Holding

The notification requires the Excise Authority to act on the printed MRP; the phrase "may be sold" conveys permission, not mere possibility, and res judicata cannot be raised for the first time on appeal.

Summary

ITC Ltd, a cigarette manufacturer, printed the maximum retail price (MRP) on its packs as required by the Standards of Weights and Measures Act and the Packaged Commodities Rules. The Revenue alleged that the printed MRP was false, that ITC under‑priced its cigarettes to evade excise duty, and imposed penalties. The Central Excise Board set aside the duty demand and penalties and remanded for fresh quantification, which the Revenue appealed. The Supreme Court examined (i) whether the plea of res judicata could be raised at the appellate stage and (ii) the proper interpretation of the 1983/1985 exemption notifications, specifically whether the Excise Authority must accept the printed MRP as the "sale price" for duty calculation. The Court held that res judicata cannot be raised for the first time on appeal and that, under a strict construction of the fiscal notification, the phrase "may be sold in accordance with the declaration" means the retailer is permitted to sell at the printed MRP; the Authority cannot inquire into its correctness. Consequently, the demands and penalties were set aside, the appeal by ITC was allowed and the Revenue’s appeal dismissed.

Issues considered

The plea of res judicata may be raised for the first time at the appellate stage?
How should the phrase "may be sold in accordance with the declaration" in the exemption notifications be interpreted?
Whether the Excise Authority must base the duty calculation on the printed MRP or may go behind it to determine an "effective" price?

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957s. 3(3)
Central Excise Act, 1944s. 4
Central Excise Rules, 1944s. Rule 209, s. Rule 210, s. Rule 52, s. Rule 52A, s. Rule 8(1), s. Rule 9(1), s. Rule 9(2)
Standards of Weights and Measures Act, 1976s. 3, s. 39, s. 67

Subjects

excise dutymaximum retail priceMRPstatutory interpretationres judicataCentral Excise ActStandards of Weights and Measuresnotificationadjusted sale pricecigarettestax evasion

Judgment

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

SEPTEMBER I 0, 2004

[RUMA PAL AND P. VENKATARAMA REDDI, JJ.] B

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
c
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.
D
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.
E

Interpretation ofStatutes-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. F
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. G

Allowing the appeal and dismissing the corrected appeal, the Court

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
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
c 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
.· D
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
E 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

F 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.
G 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
D
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]
E
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
or fanciful figure as the MRP as that would result in serious economic
consequences. There is a system of im;entives and enforcements that F
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 G
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

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
B
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)
c
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 ofIndia 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
B

C.A. No. 6101 of 1998.

Harish N. Salve and S. Ganesh, R. Sashidharan, Ms. Sonu Bhatnagar,
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
E
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 F
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
G
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
on these Notifications. Between the I983 Notification and the 1985 Notification H
298 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A 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
alleged that the concessional rates of duty under the notifications had b~en
F 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
G "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·
H
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 E
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
F
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."
G
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.
H
300 SUPREME COURT REPORTS [2004) SUPP. 4 S.C.R.

A 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
C Directors of the appellant.

Appeals were filed from the decision of the respondent before CEGAT.
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
D 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
E
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,
F 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/
G
98) and the appellant's appeal against the Revenue (Civil Appeal No. 70/99)
were concerned, they were admitted. The adjudication proceedings for re-
computation 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
)
j

I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 301

the appellant was re-determined. The Adjudicating Authority then submitted A
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 B
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.

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 D
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 E
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 F

Description Rate

(1) (2) G

Cigarettes (being cigarettes
packed in the packages) of
which the adjusted sale
price per one thousand - H
302 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A (i) does not exceed rupees Thirty-five rupees per on~
fifty thousand.

