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Sale-price smokescreen in tax tiff
- Decree plugs gap with twin changes

New Delhi, Jan. 31: The spat between the government and ITC over the excise tab of Rs 803 crore stems from a legal quibble over the definition of sale price, which forms the basis for the calculation of the duty.

The ordinance has now got round the difficulty altogether by changing the definition itself with retrospective effect. It makes two amendments to the definition of the 'sale price' which will, in effect, slam the door on a legal challenge by ITC.

'Where the sale price is more than that declared on the packet of cigarettes, the higher of the two shall be deemed to be the sale price,' the amendment states.

'Where different sale prices are declared on packets for sale in different areas, each sale price shall be the basis for valuation,' it added.

The dispute with ITC relates to a period between March 1, 1983 and February 28, 1987, when excise duty used to be levied on cigarettes based on the maximum retail price (MRP) declared on packets.

The excise department found that ITC was actually printing a lower MRP than what it was charging from customers. The Central Excise and Gold Control Appellate Tribunal (Cegat) held that the excise department could go behind the printed figures to determine the actual sale price. It also observed that the sale price should be the one at which the goods are actually sold, even if a lower amount is printed.

The excise department had said the wholesale and secondary dealers' margins were so compressed by ITC that the cigarettes had to be sold by the retailers at a higher price. Both ITC and the excise department had challenged the Cegat order before the apex court.

ITC had questioned the demand upheld by Cegat, while the department had challenged the relief given to the company. ITC contended that in India, 70 per cent of the cigarettes were sold on stick-basis and not in packets. Due to the problem of loose change, retailer often sold the cigarette sticks at a rate slightly higher than the MRP.

While agreeing with ITC's contention, the Supreme Court had observed: 'The notification had introduced a system for levy of excise duty on an experimental basis. If it was a failure for whatever reason, the respondents (the government) could have done away with it and replaced the system with another, as it did in 1987.'

In its hurry to come out with the ordinance, the government has allowed a small bloomer to creep into it.

The schedule appended to the ordinance itself says notification No. 36/83 came into effect from March 1, 1983. While modifying the definition of sale price, it says the amendment will come into effect from March 31 ' which leaves out an entire month from the purview of the amendment.

This means arrears worth several crores could go out of its ambit. If it is an inadvertent mistake, the government will have to come out with a clarification immediately.

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