Cegat, however, dropped the penalty of Rs 66 crore against the company along with the Rs 118-crore duty evasion charges against seven contract manufacturers of ITC. The tribunal also waived penalties of Rs 3.15 crore imposed on six former directors of the company.

The central excise department had slapped a Rs 799-crore penal excise and a penalty of Rs 74 crore on the company in January, 1996, for short payment of excise duty of Rs 803.78 crore between March 1983 and February 1987.

The excise department, as also the company, have not ruled out the possibility of appealing against the Cegat order in the Supreme Court. There is confusion over the company's exact liability on account of excise evasion.

"After the recalculation, our tax liability will notbe significantly higher than Rs 350 crore, which we have already paid," ITC's counsel R Narain said.

On the other hand, the excise department counsel M Chandrasekharan said the company would only get a benefit of around Rs 70 crore to Rs 80 crore from the recalculation.

The fresh calculation of ITC's excise liability will be done after giving the company scope for personal hearing.

The former directors against whom evasion charges were made include former ITC chairman JN Sapru, SK Mehta, J Narayan, R Boothalingam, A Basu and S Ghosh.

The seven contract workers of ITC against whom the charges have been dropped are Asia Tobacco Company Ltd, Deccan Tobacco Manufacturing Co, Crown Tobacco Co, Master Tobacco Co, Lakshmi Tobacco Co, Reliable Cigarettes and Tobacco Industries and Sikkim General Industries Corporation Pvt Ltd.

Significantly, the judgment also puts an end to the possibility of ITC opting for the amended Kar Vivad Samadhan Scheme.

The changes in the scheme, however, made it unattractive forITC to opt for it since any deposit made by a company as part-payment against the total demand under revised Samadhan would be treated as duty paid and excluded from calculation of tax arrears.

INSIGHT

ITC's defiance pays

By putting forward a new formula for arriving at ITC's excise dues to the government, the tribunal has suggested that the cigarette giant was not as wrong as was made out by the tax authorities. This impression is strengthened by the waiver of penalties. The new formula may or may not bring excise dues to less than Rs 350 crore deposited by ITC with Cegat. But it does bring out the need for clarity and simplification of tax rules, the absence of which enables the tax authorities to act arbitrarily.