the basis of PPs. It is not in dispute that splitting of total margin in documents emanating from Head Office was on the basis of PPs and in documents emanating from district offices and branch offices was on the basis of EPs. This is seen from the branch documents A6, A8 and A84. A43 (page 104 of paper book No. 4A) was an amendment suggested by K.S. lyengar, Bangalore Branch Manager. The amendment was to the heading showing unit price, price to WD and margins at three levels. The prices in A43 at page 105 of the paper book tally with the prices in A53 which is a Head Office document and with prices shown in A83 which shows Bombay prices.

A83 has no date and hence was not relied on by the Adjudicating Authority. But the result of comparison of prices in these three documents of which dates are known of two documents leads to the inference of circulation to the trade of intermediate prices and margins based on EPs.

166. DAE 1271 (page 1122 of paper book No. 29) is an 1TC official price list w.e.f. 5-4-1985. A2 which is an ITC document w.e.f. 5-4-1985 seized from a WD at Calcutta shows Head Office prices to SWD, PP and EPs in E.T. areas and N.E.T. areas. A37B furnished prices and margins at various levels and prices to smoker (EP) effective from 9-4-1985.

NET (No Entry Tax) prices in A2, a document of Calcutta origin, up to and including retail level are the same as those in A37B, a document of Bombay origin. However, EPs shown are different evidently because of regional differences. While A2 furnishes retailer's 'margin' based on PP, A37(B) furnishes such margins based on EPs and PPs. A81(B) is a Bombay WD document which, we have held as reflecting the pricing logic of ITC and the prices, margins and EPs therein as having been visualised by ITC. EPs and prices to SWD seen in A81(B) and A37(B) are the same. A81(B) furnishes in ink EPs for various brands. These documents clearly indicate circulation to the trade of ITC intermediate prices and EPs.

167. A4 dated 3-10-1985 is a document of a WD in Howrah, shown as w.e.f. 14-9-1985. A68 dated 1-10-1985 seized from ITC office at Bangalore contains trade prices and margins for 33 ITC brands. The trade prices shown in A4 and A68 are the same. A72, a document of a WD at Madras shows trade prices which agree with those in A4 and A68.

These documents clearly lead to the inference that trade prices and margins in different areas of the country must have been inspired by the same source, namely, ITC and that could not have been possible without effective circulation.

168. The branch manager of ITC at Ahmedabad suggested in A21 that price of a particular brand must be at Rs. 4.50 for packet of ten cigarettes in order to ensure that it sells at Rs. 5.00 per package in the market.

This document points to the ITC practice of taking steps to ensure certain pre-determined EPs in the market place. A56 dated 22-3-1984 is a letter of the Calcutta branch regarding a particular brand. The professed objective of the plan in A56 was to ensure that the price to the consumer was established at Rs. 5.00 quickly, while moving over to the new price. DAE 127F (page 1119 of paper book No. 29) shows that the PP at the time for the particular brand was Rs. 4.80. A56 contemplated communication to retailers and smokers of the changed price, evidently referring to the EP of Rs. 5.00. A3, a branch document was sent to a WD. A79 required the addressee to circulate intermediate prices and margins shown in the third sheet to all WDs. Inter-branch communications like A6, A9, All, A34 and A79 as also contents of A26 to A28, A67 and A80 regarding "word of mouth" publicity also indicate circulation and communication of Eps to the trade. All these documents establish the ITC practice of communicating EPs to the trade.

169. We have now considered all the relevant documents in the light of conclusions drawn in respect of each document and contents thereof and drawn certain legitimate inferences and conclusions. On the basis of these conclusions and inferences, we uphold the finding of the Adjudicating Authority that ITC was visualising, envisaging or expecting, as the case may be, higher EPs, circulating the same to the trade and taking steps to ensure that cigarettes packages were generally sold to smokers at EPs higher than PPs. Points are answered accordingly.

170. It is contended that retail prices charged by retailers in different areas were different, and the exemption notifications contemplate a single All India price to be declared and, therefore, actual prices which were varying and different cannot be the basis for determination of maximum retail price or ASP. Paper book Nos. 26, 34 and 36 contain 1MRB prices at different places at different times for various ITC brands. IMRB also furnishes "modal" price which is the price at which maximum number of sales of a particular brand take place. Modal prices at different places in the same period also show variations. There were variations in actual retail prices even during periods in which PPs remained unchanged. Learned Counsel for ITC also pointed out variations on comparison of EPs shown in DDC charts and DDC documents on the one hand and actual retail prices reflected in IMRB reports, on the other. Learned Counsel has produced several charts of such comparison. We are not referring to the charts since the fact of such variations between EPs fixed, envisaged, visualised or expected by ITC on the one hand and actual retail prices reflected in IMRB reports, on the other, is not and cannot be disputed. Almost every officer of ITC examined before the Adjudicating Authority has spoken about the tendency of retailers to sell cigarette packages at prices higher than PPs and sticks at prices higher than the price arrived at by dividing PP of a package divided by the number of cigarettes in the package, in order to maximise their profits. IMRB prices show some retailers sold packages at prices even higher than EPs and sticks at prices higher than rateable stick prices arrived at on the basis of EPs. ITC had adopted a scheme of rebate and other measures to ensure implementation of EPs as we have already seen. The contention is based on the finding of the Adjudicating Authority that duty can be levied at the slab appropriate to PPs only if the packages were sold at PPs. We have already held (page 33) that it is not lawful or logical to go by actual prices which retailers all over the country actually realise from smokers as such higher prices could be individual aberrations. We have also held that if ITC brought about a situation, by adopting a pricing strategy, so as to constrain retailers to sell packages at prices higher than PPs and ITC visualised this situation, overcharging by retailers cannot be regarded as due to the volition or aberration of retailers. We have also indicated the average, or at any rate, the lowest actual retail price in the country could be regarded as the price at which FTC visualised or envisaged or expected retailers to sell the packages to smokers. We have further held (para 35) that if ITC fixed a higher EP or visualised or envisaged or expected retailers generally to sell cigarette packets at a particular higher price even while declaring and printing a lower PP, the slab applicable has to be determined on the basis of such higher EP. It is true that learned Counsel for Revenue, while supporting finding of the Adjudicating Authority of determining duty on the basis of higher EPs fixed or visualised or envisaged by ITC, alternatively contended that the slab must be determined on the basis of the actual retail prices at which retailers sold the packages. This alternative contention sought to support the view of the Adjudicating Authority referred to earlier in this paragraph. We have already rejected this view.

171. We are clear in our mind that under the exemption notifications, the actual prices charged by retailers all over the country cannot be treated as the maximum retail prices at which such packages may be sold in accordance with the declaration; it is impossible for manufacturers to declare and print on the packages such "actual" retail prices.

Therefore, the fact that retailers, almost one million in number, charge different prices for the same brand and the absence of a common or single "actual" price prevailing all over the country cannot have any bearing on the determination of maximum retail price or ASP for the purpose of the exemption notifications. Point answered accordingly.

172. Learned Counsel for ITC contended that the basis of the show cause notice is the price fixed, visualised or envisaged or expected by ITC at which the packages may be sold in retail to smokers but the impugned order is based not on such prices fixed or visualised by ITC, but on the actual prices prevailing in the market. He also contended that actual prices vary from place to place and from retailer to retailer and the impugned order has adopted the highest of these prices as the price which should have been declared and printed on the basis of which maximum retail sale prices are to be determined and this is illegal. We have already indicated (paras 33, 35, 170 and 171) that prices at which packages were actually sold by retailers all over the country cannot be treated as the maximum retail price at which the packages may be sold in accordance with the declarations. We have also held that if ITC had fixed, visualised or envisaged or expected higher EPs as the prices at which packages may be sold in retail to smokers, such higher EPs would be the basis on which ASP and slab are required to be determined. We have been taken through relevant portions of the voluminous impugned order. We find that with reference to all DDC documents other than A83, the Adjudicating Authority recorded specific finding to the effect that the EPs therein had been fixed, visualised, envisaged or expected by ITC for retail sale to smokers. The Adjudicating Authority also accepted the alternative contention of Revenue that slab must be determined on the basis of the prices at which retailers actually sold the packages to smokers. This alternative contention was also urged by the learned Counsel for Revenue before us and we have rejected the contention. In the light of the specific findings of the Adjudicating Authority regarding nature of the EPs shown in DDC documents, we cannot accept that confirmation of demand has been made on the basis of actual prevailing retail prices and adopting the slabs appropriate to such prices. We have also held that there was no departure from the case propounded in the show cause notice and corrigendum notice. We will consider separately the correct price on the basis of which the appropriate rate of duty is to be applied for quantification of duty.

We do not agree with the thrust of the contention of ITC reflected in point No. (xviii). Point answered accordingly.

173. Annexure-C to the Show Cause Notice quantifies the amount of duty short paid in respect of all the five factories of ITC as well the factories of six job workers. However, Annexure-C does not explain the basis on which qantification of duty short paid had been made. The basis has been provided in the chart annexed to the corrigendum notice.

This chart has been referred to earlier as DDC chart and documents relied on for the purpose of quantification have been referred to as DDC documents. The period covered by the demand is from 1-3-1983 to 28-2-1987. The total period is divided into 12 periods, describing them as period A to period L, the particulars of which are as follows:-_________________________________________________________________Period Dates Number of DDC Document Brands relied on_________________________________________________________________Period A 01-03-83 to 31-03-83 18 brands A81FPeriod E 01-11-83 to 31-01-84 21 brands A6(33)Period F 01-02-84 to 30-06-84 9 brands A8Period G 01-07-84 to 30-09-84 39 brands A16, A17Period H 01-10-84 to 31-03-85 6 brands A12 The periods fall in financial years 1982-83 to 1986-87. Obviously, the respective DDC documents do not cover all the ITC Brands and hence each period covers only those brands for which EP are available in the respective documents. Since the date of A83 is not available the demand for peribd-D, though raised on the basis of A83, has been confirmed on the basis of A37A relating to period-C.174. It is contended by ITC that the classification into twelve periods A to L, is arbitrary and without any basis, that during some periods PP had been revised while PP remained unchanged during more than one period in some cases and the same is the position with regard to wholesale price. It is contended that actual price charged by retailers may vary with variation in wholesale price or PP, and hence the classification is arbitrary. In these circumstances, it is pointed out, that "maximum sale price" adopted and ASP and slab arrived at would be arbitrary and unlawful and hence the quantification would be unsustainable. Comment is made as indicated earlier, on the local (not All India) character of many of the DDC documents. The particulars and nature of the documents are as follows:-____________________________________________________________Period Document Origin and Speciality Price adopted by nature of the locality the adjudicating____________________________________________________________ 1 2 3 4 5____________________________________________________________A A81F W.D. No entry Price of no-Entry Bombay tax tax areaG A16,A17 Head Office, --- Accepted Calcutta price 175. Learned Counsel for ITC has placed before us a summary in the form of a chart of relevant facts, in regard to each of the periods, which can be usefully referred to and is given below :-_________________________________________________________________Sl. Period A 01.03. B 01.04.

