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Friday, Sep 17, 2004

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Excise goes up in smoke

THE SUPREME COURT verdict on the excise dispute between the cigarette major ITC and the Government has only underscored the point that in commodities with a high rate of taxation, as is often the case involving goods such as cigarettes whose consumption is regarded as not in public interest, there is a constant battle of wits between the tax collector and the assessee. As keen as the former is to maximise the revenues, the latter is to emerge with a lesser burden of taxation. There is, thus, a premium on careful drafting as to reflect clearly the legislative intentions on taxation. Especially because courts have consistently taken the view that in matters of taxation, there is no room for `intendment' except perhaps in the procedural aspects of the most rudimentary kind.

In the instant case, the law allowed cigarette manufacturers the freedom to submit to a regime of excise taxation based on the `maximum retail price' (MRP) printed on the carton. The question before the court, then, was whether the excise authorities had the freedom to go beyond the price declared by the company as the MRP for purposes of determining the dues. The court has ruled in the negative. That there were reasonable grounds to hold that the retailers in the instant case were actually collecting more from customers proved to be of little consequence. The court also said that the authorities could not overlook the officially declared price as the basis of taxation, even if the `MRP' would have left very little margin for the trade along the distribution chain as to raise an element of doubt that the phenomenon of over-charging perhaps had the tacit blessing of the company if not its outright approval. But it is safe to say that there are no long-term fiscal implications as the Government has since got around the problem by shifting to a somewhat more objective criterion, of the length of the cigarettes as the basis of taxation. This is just as well. Its earlier approach favouring a hybrid, `value'-based system of taxation was misconceived in the first place considering the nature of the product.

A high rate of taxation in `sin' goods is justified because it is an article of State policy that their consumption be curbed through taxation measures. That being so, there is no need to make any distinction between rich and poor smokers as the Government has sought to by incorporating simultaneously a value criterion. Any body rich enough to consume a higher quantum of tobacco, it should have reasoned, is also rich enough to contribute more to the exchequer. But having said that, it ought not to have left consumers to the mercy of the market forces completely. Given the addictive nature of the substance, to expect consumers to resist higher than MRP prices charged by the retail trade is unrealistic. But there has been negligible enforcement of the provisions of the law on Standard Weights and Measures as the report of the Public Accounts Committee confesses. The imposition of tax carries concurrently the enforcement of the rule of the law even if the levy in question is on a commodity of sin.

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