(ii) exceeds rupees fifty but Thirty-five rupees per one
does not exceed rupees thousand plus three rupees
..
. I-
sixty and fifty paise per one
B
thousand for every increase
of rupees five or fraction thereof
in the adjusted sale price in
excess of rupees fifty.

c (iii) exceeds rupees sixty 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.
D

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
E 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
F 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, -

G (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
H cigarettes in such package, and
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;
B
(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
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 E
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 F
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 G
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
H
\.
304 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

.A 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 I'
Adjudicating Authority and the Tribunal had erred in interpreting the
B 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
appellant's counsel took us through volumes of material to prove that the
c 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
D
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
E 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,
F 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
G 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
H that any ambiguity or doubt in an exemption notification would have to be
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 305

resolved to in favour of the Revenue. In addition to these submissions, the A
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 B
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 c
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
D
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
.J the decision of the Tribunal. The order of the writ court was, according to
the appellant, an interlocutory order and not final. Besides, it is argued, there E
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 F
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 prima-
facie 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 G
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 H
306 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

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
B recorded in the minutes of the proceedings before the adjudicating authority
as follows :

"The learned Additional Solicitor General (ASG) submitted that,
l'
firstly, it is not the case of the Department that, keeping in view the
c 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
D 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
E 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".

F 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
G 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.,
H [1962] lSCR 574 but the plea of res judicata has to be specifically and
1.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 307

expressly raised. (See : Medapati Surayya v. Tondapu Bala Gangadhara A
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 B
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 c
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.
D
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 E
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 :- F

"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
of the exemption authority. If such intention can be gathered from /
the construction of the words of the statute or rule or by necessary G
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 H
308 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A 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".
B
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
y
object which the rule-making authority had in mind but by the words
c 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
.D
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
E iron and steel products. This submission was accepted by the majority by
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
F
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)
G
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
-
H rule of statutory construction that words have to be construed strictly
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 309

according to their ordinary and natural meaning, particularly when the statute A
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 'B
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 Iegislature 2•

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 C
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 E
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 F
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 sub-
section (6) of that Section, namely, from January I of the financial year in G
which the estimated tax was paid. The assessee neither submitted any
estimate nor paid any tax. He was charged with interest under Section l 8A(8).
The assessee challenged this on the ground that since he had not paid tax
at all it was not possible to calculated interest in the manner laid down sub-

2. Keshavji Ravji and Co. and Others v. Commissioner of Income Tax, [1990] 2 SCC 231. H
310 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A section (6). In rejecting the submission of the assessee, this Court said sub-
section (8) only laid down the machinery for assessing the amount of interest
for which liability was clearly created and that the i:;eference to sub-section
(6) provided the machinery to calculate the amount of interest. It was held
that in interpreting such "machinery provisions", the rule is that that
B construction should be given which makes the machinery workable.

The second exception is : 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. This was the view expressed in Commissioner of Income
c Tax v. J.H Got/a, Yadagiri, [1985] 4 SCC 343 while interpreting section
24(2) of the Income Tax Act, 1922 : .

" ... .if strict literal construction leads to an absurd result i.e. result not
intended to be subserved by the object of the legislation found in
the manner indicated before, and if another construction is possible
D
apart from strict literal construction then that construction should
be preferred to the strict literal construction. Though equity and
taxation are often strangers, attempts should be made that these do
not mean always so and if a construction results in equity rather than
in injustice; then such construction should be preferred to the literal
E construction."

In the present case, the two notifications are statutory fiscal provisions.
They require that excise duty on cigarettes must be levied on "adjusted sale
price". "Sale price" has in tum been defined in relation to a package of
cigarettes as meaning the maximum price (exclusive of local taxes only) at
F
which such package may be sold in accordance with the declaration made
on such package.