C DNo. Source 1983 A 81 (a) 01.05.1983 01.09.1983 Document A81(f) A 37 (a) A 83_________________________________________________________________ PP EP PP EP PP_________________________________________________________________ BRANDS1 India Kings 16.00 18.35 16.00 17.50 17.50 6.002 Classic 13.50 15.45 13.50 14.50 3.50 International3 Classic FTK 11.00 12.00 1140 12.00 12.00 11.404 Gold Flake 5.00 5.75 5.00 5.50 5.30 5.70 .30 FTK5 Wills Light 4.00 4.50 4.00 4.40 7.60 8 50 .60 FK) 20/106 Wills FTK 3.45 4.00 3.45 4.00 3.60 4.00 3.60 4.207 Wills FT 3.25 3.75 3.25 3.75 3.35 3.70 3.358 Capstan FTK 2.50 2.85 2.50 3.00 2.65 3.00 2.65 3.009 Bristol FT 2.00 2.30 2.00 2.50 2.20 2.00 2.3010 Gold Flake 1.90 2.20 1.90 2.10 1.85 2.00 1.8511 Berkeley 1.85 2.00 1.70 1.90 1.30 1.5012 Wills Flake FT1.75 2.00 1.75 2.00 1.80 2.00 1.80 2.1013 Chinar FTK.2.00 1.80 2.00 1.8014 Capstan FT 1.60 1.85 1.60 2.00 1.65 1.80 1.4015 Scissors 1.50 1.75 1.65 1.30 1.45 1.3016 Wills Royal FT1.25 1.45 1.50 1.25 1.15 1.3517 Honey Dew 1.35 1.50 1.50 1.05 1.25 1.2518 Gold Flake FT 2.40 2.75 2.40 2.10 2.35 2.50 2.3519 Flight 20SC 1.60 1.80 1.75 1.6020 Combat 2.0021 Wills Royal (K) 1.7522 Berkeley FT24 Scissors 2.40 1.80 1.80 Select FTK25 Wills 1.90 1.85 1.85 Navy Cut26 Capstan 1.35 1.35 1.35 Flake FT27 Wills 1.25 1.25 1.15 1.15 Virginia FT28 Embassy FT 1.1529 Capstan 1.25 1.25 1.50 1.15 1.25 1.15 1.35 Medium30 Players 1.00 0.85 Navy Blue31 Elephant 1.00 0.90 0.9032 Passing 0.60 0.80 Show T33 Wills 99 0.9534 Golden Star35 Scissors STD 0.95 0.9536 Red Lamp 0.95 0.9537 Telegraph 0.60 0.8038 Star 0.80 0.80 0.8039 Bear Special 0.90 0.9040 Tiger 0.80 0.8041 Wills 2.75 1.85 1.85 Flake FTK42 Capstan 0.9543 Wills Golden NOTE : Printed Prices are as per documents on record - listed in Annexure Appeal allowed STATEMENT SHOWING EPS AS PER DDC ANDCORRESPONDIG PPS FOR THE PERIOD______________________________________________________________Sl.No. Period E F G H Source 01.11.1983 01.02.1984 01.07.1984 01.10.1984 Document A6/33 A 8/78 A 16,17 A12___________________________________________________________________ PP EP PP EP PP EP PP EP___________________________________________________________________ BRANDS1 India Kings 18.00 18.002 Classic 15.00 14.00 International3 Classic FTK 12.50 12.504 Gold Flake FTK 6.00 4.80 5.505 Wills Light 8.50 3.60 3.75 (FK) 20/106 Wills FTK 4.00 3.757 Wills FT 3.75 3.30 3.508 Capstan FTK 3.00 2.60 2.759 Bristol FT 2.25 2.2510 Gold Flake 1.85 2.00 1.85 2.00 2.0011 Berkeley 1.30 1.50 1.30 1.50 1.50 /1.3512 Wills Flake 1.80 2.00 1.80 2.00 2.00 FT13 Chinar FTK. 1.80 1.80 2.0014 Capstan FT 1.60 1.40 1.50 1.50 1.6015 Scissors 1.30 1.50 1.30 1.50 1.5016 Wills 1.15 1.25 1.15 1.25 1.50 Royal FT /1.3017 Honey Dew 1.05 1.25 1.05 1.20 1.25 1.15 1.30 /1.1018 Gold 2.35 2.60 2.35 2.65 2.50 Flake FT19 Flight 20SC 1.80 1.80 2.0020 Combat21 Wills 1.90 2.00 Royal (K)22 Berkeley FT 1.90 1.80 2.0023 Bristol FTK 2.5024 Scissors 1.80 1.80 2.50 2.10 2.25 Select FTK25 Wills 1.85 2.00 Navy Cut26 Capstan 1.35 1.50 Flake FT /1.4027 Wills 1.15 1.15 1.50 Virginia FT /1.4028 Embassy FT 1.15 1.15 1.2529 Capstan 1.15 1.25 1.15 1.25 1.25 Medium30 Players 0.85 1.00 1.15 1.10 1.25 Navy Blue31 Elephant 0.90 0.90 1.15 1.10 1.25 /1.0032 Passing 1.00 1.15 1.10 1.25 Show T33 Wills 99 0.90 1.0034 Golden Star35 Scissors STD 1.00 1.0036 Red Lamp 0.90 1.0037 Telegraph 0.90 1.0038 Star 0.90 1.0039 Bear Special 0.90 0.90 1.0040 Tiger 0.90 1.0041 Wills 1.85 1.85 2.00 Flake FTK45 Scissors Select FT 2.2546 NOW (FTK) 10S NOTE : Printed Prices are as per documents on record - listed in Annexure A. STATEMENT SHOWING EPS AS PER DDC AND CORRESPONDING PPS FOR THE PERIOD_____________________________________________________________________________Sl. Period I J K LNo. Source Document 01.04.1985 02.09.1985 01.07.1986 01.01.1987 A10 A 86 A 85 A 85 PP EP PP EP PP EP PP EP_____________________________________________________________________________ BRANDS1 India Kings 17.00 18.50 18.00 20.00 18.00 24.00 30.00 /20.002 Classic 14.00 15.00 15.50 17.00 15.50 17.00 International3 Classic FTK 13.00 14.00 15.00 16.00 15.00 17.00 17.004 Gold Flake FTK 4.80 5.00 5.15/ 6.00 5.50 6.50 6.50 5.505 Wills Light 3.75 4.00 5.15 5.50 5.15/ 5.75 5.75 (FK) 20/10 5.256 Wills FTK 3.75 4.00 5.15 5.50 5.15/ 5.75 5.75 5.257 Wills FT 3.60 3.85 5.00 5.50 5.00 5.50 5.50 /5.108 Capstan FTK 2.80 3.00 3.00 3.50 3.00 3.50 3.609 Bristol FT 2.10 2.50 2.80/ 3.25 2.90 3.50 3.50 2.8510 Gold Flake 2.10 2.25 2.80/ 3.25 2.85 3.25 3.25 2.8511 Berkeley 1.55 1.75 1.70 2.00 1.70 2.00 2.0012 Wills Flake FT 1.95 2.15 2.85 3.00 2.85 3.50 3.5013 Chinar FTK.14 Capstan FT 1.80 2.00 2.70 3.00 2.70 3.00 3.0015 Scissors 1.40 1.50 1.70 2.00 1.70 2.0016 Wills Royal FT 1.40 1.65 1.70 2.00 1.70 2.00 2.0017 Honey Dew 1.25 1.50 1.55 1.60/ 2.00 2.00 1.6518 Gold Flake FT 2.55 2.75 2.85/ 3.25 3.00 3.50 3.50 2.9522 Berkeley FT 2.00 1.70 2.00 2.0023 Bristol FTK 3.50 3.5024 Scissors 2.35 2.50 2.75/ 3.25 2.85 3.25 3.25 Select FTK 2.8525 Wills Navy Cut 1.95 2.10 2.85 3.25 2.85 3.25 3.2526 Capstan 1.50 1.60 2.00 1.70 2.00 2.00 Flake FT27 Wills 1.50 1.60 1.70 2.00 1.70 2.00 2.00 Virginia FT28 Embassy FT 1.30 1.50 1.70 2.00 1.70 2.00 2.0029 Capstan Medium 1.65 1.62/ 1.90 1.70 2.00 2.00 1.7030 Players Navy 1.20 1.30 1.55 1.75 1.75 Blue31 Elephant 1.20 1.30 1.55 1.75 1.7532 Passing 1.20 1.30 1.5533 Wills 99 1.00 1.25 1.55 1.75 1.7534 Golden Star 1.75 1.7535 Scissors STD36 Red Lamp 1.10 1.25 1.55 1.75 1.55 1.75 1.7537 Telegraph 1.00 1.25 1.55 1.75 1.55 1.75 1.7538 Star 1.00 1.25 1.55 1.75 1.55 1.75 1.7539 Bear Special41 Wills Flake 2.10 2.25 2.80 3.25 3.00 3.50 3.50 FTK /2.9043 Wills 1.10 2.00 1.55 1.75 1.75 Golden Star44 SS 2.00 2.00 2.0045 Scissors Select FT 3.25 2.85 3.25 2.85 3.2546 NOW (FTK) 10S 2.00 1.70 2.00_____________________________________________________________________________ NOTE : Printed Prices are as per documents on record - listed in Annexure A.176. We are not able to agree that there is anything arbitrary or illegal in the classification of periods made by the Adjudicating Authority. Raids at various offices of ITC and their wholesale dealers led to discovery of many documents which revealed the pattern of fixation, visualisation, etc. of higher EPs while declaring and printing lower PPs leading to substantial evasion of Central Excise duty. The department could not lay hands on all the documents covering every month or week or day of the entire period and, therefore, necessarily had to redraw the picture with the available documents. It would be too much to expect ITC to cooperate fully with the department by providing the missing documents. So much so, the department had to be satisfied with the documents traced out during investigation. While it is true that EPs can be changed with change in wholesale price or PP or excise tariff, it is not necessary that such changes should inevitably lead to change in EPs. We find EPs remaining unchanged even while there was change in wholesale price or sometimes even in PPs.

From the available documents the department has classified various periods with some variations in the EPs of one or more brands. During the course of hearing of these appeals, we requested learned Counsel for ITC to see if documents reflecting exercises conducted at the Head Office of ITC in connection with pricing strategy or pricing logic or like for the period from 1983 to 1987 could be made available and whether IMRB prices at all places for the entire period can be made available. Learned Counsel who for this purpose, consulted officers of ITC present at the hearing, stated that the relevant documents would not be available at this distance of time. On a close examination of EPs shown in the DDC documents and other available documents, we are not able to find any arbitrariness or illegality in the classification of periods. There are a few instances of variations relevant for the purpose of comparison; we will advert to the same when we consider separately the demand for each period.

177. At the outset, learned Counsel for ITC contended that in regard to some at least of the twelve periods, there are other documents, not specifically referred to in the DDC chart, as also IMRB reports, which show EPs different from those shown in the DDC documents. It is pointed out that IMRB reports show that at several places, retailers had sold cigarettes at prices higher than or lower than the so-called EPs.

According to him, either all the prices must be rejected since no single All India price at which retailers all over the country sold packets of cigarettes to smokers is available or the lowest amongst the various prices alone could be taken to be the price which the ITC was required to declare and print on the packets on the basis of which ASP and the slab applicable could be determined. Learned Counsel for Revenue rebutted this contention and argued that where there are such variations, the demand cannot be regarded as unsustainable, but must be based on the highest of the available prices. He placed reliance on provisos (a) and (b) to explanation (1) to each of the notifications.

Provisos (a) and (b) to explanation (1) of Notification No. 36/83 read as follows :- (1) "Adjusted sale price", in relation to each cigarette contained in a package of cigarettes, means the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such packages; (a) Where such cigarettes are packed in packages containing the same number of cigarettes but the sale prices of such packages are different, the adjusted sale price in relation to each such cigarette shall be the unit price arrived at by dividing the highest of such prices by the number of cigarettes of such packets.

(b) Where such cigarettes are packed in packages containing different number of cigarettes, the unit price for each such packet shall be determined by dividing the sale price of each such packet by the number of cigarettes therein and the highest of such unit prices shall be the adjusted sale price in relation to each such cigarettes." The relevant provision in Notification No. 100/85, being the second proviso, to explanation (1) reads as follows :- "Provided further that where the cigarettes are packed in packages (whether or not containing the same number of cigarettes) but the unit price of the cigarettes in different packages as arrived at in accordance with the foregoing provisions of the Explanation are not the same, the adjusted sale price in relation to each cigarette in every package shall be highest of such prices." 178. We do not agree that it has been established that several varying EPs had been fixed or envisaged or expected by ITC during any of these periods.

That is because for some of the periods, no All India document has been made available. Regionally there could be some variations in EPs depending on the local conditions and the specific needs of local competition. There is no case for either party that the Head Office of ITC had fixed or envisaged specific and different EPs for the same brand during the same period. The scheme of the notifications depends on the maximum retail sale price of a packet of cigarettes. In the absence of any specific clause to the contrary, one has to proceed on the basis that the scheme is based on a single All India maximum retail sale price. What then is the purpose of the provisos quoted above? The earliest notification relates to packets containing 10,20,50 or any higher number, being multiples of 50, of cigarettes, while the latter notifications apply only to packages containing 10 or 20 cigarettes. It is open to a manufacturer to fix the maximum retail price of packages containing 10 or 20 cigarettes at such prices that ASP would be different. For example, the maximum retail price of a packet containing 10 cigarettes, could be fixed at Rs. 10.00, while that of a packet containing 20 cigarettes could be fixed at Rs. 19.00, depending on the market conditions. It is also possible for a manufacturer to manufacture packets of cigarettes of a particular brand to be sold at a particular price and to manufacture deceptively similar packets to be sold at a lower price with the intention of evading duty. It is possible for a manufacturer to have different maximum retail prices in different regions for the same brand of cigarettes in the face of competition in different regions. The purpose of the above provisos is to indicate which of the prices is to be regarded as the maximum retail price on the basis of which ASP is to be determined in such special circumstances. If there is a case put forward by Revenue that ITC declared and printed different prices for packages containing the same number of cigarettes or different number of cigarettes of a particular brand, the proviso may apply. But the show cause notice did not set up such a case; nor is there any specific evidence to show that the ITC as a single entity declared and printed such different prices for the same brand of cigarettes. In these circumstances, the question of adopting the highest of such prices does not arise.

179. The contention that there are several IMRB prices available in respect of some of the periods and the lowest of such prices has to be accepted as the maximum retail price which should have been declared and printed by ITC and, therefore, the ASP and the slab should be determined on the lowest of such prices cannot be accepted. We have already rejected the contention raised on behalf of Revenue that the notifications require the manufacturer to declare in print the actual price at which retailers sell the packages to the consumers. We have also indicated that IMRB price have no direct relevance and may have only indirect relevance in the process of arriving at EPs visualised or accepted by ITC. We will take up each period separately, for consideration and deal with variations, if any, in respect of each period.

