# M/S. I.T.C. LTD v. COMMISSIONER OF CENTRAL EXCISE, NEW DELHI AND ANR

- **Citation:** [2004] Supp. 4 S.C.R. 293
- **Court:** Supreme Court of India
- **Decided:** 2004
- **Case number:** Civil Appeal No. 70of1999
- **Bench:** Ruma Pal, P. Venkatarama Reddi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-i-t-c-ltd-v-commissioner-of-central-excise-new-delhi-and-anr-20193
- **Pages:** 31

## Headnote

Central Excise Act, 1944-Section 4, Notification No. 36183 dated
01.03.1983 and Notification No. 201185 dated 02.09.1985 issued under
Central Excise Rules, 1944-Rule 8 (1), Additional Duties of Excise (Goods
of Special Importance) Act, 1957-Section 3(3)-Maximum retail price
means maximum price de/cared on package under Standards of Weight and
Measure Act, I 976 and Standard Weight and Measures (Packaged Commodity)
Rules, 1977-Held,-Notification does not envisage an enquiry into the
correctness of the MRP printed on the package, by the Excise Office-Thus,
Excise Authority to act on the basis of printed MRP.
Standards of Weight and Measurers Act, 1976-Sections 3, 39, 67 and
BJ-Provisions discussed-Standard Weight and Measures (Packaged
Commodity) Rules, 1977-Rules 2(r), 23(2), 23(6).
Res judicata-Plea of-Cannot be allowed to be taken for the first time
at the appellate stage.
Interpretation of Statutes-Unambiguous words to be construed strictly
according to their ordinary and natural meaning-Legislative intent can be
looked into only if there is ambiguity in the statutory language-Rules of
interpretation discussed.
Respondent-Revenue charged the appellant-assessee with offence
of under pricing with intention of evading payment of appropriate duty,
and imposed penalties. Appellant filed appeals before CEGAT anti it set
aside quantification of duty demand raised on appellant and remanded
the matter for fresh determination of duty demand. Hence the appeal.
Allowing the appeal and dismissing the corrected appeal, the Court
A
B
c
D
E
F
G
HELD : 1. If plea of res judicata was not raised in pleadings, no
party would be permitted to raise it for the first time in appeal. The only
H
293
294
SUPREME COURT REPORTS [2004] SUPP. 4 S.CR.
A
exception is when plea of res judicata is in fact argued before the lower
Court. In the present case the plea had not been taken by the respondent
at any stage before any of the authorities, but arguments exactly to the
contrary had been put forward by the respondent. Hence, plea of res
judicata not allowed to be raised. [309-A, BJ
B
c
.· D
E
F
G
Daryao v. The State of UP., [1962) 1 SCR 574; Medapati Suraya v.
Tondapu Bala Gangadhara Ramakrishna Reddi, AIR 35 (1948) PC 3, 7
and V. Rajeshwari v. T.C. Sarav1 .. mabava, (2003) 10 Scale 768, referred to.
2. The general rule of statutory construction is that words have to
be construed strictly according to their ordinary and natural meaning,
particularly when the statute is a fiscal one irrespective of the object
with which the provision was introduced._ Of course if there is ambiguity
in the statutory language, reference may be made to the legislative intent
to resolve the ambiguity. But if the statutory language is unambiguous
then that must be given effect to. The legislature is deemed to intend
and mean what it says. The need for interpretation arises only when the
words used in the statU:te are, on their own term ambivalent and do not '~
manifest the intention of the legislature. But there are exceptions to this
rule. Firstly, rule of strict construction does not apply to a provision
which merely lays down. the machinery for the calculation or procedure
for the collection of tax: Secondly, if two constructions are possible and
a strict construction would lead to an absurd result then the construction
which is in keeping with the object of the statutory provision or in
keeping with equity could be accepted. [308-H; 309-A, B, E; 310-B, CJ
Keshavji Ravji and Co. and Ors. v. Commissioner of Income Tax,
[1990) 2 sec 231, relied on.
Innamuri Gopalan v. State of Andhra Pradesh, [1963) 2 SCR 898;
Hansraj Gordhandas v. HH Dave and Ors., [1969) 2 SCR 260; J.K Steel
Limited v. Union of India, [1969] 2 SCR 481; Oxford University Press v.
CIT, (2001) 3 SCC 359; Gursahai Saigal v. Commissioner of Income Tax,
Punjab, (1963) 3 SCR 893 and Commissioner of Income Tax v. J.H Got/a,
Yadagiri, [ 1985] SCC 343, referred to.
3.1. Dispute in substance relates to interpretation of

## Text

_Characters 0–39,931 of 75,252. This is a partial read: ask again with offset=39931 for what follows._

M/S. I.T.C. LTD.
v.
COMMISSIONER OF CENTRAL EXCISE, NEW DELHI AND ANR.
SEPTEMBER I 0, 2004
[RUMA PAL AND P. VENKATARAMA REDDI, JJ.]