The three phrases 'which require interpretation are "may be sold", "iri
accordance with" and "declaration made". The first question is : are these
G expression ambiguous ? There is no dispute that "made" means "printed" and
that "in accordance with" means "in a manner conforming with". The dispute
as we see it turns on the phrase "may be sold". The Revenue's contention,
which was accepted by all the authorities up to this stage, is that the phrases
'may be sold' means "capable of being sold". Ther~fore the MRP should be
H fixed at a price so that the cigarette packet could be sold by the retailer in
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 311

accordance with the declaration made. In other words, according to the A
Revenue, the cigarette manufacturer was bound to print an MRP at which
the retailer could and was likely to sell the cigarettes keeping a reasonable
margin of profit. This submission proceeds on the basis that the word 'may'
must be understood as meaning "can", It may be noted that the Revenue's
submission is at v·ariance with the interpretation r•1t by the Division Bench B
on the word 'may' which used it to mean 'likely' when it said :

"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."
c
While the word 'may' can indicate "possibility" as held by the Division
Bench, or "capability" as submitted by the Revenue, it is also used as
denoting "permission". A person may do something if he is permitted to. It
appears to us that it is in this third sense that the words 'may' has been used
in the notification because it has been qualified with the phrase 'in accordance
with'. Reading these two phrases 'may be sold' and 'in accordance with' D
together, the definition of 'sale price' in relation to a package of cigarettes
would mean the MRP (exclusive of local taxes) at which such package is
permitted to be sold in conformity 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 E
at such price as he may think fit notwithstanding the printed MRP. Indeed
that is exactly how the Tribunal construed the phrase "may be sold" by
saying:

"These words clearly suggest that the declared printed price
must be such that the packages may be or can be or are capable of F.
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 G
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. "

It would be doing violence to the language of the Notification if "In
accordance with" is taken to mean "irrespective of'. The argument of the H.
312 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A Revenue .and the reasoning of the Division Bench also overlooks 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 for the calculation of the adjusted sale
price. There is no other basis provided. The construction put by the Tribunal
B is contrary to the words used, an exercise in interpretation which is clearly
impennissible 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.

According to the Revenue, any interpretation other than the one put
c forward by it and accepted by the Tribunal and the High Court, would lead
to the absurd consequence that the cigarette manufacturers could print any
price on the cigarette package for the purpose of avoiding excise duty and
the Revenue would be bound to accept such price. According to the Tribunal

D "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 visualite· the
packages to be sold in retail to consumers; in other words, there must
E . 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."

Therefore, it was held :
F
" ...... 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 detennining the slab applicable for the
purpose of determining the rate of duty applicable."
G
What the Revenue would have us do and what the Tribunal has in fact
done, is to shift the basis for levy of excise duty under the exemption
notification from the MRP actually printed on the package to a price which
is to be deemed to be the printed price. All this is done in order to avoid what
H the Tribunal considered could not have been the object of the notification
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 313

viz., "a situation where _it would be open to a manufacturer to deliberately A
and successfully "under declare" the price by declaring a price less than the
price at which he knows the packages may be sold".

The object of the notification was to firmly fix the basis for levy as we
have expatiated later and the interpretation we have put on the notification
is in keeping with this object. Furthermore the reasoning of the Tribunal,
B
apart from being contrary to the principles enunciated in Innamuri Gopalan.
(supra), proceeds on the basis that 'may' means "likely", an interpretation
which cannot be correct for the reasons already stated. As against this if we
were to construe the word "may' as 'permitted', which is the plain meaning
of the word given the context in which it appears, the consequences would c
not be absurd as apprehended by the Tribunal. According to the notification,
the retailer is permitted to sell in accordance with the declaration made on
the package. Permission could be contractual or statutory. If the permission
were a contractual term, it would have to be established that there was privity
between the manufacturer and each retailer. This is not the case of either
D
party. The statute which forbids the sale of commodities including cigarettes,
otherwise than, or permits such sale only, in accordance with the printed
MRP is the Standards of Weights & Measures Act and the Packaged
Commodity Rules. This was accepted by the Tribunal when it said :

"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 ofthe scheme ofthe P. C. Rules in force
and the fact that cigarettes are sold in packages and therefore are
governed by the P. C. Rules. "
F
(Emphasis supplied)

Interestingly as far as the Ministry of Finance, Department of Revenue
is concerned, in a written note submitted to the Public Accounts Committee
for the year 1985-86 and which has been referred to in the, Thirty Fourth
PAC report it said : G

"The declaration of the maximum retail price on all commodities
dealt with in packaged form including cigarettes is a requirement
under the Standards of Weights & Measures (Packed Commodities)
Rules 1977. This declared price has been taken as a basis for
H
314 SUPREME COURT REPORTS [2004) SUPP. 4 S.C.R.