180. Period A covers March 1983 and deals with 18 ITC brands. The DDC document relied on for this period is A81F. We have already held (para 59) that the unit prices shown in this document had been visualised or envisaged or expected by ITC as prices at which retailers may sell packages to smokers and, therefore, such prices should have been declared and printed on the packages. The document had been seized from a WD of Bombay city. There is no dispute that District West (which includes entire Maharashtra, Goa, Gujarat and other States in western India) have strong retailers' associations who did not feel themselves bound to sell packages at prices printed by ITC. This was much more so in Bombay city. Document A37(A) clearly shows the effect of the presence of organisations of retailers in this area. There is also evidence to show that there was a strong retailers' organisation in Bangalore which also exerted itself to maximise retailer's profits.

A37A would suggest that the rate of entry tax at the relevant time in Bombay city was 2 to 3%, while the rate of entry tax in "upcountry" Maharashtra and Gujarat was 2-5% and . Goa had no entry tax. The Adjudicating Authority, in the case of A37A for period C had adopted the Goa prices for quantification of duty, but without taking into consideration the circumstances that retail prices in the western region were the highest, the retail prices in Calcutta were the lowest and the prices varied in other regions. This is true of EPs also as can be seen from EPs A2 in comparison with EPs in A37B and as can be seen in the discussion regarding periods H and I. Therefore, while adopting EPs of Bombay city or Western region, due adjustment has to be made to arrive at the All India EP. The adjustment could be to the extent of 5%. "Sale prices" as defined in the notifications is the maximum price (exclusive of local taxes only) at which package of cigarettes may be sold in accordance with the declaration made on such package. It is open to a retailer to sell package of cigarettes for a price equal to PP plus local taxes (mainly entry tax) though local tax may have been paid by the WD or SWD and not by the retailer. But when an EP higher than PP is fixed or visualised or envisaged by ITC, retailer would be required to sell the package at the EP without collecting any amount extra as local tax. Therefore, the real EP which should have been declared and printed on the package would be EP as shown in A81F less 3% being the quantum of local tax; that is because A81A represented prices for Bombay city where the Entry Tax was being collected.

Treating the EP in A81F as EP fixed or visualised to suit the requirements of Bombay region, it is contended that one should also take into consideration the influence of strong retailers' organisation functioning in Bombay city and rest of western district. Since the exercise of visualising or envisaging EP was by ITC, no adjustment can be made specifically on account of activities of retailers' association. Having regard to all these circumstances, we hold that the maximum retail price which should have been declared and printed must be determined by granting a deduction of 8% (3% + 5%) from the unit prices shown in A81F since remand for the purpose of determining the exact margin to be given, may not be of any use since both sides have told us that no more documentary evidence will be forthcoming. The demand has to be reworked on the basis that the maximum retail prices that should have been declared and printed on the packages during period A, would be the EPs shown in A81F less 8%. For the purpose of quantification of the correct ASP slab and the differential duty payable for this period, the matter is to go back to the Adjudicating Authority.

181. Period B is April 1983. The demand has been confirmed for this period on the basis of A81 A, also a WD document of Bombay city. The position in regard to period B, so far as DDC document is concerned, is the same as that of period A. For the reasons indicated in regard to period A, in respect of period B also, we direct that the maximum retail prices which should have been declared and printed on the packages would be the EPs shown in A81A less 8%. The quantum of differential duty payable for this period has to be worked out afresh.

182. Period C covers the period from 1-5-1983 to 31-8-1983 and the relevant DDC document is A37A(c) which furnishes three prices A,B and C as already indicated. It is pointed out by learned Counsel for ITC that wholesale prices were revised on 25-8-1983; but this has no relevance in the absence of evidence to show that the EPs also were revised with effect from that date. Learned Counsel also referred to A74 dated 2-5-1983, A81E effective as on 16-5-1983 and A82 (Post Budget) to show that unit prices under these documents were different in some cases.

That is natural since A37A emanated from Bombay Branch of ITC, A81E was recovered from WD at Goa and A82 was recovered from another WD. The department had no case that the prices shown in A74 were fixed, visualised or envisaged by ITC. A74 merely reported prevailing prices in Bangalore. The EPs in A81E and A82 would only indicate variations brought about in different regions by regional offices of ITC or WDs.

The Adjudicating Authority adopted the prices for Goa in A37A for the purpose of quantification of differential duty. A37A would suggest that there was no Entry Tax in Goa. Therefore, any adjustment based on Entry Tax is not called for. But the fact that EP accepted for this period is of western region has to be taken into consideration and on that account, deduction of 5% has to be given instead of remanding the case.

We hold that the All India maximum retail price for period C has to be arrived at by adopting the unit prices shown in A37A less 5%.

Quantification of differential duty for this period has to be done afresh.

183. This period covers September, 1983 and October, 1983. The demand in the Show Cause Notice for this period was based on A83. However, the Adjudicating Authority declined to go by the unit price shown in A83, since the document does not bear any date and adopted the corresponding maximum retail price for period C as applicable to period D also. This was strenuously objected to on behalf of ITC. Period D covers only eight brands. The unit price in A83 for five of the brands is seen to be higher than the corresponding prices in A37A for period C. The price of one brand is seen to be lower than the corresponding price adopted for period C. No change is seen in respect of prices of two brands of cigarettes. In our opinion, the complication arising from the absence of the date in A83 can be resolved fairly and reasonably by directing that the EPs for period D should be taken as the lower of the prices shown for these brands in the two documents. If the lower price for any brand is the Goa price in A37A or A83, deduction of 5% has to be given.

If the lower price for any brand is the A price or B price in A83, deduction of 8% has to be given. ASP slab applicable and quantum of differential duty for period C has to be arrived at on this basis.

184. The period is from 1-11-1983 to 31-1-1984. The DDC chart indicates the EPs for twenty-one ITC brands and the document relied on is A6(A33) seized from the Bombay District Office of ITC. The document furnishes prices for regions A, B and C as in the case of A37A and also indicates "Existing City" prices. The prices were implemented after discussion with S.K. Mehta on 1-11-1983. According to learned Counsel for FTC, IMRB prices for one or two cities for the relevant period are available and the comparative chart is seen in page 1623 onwards of paper book No. 31. Both sides have provided comparative charts. The Adjudicating Authority has adopted the lowest Goa price seen in A6. The appellants, chart shows the IMRB prices seen in DAE 172 and 109 appearing in paper book Nos. 34 and 26 respectively. In some instances IMRB prices are marginally lower than Goa prices and in some instances marginally higher than such prices. We have already indicated that IMRB prices which are observed prices have no direct relevance in the exercise at hand. We have held that the notifications required ITC to declare and print the prices fixed or visualised by them and not actual prevailing prices in the market. There was no fetter on the right of the retailers to sell packages at prices less than the MRP declared and printed, depending on local conditions, the state of competition and individual business methodology. Therefore, the fact that IMRB prices vary slightly below or above the EPs cannot have any impact on the determination of differential duty. However, the reasons which weighed with us in directing deduction of 5% in respect of periods A to C from the Goa price will apply to period E also. We, therefore, hold that the EPs in respect of period E shall be the Goa prices in A6 adopted by the Adjudicating Authority less 5%. Quantum of differential duty for this period has to be worked out afresh.

185. The period is 1-2-1984 to 30-6-1984. The DDC chart refers to nine ITC brands. It is seen that in respect of six brands the EPs for periods E and F are the same and in respect of two brands the EPs for period F are marginally lower than the corresponding EPs for period E.In respect of one brand the EP for period F is marginally higher than the corresponding EP for period E. The DDC document for this period is A8 seized from the Bombay District Office of ITC. A8 also furnishes three sets of prices for A, B and C and the Adjudicating Authority adopted the lowest price shown against period C, obviously referring to Goa. There are no other price lists available on record in respect of this period: We are not able to find any defect in adoption of A8 prices for the purpose of quantifying differential duty. However, for the reasons which weighed with us to direct deduction of 5% in respect of earlier periods would apply to EPs shown in A8 also. EPs for this period shall be arrived at by adopting A8 prices less 5%. Differential duty shall be determined on this basis.

186. This period ranges from 1-7-1984 to 30-9-1984 and is covered by DDC documents A16 dated 26-7-1984 and A17 dated 13-8-1984. The enclosure to A16 indicates revised price categories furnishing EPs for all price segments. A17 modified some of those categories furnishing amended EPs to some brands of cigarettes. We have held (para 80) that these EPs have been visualised, envisaged or expected by ITC as the prices at which retailers may sell cigarette packages to smokers. Both documents emanated from the Head Office of ITC and, therefore, represented All India prices visualised by ITC. There may be, as suggested, some variations vis-a-vis IMRB prices, but that would not, as already indicated, detract from these prices. Bearing in mind the aspect of Entry Tax in force in various parts of the country, we are of opinion that it is necessary to reduce the EPs shown in these documents by 5% to arrive at the correct prices which should have been declared and printed on the packages. That is because rate of Entry Tax varies from place to place and in many parts of the country range up to 5%.

The quantification of differential duty has to be made afresh on this basis.

187. These periods ranging from 1-10-1984 to 31-3-1985 and 1-4-1985 to 1-9-1985 respectively, are covered by DDC documents A12 and A10 respectively. The documents are letters from the Head Office to District Managers and others, the former in connection with revision price categories and the latter in connection with the 1985 Budget changes. We have held (para 83) that the EPs shown in these documents were envisaged, visualised or expected by ITC as the prices at which retailers may sell cigarette packages to smokers. Since these prices have been circulated by the Head Office, they must be regarded as All India prices. Both sides have placed before us charts for comparison of prices. One chart compares A12 prices with the available IMRB modal prices in five different cities; obviously there are some variations with reference to modal price in one city or the other which is natural considering various factors operating on the retailers in choosing to sell cigarettes at particular prices. There are three charts furnished with reference to period 1. One chart compares prices in A2, A37B and A10. The prices in A2 are equal to or less than the prices shown in A10. The prices in A37B are in most cases higher than the prices in A10. A2 was seized from WD at Calcutta and prepared by Calcutta branch of ITC. A37B relates to Bombay area. We have seen in other instances also that prices in Calcutta were perhaps the lowest prices among all regions. It is obvious that after receipt of All India prices of Head Office, Regional Offices and Branch Offices brought about some variations to suit local conditions. In the case of A4, a document seized from a WD at Calcutta, we have held (para 115) that the prices must have been fixed or envisaged by ITC. The chart comparing the EPs in A4 with those in the other three documents shows that EPs in A2 and A4 are exactly the same. Having regard to the circumstances referred to above, we are of the opinion that in respect of all the brands covered by A2, EPs shown in A2 must be accepted and in respect of other brands EPs shown in A10 must be accepted. Since the EPs in A2 relate to Calcutta area where the retail prices are the lowest, it would be sufficient to give deduction of 5% from these prices on account of the aspect of Entry Tax to arrive at the prices which should have been declared and printed on the packages. Regarding the other brands, taking into consideration the All India character of prices in A10 and aspect of Entry Tax, we are of the opinion that deduction of 5% would be necessary. So far as period H is concerned, A12 prices subject to deduction of 5% must be regarded, as the correct prices which should have been declared and printed in the packages. Quantification of differential duty for these periods is required to be done on this basis.

188. This period ranges from 2-9-1985 to 30-6-1986 and is covered by A86 emanating from West District. The document furnishes EPs for July, August, September and December, 1985 and January, June and August, 1986. We have held (para 88) that EPs in A86 were visualised or envisaged by ITC. We have also indicated that the some adjustment would be necessary as the document emanated from District West, which includes areas under influence of retailers association and high octroi incidence.

189. Both sides have provided some charts for comparison of A86 prices with certain other prices. There is a chart comparing A86 prices with the prices in three All India forecast exercises seen in DAE 121 (page 997 of paper book No. 27), DAE 124 (page 146 of paper book No. 21) and DAE 106 (page 1774 of paper book No. 33). The chart shows that in regard to some brands shown in the forecasts, prices were lower than A86 prices and in some instances they were higher. As explained by learned Counsel for ITC, such exercises are repeated on the basis of varying assumptions and at the end of all the exercises, the final forecast would be prepared. We requested learned Counsel of ITC to produce before us the final All India forecast exercises in respect of the period J and other periods and he pleaded inability on the ground that records have not been preserved. We are, therefore, not inclined to attach significance to such comparisons. Learned counsel for ITC has also furnished a chart comparing A86 prices with four other District West forecast exercises on record as DAE 120D, DAE 165 and DAE 166.

Unfortunately the dates on which these exercises were made are not available. Revenue has furnished a chart comparing A86 prices with certain available IMRB prices for this period. We find that there are some variations. Revenue has also furnished a chart comparing A86 prices with prices available in A4, A19 and A23 which also shows some variations.

190. A4 is a document seized from a WD at Calcutta. A19 is a letter from the Bombay District Office of ITC to Head Office suggesting introduction of new brands and referring to EPs of existing brands. A23 is an action plan suggested by Jaipur Branch of North District in regard to six brands referring to new EPs higher than new PPs of the brands. We have held that these documents broadly corroborate the case of the department that ITC was visualising or envisaging higher EPs while declaring and printing lower PPs. A chart furnished by Revenue shows that A86 prices for some brands were the same as or more than or less than the EPs shown in the other documents. These variations are inevitable, since many of the documents emanate from different offices of ITC. While acting on the basis of EPs shown in A86 it would be necessary to deduct 8% as indicated earlier, to arrive at the correct prices which should have been declared and printed since the document emanated from ITC office of District West. The amount of differential duty has to be worked out afresh on this basis.

