D.N.Sinha, J. -
(1.) The petitioner in this case, the National Tobacco Co. of India Ltd., carries on the business of manufacturing cigarettes and tobacco at Agarpara, in 24 Parganas. As such manufacturer, it has to pay excise duty on the value of cigarettes manufactured by it. In this case, we are not concerned with anything else. The rate at which the excise duty is levied, changes from time to time, and it is unnecessary for me to go into the details thereof. It is sufficient to say that at the relevant time, which concerns the years 1955 to 1957, the duty was levied upon a slab system. For example, if the price was within a slab exceeding Rs. 10/- but not exceeding Rs. 15/-per thousand, then there was a particular rate of duty to be charged. If, however, the price was within the next slab, namely higher than Rs. 15/-but not exceeding Rs. 20/- per thousand, then the duty payable is very much more. It follows that if the price is even a few annas more than the maximum limit of the slab, the rate of duty becomes calculable at the higher rate. It is, there-fore, to the interest of the manufacturer to keep the value within the lower slab, and it is always the headache of the Excise Authorities to ensure that this is properly calculated, so that the higher duty is not deliberately avoided. As is to be expected, in the case of a large-scale manufacturer like the petitioner, special arrangements have to be made for the levy of excise duty. Every day, thousands of cigarettes are produced and sold, and until a special machinery is set up, business could not be conducted. In this particular case, the procedure followed was as follows: The Excise Authorities maintain an office at the factory site. It is the practice of the petitioner to advise the Central Excise Authorities every quarter, in January, April, July and October, of the price structure of all brands of cigarettes produced by it. This is done by the issue of a quarterly consolidated price-list. This price-list is submitted to the Excise Authorities, who verify the same from the market and then issue a certificate. Even before a certificate is issued, a provisional approval is made, followed by the final certificate when the verification is completed. A specimen copy of such a certificate is annexed to the petition and marked as Exhibit 'A'. A specimen copy of the price-list issued by the petitioner company is Exhibit "B" to the petition. This is the form in which it was drawn up, up to the quarter beginning April, 1957. This price-list had 9 columns and gave details of (1) brand, (2) net assessable price, (3) duty, (4) distributor's commission, (5) distributor's selling price, (6) dealer's commission, (7) dealer's selling price, (8) retail price per packet and per tin and (9) remarks. At the hearing of this application, a point of dispute arose about the heading 'distributor's selling price'. The question was whether it meant the price at which the distributor sold in the market to an independent buyer, or whether it was the price at which the company sold to the distributor. The application had to be adjourned for verification of this fact, and it is now admitted that the 'distributor's selling price' is the price at which the distributor sold to an independent buyer. Actually, all the nine headings are not very important for our purposes. An example would make this clear. The net assessable price of a brand of cigarette manufactured by the petitioner company namely 'personal preference', per thousand, was Rs. 66/7/- for the quarter beginning January, 1955. This was arrived at in the following manner: The distributor's selling price was shown as Rs. 83/5/-. From this had to be deducted the duty of Rs. 12/8/-, surcharge of Rs. 3/2/- and the distributor's commission of Rs. 1/4/- leaving a net asesessable price of Rs. 66/7/- per thousand. As I have stated above, the company in its quarterly price-list set out the distributor's selling price, which was then, verified by the Excise Authorities, and a certificate given. As a rule, however, a provisional sanction was given on the basis of the price-list, and the excise duty collected provisionally on that basis, and later on, any short-fall would be realised in accordance with law. This kind of price-list was not issued by the company until the quartet beginning July, 1957, when the form was suddenly changed. A copy of the new kind of price-list which then began to be issued by the company, is Exhibit 'C' to the petition. In this list, only six headings were shown, as follows: (1) brand, (2) net assessable price, (3) duty, (4) stockist's price, (5) retail price per packet and per tin and (6) remarks. It will be observed that the heading 'distributor's selling price' or the 'distributor's commission' have disappeared. At the hearing of this application, the meaning of this heading, 'stockist's price' was again the subject matter of dispute. The application being adjourned, the matter was verified and it is now admitted that It means the price at which the company sells at a wholesale price to its stockists. According to the petitioner, this change in the price-list was made, because, for purposes of calculation of excise duty, the particulars given in the original price-list were too many, and many of the headings were completely unnecessary. According to the respondents this change in the price-list was deliberately effected, in order to avoid payment of excise duty. It is pointed out that the basis of calculation under Section 4 of the said Act, is not the price at which the company sells to its stockists or distributor as the case may be, but the 'wholesale cash price', that is to say, the price at which the goods are capable of being sold in a wholesale market, to an independent buyer. It is pointed out that the rate of calculation is on the slab system, and sometimes a difference of a few annas in the price made a vast difference in the calculation of the excise duty. It is said that an attempt has been made to make the sale appear well within the lower slab, although the wholesale cash price in an independent market is very much higher. Actually, this is the entire dispute in this particular case. Refore I proceed to consider the law on the subject, it is necessary to mention a few facts, which have led to the making of this application. I have already stated that the Excise Authorities are not prepared to accept the prices at which the company sold its goods to its stockist as the basis of calculation. On the 5th November, 1958 the Deputy Superintendent, Central Excise, wrote to the factory manager of the petitioner company as follows;
"It has been decided that henceforth all assessments of cigarettes should be made on the basis of the wholesale cash selling price at which the stockist or agents are selling the same to an independent buyer in an open market. The assessable value should be worked out by deducting general trade discount if any, declared and Central Excise Duties chargeable and other local taxes. Accordingly you are requested to furnish such price-lists immediately for determining correct assessable values. An early action to this effect may please be taken, thereby enabling me to implement the aforesaid instructions for assessments with an immediate effect".