Central Excise Act, 1944-Section 4, Notification No. 36183 dated
01.03.1983 and Notification No. 201185 dated 02.09.1985 issued under
Central Excise Rules, 1944-Rule 8 (1), Additional Duties of Excise (Goods
of Special Importance) Act, 1957-Section 3(3)-Maximum retail price
means maximum price de/cared on package under Standards of Weight and
Measure Act, I 976 and Standard Weight and Measures (Packaged Commodity)
Rules, 1977-Held,-Notification does not envisage an enquiry into the
correctness of the MRP printed on the package, by the Excise Office-Thus,
Excise Authority to act on the basis of printed MRP.
Standards of Weight and Measurers Act, 1976-Sections 3, 39, 67 and
BJ-Provisions discussed-Standard Weight and Measures (Packaged
Commodity) Rules, 1977-Rules 2(r), 23(2), 23(6).
Res judicata-Plea of-Cannot be allowed to be taken for the first time
at the appellate stage.
Interpretation of Statutes-Unambiguous words to be construed strictly
according to their ordinary and natural meaning-Legislative intent can be
looked into only if there is ambiguity in the statutory language-Rules of
interpretation discussed.
Respondent-Revenue charged the appellant-assessee with offence
of under pricing with intention of evading payment of appropriate duty,
and imposed penalties. Appellant filed appeals before CEGAT anti it set
aside quantification of duty demand raised on appellant and remanded
the matter for fresh determination of duty demand. Hence the appeal.
Allowing the appeal and dismissing the corrected appeal, the Court
A
B
c
D
E
F
G
HELD : 1. If plea of res judicata was not raised in pleadings, no
party would be permitted to raise it for the first time in appeal. The only
H
293
294
SUPREME COURT REPORTS [2004] SUPP. 4 S.CR.
A
exception is when plea of res judicata is in fact argued before the lower
Court. In the present case the plea had not been taken by the respondent
at any stage before any of the authorities, but arguments exactly to the
contrary had been put forward by the respondent. Hence, plea of res
judicata not allowed to be raised. [309-A, BJ
B
c
.· D
E
F
G
Daryao v. The State of UP., [1962) 1 SCR 574; Medapati Suraya v.
Tondapu Bala Gangadhara Ramakrishna Reddi, AIR 35 (1948) PC 3, 7
and V. Rajeshwari v. T.C. Sarav1 .. mabava, (2003) 10 Scale 768, referred to.
2. The general rule of statutory construction is that words have to
be construed strictly according to their ordinary and natural meaning,
particularly when the statute is a fiscal one irrespective of the object
with which the provision was introduced._ Of course if there is ambiguity
in the statutory language, reference may be made to the legislative intent
to resolve the ambiguity. But if the statutory language is unambiguous
then that must be given effect to. The legislature is deemed to intend
and mean what it says. The need for interpretation arises only when the
words used in the statU:te are, on their own term ambivalent and do not '~
manifest the intention of the legislature. But there are exceptions to this
rule. Firstly, rule of strict construction does not apply to a provision
which merely lays down. the machinery for the calculation or procedure
for the collection of tax: Secondly, if two constructions are possible and
a strict construction would lead to an absurd result then the construction
which is in keeping with the object of the statutory provision or in
keeping with equity could be accepted. [308-H; 309-A, B, E; 310-B, CJ
Keshavji Ravji and Co. and Ors. v. Commissioner of Income Tax,
[1990) 2 sec 231, relied on.
Innamuri Gopalan v. State of Andhra Pradesh, [1963) 2 SCR 898;
Hansraj Gordhandas v. HH Dave and Ors., [1969) 2 SCR 260; J.K Steel
Limited v. Union of India, [1969] 2 SCR 481; Oxford University Press v.
CIT, (2001) 3 SCC 359; Gursahai Saigal v. Commissioner of Income Tax,
Punjab, (1963) 3 SCR 893 and Commissioner of Income Tax v. J.H Got/a,
Yadagiri, [ 1985] SCC 343, referred to.
3.1. Dispute in substance relates to interpretation of phrase "may be
H
sold" used in Notification. While word "may" can indicate "possibility"
I.T.C. LTD. v. C.C.E.