191. The period ranges from 1-7-1986 to 31-12-1986 and is covered by A85, prepared by the District Manager West and showing expectations for various months in 1986 and 1987. We have held (para 91) that the EPs in A85 must be regarded as EPs visualised or envisaged by District West of ITC but aspect of adjustment has to be considered. We referred, while discussing A85, to prices in some other documents. Both sides have furnished certain comparison charts. ITC has furnished four charts comparing A85 prices with certain IMRB prices, showing variations which, as we indicated earlier, would only be natural. There is a chart comparing EPs in Al and A85 which shows that, in respect of nine brands, Al prices were lower than A85 prices and in respect of four brands the prices were equal. Revenue has furnished a chart comparing A81 prices with prices in Al and A3. A3 has prices of only two brands and in both cases these prices were lower than A81 prices but higher than A85 prices. Revenue has also furnished charts comparing A85 prices with IMRB prices. Al is a document of the Calcutta Branch of ITC. We have already indicated that the Calcutta EPs were invariably lower than the EPs emanating from other regions. In the circumstances, it is only proper that EPs shown in Al must be accepted for period K, in respect of brands covered by Al and EPs shown in A85 must be accepted, in respect of brands covered by A85 but not covered by Al. Considering the circumstances that A85 came into existence in District West functioning under the strong influence of retailers' organisation and with the substantial Entry Tax, deduction of 8% has to be made from EPs shown in A85 to arrive at the maximum retail prices which ITC should have declared and printed on the packages. With reference to the prices in Al for the brands covered by Al, deduction of 5% has to be granted in respect of the effect of Entry Tax. Differential duty has to be worked out on this basis.

192. This period ranges from 1-1-1987 to 28-2-1987. The DDC chart did not refer to any specific document for this period, but followed A85 which also indicated EPs for earlier months of 1987. Two charts furnished by the assessee show variations in IMRB prices. We find that the EPs projected for January to June, 1987 in A85 are in some cases more than and in some cases equal to the projected EPs for the earlier period in A85 accept in one case with a difference of one paise. The Adjudicating Authority has adopted for period L, EPs shown in A85 for the period November and December, 1986, which is, therefore, more advantageous to ITC. Since A85 emanated from District West deduction of 8% has to be given for A85 prices to arrive at the correct EPs for period L also. ASP, appropriate slab and differential duty have to be worked on this basis.

193. The following is summary of our findings and directions under points No. (xxiii) and (xxiv): (i) Classification of period under demand into twelve periods A to L is not arbitrary or illegal.

(ii) Maximum retail sale prices exclusive of local taxes, which should have been declared and printed on the packages have to be arrived at on the following basis :- (d) Period D - Lower of the unit prices shown in A83 and A37A, less 8% in the case of unit price A or B in A83 and less 5% in other cases.

(g) Period G - Unit prices in A16, as modified by A17 in some cases, less 5%.

(h) Period H - Unit prices in A12 less 5%. (i) Period I - Unit prices in A10 or A2, whichever is lower, less 5% in the case of A10 prices and 5% in the case of A2 prices, (j) Period ] - Unit price in A86 less 8%. (k) Period K - Unit prices in A85 or Al, whichever is lower, less 8% in the case of A85 and less 5% in the case of Al. (1) Period L - EPs adopted for period K. (iii) ASP, slab in the respective notifications applicable, effective rate of duty and differential duty, if any, have to be worked out afresh on the above basis.

194. On the basis of various contentions urged by learned Counsel for ITC, it is pleaded that there is no justification for demand of differential duty from ITC. We have considered all the contentions and come to the conclusion that differential duty would be payable by ITC, though the quantification has to be done afresh on the basis of our findings on point No. xxiv.195. It is strenuously contended by ITC that the show cause notice and the demand therein, in respect of the period more than six months prior to the date of the notice would be barred by time since the extended period of limitation under the proviso to Section 11A of the C.E. Act, 1944, would not be applicable. The Adjudicating Authority has rejected this contention. The contention is two-pronged.

Revenue had alternatively contended before the Adjudicating Authority that the price which should have been declared and printed on the packages was the actual price at which the retailers actually sold packages to smokers. The same contention was urged before us alternatively and we have rejected this contention. One prong of the contention on limitation is based on the premise of actual retail prices being required to be declared and printed on the packages and other on the premise of fixation or visualisation of higher EPs by ITC while printing lower PPs on packages. We will deal with both aspects presently.

196. It is argued that ITC bona fide believed that whatever PPs were arrived at by them had to be declared and printed on the packages in terms of the notifications and this was the understanding of the Department, the Board and the Central Government and quantification of duty on the basis of PPs by ITC was bona fide and cannot be regarded as a wilful act with the intent to evade payment of duty. In support of this contention, learned Counsel referred to various documents relied on for the purpose of invoking the principle of contemporaneous exposition. We have already referred to these materials in paragraphs 10 to 18 supra and held that all that can be said is that the Members of the Board were aware of the possibility of retailers not sticking to the PPs and overcharging, that determination of assessable value under Section 4(l)(a) of the Act created enormous complications, disputes and litigations and what was evident from the budget speech was the intention to cut the Gordian-Knot by a scheme of effective duty related not to assessable value but to the number of cigarettes. There was nothing in the budget speech or other materials relied on by ITC to show any intention on the part of the Government to have a duty structure based on whatever price the manufacturers chose to declare or print, irrespective of the real state of affairs. Tendency of retailers to overcharge was possibly known to everybody concerned and evidently the authorities concerned were not worried about it. This does not mean that the Government or the Board knew that ITC would be instrumental in somehow or the other ensuring or envisaging packages being sold at effective prices higher than printed prices and ITC would knowingly print lower prices and yet intended that the excise authorities should not be concerned about it.

197. It is pointed out that after notification No. 36/83, though a formal declaration before any specified authority was not contemplated thereunder, ITC were filing declarations (in lieu of price lists) for clearance of cigarettes from various factories merely declaring the printed prices as the basis for quantification and payment of duty.

These declarations were duly considered by the concerned officers who also, it is alleged, considered the printed prices to be the only relevant factor for determining the duty liability and after ascertaining or verifying the printed prices appearing on the packages, approved and assessed the declarations on the basis of which clearances were made. Samples of such declarations duly approved are seen in DAE 175 at pages 2160 to 2185 of Paper Book No. 37. It is pointed out that ITC made representations to and had discussions with various authorities pointing out the difficulties arising on account of levy of duty on the basis of PPs, that the industry also made such representations and during discussions it became clear that the understanding of the Department was also that the basis for payment of duty was PP. S.K. Mehta, the then Chairman, ITDB in his Section 14 statement, referred to these representations and discussions. The Chairman and Member, CBEC, confirmed before PAC of Parliament that duty was payable only on the basis of PPs even though they were aware that the retail sales were being made at prices higher than PPs. Our attention has been invited in this connection to pages 252 to 254, 258 and 259 of Paper Book No. 39. J.N. Sapru, the then Chairman of ITC had meetings with R.C. Misra, Member, CBEC, J. Dutta, Chairman, CBEC and others to highlight their difficulties. These meetings were in the period 1983 to 1985. According to J.N. Sapru, the reaction of the CBEC Member was that the primary interest of the Department was in getting budgeted revenue and as long as this objective was being met, overcharging was a matter which fell within the purview of the State Governments under PC Rules and from the point of view of the Department, as long as manufacturers did not charge or sell at prices higher than the PPs, there were no revenue implications. J.N. Sapru also spoke about the similar impression he gathered from such discussions. It has to be remembered that these statements were given in 1991 and discussions took place nearly a decade earlier. It is also pointed out that notification No. 36/83 was amended and substituted repeatedly in later years but at no stage was any attempt made to change the basis of duty from PP to actual price. Even when notification No. 201/85 was amended on 20-9-1985 providing for approval of surface design, no provision was introduced for approval of PPs and clearances were permitted on the basis of PPs in spite of the knowledge that the retail sales were being made at higher prices. Though the notifications did not contemplate formal or informal approval of PPs, CBEC issued a circular in 1986 providing for approval of PPs to be obtained from the respective Collectors prior to the Director (Audit) approving surface design. At no stage was the industry required to furnish or declare actual retail prices prevailing in the market or to determine ASP based on such actual prices. It is contended that these materials and circumstances make it clear that the Department also considered that duty was payable only on the basis of PP and therefore the action of ITC in declaring PPs and paying duty on the basis of such PPs must be regarded as bona fide and cannot be regarded as wilful mis-declaration with the intent to evade duty.

198. It is also contended that the excise officials were always aware of higher retail prices prevailing in the market. Reference is made to page 197 of Paper Book No, 8 which shows that the Superintendent of Central Excise, Bangalore wrote to ITC pointing out that retail prices advertised by the Karnataka Retailers Association were higher than the PPs and seeking certain clarifications. Reference is also made to the letter by District Manager, Kanpur of ITC to the Head Office seen at page 190 of Paper Book No. 8 stating that officers from Central Excise and Weights & Measures Department visited the factory premises and wanted to know the reason for retail sales of cigarettes at prices higher than PPs. These materials, according to ITC, indicated knowledge of the department of actual retail sales at prices higher than PPs.

199. It is further contended that if duty was payable on the basis of retail prices actually prevailing in the market and not on PPs, the question of limitation has to be decided on the basis of the question whether the department was aware of the material facts so as to enable initiation of proceedings for short-levy on the aforesaid basis within the period of six months. The show cause notice did not allege non-disclosure or suppression of information regarding retail prices actually prevailing in the market from time to time and in the absence of any such allegation, the invocation of the proviso to Section 11A of the Act would not be justified. ITC, on their own, and repeatedly apprised CBEC members and departmental officers of the fact that there was overcharging in the retail market as a result of squeezing the margin by ITC consequent on the issue of Notification No. 36/83 and thus the department was aware of overcharging by retail trade on account of the act of ITC in squeezing market. It is contended that disclosure of this information was sufficient to initiate action under Section 11A of the Act.

200. Learned Counsel appearing for Revenue rebutted these contentions and pleaded that duty structure being based on prices actually prevailing in the market was only an alternative plea both before the Adjudicating Authority and before us and Revenue throughout had stuck to the case set out in the show cause notice of fixation, visualisation and envisaging of higher EPs by ITC while declaring lower PPs on the packets. He contended that disclosure by ITC and knowledge on the part of the Board and the department about the phenomenon of overcharging by retailers was one thing, but the deliberate design of printing lower PPs on the packages while fixing or envisaging higher EPs and circulating the same to the trade was a different matter. If it was a mere case of overcharging by retailers, the show cause notice might not have been issued except perhaps on the basis of alternative contention that duty would be payable on the retail prices actually prevailing in the market. The basis of the demand, he pointed out, was the deliberate design and strategy adopted by the ITC of higher EPs and lower PPs with the sole intention of evading duty and the department could become aware of the strategy only with reference to the incriminating documents seized on raids of various offices of ITC and WDs. In these circumstances, according to him, the proviso to Section 11A was rightly invoked.

201. We have carefully considered the contentions urged by both sides.

We have already explained the averments in the show cause notice and the corrigendum and held that the thrust of the case of the Revenue was that ITC fixed or visualised or envisaged higher EPs for various brands of cigarettes and yet deliberately printed lower PPs on the packages of cigarettes with the intention of evading duty and deliberately suppressed all relevant information having a bearing on this strategy.

This basic thrust of the notice has been amply proved in this case. We have held, on the merits, that during the relevant period, ITC envisaged or visualised higher EPs while printing lower PPs with the intention of paying lower excise duty or of taking advantage of lower slab of duty. We have also held that ITC was circulating to its various offices and the trade, intermediate prices as well as higher EPs and also taking steps to ensure cigarette packets were sold at such EPs and were not sold at any prices higher than such EPs. We have also held that ITC had a few prestigious outlets where the persons in-charge were not prepared to sell packages at the prices higher than PPs and their interest was protected by ITC by offering rebate or discount to enable them to sell cigarette packages at the PPs. It is the admitted case of ITC that throughout the relevant period, they were declaring to the department only the lower PPs and officially circulating to the trade only the wholesale prices and PPs. Evidently ITC were making strenuous and repeated representations to the Board and other authorities about rampant overcharging by retail trade only with the intention of hiding the role played by ITC in visualising, envisaging and circulating higher EPs. If the fact of ITC envisaging, visualising and circulating higher EPs to the trade had been disclosed to the department and not been deliberately suppressed, the department would have been in a position to issue show cause notices for various periods within the time limited by the main provision in Section 11A of the Act i.e., six months. The deliberate suppression of this crucial fact and the attempt to throw the entire blame for higher retail prices on the retail trade effectively prevented the department from coming to know the true state of affairs and initiating action within the shorter period of limitation under Section 11A of the Act. In these circumstances, the proviso and the larger period of limitation contemplated thereunder would be clearly attracted to the facts of the cases. Mere knowledge of the department of the phenomenon of overcharging by retailers would not have enabled them to demand differential duty from ITC since the scheme of the notifications did not rest on prices actually charged by retailers to smokers but rested on PPs honestly and scrupulously arrived at by the manufacturers. That the department was all along aware of squeezing of trade margin by ITC also is besides the point since that has no direct bearing on the act of envisaging, visualising and circulating higher EPs while printing lower PPs on the part of ITC.For these reasons, we hold that the larger period of limitation under proviso to Section 11A of the Act was rightly invoked and applied in this case and no part of the claim would be barred by limitation. Point answered accordingly.

