The department is contesting Cegat's order asking the excise department to reduce the price of cigarettes by 5 per cent to 8 per cent for the purpose of calculating the excise demand. The department feels that Cegat's order is arbitrary and does not hold much ground.

On the other hand, ITC has also contested the Cegat order in the apex court. Both the department and the company have also asked for a stay on the operation of the Cegat order.

According to the department, Cegat has not given any supporting reason for allowing abatement of three per cent on account of octroi and another five per cent on account of regional variation in the effective prices to be charged from the consumers as visualised by ITC.

Cegat had, on September 4, directed the department to requantify the maximum retail price for cigarettes manufactured by the company on the basis of a formula which allows five to eight per cent discounting, taking into account octroi and other local duties.

Cegat had also waived penalties imposed on the company, its directors and seven contract manufacturers. Cegat had waived all penalties, which included Rs 66.5 crore on the company, Rs 7 crore on contract manufacturers and Rs 3.15 crore on the company's six directors. It had also set aside Rs 118 crore excise liability on the company's contract manufacturers.

Meanwhile, ITC Ltd has disputed the revised excise duty demand of Rs 520 crore made by the department.

ITC is learnt to have expressed its dissatisfaction to the adjudicating authority appointed in the case over the revised claim even though it is Rs 160 crore lower than the earlier demand of Rs 681 crore made by the department.

Sources in ITC said the company has found errors in the department's revised duty claim. The adjudicating authority is learnt to have fixed the next hearing of the case in January.

The department had scaled down the excise duty claim following fresh assessment of the duty based on the guidelines stipulated by Cegat.