A determining the slabs at which the excise duty would be charged in
terms of Notification No. 211/83 dated 4.8.83. If the retailer sells
a packet of cigarettes at a price higher than the declared price then
it is an infringement of the Standards of Weights & Measures
- (Packed Commodities) Rules, 1977 which is being enforced by the
State Governments and the Union Territories. Only if there is
B
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 or
application of the Central Excise Law would arise".

c There is no allegation of any 'flow back' in the appellant's case.
Therefore the "permitted" course of action or sale by the retailer is statutorily
prescribed under the 'the SWM Act' and the Packaged Commodities Rules.
The provisions of the SWM Act have been given overriding effect by the
non-obstante provisions of Section 3 of the Act. Section 39 of the Act
provides for a declaration to be made on the package by every manufacturer
D specifying, inter-alia, the unit sale price of the commodities in the package
and the sale price of the package. Under Section 83 of the SWM Act, Central
Government has been given power to make rules for carrying out the
provisions of the Act by notification. In exercise of these powers, the Central
Government framed the Packaged Commodities Rules. Rule 2(r) defines
E 'retail sale price' as meaning :

"the maximum price at which the commodity in packaged form may
be sold to the ultimate consumer, inclusive of all taxes, transport
charges and other dues;

F Rule 23(2) provides that :

"No retail dealer or other person shall make any retail sale of any
commodity in packaged form at a price exceeding the retail sale
price thereof.

G (Explanation. - For the removal of doubts, it is hereby declared that
a sale, distribution or delivery by a wholesale dealer to a retail dealer
or other person is a 'retail sale' within the meaning of this sub-rule.)"

Rule 23(6) provides as :

H "23(6) No retail 'dealer or other person shall obliterate, smudge or
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 315

alter the sale price or the retail sale price, indicated by the A
manufacturer or the packer, as the case may be, on the package or
on the label affixed thereto.

If the retailer or manufacturer violates these provisions, he is liable to
be proceeded against and may be fined up to an extent of Rs. 2000 per
package under Rule 39 of the Packaged Commodities Rules and Section 67
B
of the SWM Act.

The SWM Act as well as the Packaged Commodities Rules have been
enacted the consumers who are entitled to pay only such price as has been
printed thereon. The purpose of printing the MRP on cigarette packages is c
to achieve a standardization of prices throughout the country and to inform
consumers of the appropriate price of the product. There is no scope for
"under declaration" because the consumer can insist on the retailer abiding
by the printed MRP. Provisions for penalties under the Act on the retailer
ensures this. It is not open to the retailer who may be proceeded against for
selling above the printed MRP to contend that it was incorrect or false, nor D
can the retailer defend any violation of the printed MRP by asking for an
enquiry into its reasonableness. If adhering to the MRP unreasonably narrows
the retailer's margins, the retailer can demand a reduction in the price from
the wholesaler or desist from selling the product. This applies similarly to
the wholesaler, whose feedback to the manufacturer will either force the E
manufacturer to raise the MRP or lose distributors. Given these serious
economic consequences, the manufacturers cannot print a whimsical or
fanciful figure as the MRP. The result is a system of incentives and
enforcement that begins with the consumer. When this system is properly
enforced, levying tax on MRP according to the notification clearly does not
lead to absurd consequences. Incidentally, the Public Accounts Committee F
( 1984-85) noted in their report :

"The Committee find that retail sale of the packet of cigarettes at
a price higher than the declared printed price amounts to an
infringement of the Standards of Weights and Measures (Packed
Commodities) Rules, 1977 which is being enforced by the State
G
Governments and the Union Territories. The Committee have been
informed that a number of cases have been booked by the various
State Governments for the violation of the provisions of the said
Rules but they have yet to be apprised of the action taken in the
matter." H
316 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A If the consumer fails to demand the MRP or the State authorities do not
enforce the statutory requirements, the system under the notification breaks
• •f
down, but that does not legally justify an interpretation of the notification
by presuming an illegality on the part of the retailer.