202. ITC, besides manufacturing cigarettes in their own factories, were also supplying raw materials to seven job workers who manufactured cigarettes out of these materials and returned the cigarettes to ITC.All the job workers except M/s. Sikkim General Industries Corporation Pvt. Ltd., Gangtok, have filed appeals against the order passed by the Adjudicating Authority. These appeals are E/288/96-A to E/293/96-A. The show cause notice, after making various allegations against ITC and job workers, stated that ITC and the job workers, seven in number, jointly contravened the provisions of Rule 9(1), 52, 52A and 209 of the Central Excise Rules, 1944 inasmuch as they fraudulently declared to the department and made declarations on cigarette packets of lower "sale prices" with clear intent to evade payment of appropriate duty and to avail themselves of exempted rates as applicable to cigarettes with lower "sale prices" and wilfully suppressed the fact that the prices printed on the packets were false and had been deliberately so printed to facilitate payment of duty at lower rates under the notifications and also made wilful mis-statement regarding ASP and "sale price" of cigarettes as mentioned earlier. The show cause notice further alleged that ITC and the job workers jointly rendered themselves liable for payment of duty short-paid as indicated in page 72 of the show cause notice, that the duty has been short-paid by fraud, wilful mis-statement, suppression of facts and contravention of the provisions of the Act and the Rules and the proviso to Section 11A of the Act would be applicable. The notice also alleged that the ITC and the job workers jointly rendered themselves liable for penalties and for confiscation of their assets. The liability of each job worker has been shown separately at page 72 of the show cause notice. In the case of three job workers, the demand has been fully confirmed while in the case of other job workers, there is minor variation in the quantum of duty confirmed.

203. It would be necessary to examine the basis and scope of the show cause notice. Pages 5 to 22 of the show cause notice refer to the state of affairs revealed by various documents seized during investigation.

Pages 22 to 39 refer to various acts committed by ITC in perpetrating fraud on Revenue. Pages 39 to 66 refer to statements of officers and WDs of ITC and one of the job workers, namely, Asia Tobacco Company Ltd. Hosur. Pages 66 to 68 refer to allegations against ITC. Paragraph 12 (pages 68 to 73) refer to the tentative conclusions of the statutory authority issuing the show cause notice. Sub-paragraphs (a) to (d) refer to ITC and sub-paragraph (e) refers to the Chairman and Directors of ITC. Sub-paragraph (f) invokes the proviso to Section 11A of the Act. Sub-paragraph (g) at page 71 alleges joint contravention by ITC and the job workers of the provisions of Rule 9(1), 52, 52A and 209.

Sub-paragraph (h) refers to the liability for penalty on the part of ITC and job workers. Sub-paragraph (i) refers to joint duty-liability of, ITC and the job workers. Sub-paragraph (j) refers to the invocation of the larger period of limitation against job workers.

204. The findings of the Adjudicating Authority in regard to job workers can be summarised as follows :- They had legal duty to determine and declare correct MRP, PP and ASP. Their plea that they innocently declared and printed such prices as were supplied to them by ITC cannot be accepted since it was their duty to have verified the correctness of the prices so furnished by ITC. A presumption of culpable mental state or mens rea has to be drawn against the job workers in view of illustration (f) to Section 114 of the Indian Evidence Act and Section 9C of the C.E. Act. The responsibility and liability of the job workers cannot be shrugged off since they were the manufacturers holding central excise licences which cast certain duties and liabilities on them.

Since the presumption was being drawn against job workers, burden was on them to show their innocence and they have failed to discharge this burden. Rule 225 of C.E. Rules also came to the aid of Revenue. The job workers had close and long relationship with ITC. WDs of ITC were privy to the actions of ITC. Necessarily the job workers also must have been privy to such fraudulent actions of ITC and thus rendered themselves liable for differential duty on the basis of higher EPs as in the case of ITC. The findings are challenged by the six job workers who have filed appeals and who have raised contentions on the merits and on the aspect of limitation. These contentions are rebutted on behalf of Revenue.

205. Traditionally the department was not inclined to treat job workers as manufacturers and was inclined to treat the suppliers of raw materials as manufacturers. The Supreme Court in Empire Industries Ltd. - 1985 (20) E.L.T. 179 (S.C.) made it clear that in the eye of law job workers would be the manufacturers. This view was reiterated in the judgment in Ujagar Prints -1987 (10) ECR 640 and the Ujagar Prints clarificatory order in 1988 (38) E.L.T. 535 (S.C.). It is thus clear that job worker is legally the manufacturer of cigarettes though he is not the owner of the manufactured goods and cannot and does not sell the manufactured goods to anyone but merely returns the manufactured goods to the supplier of raw materials. The Ujagar Prints clarificatory order has made it clear that where ad valorem duty is payable the assessable value of the excisable goods in terms of Section 4(1) of C.E. Act, 1944 would be the sum-total of the cost of raw materials, the manufacturing cost and the manufacturing profit of the job worker and not the price at which the supplier of raw materials and the receiver of finished products sells them to wholesale dealers.

206. The ratio of the above decisions would apply to the job workers of ITC and they must be regarded as the manufacturers of cigarettes supplied to ITC If ad valorem duty was payable by job workers, assessable value would be determined not on the basis of the wholesale price realised by ITC from their wholesalers but on the basis of the formula approved in the Ujagar Prints cases, that is, the sum total of the cost of raw materials, manufacturing cost and the manufacturing profit of the job workers. Job workers in these cases availed the benefit of the exemption notifications and fulfilled the basic condition stipulated, namely, clearing cigarettes in packages declaring the printed price and therefore were entitled to the benefit of exemption. We have already seen that excise duty payable under the notifications was geared to the printed price of cigarettes but in different slabs dependent on the quantum of the ASP. Just as the job workers would not be aware of the wholesale price charged to the wholesale dealers and therefore would be guided by the declaration which the supplier may make to them about the quantum of such wholesale price, in the instant case, job workers would not be aware of the correct MRP visualised or envisaged by ITC or the correct ASP applicable to a given brand during the various periods and would be dependent entirely on the information about PP and ASP declared by ITC to them. The Ujagar Prints clarificatory order protects the job workers and restricts their liability to ad valorem duty on the basis of the declaration of wholesale price made by the supplier to the job workers.

Equally, in our opinion, the job worker would be protected and the liability of the job worker would be restricted on account of declaration of PP and ASP by ITC to the job worker. In these circumstances, once the job worker has paid duty payable under the notification on the basis of the MRP declared and printed on the packages as declared to the job worker by ITC, the liability of the job worker comes to an end. There is no provision of law by which in a case like the present one, liability for the differential duty can be fastened on the job worker or on the supplier. This may be a lacuna in the law but we can only implement the law as it is.

207. We find the reasons which weighed with the Adjudicating Authority in upholding the liability of the job worker to be untenable and without substance. Apparently the draftsmen of the exemption notifications did not have in their mind the case of job workers. It is true that the job worker, as manufacturer, cannot declare or print MRP which to his knowledge is false. The job worker does not sell cigarettes either to the supplier of the raw materials or to the wholesalers, nor does the job worker secure any part of the price for himself other than the job charges. The job worker cannot also declare and print MRP of his own choice since he is not the owner of the goods and cannot determine such MRP. He can only look to the supplier of the raw materials for furnishing him particulars of MRP or PP and ASP.There is no dispute that in these cases ITC supplied these particulars to the various job workers who whereupon declared and printed MRPs on the packages and quantified duty liability on the basis of the PPs supplied by ITC. There is no provision of law which requires job worker to subject such particulars to scrutiny and verify the correctness of the same or go behind those particulars and declare and print PP of his choice. The invocation of illustration (f) to Section 114 of the Indian Evidence Act, in the instant case, was completely misplaced. If at all, the illustration can be invoked in support of the job worker who, as a matter of trade practice, relied entirely on the particulars furnished by the owner of the manufactured cigarettes who was marketing the same.

Under Section 114 of Evidence Act, a Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in relation to the facts of the particular case.

Illustration (f) enables a Court to presume that the common course of business has been followed in a particular case. The show cause notice did not indicate the factual basis giving rise to an inference of common course of natural events or private business. Considering the relationship between the supplier and the job worker, it is consistent with common course of natural events and common course of business, for the job worker to accept as correct the particulars declared to him by the supplier of raw materials. Therefore, the presumption if at all, can be drawn in favour of the job worker and not against him. In this view we do not find it necessary to consider whether the provisions of Section 114 of the Evidence Act can be applied in adjudication proceedings like the present one, a contention raised on behalf of the job workers.

208. Section 9C of the Central Excise Act, 1944 enables a Court, in any prosecution for an offence under the Act which requires a culpable mental state on the part of the accused, to presume the existence of such mental state and the burden will be on the accused to prove that he had no such mental state with respect to the act charged as an offence. Needless to say, this provision could apply only in the case of a prosecution for an offence under the Act and not to adjudication proceedings under the Act. A similar provision in the Foreign Exchange Regulation Act, 1947, namely, Section 24A has been interpreted by the Supreme Court in Shanti Prasad Jain v. Director of Enforcement -AIR 1962 SC 1764 as applicable only to proceedings in Court. The Adjudicating Authority was wholly in error in placing reliance on Section 9C of the Act to draw a presumption against the job worker.

209. The reference by the Adjudicating Authority to Rule 225 of the Central Excise Rules also appears to be misplaced. According to this Rule, if any excisable goods are in contravention of any condition prescribed in the Rules, removed by "any person" from the place where they are produced, manufactured or warehoused, the producer or manufacturer or the registered person or keeper of the warehouse shall be responsible for such removal and shall be liable to be dealt with according to the provisions of the Act or Rules, as if he had removed the goods himself. This Rule merely introduces the rule of strict liability of a manufacturer or the warehouse keeper, who is not allowed to escape his responsibility by pleading that excisable goods were removed from his factory or warehouse by another person. We fail to see what relevance this Rule has in the present context in which the job worker who is the real manufacturer has no control of any sort over the pricing strategy of or the determination of the printed price by the supplier of raw materials.

210. The show cause notice alleged that there was fraudulent collusion between ITC and the job workers. It is axiomatic that one who alleges fraud must furnish particulars of fraud and prove fraud, either by direct evidence or by circumstantial evidence. The department did not furnish particulars of fraud nor produce any evidence to prove collusion between ITC and the job workers or of any fraudulent act or intent on the part of the job workers. It was the ITC which quantified lower PPs while fixing or envisaging higher EPs. There is nothing on record or the circumstances to indicate that the job workers were party to this exercise or had the least knowledge about it. We have already held that MRP cannot be equated to the actual retail price prevailing in the market in which case perhaps the liability of the job worker may merit consideration. Our finding against ITC rests on the basic conclusion that the ITC envisaged or visualised higher EP while declaring and printing lower PP. It has not been shown that the job workers were party to such fraud or at least had knowledge of such fraud. In these circumstances, the demand of differential duty made on the job workers must fail.

211. In any event, the bona fides and good faith of the job workers are crystal clear on the record. None of the allegations of mis-declaration, misstatement or suppression of facts has even been attempted to be proved by the department against them. Therefore, in any event, the larger period of limitation under the proviso to Section 11A of the Act, cannot be against them. The demand, if tenable on merits, can only be for a period of six months contemplated in the main provision of Section 11A of the Act. The demand even to this extent cannot be confirmed in view of our finding in favour of the job workers on merits. Point answered accordingly.

212. Since we have exonerated the job workers of liability in respect of differential duty based on the higher EPs, it must necessarily follow that they have not rendered themselves liable for penalty under any of the Rules under which the Adjudicating Authority purported to impose penalty on them.

213. The Adjudicating Authority has imposed the following penalties on ITC :_______________________________________________________________Factory Penalty in rupees under Penalty in Rules 9(2) and 52A(5)(c) rupees underITC, Bangalore 14 Crores 20 CroresITC, Munger 2.5 Crores 4.5 CroresITC, Kidderpore 3 Crores 3.5 CroresITC, Saharanpur 6.5 Crores 8 CroresITC, Parel, Bombay 1.5 Crores 3 Crores_______________________________________________________________ TOTAL: 27.5 Crores 39 Crores_______________________________________________________________ Grand Total: Rs. 66.5 Crores Penalty has been imposed under Rule 9(2) of the Rules at the rate of Rs. 2000 per transaction of removal and under Rule 52A(5)(c) of the Rules at the rate of Rs. 1000 per transaction of removal for a period of 35 months from 1-3-1983 to 29-1-1986. Penalty has been imposed under Rule 209 at the maximum of three times the value of goods so removed for a period of 13 months from 30-1-1986 to 28-2-1987 and assessable value under Section 4 of the Act has been arrived at as 20% of the PP.The Adjudicating Authority acted on the information about the number of removals said to have been provided by respective Commissioners under whose jurisdiction ITC factories fell. Show cause notice also required ITC to show cause why penalty should not be imposed under Rule 210 but no such penalty has been imposed. According to ITC, no penalty could have been imposed under any of the three rules referred to above as ingredients of the rules are not satisfied.

