Chidambaram defends Ordinance on ITC feud

Two NDA leaders had written to finance minister seeking withdrawal

Finance minister P Chidambaram today defended the government's decision to promulgate the ITC Ordinance, which was later allowed to lapse.

Responding to Opposition demand in Parliament for an explanation, Chidambaram said without such an edict, the government would have been forced to refund the Rs 350-crore excise duty it had collected in advance from ITC.

The ITC Ordinance was issued in December 2004 but as required under law, it was not replaced by a Bill and presented to Parliament.

Explaining the rationale behind the government move, Chidambaram said two "reputed" leaders of the National Democratic Alliance had written to him, asking him to withdraw the Ordinance since it was "unjust".

The minister, however, refused to yield to the demand from the Treasury and the Left benches to name the two leaders.

Referring to a Supreme Court judgment which favoured the company, Chidambaram said, "We only got the judgment (the UPA government did not get to argue the case in the court) which was reserved in January."

He said under the compromise formula worked out with the company, the government was to retain whatever tax had been deposited with it while the company was not required to pay the remaining Rs 450 crore.

Deputy Leader of the Opposition in the Lok Sabha VK Malhotra had earlier said if the government had no intention of enforcing the penalty, there was no point in promulgating an Ordinance to this effect.

Chidambaram said ITC had run into problems with the tax department over the issue of excise duty in 1987 since the company was following a different pricing system wherein its retailers were selling cigarettes at higher than the maximum retail price. Since excise duty is charged on the MRP, the company ended up paying less tax to the government.

The finance minister said his counterparts then did not decide on the matter despite the court asking the two sides to sort out the issue and the Central Board of Excise and Customs maintaining that the government had a strong case.

The Supreme Court reserved its judgment in January 2004 and in its final order in September 2004, asked the government to refund the ITC deposit.