295
or "capability", it is also used as denoting "permission". It is in the third ·A
sense that the word 'may' has been used because it has been qualified by
the phrase "in accordance with". Reading these two phrases "may i,e
sol~" and "in accordance with" together, the definition of 'sale price' in
relation to a package of cigarettes would mean the MRP (exclusive Qf
local taxes) at which such package is permit!ed to be sold in conformity
B
with the printed price. If the word 'may' is construed to mean likely or
'can' then the phrase "in accordance with" would be rendered meaningless
as it would be open to the retailer to sell it at such price as he may think fit
notwithstanding the printed MRP. (310-G; 311-C, D, E,]
3.2. It would be doing violence to the language of the Notification if
C
"in ac<:ordance with" is taken to mean "irrespective or'. The argument of
the Revenue and the reasoning of the Division Bench also overlook the
phrase "made on the package". According to the Notification it is the
declaration made, or the MRP as printed, on the package which alone is
the sale price and which furnishes the foundation of calculation of the
adjusted sale price. The construction put by the Tribunal is contrary to
words used, an exercise in interpretation which is clearly impermissible
and against the well-established cannon of construction that in construing
any statutory provision, words may not be added or amended but must, if
reasonably possible, be construed as they stand. (311-H; 312-A, B]
4.1. The SWM Act and Packaged Commodities Rules have been
enacted to protect the consumers who are entitled to pay only such price
as has been printed thereon. The manufacturer cannot print whimsical
D
E
or fanciful figure as the MRP as that would result in serious economic
consequences. There is a system of im;entives and enforcements that
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begins with consumers. When this system is properly enforced, levying
tax on MRP according to ti)<; Notification does not lead to absurd
consequences. If the consumer fails to demand the MRP or the State
authorities do not enforce statutory requirement, the system under the
Notification breaks down, but that does not legally justify an
interpretation of the notification by presuming an illegality on the part
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of the retailer. (315-C, E, F; 316-A]
4.2. The Notification speaks of a permitted sale according to MRP.
The Notification does not itself provide for any sanction or prohibition
against the retail sale of cigarettes at any rate other than the printed H
296
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
·A
MRP. Notification accepts printed MRP according to which cigarettes
are permitted to be sold by the retailer, as the price for the purposes of
grant of exemption under the notification. (316-D, El
B
c
4.3. Second Proviso to Section 4 (1) (a), as it then stood, does not
refer to the SWM Act or the Packaged Commodities Rules, btit it does
not specifically refer to under any other enactment either. All that it
requires is that the price must be the maximum price fixed under a law
'for the time being in force'. Proviso statutorily recognises that the price
which may not be the actual price received, could form basis of levy of
excise duty. (317-E)
5.1. In terms of notification, the Excise Authority is required to act
on the basis of printed MRP. The notification does not envisage an
enquiry into the correctness of the MRP printed on the packages by the
Excise Officer. As far as he is concerned, he is limited to satisfying
D
himself that there is a declaration in the prescribed form. To hold
otherwise would _not only defeat the object with which the Notification
was introduced but lead to a reversion to the earlier mode of assessing
the value of the manufactured commodity, the uncertainty associated
therewith and an impossibly chaotic situation. (321-B, CJ
E
Aluminium Industries Ltd v. Collector central Excise, Bhuvneshwar,
(1998) 9 SCC 404; State of Madras v. Mis Radio and Electricals Ltd,
[1996] Suppl. SCR 198; Mis Chunni Lal Parshadi Lal v. Commissioner of
Sales Tax, (1986] SCC 501; Jacksons Thevara v. Collector of Customs and
Central Excise, (1991] 2 SCC 62; Toolsidas Jewraj v. Additional Collector
F
of Customs, [1991] 2 SCC 443; Union of India v. Mis Rai Bahadur Shreeram
Durga Prasad (P) Ltd, (1969] 1 SCC 91; M Narasimhaih v. Deputy
Commissioner for Transport, (1987) (Supp) SCC 452 and Apollo Tyres Ltd
v. CIT, Kochi, [2002] 9 SCC 1, referred to.
5.2. The certainty of specific rates which was sought to be achieved
G
by the Notification has been undone by the adjudicating authority and
the Tribunal. The Notification has introduced a system for levy of excise
duty on experimental basis. If the experiment was a failure for whatever
re·ason, it was open to respondents to do away with it and replace the
system by some other it did in 1987. As long as Notification stood, it had
H
to be given effect to. (323-E, F)
•
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.]
297
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 70of1999.
A
From the Judgment and Order dated 4.9.98 of the Central Excise
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.0. No.
1231/98-A in A. No. E/209 of I 996-A.
WITH
C.A. No. 6101 of 1998.
Harish N. Salve and S. Ganesh, R. Sashidharan, Ms. Sonu Bhatnagar,
B
Ms. Sushma Sharma, Amit Bhagat, Sajan Narain, Ajay Agarwal and Rajan
C
Narain for the Appellant in C.A. No. 70/99 and Respondent in C.A. No. 6101/
98.
C.S. Vaidyanathan, K. Swami, K.C. Kaushik, K. Venugopal, B.K.
Prasad, (NP) for the Respondents in C.A. No. 70/99 and Appellant in C.A.
, No. 6101198.
D
The Judgment of the Court was delivered by
RUMA PAL, J.: Mis. ITC Ltd. (hereafter referred to as the appellant)
manufactures cigarettes. Prior to 1983 excise duty was leviable on cigarettes
under Section 4 of the Central Excise and Salt Act, 1944 (referred to as 'the
Act') at rates specified under Tariff Item 4 of the First Schedule to the Act.