214. Rule 9 of the Rules deals with time and manner of payment of duty as also penalty and confiscation. Sub-rule (1) of Rule 9 reads thus :- "No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form".

"If any excisable goods are, in contravention of Sub-rule (1) deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made within the period specified in Section 11A of the Act by the proper officer, whether such demand is delivered personally to him, or left at his dwelling house, and shall also be liable to penalty which may extent to two thousand rupees, and such goods shall be liable for confiscation".

The bar under Sub-rule (1), so far as the facts of the case are concerned, is against removal of cigarettes from the factory of manufacture until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in the rules or as the Collector may require and except on presentation of an application in a proper form and obtaining the permission of the proper officer on the form. According to Sub-rule (2), if cigarettes are removed in contravention of Sub-rule (1), the producer or the manufacturer shall pay the duty leviable on such goods under written demand by the proper officer and shall also be liable to a penalty which may extend to two thousand rupees (evidently per removal) and such goods shall be liable for confiscation. There is no dispute that all removals of cigarettes from ITC factories during the period under consideration had been made after payment of duty as determined by ITC and after presentation of application in proper form to the proper officer and after obtaining his permission on the form. There is no allegation to the contra in the show cause notice. The main contention raised by ITC in this behalf is that Rue 9(2) of the Rules, applies only to cases of clandestine removal and not to removal on payment of duty (though not full amount of duty payable under law) and after following proper procedure and obtaining permission of the proper officer. Learned Counsel representing ITC himself pointed out that there are two decisions of the Tribunal against this contention viz., Agam and Gem Laboratories -1988 (38) E.L.T. 479 (T) and ITC Ltd., 1994 (72) E.L.T. 315 (T).

According to him, these decisions cannot be regarded as laying down good law in view of decisions of Supreme Court and High Courts.

215. In the case of MB. Sanjana v. ACCE, Bombay -AIR 1971 SC 2039, the manufacturer was clearing manufactured excisable products without payment of duty on the ground that the goods were covered by exemption and it was subsequently found that the exemption did not cover the goods. The proper officer was permitting removals also under the belief that the goods were exempt. One of the questions which arose for consideration was whether penalty could be imposed on the manufacturer under Rule 9(2) of the Rules. The Supreme Court held as follows :- "The question is whether the demands could be justified under Rule 9(2). Even here we find considerable difficulty in sustaining the notice under this rule. Sub-rule (1) of Rule 9 provides for the time and manner of payment of duty. In this case there is no controversy that whenever goods were cleared with respondents, necessary applications had been made to the officer concerned and the latter had passed orders of assessment to nil duty. To attract Sub-rule (2) to Rule 9, the goods should have been removed in contravention of Sub-rule (1). It is not the case of the appellants that the respondents have not complied with the provisions of Sub-rule (1).

We are of the opinion that in order to attract Sub-rule (2), the goods should have been removed clandestinely and without assessment.

In this case, there is no clandestine removal without assessment. On the other hand, goods have been removed with the express permission of the excise authorities and after order of assessment was made. No doubt the duty payable under the assessment order was nil. That, in our opinion, will not bring the goods under Sub-rule (2)".

The above decision has been followed by various High Courts. See Union Carbide India Ltd. - 1978 (2) E.L.T. (J 180) at paragraphs 24 and 25 (Calcutta H.C.), Agarwal Pesticides and Chemical Industries -1988 (33) E.L.T. 681 at paragraphs 3 and 5 (Allahabad H.C), Jayashree Textiles and Industries and Ors. -1985 (22) E.L.T. 708 at para 5 (Calcutta H.C.), Bio-drug Laboratories (P) Ltd. -1987 (27) E.L.T. 394 at paragraphs 29 to 30 (Calcutta H.C.), Acme Metal Industries (P) Ltd. -1980 (6) E.L.T. 156 at para 8 (Bombay H.C.), Murugan & Company -1977 (1) E.L.T. (J 193) at paragraphs 11 and 12 (Madras H.C.), Commercial Refrigeration Corporation - 1989 (42) E.L.T. 534 at paras 4 and 5 (Delhi H.C). The above principle has been followed by the Tribunal in Bi-Metal Bearings Ltd. -1990 (45) E.L.T. 285 (T), Mysore Rolling Mills (P) Ltd. - 1985 (21) E.L.T. 875 (T), Maduranthagam Co-operative Sugar Mills -1985 (22) E.L.T. 578 (T), Sri Baidyanath Ayurved Bhavan Ltd. -1985 (22) E.L.T. 844 (T). In Agam and Gem Laboratories -1988 (38) E.L.T. 479 (T), the Tribunal took the contrary view without referring to the decisions of the Supreme Court and the High Courts. In ITC Ltd. - 1994 (72) E.L.T. 315, a Bench of the Tribunal noticed the decision of the Supreme Court in N.B. Sanjana - AIR 1971 SC 1379 and purported to distinguish it on the ground that it was applicable only to goods of erroneous classification and clearances on that basis after assessment while the case dealt with by the Bench was one of non-disclosure of the flowback of the amount of administrative charges through debit notes.

The distinction sought to be drawn has no relevance to the facts of the present case. It is also significant that neither party placed before that Bench the various decisions of the High Courts referred to above.

We are bound to follow the decisions of the Supreme Court as understood unanimously by the various High Courts. It must follow that in a case where clearances had been made after application to the proper officer, obtaining his permission and paying Central Excise duty as determined at that stage, Rule 9(2) of the Rules will not be attracted merely on the ground that duty paid was not correct. There was nothing clandestine in the removals effected by ITC during the period in question and therefore penalty was not imposable under Rule 9(2) of the Rules. In this view we find it unnecessary to consider the other submissions made on behalf of the ITC against the penalty imposed under Rule 9(2) of the Rules. However, we would like to take note of serious lacuna in the quantification of number of removals made by the Adjudicating Authority. The show cause notice did not indicate the number of removals during the period in question. ITC was not called upon to furnish to the Adjudicating Authority the total number of removals during the period in question or any part thereof. The Adjudicating Authority appears to have gathered certain information from the concerned Commissioners. On the basis of such information he quantified penalty, without informing ITC about the information and without giving an opportunity to ITC to have their say in regard to the number of removals. This is a serious defect in the quantification of penalty on the basis of two thousand rupees per transaction or one thousand rupees per transaction, as the case may be.

216. We now turn to the penalties imposed on ITC under Rule 52A(5)(c).

Sub-rule (1) of Rule 52A reads thus :- "No excisable goods shall be delivered from a factory except under a gate-pass signed by the owner of the factory and countersigned by the proper officer.

Explanation. - In this rule, and in any other rule where the term "gate pass" is used, it shall mean - (ii) assessee's own such delivery invoice, challan or advice or other document of similar nature in which all particulars contained in gate-pass in the proper form are also given; or (iii) such other form as the Collector may in any case or class of cases specify." Sub-rules (2), (3) and (4) contain certain details about gate-passes.

Sub-rule (5) reads thus :- (a) carries or transports excisable goods from a factory without a valid gate pass, or (b) while carrying or removing such goods from the factory does not on request by an officer, forthwith produce a valid gate pass, or (c) enters particulars in the gate pass which are, or which he has reason to believe to be false, he shall be liable to a penalty not exceeding one thousand rupees, and the excisable goods in respect of which the offence is committed shall be liable to confiscation." Sub-rule (1) required, in the context, that no cigarettes shall be delivered from the ITC factory except under a gate pass in proper form or ITC delivery invoice, challan or other document of similar nature signed by the owner of the factory and countersigned by the proper officer. According to Sub-rule (5)(c), if any person enters particulars in the gate pass which are or which he has reason to believe to be false, he shall be liable to penalty not exceeding one thousand rupees and the goods shall be liable for confiscation. The Adjudicating Authority held ITC liable for penalty under Sub-rule (5)(c) of the Rule and imposed penalty at the rate of rupees thousand per transaction of removal adopting the number of removals furnished by the various Commissioners.

217. Our attention has been drawn to gate pass-1 proforma. It refers to the time and date of removal, name, address and licence No. of factory, PLA number, name and tariff sub-heading of excisable commodity, number and date of notification under which any concessional rate of duty is claimed, variety of goods, number and description of packages, identification marks and serial numbers of goods, average contents per package, total quantity, total assessable value or tariff value, rate of duty, total duty paid, serial number of date of debit entry for duty in PLA, name and address of the consignee, manner of transport, certification that the particulars are correct, place, date and time of preparation of gate pass and signature of the licencee or his authorised agent. It is not the case of the department that with the issue of earliest of the notifications under consideration or any of the subsequent notifications, the Government or the Board or any of the Collectors prescribed a different proforma for Gate Pass-1 to be used by cigarette manufacturers. In other words, during the relevant period, ITC was not required to incorporate in G.P. 1 the quantum of PP, actual or prevailing retail price, adjusted sale price or slab applicable under the respective notifications or any other particulars contemplated in the notifications. Learned Counsel for ITC pointed out that as the records show, some ITC factories were mentioning the quantum of PP in G.P. 1 form and in other factories PP was not being mentioned. According to him, whether PP has been mentioned or not in G.P. 1 form issued by ITC factories during the relevant period, the law did not require the manufacturer to mention PP or ASP in G.P. 1. In these circumstances, according to him, Rule 52A(5)(c) cannot be said to be applicable. The only answer of Revenue to this submission was that the requirement of Rule 52A(1) applies not only to gate pass but also assessee's own delivery invoice, challan or advice or other document of similar nature. However, the show cause notice did not allege that any officer of ITC had shown false PP in any delivery invoice, challan or advice etc.

218. In this connection our attention has been invited to circular dated 29-10-1986 issued by the Board as also certain trade notices. The circular required that wrappers, outer coverings or labels relating to cigarette packets shall be submitted to the Collector for his approval before they were brought to use and manufacturers should declare before the Collector the sale prices of various brands of cigarettes as per Notification No. 201/85 and these sale prices should be verified by concerned Collectors before the clearance of approved brands of cigarettes was allowed. The manufacturer should also independently file an application with the Director (Audit) for approval of surface design in accordance with Notification No. 201/85 and the Director on receipt of the application and the approved document sent by the Collector shall take further action with regard to approval of surface design and communicate his approval to the manufacturer and the concerned Collector. This circular did not in any manner alter the proforma of G.P.I. Hyderabad Collectorate Trade Notice No. 112/86, dated 4-6-1986 required the cigarette manufacturers to submit declaration of sale price of cigarettes to be sold to consumers in quintuplicate for approval of prices by the Collector. The trade notice also prescribed proforma of declaration, i.e. declaration of sale price of cigarettes to be sold with effect from 16-6-1986. This proforma referred to sale price, adjusted sale price and real value i.e. assessable value. The Bangalore Collectorate issued Trade Notice No. 164/86, dated 30-7-1986 prescribing a proforma for declaration. The proforma was amended by Trade Notice No. 172/86, dated 20-8-1986, bringing it on line with the proforma prescribed by Hyderabad Collectorate. The Superintendent of Central Excise, Bombay, furnished a copy of the same proforma to the ITC factory at Bombay. The proforma referred to in the trade notices relates to declaration and not Gate Pass-1 or ITC delivery . invoice, challan or advice. Thus we find the Board circular and trade notices do not help Revenue to establish that ITC was required to show the correct PP in G.P.I, delivery invoice etc. and had shown false PP in the said document. Hence Rule 52A(5)(c) of the Rules could not have been invoked against ITC. Further, penalty under Rule 52A(5)(c) is on any person who enters false particulars in the gate pass. It appears that the Sub-rule (5)(c) seeks to rope in individuals who are responsible for gate passes with false particulars and not the manufacturer as such, unless the manufacturer is an individual and has personally entered such false particulars in the gate pass. For these reasons, we hold that the penalties imposed on ITC under Rule 52A(5)(c) of the Rules are unsustainable.

219. Penalties have also been imposed on ITC under Rule 209 of the Rules. The Adjudicating Authority held that the present case would fall under clauses (a) and (d) of Sub-rule (1) of Rule 209. The relevant part of Rule 209 reads thus :- "...Notwithstanding anything contained in any provisions of these rules, save and except Rule 173Q, if any manufacturer, producer of licensee of a warehouse, (a) removes any excisable goods in contravention of any of the provisions of these rules, or (d) contravenes any of the provisions of these rules with intent to evade payment of duty. then all such goods shall be liable to confiscation and the manufacturer or producer, or the licensee of warehouse shall be liable to penalty not exceeding three times the value of the excisable goods in contravention of the nature referred to in Clause (a), Clause (b), Clause (bb) or Clause (c) or Clause (d) has been committed, or Rs.5000/- whichever is greater." Holding ITC guilty under the above provision the Adjudicating Authority imposed penalty in respect of removals on or after 30-1-1986 based on assessable value arrived at as equal to 20% of PP. Rule 209 in the form quoted above came into force with effect from 30-1-1986. Learned Counsel pointed out that total penalty imposed under Rule 9(2) as well as Rule 52A(5) for 35 months is Rs. 27.50 Crores while total penalty imposed under Rule 209 for subsequent 13 months is Rs. 39 Crores.

