Pranav B Prem

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 (MRP) under Section 4A of the Central Excise Act, 1944, unless the product is specifically covered by a statutory notification issued under the said provision. The Tribunal observed that valuation under Section 4A is an exception to the general rule of transaction-value-based assessment and must be strictly construed.

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The Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) was examining whether packaged drinking water manufactured by the appellant could be subjected to MRP-based valuation under Section 4A of the Act. The appeal arose from an order confirming duty demand and penalties by treating the product as assessable on MRP basis.

The appellant, M/s. Sree Gokulam Food and Beverages Pvt. Ltd., was engaged in the manufacture and clearance of packaged drinking water under the brand name “Holy Aqua” from multiple units located at Athur, Coimbatore, Tiruvallur and Konnakuzhy. A show cause notice was issued proposing demand of central excise duty on the basis of MRP valuation under Section 4A of the Central Excise Act, 1944. The demand was confirmed by the Joint Commissioner, and the appeal before the Commissioner (Appeals) was rejected, prompting the assessee to approach the Tribunal.

On behalf of the assessee, it was argued that Section 4A applies only to goods expressly notified by the Central Government, and the notifications relied upon by the Department—Notification Nos. 02/2006, 14/2008 and 49/2008—covered only “mineral water” and not packaged drinking water. It was contended that packaged drinking water falling under tariff headings CTH 22019090 / 22011010 is distinct from mineral water and was not included within the scope of the MRP notifications during the relevant period.

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The Tribunal noted that notifications issued under Section 4A are statutory in nature and must be read strictly. It observed that the impugned notifications specifically referred to “mineral waters” and aerated waters and did not, by their plain language, include all forms of packaged drinking water. The Bench held that the Department could not extend the scope of the notification by implication or presumption.

The Tribunal further examined the Department’s reliance on Board circulars suggesting that processes such as demineralisation or alteration could result in classification as mineral water. It observed that the circulars do not authorise treating every packaged potable water as mineral water in the absence of evidence showing addition or alteration of minerals. On facts, the Tribunal found that the manufacturing process adopted by the Athur unit involved filtration, chlorination, ozonisation and UV treatment, without any addition or removal of minerals. No laboratory analysis or technical evidence was produced to show that the product was mineral water in commercial parlance.

Holding that the product manufactured by the appellant was packaged potable drinking water and not mineral water, the Tribunal concluded that it was not covered by the MRP notifications relied upon by the Department. Consequently, the valuation under Section 4A was held to be erroneous. The Tribunal observed that when the product is not statutorily specified under the notification, the demand based on MRP valuation cannot be sustained and must be set aside.

The Tribunal also took note of earlier decisions rendered in favour of the appellant’s other units at Coimbatore and Konnakuzhy, where similar demands were set aside. It held that, in the absence of distinguishing facts, consistency required that the Athur unit be treated in the same manner.

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In view of the finding that valuation under Section 4A itself was unsustainable, the Tribunal held 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. The Bench observed that the issue involved was purely interpretational in nature and did not warrant penal consequences. Accordingly, the appeal was allowed, and the impugned order confirming demand and penalties was set aside with consequential relief, as permissible under law.

Appearance

Counsel for Appellant/ Assessee: P. Satheesan

Counsel for Respondent/ Department: Anandalakshmi Ganeshram

Cause Title: M/s. Sree Gokulam Food and Beverages (P) Ltd. v. Commissioner of GST and Central Excise

Case No: Excise Appeal No. 41775 of 2017

Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)