The dispute in this appeal to the excise duty payable by the appellant for the
period 1983 to 1987 on the cigarettes manufactured by it. The resolution of
this dispute lies primarily in the interpretation of two exemption notifications
namely Notification No. 36/83 dated 1.3.1983 (referred to hereafter as 'the
1983 Notification') and Notification No. 201/85 dated 2.9.1985 (referred to
hereafter as 'the 1985 Notification') issued under Rule 8(1) of the Central
Excise Rule, 1944 (referred to as the 'Rules') and Section 3(3) of the
Additional Duties of Excise (Goods of Special Importance) Act I 957. The
I 985 notification which replaced the 1983 notification was in similar terms
except that the rates of excise duty and the categories of the cigarettes entitled
to be exempted were different. In substance however, as far as the question
of inteiyretation is concerned, there was no material difference between the
1985 and the 1983 notification. The necessity of our going into the other
issues raised in these appeals would depend upon what interpretation we put
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on these Notifications. Between the I 983 Notification and the 1985 Notification H
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
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as well as after the 1985 Notification there were other notifications which
are not of any consequence as far as the issues raised in the appeal are
concerned; and are not required to be referred to in greater detail. If we have
said the 1983 notification for the first time introduced the concept of levying
excise duty with reference to the retail sale price of cigarettes instead of the
B
whole sale price at which the manufacturer sold cigarettes at the time and
place of their removal under Section 4 of the Act. The retail sale price was
defined in the notifications as "the maximum price (exclusive of local taxes)
at which the packet of cigarettes may be sold in accordance with the
declaration made on such package by the manufacturers".
C
According to the appellant. the "declaration" referred to in the 1983 and
1985 Notifications was the printed price which was in any event required to
be printed on each cigarette packet by virtue of the Standards of Weights and
Measures Act, 1976 (referred to hereafter as the SWM Act) as well as the
Standard Weights & Measures (Packaged Commodity) Rules 1977 (referred
D
to as the Packaged Commodities Rules). The appellant cleared cigarettes
manufactured by it during this period after paying excise duty on the basis
of the Maximum Retail Price (MRP) which was exclusive of local taxes
printed by the appellant on each cigarette packet.
Sometime prior to March, 1987 searches were carried out by Central
. E
Excise Officers at various premises including the five factories, the registered
office, the district offices and branch offices of the appellant as well as in
the premises of some of its wholesale dealers. On 27th March 1987, the
respondent No. 1 issued a show cause notice to the appellant and its job
workers (called Outside Contract Manufacturers (OCMs) in which it was
F
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alleged that the concessional rates of duty under the notifications had b~en
wrongly availed ofby the appellant and the OCMs. It was alleged in the show
cause notice that the investigation had revealed that "ITC consciously and
deliberately ensured that the actual retail sale prices of these cigarettes (which
had been assessed to exempted rates of duty on their declarations) were
higher than the declared and printed sale prices"; that the appellant had been
"controlling the margins /prices of wholesale dealers, secondary wholesale
dealers and retailers, they have been fixing the margins and varying the same
to suit their convenience and design; they have chosen to communicate much
margins/trade prices in a clandestine manner"; that immediately after the
budgetary changes of 1983 the appellant had drastically reduced the margins
available to the wholesale dealers (WDs), secondary wholesale dealers·
•
...
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J.T.C. LTD. v. C.C.E. [RUMA PAL, J.]
299
(SWDs) and retailers and at the same time, increased theit sale price and sale
A
realizations and that by reducing margins available to the retailers to a level
of IO paise per thousand cigarettes, the appellant had unofficially fixed
effective prices being the actual price of its cigarettes and communicated the
same to the WDS, SWDS and retailers; that the effective price was generally
higher than the printed declared price and that the appellant had, therefore,
B
deliberately printed false prices on the packs. The show cause notice
concluded with the charge that the appellants had printed lower sales prices
with the intention of evading payment of appropriate duty in contravention
of the provisions of Rule 9(1 ), Rule 52 and Rule 52A of the Rules and that
by availing of the exempted rates the appellant had contravened the 1983 and
1985 notifications as amended from time to time. It was said that the
C
appellant, its Directors and OCMs had not only rendered themselves
liable to payment of duty short paid but also rendered themselves liable for
penalties under the provisions of Rule 9(2), Rule 52-A, Rule 209 and 210.
A writ petition was filed by he appellant in the Calcutta High Court
D
challenging the validity of the show cause notice. This was dismissed. An
appeal was preferred before the Division Bench which was also dismissed.'
While dismissing the appeal, the Division Bench said :
"The Adjudicator will be entitled to proceed with the
adjudication proceedings in accordance with law. It is made clear
that both Writ Petitioner and the Respondents will be at liberty to
urge all the questions on facts and on law before the Adjudicator
and the Adjudicator will be at liberty to go into all the questions
arising out of the Show Cause Notice. It will be open to the writ
petitioner to demonstrate before the Adjudicator that the quantification
of the liability made in the show Cause Notice is wrong in law and
without any basis or erroneous. All the questions on fact and law
pertaining to this aspect of the case are left open to be decided by
the Adjudicator. On this aspect, if necessary, the appellant will be
entitled to adduce evidence before the Adjudicator."
