INAYAT ELAHI KHAN, J.--The facts giving rise to this Constitutional petition, briefly stated, arc that the Premier Tobacco Industries Limited arc engaged in the manufacture of cigarettes under the brand name of K-2 and manufactured different varieties of the same brand. In the month of February, 1979, the Deputy Superintendent of Central Excise and Land Customs was informed that the petitioner wanted to introduce another variety of their K-2 brand to be known as "K-2 Economy Plain 20's". It was pointed out by the petitioner that the price of this variety was reduced by reducing the cost of packing material. The retail price of one thousand cigarettes of K-2 Plain 20's was Rs.100 whereas the retail price of one thousand cigarettes of K-2 Economy Plain 20's, was fixed at Rs.
92. The Deputy Superintendent vide his letter dated 19-2-1979 asked them not to start production of the new cigarettes before 21-2--1979 and required them to submit specimen of Container. In their reply the petitioner informed him that the production would be started from 21- 2-1979 onward and six specimen of Containers were also supplied by the petitioner vide letter dated 21-2-1979. The manufacture of the new variety of cigarettes continued from 21-2-1979 upto 29-3-1979 and a quantity of 82,00,000 cigarettes was cleared with the approval of the Deputy Superintendent Incharge of the petitioner's Industries. The production of the new variety, however, was discontinued by the petitioner from 29-3-1979 as it did not prove a profitable concern. On 26- 5-1979 the Deputy Superintendent of Central Excise inquired from the petitioner about the cost of wrapping material of different varieties of cigarettes and about the difference in the blend, size and cost of production of different varieties. According to the petitioner at the time of dis-continuation of production of K-2 Economy Plain 20's, the left over stock of 14.52 million of cigarettes was repacked in Containers of K-2 Plain 10's with prior permission of the Deputy Collector of Central Excise and Land Customs Peshawar. Subsequently a show-cause notice was issued to the petitioner that they had contravened the provisions of section 4(2) of the Central Excise and Salt Act, 1944 and Rules 9 and 52 of the Central Excise Rules, 1944 in respect of the clearance of K-2 Economy Plain cigarettes at the rate of Rs.1.85 per packet against Rs.2 per packet of 20 cigarettes of K-2 Plain 20's. It was alleged by the Department that clearance of the aforesaid quantity of cigarettes during February and March, 1979 at the retail price of Rs.1.85 per packet of 20's as against the actual retail price of Rs.2 per packet of the like kind and quality had resulted in less payment of Central Excise duty amounting to Rs.43,155. Thus the case was taken up by the Department for adjudication. The Deputy Collector Central Excise and Customs Peshawar by his judgment dated 15-4-1980 came to the conclusion that an attempt at evasion of Central Excise duty had been proved against the petitioner. The petitioners were accordingly directed to pay the evaded Central Excise duty amounting to Rs.43,155 under the provision of Rule 10 of the Central Excise Rules, 1944 with a penalty of Rs.4,31,550. On appeal by the petitioner the Collector Central Excise and Land Customs while maintaining the imposition of excise duty, reduced the penalty to Rs.1,00,000 (one lacy. On revision, the Federal Government, Ministry of Finance, however, condoned the entire penalty imposed on the petitioner but the order about the payment of excise duty was maintained.
The petitioner feeling aggrieved have filed this Constitutional petition.
2. From the impugned orders of respondents Nos. 1 to 3 it appears that the Department was consistently of the view that since two prices were fixed for the same brand or variety of cigarettes, the higher of such prices was to determine the amount of Central Excise duty it was also said that the cost of packing material was not relevant in the case. The only difference was that the K-2 20's in pouch was marketed wrapped in cellophane while the "Economy" pouch was not so wrapped and despite being marked as "Economy" the cigarettes remained the same. Thus it was concluded that the difference in cost of packing alone does not entitle the petitioner to claim that a different "brand" or "variety" has come into being. It was also noted that the Distributor of the Company was charging the price of "Economy" cigarettes at par with regular K-2 cigarettes and the factory had repacked the entire production of so-called cheaper cigarettes into K-2 plain and paid Central Excise duty at higher rates even after incurring extra expenditure on repacking.
