ITC's excise victory lasts half an hour

Court recalls judgment freeing firm of Rs 803 cr Excise burden.

Creating judicial history of sorts, the Supreme Court today recalled a judgment freeing ITC Ltd of the burden of Rs 803 crore in excise on cigarettes within half an hour of delivering it. The court blamed it on the indiscretion of the company's lawyers.

The courtroom drama began early in the morning when after briefly reading the order, Justice Ruma Pal gave the judgment to the ITC lawyers to read inside the court.

The order could have resulted in substantial financial gains for ITC. It had provided for Rs 803 crore in its balance sheet for claims by the excise department, which could now be brought back as profits.

ITC's lawyers took the order out of the room for a few minutes. Somehow, the news of the windfall awaiting ITC reached the stock market and its share price rose sharply.

Soon, ITC's lawyers were back in the court, apologising profusely to the judge. Rejecting the apology, Justice Pal recalled the order and said that she would consult Justice PV Reddi, the other judge who had heard the case, before passing a fresh order. (The order was yet to be signed by the two judges.)

But Justice Reddi was not in the same court and was unaware of what was going on. Finally, no fresh order on the case was passed during the day. Late in the evening, the matter was listed for hearing tomorrow.

The stock market, however, ignored the drama and cheered the court's earlier order. ITC was the biggest gainer in the Sensex basket today, and went up 3.58 per cent to close at Rs 1,080.05 on renewed buying interest.

The stock touched the day's high of Rs 1,098, up nearly 5 per cent from the previous day's close. The counter witnessed impressive volumes of more than 455,000 shares on the BSE and over 1.35 million shares on the NSE.

The cross-appeals of the excise department and ITC against a Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) order were pending in the Supreme Court since 1998. Last year, it was taken out and heard for three months because of the complicated law and facts of the case.

During the prolonged hearing, the judges had occasionally asked the parties to settle the issue between themselves, but both sides were reluctant to do so. The arguments ended in December last year and the ill-fated decision came today after nine months.

The revenue department had accused ITC of colluding with retailers in selling cigarettes at a price higher than the maximum retail price printed on the package.

The department, therefore, charged the levy on the effective price, based on documents allegedly provided by the company. The excise department had further alleged that wholesale and secondary dealers' margins were so compressed by the company that the cigarettes had to be necessarily sold at a price higher than the packet price.

Arguing for the revenue department, senior counsel CS Vaidyanathan had said that the authorities were well within their rights to go behind the declared price and impose levy on the effective price.

ITC's counsel Harish Salve maintained that it was not permissible and that the MRP should be the basis of the levy. Replying to the charge that the retailers were compelled to sell the goods at a higher price because of the low margin, the company said they could refrain from selling the goods.

The dispute refers to the period between March 1, 1983 and February 28, 1987. ITC argued that the appeal was too stale to be considered by the court under the Limitation Act, which allows only six months to take action.

However, the authorities contended that the period could be extended by five years if there was evidence of fraud, deliberate misrepresentation and suppression of facts.

The CEGAT had ruled in 1998 that the company had short-paid excise levies during the relevant period. However, it quashed the penalties on the company and ordered recomputation. The company had paid Rs 350 crore following this order. The government and the company filed appeals to the Supreme Court, against those parts of the CEGAT order which went against them.