The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that packaged drinking water cannot be assessed on the basis of Maximum Retail Price under Section 4A of the Central Excise Act, 1944, unless the product is expressly covered by a statutory notification issued under that provision.
The Bench comprising Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao was examining an appeal filed by M/s. Sree Gokulam Food and Beverages Pvt. Ltd. against the confirmation of excise duty demand and penalties on the ground that its packaged drinking water was liable to MRP-based valuation.
The appellant manufactures packaged drinking water under the brand name “Holy Aqua” from units located at Athur, Coimbatore, Tiruvallur and Konnakuzhy. A show cause notice had proposed valuation under Section 4A, which was confirmed by the Joint Commissioner and later upheld by the Commissioner (Appeals).
Before the Tribunal, the assessee argued that Section 4A applies only to goods specifically notified by the Central Government. It was submitted that the notifications relied upon by the Department, namely Notification Nos. 02/2006, 14/2008 and 49/2008, covered only “mineral water” and not packaged drinking water. The appellant contended that packaged drinking water classified under tariff headings 22019090 or 22011010 is distinct from mineral water and was not included in the relevant MRP notifications during the period in dispute.
Accepting these submissions, the Tribunal observed that valuation under Section 4A is an exception to the general rule of transaction-value-based assessment and therefore requires strict construction. It noted that the notifications in question specifically referred to mineral waters and aerated waters and could not be extended by implication to cover all forms of packaged drinking water.
The Tribunal also rejected the Department’s reliance on Board circulars suggesting that certain processes could convert drinking water into mineral water. It held that such circulars do not permit treating all packaged potable water as mineral water in the absence of evidence of mineral addition or alteration. On facts, the Tribunal found that the manufacturing process involved only filtration, chlorination, ozonisation and UV treatment, without any addition or removal of minerals. No laboratory or technical evidence was produced to establish that the product was mineral water in commercial terms.
Holding that the appellant’s product was packaged potable drinking water and not mineral water, the Tribunal concluded that it was not covered by the MRP-based valuation notifications. As a result, the demand raised under Section 4A was held to be unsustainable.
The Bench also took note of earlier decisions in favour of the appellant’s other units at Coimbatore and Konnakuzhy, where similar demands had been set aside. It held that, in the absence of distinguishing facts, the Athur unit was entitled to the same relief.
Since the valuation itself was found to be erroneous, the Tribunal ruled that the demand of duty, invocation of extended limitation, penalties imposed on the company and its Executive Director, as well as confiscation and redemption fine, could not survive. Observing that the dispute was purely interpretational, the Tribunal allowed the appeal and set aside the impugned order with consequential relief as per law.