The Revenue's case then is that the notification was required to 'be
B
worked out without reference to the SWM Act and Packaged Commodity
Rules. In other works, what was required was a separate declaration for the ·
purpose of the Notification. The reasons given in support of this argument
are (1) the SWM Act had not been extended to Sikkim at the relevant time
where the cigarettes were being manufactured and sold; (2) If the SWM Act
c and Packaged Commodity Rules were repealed or made inapplicable to
cigarettes in future, the notification would continue to operate on its own
force; (3) The notification did not refer to the SWM Act or to the Packaged
Commodity Rules, unlike Section 4 of the Central Excise Act which makes
reference to controlled prices under different enactments.
D
The submission is unacceptable. As we have already said the notification
speaks of a permitted sale according to the 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 MRP. All that it does is to accept
that printed ~RP according to which the cigarettes are permitted to be sold
E by the retailer, as the sale price for the purpose of grant of concessions under
the notification. Besides the notification was an exemption notification. If the
cigarettes being manufactured in the State of Sikkim did not fall within the
terms of the exemption, the manufacturers in Sikkim would be denied the
benefit of the notification, and the Tariff rate fixed under the statute would
F apply. It would not mean that the notification must be construed in a manner
so as tO extend the exemption to those cigarettes not expressly covered by
the exemption. The second submission is entirely hypothetical. One cannot
·foretell whether the notification would have continued to operate on the same
terms even if the SWM Act or Pack~ged Commodity Rules were repealed
or made inapplicable to cigarettes .. Indeed during the operation of the
G Notifications in question viz. 1983 to 1987, the SWM Act and Packaged
Commodities Rules remained on the statute book. They still do. Regarding
the third submission, the second proviso to Section 4(1 )(a) of the Act as it
then stood read :

H Provided that
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 317

(i) where, in accordance with the normal practice of the wholesale A
trade in such goods, such goods are sold by the assessee at
different prices to different classes of buyers (not being related
persons), each such price shall, subject to the existence of the
other circumstances specified in clause (a), he deemed to be
the normal price of such goods in relation to each such class B
of buyers;

(ii) 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 price, being in force or at a price, being the maximum, fixed c
under any such la~, 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 D
deemed to be the normal price thereof;

It is true that the proviso does not refer to the SWM Act or the Packaged
Commodities Rules, but it does not specifically refer to fixation 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'. What is E
important is that the proviso statutorily recognized that the price which may
not be the actual price received, could form the basis of levy of excise duty.
As was said in Aluminium Industries Ltd. v. Collector Central Excise
Bhuvaneshwar, [1998] 9 SCC 404, that by virtue of this proviso a legal fiction
has been created. The price fixed under any law for the time being in force F
has to be taken as the normal price of the goods irrespective of the actual
amount realized. In any event with the new system of levy of excise duty
on cigarettes being introduced in l 983 linking excise duty to the retail price
printed. Rule 8 of Central Excise Rules was amended by the introduction of
Sub-Rule (3). •
G
Sub-rule (3) provides :

"An exemption under sub-rule (I) or sub-rule (2) in respect of any
excisable goods from any part of the duty or excise leviable thereon
(the duty of excise leviable thereon being hereinafter referred to as H
318 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A the statutory duty) may be granted by providing for the levy of a
duty on such goods 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 in relation to any excisable goods in the
manner provided in this sub-rule shall have effect subject to the
B condition that the duty of excise chargeable on such goods shall in
no case exceed the statutory duty.

EXPLANATION: 'Form or method' in relation to a rate of duty of
excise means the basis, viz. valuation, rate, number, length, area,
volume or other measure with reference to which the duty is
c leviable."