3. In support of the writ petition it is contended that the petitioners were producing a different variety of K-2 brand cigarettes which was clear from the packing material and under section 4(2) of the Central Excise and Salt Act, 1944 the petitioner were within their right to fix different prices for this variety; that it was not correct to say that only word "Economy" was written on the packing but in actual fact the pouches were without cellophane and the paper used in packing was also cheaper which made the pouches less attractive and thus it was altogether a different variety. It was vehemently urged that the petitioner never sold K-2 "Economy" at the same rate at which K-2 standard was sold and even if it was so done in the market, the manufacturers were not responsible for the same. It is contended that a different variety was manufactured and its price was also printed on packing according to law and in case the K-2 "Economy" had become popular and could be sold at the same price as K-2 standard, there was no reason for the petitioner to repack the entire left over stock into K-2 standard and incur extra expenditure. It is, therefore, contended that the packing material does affect the price and different packings may be termed as different varieties of the same brand.
4. The aforesaid contentions are vehemently opposed by the learned counsel appearing for the respondents. It is contended that by merely printing the word "Economy" on the pouch and changing the retail price, the brand or variety of the cigarettes was not changed. In fact the petitioners were selling cigarettes of the same brand and variety on lesser price and, therefore, they could be assessed on the higher rate as prescribed under the rules. It is next contended that K-2 "Economy" and K-2 Plain were sold in the market at the same price though it is not disputed that the price of "Economy" cigarettes was printed on the pack as Rs.1.85 and the price of K-2 Plain was Rs.2. It is not denied on behalf of the petitioner that the quality of the cigarettes in different packs was the-same but the difference in price was due to quality of packing material. This contention is supported by the fact that when K-2 "Economy" cigarettes did not succeed in the market the left over stock was repacked in K-2 Plain pouches bearing higher price of Rs.2. Thus the contention of the petitioner that different prices arc fixed due to quality of the packing material stands established. The mere fact that the distributor or the retailers charged higher price for K-2 "Economy" cigarettes would not burden the manufacture with any responsibility since the price of each variety had been printed on the pouches. It is not disputed by the respondents that K-2 "Economy" cigarettes were manufactured with the prior permission of the Department after due information about the price structure. It is also not disputed that the packs of "Economy" cigarettes were without cellophane nor is there any effective rebuttal of the contention of the petitioner that the paper and the cardboard used for "Economy" cigarettes was of inferior quality. The petitioners are producing different varieties of K-2 brand cigarettes for which different prices arc fixed with the concurrence of the Department and thus the petitioners were legally competent to fix lesser price for the variety sold as "Economy" cigarettes. Section 4(2) of the Central Excise and Salt Act, 1944 provides that where any article is chargeable with duty at the rate dependent on the retail price of the article, the retail price shall be the price fixed by the manufacturer, inclusive of all charges and taxes at which any particular brand or variety of such articles should be sold or if more than one such price is so fixed for the same brand or variety, the highest such price. This provision was considered in an identical case of M/s. Souvenir Tobacco Company by the Sind High Court (C.P.
No.D-675 of 1984 decided on 9-1-1989) and the contention of the Department that since there was no change in the quality of the cigarettes which were marketed by the Company in two different types of packing, the case fell within the mischief of section 4(2) of the Act and as such the Department rightly adopted the higher retail price for the purposes of assessing the excise duty was repelled. It was held that section 4(2) of the Act makes it permissible for a manufacturer to include in the retail price of goods fixed by him all charges and taxes. These charges will naturally include the cost of Container or packet in which such goods are normally offered for sale. It was, therefore, quite conceivable that where a particular "brand" of goods are offered in different types of packets/Containers, the retail prices may vary. It was also noted that the Department had erroneously proceeded on the assumption that since the brand and quality of the cigarettes offered for sale in different types of packing was the same, the Company adopted two different retail prices for the same brand and as such they were liable to pay excise duty on the higher retail price. In the case in hand it also appears that retail price of "Economy" cigarettes fixed by the petitioner was rejected by the Department not for the reason that the packing material was not of inferior quality but on the ground that the quality of cigarettes in both the cases was the same.
There is sufficient material on the record to show that the petitioners have been selling the same brand of cigarettes in different types of packing which had the effect of changing the variety of the cigarettes sold to the consumers. The petitioners were, therefore, competent to fix lesser retail price for "Economy" cigarettes on. Account of the inferior packing material for it constituted a different variety and the Department was not justified in demanding the excise duty from the petitioner on the basis of higher retail price of the same brand of cigarettes.
5. The impugned orders of the respondents demanding excise duty amounting to Rs.43,155 are, therefore declared to be without lawful authority and of no legal effect. The writ petition accordingly stands accepted with no order as to costs.