CESTAT Sets Aside ₹4.94 Lakh AED Demand On Pepsico, Holds Excise Duty Cannot Apply To Pre-Levy Manufactured Stock

May 8, 2026 : The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a demand of ₹4.94 lakh towards Additional Excise Duty (AED) raised against Pepsico India Holding Pvt. Ltd. on aerated water stock manufactured prior to the introduction of the levy, holding that excise duty cannot be imposed on goods already manufactured before the levy came into force merely because they were cleared subsequently.

A single-member Bench comprising Judicial Member S. S. Garg allowed the appeal filed by Pepsico and held that the department could not adopt a contrary stand after having accepted identical orders passed in favour of the assessee in its own cases at other locations.

The Tribunal observed:

“Since, the department has accepted the earlier orders in favour of the appellant and has not filed any appeal, therefore, now the department is prevented from taking a contrary stand today.”

The dispute arose after the Union Government introduced AED at the rate of 5% on aerated waters falling under Tariff Item 2202 10 through the Finance Act, 2014, with effect from 11 July 2014.

Pepsico, which manufactures aerated water, soda, packaged drinking water and fruit juice-based drinks at its Jhagadia plant in Gujarat, informed the department on 11 July 2014 that goods manufactured and cleared after the levy came into force would attract AED. However, it clarified that goods already manufactured and lying in stock as on midnight of 10 July 2014 would not attract the levy even if cleared subsequently.

The department disagreed and directed the company to pay AED on the pre-budget stock. A show cause notice dated 18 March 2015 was thereafter issued proposing recovery of AED amounting to ₹4,94,549, including cess, along with interest and penalty on goods manufactured before 11 July 2014 but cleared thereafter.

The Additional Commissioner confirmed the demand by order dated 27 February 2017, which was subsequently upheld by the Commissioner (Appeals) on 27 December 2017. Aggrieved by the same, Pepsico approached the Tribunal.

Before the Tribunal, Pepsico contended that the issue stood settled by the Supreme Court’s ruling in CCE Hyderabad v. Vazir Sultan Tobacco Co., wherein it was held that excise duty is attracted at the stage of manufacture and not at the stage of removal. The company also pointed out that adjudicating authorities in its own cases at Delhi, Hyderabad and Palakkad had already dropped identical demands and those orders had been accepted by the department without challenge.

Pepsico further relied upon the Allahabad Bench ruling in Varun Beverages Ltd. v. CCE, Lucknow, where the Tribunal had applied the ratio of Vazir Sultan Tobacco to hold that AED could not be levied on goods manufactured prior to the introduction of the levy.

After considering the submissions, the Tribunal held that the only issue for determination was whether AED introduced from 11 July 2014 could be imposed on goods already manufactured and lying in stock prior to that date merely because their clearance took place later. The Bench noted that adjudicating authorities in Pepsico’s own cases had consistently ruled in favour of the assessee and that those decisions had attained finality since the department had not filed appeals against them.

Relying upon the Supreme Court’s observations in Vazir Sultan Tobacco, the Tribunal reiterated that excise duty remains a levy on manufacture or production and that collection at the stage of removal is merely a matter of convenience.

The Tribunal reproduced the following observation:

“It is not as if the levy is at the stage of removal; it is only the collection that is done at the stage of removal.”

The Bench held that once the levy did not exist at the time of manufacture or production, it could not subsequently be imposed at the time of clearance merely because the collection mechanism ordinarily operates at the stage of removal. The Tribunal also held that the department was barred from taking inconsistent stands after accepting earlier orders in favour of the assessee, relying on Supreme Court rulings including Jayaswals Neco Ltd. v. CCE, Birla Corporation Ltd. v. CCE and Indian Oil Corporation Ltd. v. CCE.

Accordingly, the Tribunal set aside the impugned order confirming the AED demand, interest and penalty, and allowed Pepsico’s appeal with consequential reliefs.

Case Title: Pepsico India Holding Pvt. Ltd. v. Commissioner of CGST & Central Excise, Vadodara-II
Case No.: Excise Appeal No. 11178 of 2018-SM
Coram: Hon’ble Mr. S. S. Garg, Member (Judicial)