It was then submitted by the Revenue that even ifthe SWM Act applies,
a manufacturer - assessee was bound to make a bona fide and honest
assessment of the retail price and that the declaration made on a package is
D not final for the purposes of the SWM Act or Packaged Commodity Rules.
Reliance is placed on Clause 8 of Part-II of the Tenth Schedule to the
Packaged Commodity Rules which, according to the Revenue, envisages that
the declarations made on package can be examined with a view to ascertaining
whether such declaration conform with the rules. It is also submitted that
similar declarations required to be made under different fiscal statutes have
E invariably been held to require the declarant to make a true and honest
declaration. Several decisions have been cited in this context. Before
considering their applicability the ground needs to be cleared by stating that
the question is not whether the printed declaration is final for th~ purposes
of the SWM Act or the Packaged Commodity Rules, but whether it is final
F for the purposes of the notification.

It has been correctly submitted on behalf of the appellant that declarations
required under divers statutes have different characteristics and consequences
depending upon the nature of the declaration. A declaration may be (1) an
assurance of an existing state of affairs or (2) an assurance of a future course
G of conduct by the declarant himself or (3) a statement of required conduct
by a third party. In the first two kinds of declarations the onus is one the
declarant to make good the declarat!on. In other words the truth of the
declaration may be verified. But when all that is stated in the declaration is
a requirement to be fulfilled by another, what is to be enquired into is
H compliance with the requirement and not the correctness of the declaration
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 319

itself. The Revenue has failed to keep in mind the distinction between A
different kinds of declarations. Most of the cases cited by the Revenue in this
context deal with the first and second kinds of declaration where the

• declaration asserts a present of future state of affairs and seeks to certify as
true, facts which may be questioned by the authority which is called upon
to act on such certification whereas declarations under the notification fall B
into the third category.

Declarations to be furnished in Form 'C' by registered purchasing
dealers under Section 8( 1) of the Central Sales Tax Act, 1956 which certify
that the purchasing dealer is a registered dealer in respect of commodities
mentioned in the declaration, are illustrative of the first kind of declaration. C
Thus it was held in the State of Madras v. Mis. Radio and Electricals Ltd.,
[ 1966] Suppl. SCR 198 that the Sales Tax Authority was competent to
scrutinize the certificate to find out whether it is genuine. He could also make
an enquiry about the contents of the centificate of registration to satisfy
himself whether the goods purchased were covered by the certificate or not. D
But once he was satisfied that the certificate is genuine and that it covers the
goods being purchased, the Sales Tax Officer was incompetent to hold an
enquiry whether the goods so specified could be used for any of the purposes
mentioned in form 'C' or whether the goods purchasing were in fact not used
for the purposes declared in the certificate. Mis. Chuni Lal Parshadi Lal v.
Commissioner of Sales Tax, [1986] SCC 501 followed the decision in State E
of Madras v. Radio and Electricals Ltd. (supra) and held that for the purpose
of the U.P. Sales Tax Act, 1948, the Sales Tax Authorities could only look
into the question whether the certificate was forged or fabricated and the
Sales Tax Officer could not hold an enquiry whether the purchasing dealer,
notwithstanding the declaration, was likely to use the goods purchased for F
purposes other than that mentioned in the Form 'C. If the certificate was valid
and covered the goods purchased, the Court held that it raised an irrebuttable
presumption that the goods would be used for the purposes mentioned, since
the purpose of the rule was to make the object of the provision of the act
workable which was realization of tax at one single point, i.e. at the point
of sale to the consumer. (p. 511 ). G

