Tribunal rules treated water not subject to excise duty, penalties overturned

The Tribunal upheld the Commissioner (Appeals)'s decision, ruling that the treated water supplied by the respondents to vending machine outlets was not liable to central excise duty as it was not marketable and the treatment processes did not amount to "manufacture" under the Central Excise Act. The duty demand and penalties imposed on individuals involved in the clearance of treated water without payment of duty were set aside. The Tribunal rejected the Revenue's appeals, emphasizing that the treated water did not constitute a new product and was not sold under a brand name.

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Issues Involved:
1. Whether the treated water cleared by the respondents to the vending machine outlets is liable to central excise duty.
2. Whether the processes undertaken for treating the water amount to "manufacture" under the Central Excise Act.
3. Whether the treated water is marketable and sold under a brand name.
4. The applicability of penalties on individuals involved in the clearance of treated water without payment of duty.

Issue-wise Detailed Analysis:

1. Liability of Treated Water to Central Excise Duty:
The primary issue is whether treated water supplied to vending machine outlets is excisable. The appellants argued that the processes involved in treating the water (such as filtration, purification, and addition of chemicals) amount to "manufacture" as per Section 2(f) of the Central Excise Act and Note 5 of Chapter 22 of the CETA. The Commissioner (Appeals) held that the treated water is not excisable as it does not result in a new product with a different name, character, and use. The Tribunal agreed, noting that the treated water was not sold with a profit motive and was not marketed, thus failing the criteria of marketability.

2. Processes Amounting to Manufacture:
The Revenue contended that the processes undertaken to treat the water render it marketable, thus constituting "manufacture" under Section 2(f) of the Central Excise Act. The Tribunal examined Note 2 to Chapter 22, which deems processes like filtration and purification as "manufacture" if they render the product marketable. However, the Tribunal found that the treated water was not marketed or sold, and the processes did not change its nature and composition. Therefore, the processes did not amount to manufacture.

3. Marketability and Brand Name:
The Tribunal emphasized that for a product to be excisable, it must be marketable. The treated water was supplied only to vending machine outlets and not sold to consumers. The Tribunal noted that the burden of proving marketability lies on the Revenue, which failed to conduct any enquiry to establish this. The Tribunal also addressed the issue of the brand name, noting that the canisters bore the name "Cococola" for identification purposes and not as a brand name for the treated water. The treated water was not sold under the brand name "Cococola," and in some cases, it was supplied in stainless steel tanks without any markings.

4. Penalties on Individuals:
The Revenue imposed penalties on Shri S. Sridhar, Manager (Finance), and Shri K. Nageshwara Rao, Manager (Indirect Taxes), under Rule 26 of the Central Excise Rules, alleging their involvement in the clearance of treated water without payment of duty. The Tribunal, however, found that since the duty demand itself was not sustainable, the penalties on the individuals were also not justified.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s order, concluding that the treated water supplied by the respondents was not excisable as it was not marketable and the processes undertaken did not amount to manufacture. Consequently, the duty demand and penalties were set aside. The Tribunal rejected the Revenue's appeals, affirming that the treated water did not emerge as a new product and was not sold under a brand name.

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