Special Leave Petitions were preferred from the decision of the Division
Bench before this Court. By an order dated 8th May, 1995 this Court recorded
that counsel for the Special Leave Petitioners had stated that since the High
I. Since reported in (1991) 53 ELT 234.
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SUPREME COURT REPORTS [2004) SUPP. 4 S.C.R.
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Court had left the questions involved open for decision in the final stage, the
petitioners sought leave to withdraw the Special Leave Petitions. The Special
Leave Petitions were accordingly dismissed as withdrawn. This left the field
open for the respondent.s to proceed with the proceedings pursuant to the
Show Cause Notice.
B
On 29th December, 1995 the respondent No. 1 confirmed the demand
made in the Show Cause Notice to the extent of Rs. 799.35 crores against
the appellants and the OCMs (Rs. 681.5 crores on the appellant and Rs.
117 .58 crores on the OCMs). Penalties of Rs. 66.50 crores were levied on
the appellant, Rs. 7 crores on the OCMs and Rs. 3.5. cro~es against the
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Directors of the appellant.
D
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F
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Appeals were filed from the decision of the respondent before CEGA T.
The Tribunal disposed of the appeals on 4th September, 1998. The OCMs'
appeals were allow1:d by quashing the duty demanded from, as well as the
penalties imposed against, them. Penalties imposed on the appellant and its
officers were also set aside. The quantification of the duty demand raised on
the appellant was also set aside and the matter was remanded back to the
Adjudicating Authority for fresh quantification of the duty demand on the
appellant in accordance with the Tribunal's findings.
The appellant has challenged the Order of the Tribunal by way of this
appeal (C.A. No. 70 of 1999). The Revenue also filed several appeals (Civil
Appeal Nos. 6101-6113/198) before this Court being aggrieved by the
directions of the Tribunal to re-det~rmine the duty demand on the appellant,
the setting ::tside of the duty liability of the OCMs and the quashing of the
penalties against the appellant, its Directors and the OCMs. On 15th January,
1999 the appeals filed by the Revenue (Civil Appeal Nos. 6102/98, 6103/
98, 6110/98, 6111198, 6112/98) and 6113/98) in respect of penalties imposed
on the Directors were dismissed by this court. Civil Appeal Nos. 5104-6109/
98 file by the Revenue relating to the duty demand against the OCMs' were
admitted restricted to the question relating to their liability for 6 months only.
As far as the Revenue's appeal against the appellant (Civil Appeal No. 6101/
98) and the appellant's appeal against the Revenue (Civil Appeal No. 70/99)
were concerned, they were admitted. The adjudication proceedings for recomputation of the duty demand pursuant to the Tribunal's order were,
however directed to continue but no order was to be pas.sed.
H
The adjudication proceedings were concluded and the duty liability of
)
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I.T.C. LTD. v. C.C.E. [RUMA PAL, J.]
301
the appellant was re-determined. The Adjudicating Authority then submitted
his conclusion in a sealed cover to this Court. In the course of proceedings
before us, we permitted the parties to inspect the fresh adjudication order but
it was made clear that such inspection would not be construed as
communication of the order to the concerned parties. After such inspection
the adjudication order has been resealed and is not the subject matter of any
of the pending appeals.
This judgment disposes ofC.A. No. 70/99 and C.A. 6101/98. The other
appeals relating to O.C.Ms have been delinked and posted separately.
A
B
As we have indicated at the ouset, the outcome of these appeals depends
C
primarily on the interpretation of the 1983 notification which is quoted
below:
CIGARETTES (TARIFF ITEM 4)
In exercise of the powers conferred by sub-rule ( 1) of the rule 8 of
the Central Excise Rules, 1944, read with sub-section 3 of Section
3 of the Additional Duties of Excise (Goods of Special Importance)
Act, 1957 (58 of 1957), the Central Government hereby exempts
cigarettes of the description specified in column ( 1) pf the Trade
below and falling under sub-item II (2) of Item No. 4 of the First
Schedule to the Central Excises and Salt Act, 1944 ( 1 of 1944 ), from
so much of the duty of excise leviable thereon under the said Acts
as is in excess ·of the amount calculated at the rate specified in the
corresponding in Column (2) of the said Table.
THE TABLE
Description
Rate
(1)
Cigarettes (being cigarettes
packed in the packages) of
which the adjusted sale
price per one thousand -
(2)
D
E
F
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H
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A
B
c
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
(i) does not exceed rupees
fifty
(ii) exceeds rupees fifty but
does not exceed rupees
sixty
(iii) exceeds rupees sixty
Thirty-five rupees per on~
thousand.
