SC fumes at sops for NE tobacco makers

The Supreme Court today dismissed petitions of tobacco manufacturers of northeastern states. As a result, they will have to pay central excise duty already refunded for them, and will be liable to pay duty between 1999 and 2001. They had claimed exemptions under government notifications which were later withdrawn.

According to the Centre, these are "front companies" for the tobacco giants: RC Tobacco Ltd manufactures cigarettes as job worker under an agreement with Godfrey Philips India Ltd and Kreesna Industries Ltd has the same arrangement with ITC Ltd.

All these companies claimed before a bench headed by Justice Ruma Pal that they would be crippled if they were called upon to repay the refund on excise duties or pay the levy on cigarettes manufactured by them. They said the amount to be paid would far exceed profits they earned from cigarette manufacturing.

The Centre countered stated that they were all set up by the large corporations. The arrangement was "back to back", so that with the withdrawal of exemptions, the units would be closed down.

The promptness with which units went into commercial production after they were set up in a few days showed that there was no real investment by these units. Many of them did not even get permanent registration before starting production.

The Supreme Court stated that it did not want to determine the dispute. However, it emphasised that it was the manufacturer of goods to whom excise authorities looked for payment.

How a manufacturer adjusted its liability with customers did not concern authorities, nor could they be asked to recover their dues from the persons who might have ultimately taken on the responsibility to pay the duty as a result of any agreement.

Justifying the retrospective effect of the law, the court explained, "The state has been deprived of revenue without any corresponding benefit. It may be that the retrospective operation may operate harshly in some cases, but that would not by itself invalidate the demand."