Similarly, declarations of value for the purposes of import or export
duty under the Customers Act, 1902 fall within the first category. For
example Jacksons Thevara v. Collector of Customs and Central Excise,
[1991] 2 SCC 62 was a case where the declaration on the basis of which H
320 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
)
A concessional rate of import duty was availed of by the importer, was found
to be false. The importer had declared that the goods were to be used for
substantial expansion of his unit. In fact they were to be used for setting up
a new unit of a company. In Toolsidass Jewraj v. Additional Collector of
Custon1s, [1991] 2 SCC 443 the full export value had not been stated in the
B shipping bills and G.R.I. forms. This was admitted but was sought to be
explained by the importer. The explanation was not accepted by the Customs
Authorities because to do so would have contravened the Foreign Exchange
Regulation Act. In both these cases this Court upheld the action of the
Customs Authority in taking action against the person by going into the truth
\
of the declaration.
c
Examples of the third kind of declaration are usually to be found where
assessment under Statute A is dependent upon a basis provided by Statute
B. In such case, the assessing officers under Statute A cannot question the
basis. That is within the province of the authorities under Statute B.
D In the decision of Union of India v. Mis. Rai Bhadur Shreeram Durga
Prasad (P) Ltd, [1969] l SCC 91, the furnishing of a declaration under
Section 12(1) of the Foreign Exchange Regulation Act, 1947 was a pre-
condition to the export of goods under the Customs Act, 1962. This Court
said that the correctness of the declaration could not be questioned by the
E Custom Authorities on the ground that the declaration under Section 12(1)
of FERA was incorrect. Similarly, in M Narasimhaiah v. Deputy Commissioner
for Transport, [1987] Supp. SCC 452, the Kamataka Motor Vehicles
Taxation Act provided for taxation with reference to a number of passengers
which the vehicle was permitted to carry. The assessee had a permit issued
under the Motor Vehicles Act, 1939 which permitted him to carry a number
F
of passengers. On the basis that the assessee had carried passengers above
the permitted limits, tax was sought to be levied under the Taxation Act in
respect of the assessee' s vehicle. This Court held that when the statute itself
provided for the highest levy of tax on the basis of the number of passengers
permitted to be carried in the vehicle, the Court could not ignore the phrase
G "which the vehicle is permitted to carry" and levy tax on the basis of the
actual number of passengers carried. The most recent decision which
illustrates the third kind of declaration is the decision in Apollo Tyres. Ltd.
v. CIT, Kochi, [2002] 9 SCC l in which Section 115-lof the Income Tax
Act, 1961 was construed with reference to the budget speech of the Finance
Minister while introducing that Section into the Act. The Section provided
H
I.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 321
I(

for the payment of minimum tax by every company on the basis of its profit A
and loss account prepared in accordance with the specified provisions of the
Companies Act. This Court held that the assessing officer under the Income
Tax Act had no power to re-scrutinise the account by embarking upon a fresh
inquiry in regard to entires made in the Books of Account of the Company.
Similarly, in terms of the notification we are called upon to construe, the B
Excise Authority is required to act on the basis of the printed MRP. The
notification does not envisage an inquiry 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 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 c
assessing the value of the manufactured commodity, the uncertainty associated
therewith and an impossibly chaotic situation as we shall subsequently
indicate. The reliance on the Rules and forms by the Revenue appertaining
to assessments does not therefore carry its case any further.

The object with which the levy was shifted from the assessable value
D
to the printed MRP was stated by the Finance Minister in his budget speech
whilt: introducing the new system :

"The revenue realization had been affected inter alia on account of
disputes over the method of arriving at the assessable value. With E
a view for (siC) ending the room in uncertainty once for all, I propose
to fix specific rates of duty in respect of cigarettes. These rates of
duty would be linked to their retail sale price printed on the cigarette
packs".

It appears that this is how the Central Board of Central Excise also F
understood the scheme. The 34th Report of the Public Accounts Committee
(1985-86) records the evidence of the Chairman, Central Board of Excise and
Customs. He said :

"In this Case in 1982 and 1983 we opted for the 'specific rate
of duty'. For the purpose of calculation since the printing of the price G
is a legislative requirement, we will go by that and have 'specific
duty'. Another system is ad valorem which has created enormous
problems ..............._......................................................... .......... What
we are interested is to collect a certain amount of duty from a
particular industry. The rate of duty is accordingly fixed. Ad valorem H
322 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A duty is based on the value of the goods. 'Specific rate' is directly
related to the product. So, it was decided that we could adopt a
fonnula linked to 'printed retail price' for classification of the goods
for deciding the amount for duty that this particular commodity
should bear ..................................................................................... .
Even at that time we were conscious of the fact that there could be
B
an overcharging of the prices by the retailer. But according to
Packaged Commodities Rules the retailers were bound to sell the
goods at that particular price, and if the prices were more there was
a legal provision for taking action against the retailers".