Penalty is imposable under Rule 209(d) in this case on the ground that ITC contravened Rules 9(1), 52 and 52A. We have already held that ITC has not contravened Rule 9(1) or Rule 52A of the Rules.

"When the manufacturer desires to remove goods on payment of duty...he shall make application in triplicate... to the proper officer in the proper form and shall deliver it to the officer at least 12 hours or such other period as may be elsewhere prescribed... before it is intended to remove the goods. The officer shall, thereupon, assess the amount of duty due on the goods and on production of evidence that this sum has been paid ... to theaccount of the Collector in the Reserve Bank of India or the State Bank of India or has been despatched to the Chief Accounts Officer by money order shall allow the goods to be cleared." The requirement of the rule is making of an application in proper form before the proper officer prior to the removal of goods.

221. The show cause notice did not allege that ITC had removed any quantity of cigarette packets without making an application to the proper officer. On the other hand, it was not disputed that all removals by ITC during the relevant period were covered by applications in proper form to proper officer. In this view it must follow that there was no contravention of Rule 52 of the Rules.

222. According to the Adjudicating Authority penalty in this case was imposable under Clause (a) or Clause (d) of Rule 209(1) of the Rules.

Revenue has failed to prove that there was any removal of cigarette packages in contravention of Rule 52 or any other Rule mentioned in the show cause notice. In these circumstances, we hold that penalties imposed under Rule 209 on ITC are not sustainable. We therefore quash the penalty imposed on ITC under Rules 9(2), 52A(5)(c) and Rule 209 of the Rules.

223. The Adjudicating Authority imposed following penalties against the following individuals connected with ITC. PENALTIES IMPOSED BY THE ADJUDICATOR AGAINST DIRECTORS_______________________________________________________________________Sl. Director Rules Rule 209 Total OrderNo. 9(2)& page 52A(5)(c) ref._______________________________________________________________________ (Rs. in Crs.) (Rs. in Crs.) (Rs. in Crs.)_______________________________________________________________________1 J.N. SAPRU 0 25 0.50 0.75 12592 S.K.MEHTA 0.25 0.50 0.75 12583 J. NARAYAN 0.25 0.50 0.75 12594 S. GHOSH 0.15 0.20 0.35 12595 A. BASU 0.15 0.20 0.35 12596 R. BHOOTHALINGAM0.10 0.10 0.20 1259_______________________________________________________________________ TOTAL 1.15 2.00 3.15 The above 6 individuals held the following office during the periods shown herebelow:_______________________________________________________________________Sl. Name Office PeriodNo.2. S.K. MEHTA (a) Director, ITC April'81 to August'86 (b) Member, Marke- 1978 to 19813. J. NARAYAN (a) Director, ITC 1986 to 1988 (b) Chairman, ITDB 1986 to 19914. S. GHOSH Vice Chairman, April 1974 to June ITC 19895. A. BASU Dy. Chairman, February 1982 to ITC March 19896. R. BHOOTHALINGAM (a) Director, ITC 1986 to 1988 (b) Member, Person- 1983 to 1988 224. Learned Counsel for ITC has furnished the following as the structure of ITC. Executive Directors J.N. Sapru (Apr 74-Nov 91) (whole time directors by Chairman-ITC virtue of being career S. Ghosh (Apr 74-June 89) employees) Vice-Chairman (11-12- in no.) R.K. Laxman (Jan 76-Jan 88 ITC Dy. Chairman Main Board A. Basu (Feb. 82-Mar 89) (Board of Directors) Dy. Chairman BOD Non Executive Directors C.R. Jagannathan (16-17 in no.) (Nominees/Representati- (Apr 79-Jun 89) ves from Financial S.K. Mehta (Apr 81-Aug 86 Institutions and the British C.C. Appaya (83-87) virtue of their share holding)D.P. Barua (Apr 83-Dec 88) (4-6 in no.) Y.C. Deveshwar (84-89) R. Boothlingam (86-88)|-----------------------------| |---------- ---|-----------|Printing & Pac- Marketing India Tobaco India Hotelskaging Division & Division Leaf Division Exports (ITDB) Tobacco---------------------------------------------------------| | | |Member Member Member Member PersonnelMktng.

Finance Production Division R. BoothlingamS.K. Mehta D.P. Barua (83-88)(78-81) (76-83) 225. It would be necessary to see what exactly are the averments contained in the show cause notice against the Directors of ITC.Paragraphs 1 to 11 (pages 1 to 68) and sub-paragraphs (a) to (d), (g) to (k) of para 12 (pages 68,69, 71 and 72) of the show cause notice deal with the actions and omissions on the part of ITC and the job workers. The only averments against the Directors are seen in sub-paragraphs (e) and (f) of Para 12. Sub-paragraph (e) states that the Chairman, Directors and former Directors of ITC rendered themselves liable for penalties under Rules 209A and 221 inasmuch as they had devised ways and means to suppress effective prices of all their brands of cigarettes at which the cigarettes were sold and retailed, fixed trade prices and trade margins right upto the retailer/smoker, indicated 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 level which they knew 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 Act and Rules.

They, as Directors of ITC were fully and officially responsible for fixing and declaring the retail prices, for indicating the same down the line upto the retailers and for deliberately keeping them at lower levels and the fraudulent intent to evade payment of appropriate duty leviable on the cigarettes. Sub-para (f) deals with the applicability of the proviso to Section 11A of the Act. Paragraph 13 requires the ITC Ltd. Calcutta, the five factories of ITC, the Chairman and Directors of ITC Ltd. and the seven job workers to show cause as to why duty short paid should not be demanded, penalty should not be imposed on them under Rules 9(2), 52A(5), 209, 210 and 221 of the Rules and why the land, buildings, plant and assets should not be confiscated under Rule 209(2) of the Rules. Though the allegation in Para 12(e) of the show cause notice refers to the liability of these individuals for penalty under Rule 209A and 221 of the Rules, paragraph 13 requires them to show cause against imposition of penalty under Rules 9(2), 52A(5), 209, 210 and 221 of the Rules omitting therein Rule 209A and adding three other Rules. We may incidentally refer to para 11(3) of the notice which refers to A57 and A58, as containing some material against J.N.Sapru, Chairman, ITC Ltd. It is necessary to be clear that there are no other averments in the show cause notice against these individuals.

226. Evidently sensing some difficulty in the matter of imposition of penalty on these individuals, the Adjudicating Authority invoked the principle of lifting or piercing the corporate veil in order to justify imposition of penalty against them. The discussion in this regard is seen at pages 1056 to 1100 and 1252 to 1255 of the impugned order.

After referring to various decisions of the Supreme Court, High Courts and the Tribunal throwing light on the principle of lifting the corporate view it was held that the Adjudicating Authority was justified in lifting the corporate veil of ITC and thereafter examining the evidence on record to fix individual responsibility on the Chairman and Directors of ITC. After conducting such an exercise, the Adjudicating Authority exonerated all the non-executive Directors and some of the Executive Directors and held J.N. Sapru, Chairman, ITC Ltd., S.K. Mehta, Chairman, ITDB, J. Narayan, succeeding Chairman, ITDB, S. Ghosh, Director, ITC, A. Basu, Deputy Chairman and Director, ITC and R. Bhoothalingam, Member (Personnel), ITC liable for penalty.

While imposing penalties the Adjudicating Authority imposed composite penalty (at the rate of Rs. 2000 and Rs. 1000 respectively per transaction of removal) under Rules 9(2) and 52A(5)(c) of the Rules and separately under Rule 209 of the Rules. No penalty was imposed on them under Rule 209A or 221 or 225 of the Rules, though it was indicated in the impugned order that the quantification of penalty under Rules 209 and 209A would be on the same basis.

227. Learned Counsel who appeared for the various individuals contended that the Adjudicating Authority did not really comprehend and entirely misunderstood the principle of lifting the corporate veil and was in serious error in holding these individuals liable for penalty as a consequence of lifting the corporate veil and since all the penalties imposed on them were the purported consequence of lifting the corporate veil, they cannot stand. Learned Counsel also took us through the relevant Rules under which penalties have been imposed to contend that penalties could not have been imposed on the individuals under these Rules since the acts or omissions contemplated in the Rules could not have been and have not been proved against them.

228. Shri Chandrasekharan, learned Counsel appearing for Revenue fairly submitted that the principle of lifting the corporate veil could not have been invoked for the purpose of imposing penalty on the Chairman and Directors of ITC or ITDB. However, he sought to justify the imposition of penalty under Rules 9(2), 52A(5)(c) and 209 of the Rules and also pleaded that the Appellate Tribunal should impose penalty on these individuals under Rule 209A of the Rules. This contention has been sought to be rebutted by learned Counsel appearing for the individuals.

229. We agree that the Adjudicating Authority has not comprehended correctly the principle of lifting the corporate veil and has mis-applied the same against these individuals. The principle of lifting or piercing the corporate veil has been developed by superior courts in order to locate the real identity of the person actually liable for tax or duty. A person may devise a legal entity in order to screen himself from liability to tax or duty or may purport to enter into a series of transactions in order to hide his real identity and liability for tax or duty. In such circumstances, it is open to Court or even to a statutory authority vested with the task of identifying the real nature of the transaction or the real identity of the person liable for tax or duty, to lift the corporate veil and examine the position of the persons behind the veil to see whether they are really the persons liable for tax or duty and also examine the transactions to find their real nature. In other words, the main purpose to be achieved by application of the principle of lifting the corporate veil is to identify the real beneficiary of the various transactions so as to fix the liability for tax or duty on such beneficiary. By no stretch of imagination can it be said that the Chairman and Directors of ITC or ITDB were the real beneficiaries of the various actions undertaken with the intention of evading duty. The real beneficiary was ITC Ltd. for the money saved by evading duty went to the benefit of ITC and not of these individuals. At any rate, Revenue has no case that these individuals were beneficiaries of evasion of duty. We therefore hold that the principle of lifting the corporate veil has been misapplied in the present case.

230. We have already held that penalty could not have been validly imposed on ITC under Rules 9(2), 52A, 5(c) or 209 of the Rules. If penalty could not have been imposed on ITC, we fail to see how penalty could have been imposed under these provisions on the alleged real persons behind the facade of ITC.231. Penalty can be imposed under Rule 9(2) of the Rules only against the producer or manufacturer of excisable goods, which in this case was ITC and not the Chairman or Directors of ITC or ITDB. Penalty can be imposed under Rule 52A (5)(c) only on a person who enters any particulars in the gate pass which he has reason to believe to be false. We have indicated that this provision cannot be applied in the instant case even as against ITC. There is no allegation in the show cause notice that any of the aforesaid individuals had entered any particulars in the gate passes. Hence, this provision could not have been invoked against these individuals. Penalty can be imposed under Rule 209 of the Rules only against the manufacturer, the producer or licensee of the warehouse. There is no allegation in the show cause notice that any of the individuals on whom penalty has been imposed was or was required by law to be regarded as a manufacturer or producer or licensee of a warehouse.

