Govt, ITC settle Rs 803 cr duty spat

The over 17-year-old Rs 803 crore excise duty dispute between the Centre and tobacco giant ITC finally ended in an out-of-court settlement l...

The over 17-year-old Rs 803 crore excise duty dispute between the Centre and tobacco giant ITC finally ended in an out-of-court settlement last week.

In response to a query by the Bombay Stock Exchange, ITC said it has reached a compromise with the government, whereby the company will give up its claim on the refund of Rs 350 crore that it had pre-paid the exchequer in the wake of the excise evasion case pressed against it. The government, in turn, will not pursue the case to pick up the remaining Rs 450 crore from the company.

This draws curtains to a dispute that threatened to engulf both the judiciary and executive, when the government issued an Ordinance on January 25, 2004, to claim Rs 450 crore as duty from ITC. The Ordinance was aimed to bypass the Supreme Court order of September 10, 2004, asking the government to refund the Rs 350 crore it had already collected from ITC. The Ordinance sought to redefine the retail price with retrospective, as the printed price or market price, whichever was higher.

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The government had filed the Rs 803-core excise claim on the grounds that ITC had colluded with its retailers to sell cigarettes at prices higher than that printed on its packets. The claim was for the period between March 1983 and February 1987.

The Ordinance raised the hackles of India Inc and also pushed the government into a confrontation with the judiciary. ITC also did not heed the 30-day deadline given to it to pay up the Rs 450-crore.

Subsequently, the government’s review petition was dismissed by the Supreme Court. Clearly, the government thought better of it and did not introduce the Bill needed to legitimise the Ordinance, in the first part of the budget session. This effectively let the Ordinance lapse.

ITC, which was to take a decision on the Ordinance at its board meeting held on March 26, did not have anything to report at the time. “The ball is in the government’s court,” H Venkataramani, the company spokesman argued. But one week later, both the government and the company have worked out this compromise.