The Chennai Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the packaged drinking water “Holy Aqua” manufactured and cleared by the Athur unit, being a potable drinking water, is not required to be assessed on MRP basis under Section 4A of the Central Excise Act, 1944.
As the manufactured product is not mineral water, the CESTAT held that the demand for duty, which proceeds on MRP valuation under Section 4A of the Central Excise Act, 1944, is not sustainable.
The ruling came after referring to the certificate from an independent/ex-Government Scientist and the Appellant’s process details (filtration, chlorination, ozonisation, UV), which show no addition/removal of minerals. Since the appeal records do not identify any laboratory analysis demonstrating the addition of mineral salts or demineralisation to convert the product into mineral water for the Athur unit, the CESTAT ruled that the classification as “mineral water” is not tenable.
The Division Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that notifications (Nos.02/2006, 14/2008, 49/2008) under Section 4A of the Central Excise Act, 1944, which list “Mineral waters” (and aerated waters) under the relevant entries do not, by plain text, include all forms of packaged drinking water.
The Bench also noted that the Board Circulars indicate that where minerals are added or where de-mineralisation/ alteration produces a product which is in substance an artificial mineral water, classification under 2201 may follow. However, the circulars do not empower the Excise Department to treat every packaged potable water as mineral water when there is no evidence of addition/reduction of minerals.
Essentially, the Bench pointed out that the test is factual and depends on whether the manufacturing process results in the addition of mineral salts or their alteration to the extent that the product becomes mineral water in commercial parlance.
The Bench explained that the penalty under Section 11AC / Rule 25 is a penal provision requiring mens rea or culpable negligence for deliberate evasion. Because the tax demand in this case is founded on an unsustainable classification and the appellant advanced a bona fide position, the Bench concluded that the imposition of a penalty is not justified.
Further, given that the primary liability itself under Section 4A is unsustainable and no evidence shows that the goods were prohibited or illegally cleared, the Bench set aside the confiscation and redemption fine of Rs. 15000.
Briefly, the appellant is engaged in the manufacture and clearance of packaged drinking water under the brand “Holy Aqua” from multiple units. Based on the intelligence collected and search action, an SCN was issued to the Athur unit proposing a demand of duty on MRP basis under Section 4A of the Central Excise Act, 1944, involving a differential duty of Rs. 21.79 lacs, interest and equal penalties under Section 11AC and Rules 25 & 26 of the CER, 2002, seizure and proposed confiscation/redemption fine were also made. The Original Adjudicating Authority (Joint Commissioner) confirmed the demand and penalties.
Appearances:
Advocate P. Satheesan, for the Appellant/ Taxpayer
AR, Anandalakshmi Ganeshram, for the Respondent/ Revenue