232. Though the Adjudicating Authority found that penalty could be imposed on these individuals under Rule 209A of the Rules, he deliberately refrained from imposing such penalty in view of the penalties imposed on them under other Rules, which we have found to be not sustainable. Learned counsel for Revenue contended that in the facts and circumstances where evasion of duty on the part of FTC has been proved it would be contrary to public policy to allow the individuals responsible for such evasion to go scot-free and, therefore, prayed that we may impose penalty on these individuals under Rule 209 A of the Rules. We are afraid that we are not invested with the power to impose penalty on these individuals in the absence of an appeal or cross-objection by Revenue on this aspect. In the case of M/s. Vijaya Stores, (1978) 4 SCC 41, which related to a case of assessment of sales tax under the Kerala General Sales Tax Act, 1963, the sales-tax officer made an addition of 10% to the turnover of the dealer. On appeal, the appellate Assistant Commissioner reduced it to half and in further appeal by the dealer to which there was no cross-appeal or cross-objection by the department, the Appellate Tribunal revised the addition and enhanced the assessable turnover invoking power under Section 39(4) of the Kerala Act. The High Court in revision set aside the order of the Tribunal and the State of Kerala challenged the order before the Supreme Court. Sub-section (1) of Section 39 of the Kerala Act provided for an appeal to the Appellate Tribunal by any one objecting to the order passed by the statutory authority. Sub-section (2) enab es either party, on receipt of notice that the other party has filed an appeal under Section (1), to file a memorandum of cross-objection against the order appealed against, notwithstanding that, that party had not appealed against the order or any part thereof, and the memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal. According to Sub-section (4), in disposing of the appeal, the Appellate Tribunal may, after giving the parties a resonable opportunity of being heard, confirm, reduce, enhance or annul the assessment or penalty or both, set aside the assessment and remand the case or pass such other orders as it may think fit. It was argued before the Supreme Court that the power to enhance the assessment could be validly exercised even in an appeal filed by the assessee, the only condition being a reasonable opportunity of being heard being given to the assessee. After examining the scheme of the provisions in Section 39 of the Kerala Act, the Supreme Court held as follows :- "The normal rule that a party in appealing from a decision must be deemed to be satisfied with the decision, must be taken to have acquiesced therein and be bound by it, and, therefore, cannot seek relief against the rival party in an appeal preferred by the latter has not been deviated from Sub-section 4A(1) above. In other words, in the absence of an appeal or cross-objections by the department against the appellate Assistant Commissioner's order, the Appellate Tribunal wislsl have no jurisdiction or power to enhance the assessment. Further, to accept the construction placed by the counsel for the appellant on Sub-sectionection 4A(1) would be really rendering Sub-section (2) of Section 39 otiose for even an appeal preferred by the assessee against the appellate Assistant Commissioner's order, the Tribunal would have the power to enhance the assessment. A provision to cross-objection by the department was really unnecessary. Having regard to the entire scheme of Section 39, therefore, it is clear that on a true and proper construction of Sub-section 4A(1) of Section 39, the Tribunal has no jurisdiction or power to enhance the assessment in the absence of an appeal or cross-objection by the department." 233. Section 35B of the Act related to appeals to the Appellate Tribunal. Any person aggrieved by any of the orders referred to therein may appeal to the Appellate Tribunal against such order, subject to exceptions enumerated in the first proviso. Sub-section (2) enables the Commissioner of Central Excise to direct any Central Excise Officer to appeal to the Appellate Tribunal against an order passed by the Appellate Collector of Central Excise under Section 35 or the Commissioner of Appeals under Section 35A. Under Sub-section (4), on receipt of notice of an appeal preferred under Section 35B, the party against whom appeal has been preferred may, notwithstanding that he may not have appealed against such order or any part thereof, file within the time limit, a memorandum of cross-objection in the prescribed manner against any part of the order appealed against and such a memorandum shall be disposed of by the Appellate Tribunal as if it is an appeal. Section 35C of the Act invests the Appellate Tribunal with the power to pass such orders as it deems fit, confirming, modifying or annulling the decision or order appealed against or to remand the case for a fresh adjudication after giving parties an opportunity of being heard. Sub-section (2) of Section 35C empowers the Appellate Tribunal to rectify any mistake apparent from the record by amending any order passed under Section 35C. The proviso to Sub-section (2) states that an amendment which has the effect of enhancing the assessment or reducing the refund or otherwise increasing the liability of the other party, shall not be made under these Sub-section s unless the Appellate Tribunal has given notice to him of its intention to do so and has allowed him a reasonable opportunity of being heard.

234. It is instructive to notice that the Central Excise Act, 1944 does not contain a provision similar to the one contained in Section 39(4) of the Kerala General Sales Tax Act, 1963, specifically enabling the Appellate Tribunal to enhance the assessment or penalty or both. Even in the absence of such a specific provision, the power vested in the Appellate Tribunal of modifying the order appealed against, under Section 35C(1) of the Act, of course on an appeal or cross-objection by the department comprehends such power. The Adjudicating Authority in the present case deliberately refrained from imposing penalty under Rule 209A of the Rules. If the department was aggrieved by this part of the order of the Adjudicating Authority, an appeal should have been preferred against that part of the order. Even without filing an appeal, when the Chairman and Directors of ITC and ITDB filed appeals against the imposition of penalty on them, it was open to the department to have filed cross-objections in each of the appeals challenging the part of the order passed by the Adjudicating Authority refraining from imposing penalty under Rule 209 A of the Rules. Having failed to do so, it is not open to the department at this stage, to plead for imposition of such penalty for the first time. We, therefore, reject the contention raised by Revenue for imposition of penalty presently under Rule 209A of the Rules.

235. In view of our conclusions recorded above, we find it unnecessary to refer to the submissions made by the aforesaid individuals on the merits of the controversy regarding imposition of penalty and the evidence or lack of evidence against each of the Directors. The penalties imposed on the above named individuals are set aside.

236. For the reasons indicated in this order, we allow the appeals as indicated hereunder :- (1) Confirmation of demand on the appellants who are job-workers is set aside.

(2) Penalties imposed on ITC, job-workers officers of ITC are set aside.

(4) The impugned order is set aside to the extent indicated above and the case is remanded to Adjudicating Authority concerned for fresh quantification of duty demand on ITC in accordance with our findings on points (xxiii) and (xxiv) which are summarised in paragraph 193 of this order. Fresh quantification shall be done after giving ITC opportunity of personal hearing.

(K. SANKARARAMAN) (JUSTICE U.L. BHAT) MEMBER (TECHNICAL) PRESIDENT 237. I have gone through the order of the President. I entirely agree with his analysis and his findings therein. I would, however, like to add the following observations in regard to the question of penalty on ITC :- (i) The Adjudicating Authority has imposed penalty on ITC under Rules 9(2), 52A(5)(c) and 209. For the first mentioned provision, he has held that there had been contravention of Rule 9(1) to invoke the penal provisions under Sub-rule (2) thereunder. Sub-rule (l)(a) of the last mentioned Rule provides for confiscation of goods and imposition of penalty in the event of removal of any excisable goods in contravention of any of the provisions of the Rules. Clause (d) of Sub-rule (1) of Rule 209 covers contravention of any of the provisions of the Rules with intent to evade payment of duty. Hence, to consider the plea against the imposition of penalty, whether under Rule 9(2) or under Rule 209, it is necessary to find out whether there was any contravention of Rule 9(1) as the allegation and finding in respect of contravention of Rule 52A(5)(c) has been held to be not valid, with which finding I agree.

(ii) As stated in the order of the President, the plea of the appellants against the imposition of penalty is that there was no contravention of Rule 9(1) as the clearances of cigarettes were not clandestine and had been made on applications made before the excise authorities which were allowed by them. Reliance was placed on the decision of the Supreme Court in N.B. Sanjana v. Elphinstone Spinning and Weaving Mills Co. Ltd. wherein it had been held that in order to attract Sub-rule (2) of Rule 9 the goods should have been removed clandestinely and without assessment. The goods, in that case having been removed with the express permission of the excise authorities and after order of nil assessment, it was held that the case could not arise under Sub-rule (2). It was observed that provision being a penal one is evident from the fact that apart from the duty payable, the party is made liable to a penalty, also incurring the risk of the goods being confiscated. The Court then observed that Rule 9(2) applies only to a case of evasion from payment of duty was clear from their earlier decision in J.K. Steels Ltd. v. Union of India -AIR 170 SC 1173. The Adjudicating Authority had considered the plea advanced before him about the non-applicability of Rule 9(1) in the instant case and held that the Supreme Court judgment in N.B. Sanjana's case had been considered by the Tribunal in ITC's earlier case [ITC Ltd. v. Collector of Central Excise, New Delhi -1994 (72) E.L.T. 315] where it was held that the non-declaration of collection of certain charges by the assessee either in AR1 or in the price lists required to be submitted by them under physical control under departmental practice would ex-facie attract the mischief of Rule 9(2). The view taken by the Bench in the aforesaid case of ITC Ltd. v. Collector of Central Excise, New Delhi, has not considered the unanimous understanding of the different High Courts about the Supreme Court judgment in the N.B. Sanjana case as expressed in their judgments which are referred to in paragraph 215 at page 236 ante. Thus, the High Court of Calcutta in Union Carbide Co. Ltd. v. Assistant Collector of Central Excise -1978 (2) E.L.T. J 180 pointed out in paragraph 25 of the report that the Supreme Court had observed that in order to attract Sub-rule (2) of Rule 9 the goods must be removed clandestinely and without assessment. It was, therefore, necessary that to attract the applicability of the said Rule not only the goods eligible to duty had escaped duty but such goods must have been removed clandestinely. This judgment has also no doubt been referred to by the Adjudicator, but he has understood the judgment as meaning that Rule 9(1) is attracted if there is evasion of Central Excise Duty even if the goods involved had been removed after filing necessary clearance documents and after obtaining approval of the departmental officers. The numerous other decisions of High Courts and Tribunals mentioned in paragraph 215 of this order unanimously holding that Rule 9(1) will be attracted only in the case of clandestine removals were not considered by him. None of these decisions was also considered by the Tribunal in the appellant's own earlier case reported in 1994 (72) E.L.T. 315 referred to earlier. Out of these decisions it is significant to note that the Tribunal in Mysore Rolling Mills (P) Ltd. v. Collector of Central Excise even without holding that there had been suppression of facts thereby attracting the extended period of limitation of five years had, nevertheless held that Rules 9(1) and 9(2) were not attracted for demanding duty for the period before 6-8-1977 whereafter the amended Rule 10 took care of the situation. It is thus clear that even in a case of suppression of facts, Sub-rules (1) and (2) of Rule 9 do not get attracted if the removal of the goods was not done in a clandestine manner. The conclusion drawn by the Adjudicator that where the assessee files a declaration but with incorrect particulars that also would be a case of clandestine removal for bringing it within the scope of Rule 9(1) and consequently of Rule 9(2) cannot be agreed to.

(iii) Penalty for short payment or non-payment of duty on account of factors like fraud, collusion, wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty has been provided for under Section 11A(C) of the Central Excises Act, 1944 which has been introduced under Finance (No. 2) Act of 1996. After this provision came into effect penalty will be attracted under it even if the assessee meets the requirement of Rule 9(1) but there is short payment or non-payment of duty due for reasons referred to in Section 11A(C). In the absence of such a position at the material time, imposition of penalty under Rule 9(2) was permissible only if Rule 9(1) was contravened which, as held in the decisions referred to earlier would require clandestine removal of goods without obtaining the permission of the proper officer. I, therefore, agree with the order of the President. Dated: 4-9-1998 Sd/- (K. SANKARARAMAN) Corrections at pages 3, 10, 11, 13, 19, 41, 52, 53, 73, 75, 76, 103, 110, 135, 138, 149, 151, 160, 166, 170, 172, 174, 178,179,184,192,194, 203, 214, 215, 219, 227, 241, 243, 244, 251 and 261 have been carried out pursuant to the order passed on 9-9-1998.____________________________________________________________________(1) Preliminary facts Pages 1 to 6 (Pages 164-168)(2) Submissions for consideration Pages 6 to 10 (Pages 168-170)(3) Point No. (i) Pages 10 to 21 (Pages 170-176)(4) Points (ii) to (v) Pages 21 to 51 (Pages 176-190)(5) Point No. (vi) Pages 51 to 54 (Pages 190-191)(6) Point No. (vii) Pages 54, 55 (Pages 191-192)(7) Point No. (viii) Pages 55 to 58 (Pages 192-193)(8) Point No. (ix) Pages 59 to 62 (Pages 193-195)(9) Point No. (x),(xi) Pages 62 to 64 (Pages 195-197)(10) Point No. (xii) Pages 64 to 68 (Pages 197-198)(11) Point (xiii) Pages 68, 69 (Pages 198-199)(12) Point (xiv) Pages 69 to 72 (Pages 199-201)(13) Points (xv) and (xvi) Pages 73 to 188 (Pages 201-261)(14) Point (xvii) Pages 188 to 191 (Pages 261-262)(15) Point (xviii) Pages 191,192 (Pages 262-263)(16) Point No. (xix) Pages 216 to 223 (Pages 279-283)(17) Point (xx) Page 216 (Page 279)(18) Point (xxi) Pages 232 to 243 (Pages 287-293)(19) Point No. (xxii) Pages 244 to 255 (Pages 293-299)(20) Point Nos. (xxiii) and (xxiv) Pages 192 to 215 (Pages 263-279)(21) Point (xxv) Pages 223 to 231 (Pages 283-287)(22) Point (xxvi) Page 232 (Page 287)(23) Operative part of the order Pages 256 to 260 (Pages 299-302)____________________________________________________________________ 1. After the order in the above appeals was pronounced on 4-9-1998, learned Counsel for both sides who hurriedly went through the order mentioned that there are some typographical and clerical errors in the order. We requested them to sit together and point out such errors.

They have filed a joint memorandum indicating those errors. We are satisfied that most of the errors pointed out as also few other errors require correction. The following corrections shall be carried out in the order :- Page 3 line 7, page 11 line 7 and page 13 line 4 from bottom correct the words "tariff value" as "value and number".

Page 110 line 14 from bottom correct "J" occurring before the word "Aggarwal" as "G".

Page 166 line 2 after the words "WDS to" and before the word "released", insert "be".

Page 192 after para 172 and before para 173 correct (xxii) as (xxiii).

Page 244 the figures in the last line namely "0.90","1.50" and "2.40" will be corrected as "1.15", "2.00" and "3.15" respectively.

Page 251 line 2 correct" 57A" as "52A" Page 261 renumber item 22 as 23 and insert the following "22. Point (xxvi) page 232".

2. The above corrections will be carried out. We are grateful to the learned Counsel for either side who have taken the trouble of discovering these typographical and clerical errors bringing them to our notice so that necessary corrections may be carried out.