Thirty-five rupees per one
thousand plus three rupees
and fifty paise per one
thousand for every increase
of rupees five or fraction thereof
in the adjusted sale price in
excess of rupees fifty.
Forty-two rupees per one thousand
plus three rupees and seventy-five
paise per one thousand for every
increase of five rupees or fraction
thereof in the adjusted sale price
in excess of rupees sixty.
Provided that the amount of duty so levied shall be apportioned
in the ratio of2.75 : 1.00 between the duty leviable under the Central
Excises and Sall Act, 1944 (I of 1944) and the Additional Duties
of Excise (Goods of Special Importance) Act, 1957 (58 of 1957),
respectively.
Explanation. - For the purpose of this notification -
(I)
"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 package :
Provided that, -
(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 sale prices by the number of
cigarettes in such package, and
..
. I-
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I.T.C. LTD. v. C.C.E. [RUMA PAL, J.]
303
(b) where such cigarettes are packed containing different
A
number of cigarettes, the unit price for each such package
shall be determined by dividing the sale price of each
such package by the number of cigarettes therein and the
highest of such unit prices shall be the adjusted sale price
in relation to each such cigarette;
(2)
"cigarettes packed in packages'', means cigarettes which are
packed for retail sale, in packages which -
(a) contain I 0, 20, 50 or any higher number (being a multiple
B
of 50) of cigarettes, and
C
(b) bear a declaration specifying the. maximum sale price
thereof as the amount specified in the declaration, plus
local taxes only;
(3)
"sale price" in relation to a package of cigarettes means the D
maximum price (exclusive of local taxes only) at which such
package may be sold in accordance with the declaration made
on such package.
Thus exemption was granted in respect of cigarettes which were (i)
packed in packages for retail sale of 10,20,50 or any higher number (being
a multiple of 50), (ii) bearing a declaration specifying the maximum sale price
(exclusive of local taxes) at which such package may be sold. The rate of
exemption from excise duty was to be calculated on the basis of the unit price
of 1000 cigarettes, the unit or the adjusted sale price being arrived at by
dividing the sale price of the package by the number of cigarettes in the
package. The rate of exemption differed with the price of the cigarettes and
was granted in three slabs depending on whether the sale price per thousand
cigarettes was Rs. 50 and under, or was between Rs. 50 and Rs. 60 or was
Rs. 60 and above.
The appellants submission in this regard, as we had briefly summarized
earlier, is that the notification had to be understood in the light of the
provisions of the SWM Act, 1976 and the Packaged Commodities Rules,
1977 and that the retailer could not legally sell the cigarettes at a price which
was not in accordance with the price declared on the package. It was
submitted that on a reading of the plain language of the notification it was
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clear that the sale price was the printed price i.e. the price at which "packages
may be sold in accordance with the declaration". It was submitted that this
interpretation followed from the language of the notification and that no other
interpretation could not be given. According to the appellant both the
Adjudicating Authority and the Tribunal had erred in interpreting the
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notification differently and in effect recasting it by holding that the exemption
was to be granted only if the MRP was the price at which the cigarettes were
in fact or should have been sold by the retailers. Reference has also been
made to the legislative history and the context in which the Notification was
issued to buttress the submission. Without prejudice to this contention, the
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appellant's counsel took us through volumes of material to prove that the
MRP fixed and printed on the cigarette packets was on the basis of a
reasonable and an honest exercise.
The respondent has stated that the declaration of price (MRP) was
required to be an honest declaration and that the definition of the sale price
in Explanation III to the notification contemplated that a package would
ordinarily be sold at the price declared and that the sale price declared or
printed would have to have a co-relation with the price at which such package
was likely to be sold. Otherwise it would give the assessee the freedom to
print any price knowing that the package would not be sold in accorda.nce
with the declaration made on such package. It has further been submitted that
the Excise Authorities are entitled and in fact are bound to determine the truth
of such a declaration just as they are required to determine the true legal
relation resulting from a transaction if the same is concealed by a device.
According to the Revenue, it would be inconsistent with public policy to
interpret a taxing statute or notification in such a manner as to condone,
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facilitate or sanction an assertion by an assessee that the declaration they
make need not be true and correct. It has also been submitted that the
principle of strict construction applied only to the charging section in a taxing
statute and not the machinery of assessment which the notification in this case
provides. In any event the onus to prove that the notification was applicable
and the conditions satisfied was on the assessee. It was contended that the
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expressions "sale price", "retail sale price", "maximum sale price", as also
"retail sale" ·_in the notification had a definite. connotation in ordinary
commercial parlance and such expressions, when used in an excise notification,
would have to be given the meaning in which these words are normally
understood in the trade and in ordinary commercial parlance. It was submitted
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that any ambiguity or doubt in an exemption notification would have to be
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resolved to in favour of the Revenue. In addition to these submissions, the
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Revenue submitted that the question whether the declaration made by an
assessee on a package of cigarettes disempowered the revenue from going
behind the declaration had been specifically raised in the writ proceedings
by the appellant while challenging the show cause notice and had been
categorically rejected. It is, therefore, submitted that the issue was barred by
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res judicata since the decision of the High Court was binding between the
parties, particularly when the Special Leave Petitions challenging the decision
on the writ petitions were dismissed as withdrawn.