·c The attempt was clearly to do away with the disputes, litigation and
consequent delay involved in detennination of the assessable value of the
whole sale price of cigarettes. As far as the appellant is concerned. between
1973 to 1981, several proceedings were pending relating to various aspects
of the detennination of the assessable value in respect of the cigarettes
D manufactured in its five factories including disputes relating to the pennissible
deductions on account of post manufacturing expenses.

The Tribunal itself noted that the intention underlying the Notification
was to get over "hassles arising on the question of detennination of assessable
value under Section 4(l)(a) of the Act and the admissible deductions". But
E then it held that the switch over was made from "assessable value to 'quasi-
specific duty'. Duty is either specific or not. Since it is not specific according
to the Tribunal, 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
F purpose of detennining the rate of duty applicable. The consequences of this
interpretation by the Tribunal would be starting. There is no dispute that the
Notification envisages a single retail price in respect of certain brands' of
cigarettes. It is this single retail price which has to be printed on the package.
If one were to accept the High Court's prima facie view, the printed MRP
should reflect the actual price at which the particular kind of dgarette is sold
G throughout the country. The patent impossibility of this was acknowledged
by the Tribunal which held that the actual price at which the cigarettes were
sold could not "lawfully or logically" be che printed MRP because "the
manufacturer has limited or little control over the actions of the retailers" who
are, in the case of the appellant, "about a million in number"; that the
H appellant could not be held responsible for "the tendency of the retailers to
l.T.C. LTD. v. C.C.E. [RUMA PAL, J.] 323

charge higher than the printed price so as to secure larger margin" and that A
different prices may be actually charged for the same brand all over the
country. Therefore, the Tribunal held that the printed MRP should have been
the "reasonable price" at which the cigarettes could be sold. This led the
Tribunal and the adjudicating authority to go into an elaborate exercise to
determine what should be that single reasonable price for the entire country B
which should have been declared and printed by the appellant on the
packages.

In our opinion the outcome of this would be equally illogical. It
envisages an excise officer in one part of the country determining what would
be the reasonable market price throughout the country for that particular C
brand, an exercise which the Tribunal itself concede would require the
examination of the cost data and market considerations and would be a "very
· complicated and time consuming impractical exercise which was rightly not
provided for". And yet according to the Tribunal's and the Revenue's
interpretation of the notification, the Excise Officer would have had to do D
just that. Apart from the patent impracticability of the matter, the question
whether the price so fixed by the Excise authority is 'reasonable' or not would
itself be justiciable with the consequent blockage of revenue in the quagmire
of litigation. That is precisely what the Notification had sought to avoid.

The certainty of specific rates which was sought to be achieved by the E
notification has been undone by the adjudicating authority and the Tribunal.
The notification had introduced a system for levy of excise duty .. n an
experimental basis. If the experiment was a failure for whatever reason, it
was open to the respondents to do away with it and replace the system by
some other as it did in 1987. But as long as the notification stood, it had to F
be given effect to. In the view we have taken, there is no need to go into
other questions debated before us. We, therefore, allow Civil Appeal No. 70
of 1999 (Mis. ITC Ltd v. Commissioner of Central Excise & Anr.) and
dismiss Civil Appeal No. 6101 of 1998, (Commissioner of Central Excise,
New Delhi v. Mis. ITC Ltd). The impugned demands raised .against the
appellant are set aside without any order as to costs. G
K.G. C.A. No. 70/99 allowed.
C.A. No. 6101/98 dismissed.