2005 (12) TMI 367 - AT - Central Excise

Determination of assessable value of the wholesale price - Sale Of cigarettes - Maximum retail price/adjusted sale price - security deposit scheme - differential interest - benefit of concessional rate of duty under Notification Nos. 201/85 and 78/86 - duty demand - penalty - HELD THAT - As regards advertisements etc GTC s case is that the advertisements were made by the super buyers or wholesale buyers to promote their own sales and they were not directed to charge the expenses to GTC and their expenses including advertisements have no relation to the adjusted sale price. As regards security deposit scheme we note that even after full deposit has been made to GTC towards sale of goods by super buyers the profit of the super buyer cannot be calculated directly in terms of deposit made in excess. The turnover of the super buyer fairly exceeds the deposit amount. Therefore even after making deposits and paying differential 17% interest the super buyer can make profit in view of its very high turnover. The deposit scheme was started sometime in 1978-79 which is well before the issue of Notification No. 210/85 dated 20th September 1985. Therefore it cannot be alleged or found that the scheme was evolved only in order to indirectly receive the excess amount which may be collected by the retailers from the consumers and eventually by super buyer. Even in the case not covered by deposit scheme and where the payment was not made in time interest at the rate of 18% was being charged by GTC which is more or less corresponding to differential interest under security deposit scheme. Therefore the differential interest cannot be considered a ploy to indirectly receive a part of the alleged extra collection received by the super buyer. We therefore hold that there is no link between security deposit schemes and so called extra collection. Alternative argument of GTC is that even if flow back was involved the Central Excise Authorities are bound to accept the MRP printed on the price list during the period when Notification No. 201/85 was in force. This argument is based upon the Apex Court s decision in the case of ITC Limited v. Collector of Central Excise 2004 (9) TMI 103 - SUPREME COURT where under the Supreme Court has interpreted Notification No. 36/83 dated 1st March 1983 and Notification No. 201/85 dated 2nd September 1985. The Notification which replaced the 1983. Notification was in similar terms except for the rate of excise duty and the categories of cigarettes inter alia. On the basis of the above GTC submits that even in a case of flow back MRP printed on the packets is to be accepted and no other price can be taken into consideration for determining the slab for applicable rate of duty. Specific reliance is placed on para 54 of the ITC judgment wherein Supreme Court observes that certainty of specified rate which was sought to be achieved by the notification has been undone by the adjudicating authority and the Tribunal and the Notification had introduced the system for levy of Excise Duty on an experimental basis. If the experiment was a failure for whatever reason it was bound to the respondent to do away with it and replace the system by some other as it done in 1987. But as long as the notification stood it had to be given effect to. In the view we have taken there is no need to go into other questions debated before us . In the light of the above discussion and the Apex Court s in the case of ITC Limited v. Collector of Central Excise 2004 (9) TMI 103 - SUPREME COURT which is squarely applicable to the present case we hold that the benefit of concessional rate of duty under Notification Nos. 201/85 and 78/86 is admissible to the appellants set aside the duty demand and penalties and allow the appeals.

Summary

Issues Involved:
1. Confirmation of duty demand based on three show cause notices.
2. Allegations of false declarations of maximum retail price (MRP) and adjusted sale price.
3. Collection of extra money over the declared prices.
4. Security deposit scheme and its implications.
5. Statements of witnesses and their credibility.
6. Interpretation of relevant notifications and the applicability of concessional rates of duty.

Issue-wise Analysis:

1. Confirmation of Duty Demand:
The appeals arise from the order of the Collector of Central Excise, Delhi, adjudicating three show cause notices, confirming duty demands totaling Rs. 25,28,95,800/- and imposing penalties under the Central Excise Rules.

2. Allegations of False Declarations:
The show cause notices alleged that GTC Industries Limited falsely declared the MRP for their Golden's Style Filter King brand of cigarettes to avail concessional rates under Notifications No. 201/85 and 78/86. The cigarettes were sold at higher prices than declared, indicating deliberate false declarations to benefit from lower duty rates.

3. Collection of Extra Money:
Investigations revealed that GTC collected extra money over the declared prices, which was passed on to retailers and wholesale dealers. Additionally, GTC recovered part of the extra money through advertisement expenses and a security deposit scheme with differential interest rates.

4. Security Deposit Scheme:
The Collector found that the security deposit scheme was artificially created to enable GTC to charge varying interest rates and retrieve excess collections. The scheme involved charging 27% interest on amounts due from buyers while paying only 10% on deposits, indicating an indirect flow back of extra collections to GTC.

5. Statements of Witnesses:
The Collector relied on statements from 44 witnesses, including wholesale buyers, dealers, and company representatives. However, during cross-examination, many witnesses retracted their original statements, eroding their credibility. The absence of direct evidence linking the extra collections to GTC further weakened the case.

6. Interpretation of Notifications:
The Collector's interpretation of Notifications No. 201/85 and 78/86 was challenged. The Supreme Court's judgment in ITC Limited v. Collector of Central Excise clarified that the MRP printed on packages must be accepted for duty calculations, regardless of actual retail prices. The notification aimed to simplify duty assessment based on printed MRP, not actual sale prices.

Conclusion:
The Tribunal found that the security deposit scheme and advertisement expenses did not establish a direct link to GTC's benefit from extra collections. The Supreme Court's judgment mandated acceptance of printed MRP for duty calculations, supporting GTC's argument. Consequently, the Tribunal set aside the duty demands and penalties, allowing the appeals in favor of GTC Industries Limited.