In reply, the appellant submitted that the Revenue had never raised the
·issue of res judicata at any stage in the proceedings either before the
Adjudicating Authority or the Tribunal. On the contrary, it was specifically
stated by the department before the Adjudicating Authority that the findings
of the High Court were not binding on the adjudicating authority and the issue
had been argued before the Authorities on such basis. Apart from this, it is
submitted that the Calcutta High Court had expressly left all questions both
of fact and law open and this was also the basis on which the Special Leave
Petitions were withdrawn by the appellant. It is submitted that in any event
this Court was not bound by the decision of the High Court since that order
merged in the order of the Adjudicating Officer which in tum merged with
the decision of the Tribunal. The order of the writ court was, according to
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the appellant, an interlocutory order and not final. Besides, it is argued, there
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was no question of res judicata when what was to be decided was a pure
question of law and not of fact.
There can be no doubt that the Division Bench had rejected the
interpretation sought to be put by the appellant on the notification. This is
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apparent, particularly from paragraphs 98, I 10 to 115 of the judgment as
reported in (1991) 53 EL T 234. But there are other paragraphs in the
judgment which appear to suggest that the Court was merely taking primafacie view of the matter and it was for the Adjudicating Authority to finally
decide all the questions including questions of fact (vide paragraphs 5 and
175). Although it is more than likely, as has been rightly contended by the
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Revenue, that the Division Bench had not intended to leave open the issue
whether the Revenue could question the declaration made on the cigarette
packages by a manufacturer for the purpose of determining the excise duty
payable, the ambivalent expression used by the Division Bench in paragraph
175 quoted by us earlier in this judgment, was understood by both the parties
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to mean that the issue of interpretation of the notification was at large and
could be raised and determined before the adjudicating authority. That was
the reason why the special leave petitions challenging the decision of the
High Court were withdrawn by the appellants. That was also the reason why
the Department categorically asserted before the Adjudicating Authority that
the decision of the High Court was not binding on the Adjudicator. This is
recorded in the minutes of the proceedings before the adjudicating authority
as follows :
"The learned Additional Solicitor General (ASG) submitted that,
firstly, it is not the case of the Department that, keeping in view the
specific observations of the Division Bench of the Calcutta High
Court, the findings of the Court are binding on the Adjudicator. At
this stage, the Adjudicator wanted a clarification on what is meant
by the persuasive effect which the judgment has. It was explained
that what is meant is that if in the opinion of the Adjudicator a
different view from that which has taken by the Court is the correct
view either on law or on facts, it would be open to him to come to
such a conclusion which is different from what has been held by the
Court. If on the other hand, it is possible that two views are possible
on any particular i~sue of fact or on law, he may adopt the views
expressed by the Court which in such circumstances can be said to
have a persuasive effect. On this aspect, it was pointed out on behalf
of the Department that the Department is in agreement with the
submissions made by the learned counsel for ITC that what has been
held by the Court in the case is not as such binding on the
Adjudicator".
Even before the Tribunal the stand taken by the Department was not
that the issue relating to the interpretation of the notification had been finally
concluded by the High Court. Both the adjudicating authority and the
Tribunal also proceeded on the basis that the High Court's decision had
merely persuasive value. The issue relating to the interpretation of the
notification .was argued at length by both parties before the adjudicating
authority and the Tribunal, both of whom decided the issue independently
of the High Court's decision.
Doubtless the principle of res judicata is a fundamental doctrine of law
that there must be an end to litigation. (See Daryao v. The State of U.P.,
[1962] lSCR 574 but the plea of res judicata has to be specifically and
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1.T.C. LTD. v. C.C.E. [RUMA PAL, J.]
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expressly raised. (See : Medapati Surayya v. Tondapu Bala Gangadhara
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Ramakrishna Reddi, AIR 35 (1948) PC 3, 7. This view has been recently
reiterated in V. Rajeshwari v. T. C. Saravanabava, (2003) 10 Scale 768, where
it is said that the foundation of the plea of res judicata must be laid in the
pleadings. If this was not done, no party would be permitted to raise it for
the first time at the stage of the appeal. The only exception to this requirement
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is when the issue of res judicata is in fact argued before the lower Court.
In this case not only had the plea not been taken by .the Revenue at any stage
before any of the authorities, but arguments exactly to the contrary had been
put forward by the respondent. We will not permit the plea to be raised now.
In the circumstances, it is not necessary to consider the other arguments urged
on the appellant to counter the respondent's submission on the applicability
of the principles of res judicata.
