I.T.C. LTD Vs. CCE

JUDGEMENT

(1.) BY show cause notice dated 27.7.1988, the Department alleged that the appellants had falsely and fraudulently declared lower assessable value in the price lists in Part I for the period 1.10.1975 to 31.3.1980 with intent to evade payment of duty and had wilfully suppressed the fact that the values declared in the price list during the period were incorrect. They were therefore, called upon to show cause why the amounts realised on account of advertisement expenses, security and administrative charges should not be added to the assessable value and differential duty between the duty already paid and on the basis of revised assessable values for various brands of cigarettes should not be demanded and why penalty should not be imposed. The show cause notice also referred to an earlier show cause notice dated 26.3.1987 demanding administrative charges for the period 1.11.1979 to 28.2.1983 and another show cause notice dated 7.10.1987 relating to differential duty required to be paid on administrative charges, for purposes of avoiding any possible overlapping. The matter was adjudicated by order -in -original No. 3/1991 by the Collector which is now being impugned in the present appeal. By the impugned order, the Collector imposed a penalty of Rs. 5 lakhs on the appellant Company.

(2.) ARGUING the appeal filed by M/s. ITC Ltd. (hereinafter referred to as appellant), Shri Ravinder Narain, Id. advocate submitted that the only prayer sought in their appeal is for setting aside of the penalty of Rs. 5 lakhs imposed on the appellant. He submitted that the penalty has been imposed on the basis of facts which had allegedly come to light subsequently as a result of searches conducted by Department officials on 17.2.1987 during which voluminous records of the appellants were seized. Further, the show cause notice related to the production of cigarettes in the appellant's Kidderpore factory for the period 1.10.1975 to 31.3.1980, and similar allegations had been made with regard to clearances for the same period from four other factories of the appellants. Ld. counsel submitted that the demand raised related to advertisement expenses which were based on the records seized on 17.2.1987. However, there was no mention of such records or the information gathered therefrom in the show cause notice issued on 27.7.1988. Therefore, ld. counsel contended that in the absence of any reference to such material in the show cause notice, the Collector could not refer to such information or give a finding based thereon by reason of the mere fact that they were the subject matter of certain other show cause notices. As regards deduction of advertisement expenses, ld. counsel submitted that there were a number of decisions of various High Courts in the case of appellant themselves, as well as others in which such expenses had been allowed as post manufacturing expenses. On the question of imposition of penalty under Rule 173Q, Counsel submitted that the goods had been cleared on the basis of price list provisionally approved by the Department and on payment of duty as per the provisional assessment. It was on that basis that the goods were cleared under valid gate passes prepared under Rule 52A. Further, the gate passes were also duly authenticated. It cannot therefore, be held that there was a violation of Rule 9(1) or Rule 52A. As regards penalty under Rule 173Q, the finding in the impugned order that the particulars entered in the gate passes were false and therefore Rule 52A had been contravened, it was submitted that the particulars in the gate passes were entered on the basis of price list which had already been provisionally approved. There was nothing wrong in computing the assessable value on that basis or in the methodology followed since it was in accordance with the law prevalent at the relevant time. Ld. counsel also submitted that since the provisional assessments were finalised by determining the differential duty after a meeting with the concerned officers of various Collectorates and with the co -operation of the assessee and since no notice for imposing penalty had been issued before such determination, the imposition of penalty at the time of final determination of duty was impermissible. In other words, if no penalty was sought to be levied while determining the differential duty, none could be imposed subsequent to such determination. Ld. Counsel also submitted that the alleged discovery of certain facts on the basis of search conducted on 17.2.1987 was the subject matter of other show cause notices, relating to several other factories of the appellant for the subsequent periods in relation to which proceedings were pending. Inasmuch as the Collector has taken cognisance of those facts while considering the allegation in the instant show cause notice, he had proceeded without jurisdiction and had pre -judged the issues in the show cause notices for the subsequent period. As such, the findings in the impugned order and the penalty imposed on that basis were without jurisdiction and beyond the allegations contained in the show cause notice. As regards the allegation of wilful suppression relating to advertisement charges, ld. counsel referred to various judgments in the appellants' own case where advertising expenses were held to be deductible as post -manufacturing expenses (PME). He referred to the following:

(3.) SHRI Prabat Kumar, Ld. SDR defending the impugned order reiterated the findings of the Collector. He submitted that the PGI had specifically directed the appellants that the additional money value shall be added in the assessable value on which duty was paid. Contrary to such direction, additional consideration relating to advertisement expenses had not been added by the appellants to the cum duty price. The loading of the advertisement expenses incurred b; the wholesale dealers to the cum duty price was therefore, in accordance with the order passed by the DGI after meeting with the representative of the Department and the appellants on 10.4.1986.