(2.) On the 7th November, 1958 notice was served upon the petitioner under Rule 10 of the Central Excise Rules, 1944 demanding payment of the sum of Rs. 167072-40 nP. as Rasic Excise Duty and Rs. 76574.85 nP. as Additional Central Excise Duty, within ten days from the date of notice. The sums demanded were the differential Basic and Additional Central Excise Duty chargeable on 'No. 10' brand cigarettes cleared from the factory during the period 10-8-58 to 5-11-58 on account of short levy of Central Excise Duty, as established after final verification of prices from the local wholesale market'. On the 12th November, 1958 a notice of demand was issued, purporting to be under Rule 10A of the Central Excise Rules, 1944, upon the petitioner demanding payment of the sum of Rs. 616467.44 np. as Basic Central Excise Duty and Rs. 210492.15 np. as additional central excise duty, within ten days from the date of the notice. Sums demanded are stated to be the differential Basic and Additional Central Excise Duties shareable on 'No. 10' brand cigarettes cleared from the factory during the period 1-10-57 to 9-8-58 on account of short-levy of Central Excise Duties, On the 13th November, 1958 a notice of demand was issued, purporting to be under Rule 10A of the Central Excise Rules, 1944 demanding payment of the sum of Rs. 40726.48 n.P. as basic central excise duty and Rs. 16958.50 nP. as additional central excise duty, within ten days from the date of the notice. Sums demanded are stated to be the differential Basic and Additional Central Excise Duties on several brands of cigarettes mentioned in the notice, cleared from the factory during various periods extending from 1-1-58 to 21-1-58 as mentioned in the said notice.
(3.) The only other fact I have to mention in that the company admittedly sells cigarettes to its stockists, who are also called distributors, under an agreement, a copy whereof is annexed to the petition and marked as Ext. 'J'- The agreement shows that the stockists or distributors are not to be considered as agents of the company, but they are subject to a great many restrictions. For example, during the subsistence of the agreement, they were not to act as stockists, distributors, dealers or agents of any competing manufacturer or dealer. They have to make periodical reports of their stocks, which must always be open to the inspection of the company and they are to sell to dealers and retailers, charging only the prices fixed in that behalf by the company, which price the company may change from time to time at its absolute discretion. Such agreements are terminable upon giving one month's notice on either side. In view of the facts mentioned above, it is now possible to pin-point the actual dispute between the parties. As a matter of fact, the company manufactures its cigarettes at its factory at Agarpara. It has a number of stockists in Calcutta. I have been informed that actually there are only two stockists. According to the petitioner, the wholesale cash price at which it sells to its said stockists in Calcutta, is the wholesale cash price to be considered under Section 4 of the said Act. According to the respondents, such is not the case. Whatever may be the argument put forward, by and on behalf of the respondents before me at the hearing of this application, it must not be forgotten that the respondents declared the principle upon which the assessment was to be made, in the letter dated 5th November, 1958 the material portion of which I have set out above. According to that letter, the assessment should be made on the basis of the wholesale cash selling price at which the stockists or agents are selling to an independent buyer in an open market. I must presume that this is the basis on which the calculations have been made, for purposes of assessment and the issue of the demand notices. On behalf of the petitioner, the learned Advocate General has taken three points. The first is that the method of calculation envisaged in the letter dated 5th November, 1958 is wrong in law. and, violative of the provisions of Section 4 of the said Act. The second point is the point of limitation. With regard to the first notice under Rule 10 dated 7th November, 1958 no objection as to limitation is taken. It is stated, however, that the other two notices have been wrongly Issued under Rule 10A of the Central Excise Rules of 1944 because the proper rule applicable would be Rule 10, and as such, they are barred by limitation. The third point that has been taken is that the abrupt change in the matter of assessment that was effected by the Excise Authorities, was done without any notice to the petitioner and without telling it as to the reason why the stockists' price was not to be considered as the wholesale cash price under Section 4 of the Act, and thus the petitioner company had no opportunity of making any representation, but was suddenly confronted with demands for large sums, and that this was not in conformity with the Rules of natural justice.;