Coming now to the question of interpretation of the Notification: the
several decisions cited by both parties indicate the approach to a question of
interpretation of a notification issued under a fiscal statute.
In Jnnamuri Gopalan v. State of Andhra Pradesh, [1963] 2 SCR 898,
a Notification had been issued under Section 9 of the Andhra Pradesh General
Sales Tax Act, 1947 exempting from tax the sale or purchase of certain goods.
The appellant claimed the benefit of the exemption. This was denied to the
appellant by the Revenue, a denial which was upheld by the High Court, on
the ground that the object of the Notification was to avoid double taxation
and exemption from sales tax could be claimed only by in cast>s where
additional excise duty was leviable and paid. Since the appellant's goods
were not leviable to additional excise duty, it was held no exemption from
sales tax could be claimed under the Notification. The reasoning was
disapproved and the appeal was allowed by this Court saying :-
"If the tax payer is within the plain terms of the exemption the
cannot be denied its benefit by calling in aid any supposed intention
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of the exemption authority. If such intention can be gathered from
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the construction of the words of the statute or rule or by necessary
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implication therefrom, the matter is different, but that is not the
position here."
The Court held that the State was
"possibly right in the submission that the object behind he framers
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of the notification was to avoid double taxation but the operation
of an enactment or of a notificating has to be judged not by the
object which the legislature or the notifying authority, as the case
may be, may have had in mind but by, the words which it has .
employed to effectuate the legislative intent".
This was reaffinned in Hansraj Gordhandas v. H.H. Dave & Ors.,
[1969] 2 SCR 260 where it was said that :
" .. ~ ... .the operation of the notification has to be judged not by the
object which the rule-making authority had in mind but by the words
which it has employed to effectuate the legislative intent."
Tariff Item 26AA of the First Schedule to the Central Excise and Salt
Act, 1944 was interpreted in J.K. Steel Limited v. Union of India, [1969] 2
SCR 481. The item provided for ad valorem "plus the excise duty for the
time being Ieviable on pig iron or stool ingots, as the case may be" in respect
of iron or steel products. The assessee had mam•factured wired out of steel
rods which had been imported. No excise duty was leviable on steel ingots
because it was manufactured outside the country. The excise authorities
consented that the word "Ieviale" referred to the rate and not to the
actual levy of excise duty on the steel ingots used in the manufacture of the
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iron and steel products. This submission was accepted by the majority by
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saying:
"It is said that the item should be strictly construed, it being a taxing
enactment. But no rule or principle of construction requires that
close reasoning should not be employed to arrive at the true meaning
of a badly drafted entry in an Excise Act. I believe I am not
stretching the language of the entry against the subject, but it appears
to me that in the context of the scheme of the Excise Act this is the
only reasonable construction to give to the entry".
(Emphasised)
Presumably the phrase "badly drafted" was used to mean that the
language of the Entry was ambiguous. In case of such ambiguity 'close
reasoning' will be employed - but without stretching the language to arrive
at the only reasonable construction. These decisions exemplify the general
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rule of statutory construction that words have to be construed strictly
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according to their ordinary and natural meaning, particularly when the statute
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is a fiscal one irrespective of the object with which the provision was
introduced. Of course if there is ambiguity in the statutory language,
reference may be made to the legislative intent to resolve the ambiguity. But
if the statutory language is unambiguous then that must be given
effect to. The legislature is deemed to intend and mean what it says. The need
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for interptetation arises only when the words used in the statute are, on their
own terms ambivalent and do not manifest the intention of the Iegislature2•
It was in this manner that Section 10 of the Income Tax Act, 1961 was
construed in Oxford University Press v. CIT, (2001] 3 SCC 359 Section 10
of Income Tax Act, 1961 provides for the exclusion of income of a University
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or other educational institutional constituted solely for educational purposes
and not for purposes of profit. The view of the majority was that the section
p·lainly provided that the exemption was available only to institutions
established solely for educational purposes and nor for commercial activities.
The plain meaning was accepted not only on the basis that a provision for D
exemption from tax is a fiscal statute and a fiscal statute has to be strictly
construed, but also in view of the legislative object as manifest from the
provision.
But there are exceptions to this rule. The first is that the rule of strict
construction does not apply to a provision which merely lays down the
machinery for the calculation or procedure for the collection of tax.
This has been held in Gursahal Saigal v. Commissioner of Income Tax,
Punjab, [1963] 3 SCR 893. The case related to the interpretation of Section
l 8A(6) of the Indian Income Tax Act, 1922. Under sub-section (1) of Section
l 8A power was given to an assessee to make his own estimate of the advance
tax payable by him and to pay according to such estimate. Sub-section (8)
of Section l 8A provided for payment of interest by the assessee on the
differential amount between the tax as estimated and the tax as regularly
assessed. The mode of computation of such interest was laid down in subsection (6) of that Section, namely, from January I of the financial year in
which the estimated tax was paid.
The assessee neither submitted any
estimate nor paid any tax.