2025 (12) TMI 1141 - AT - Central Excise

Packaged drinking water classification for MRP-based excise valuation u/s4A rejected; clubbing of SSI clearances also disallowed

Packaged drinking water cleared by one unit was held not assessable on MRP under s.4A Central Excise Act, 1944 because the record lacked any positive ... Method of valuation packaged drinking water - to be valued on MRP basis u/s 4A of Central Excise Act, 1944 for the period from 01.04.2007 to 15.09.2010 or not - for the purpose of aggregate turnover for SSI exemption, assessment must consider combined clearances of all units of the assessee - invocation of extended period of limitation - confiscation - redemption fine - penalty. Whether the impugned goods i.e. packaged drinking water manufactured and cleared by the Athur unit is required to be assessed on MRP basis under Section 4A of Central Excise Act, 1944? - HELD THAT:- A certificate from an independent/ex-Government Scientist and the Appellant’s process details (filtration, chlorination, ozonization, UV) which show no addition/removal of minerals. The Appeal records do not identify any laboratory analysis demonstrating addition of mineral salts or demineralization to convert the product into mineral water for the Athur unit. In the absence of positive evidence, the classification as “mineral water” is not tenable - the Athur unit’s product is packaged potable drinking water and is not covered by the MRP notifications. The Order-in-Appeal’s reliance on MRP notifications to reach valuation under Section 4A is therefore erroneous. As it is found that the product is not statutorily covered by the notifications relied upon, the impugned demand which proceeds on MRP valuation under Section 4A cannot be sustained and must be set aside. As the manufactured product is not mineral water, demand of duty under Section 4A of Central Excise Act, 1944 is not sustainable. Whether, for the purpose of aggregate turnover for SSI exemption, assessment must consider combined clearances of all units of the assessee? - HELD THAT:- The Revenue has not placed any credible findings showing that the Athur unit alone (or differentially) followed any separate tax avoidance scheme. Moreover, Tribunal decisions in favour of the Appellant for Coimbatore & Konnakuzhy (copies on record) require consistent treatment of the Athur unit also unless material differentiators are proved. In the absence of such demonstrable distinctions, the aggregate position and SSI exemptions must be given due regard and cannot justify demand of duty. Whether the invocation of extended period in terms of proviso to Section 11A(1) and imposition of penalties on company and Director is justified having regard to the facts and legal position? - HELD THAT:- It is well settled that extended limitation and harsh consequences thereof should be invoked only where there is evidence of deliberate concealment, fraud or suppression of material facts. Where the controversy is essentially interpretational or classification-based and the assessee has acted on a bona fide view, extended period is not attracted. 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, imposition of penalty is not justified. Higher judicial forum and Tribunal’s decisions cited above hold that penal consequences should not follow on the grounds of mere disagreement on statutory interpretation. Accordingly, penalty on the company under Section 11AC must be set aside - As regards personal penalty on Executive Director of the Appellant company under Rule 26 CER: the Order-in-Appeal records no evidence to establish active dishonest conduct or deliberate concealment by Executive Director of the Appellant company. His role as Executive Director does not ipso facto make him liable where the charge is one of interpretation and there is no proof of mens rea. In the absence of any evidence, the penalty on Executive Director of the Appellant company is also not sustainable and is set aside. Whether confiscation, redemption fine and penalties imposed are justified? - HELD THAT:- Confiscation/seizure and redemption fine (Rs.15,000) were imposed; given that the primary liability itself under 4A is unsustainable and no evidence shows the goods were prohibited or illegally cleared, the confiscation and redemption fine must be set aside. The impugned assessment under Section 4A is not sustainable - the invocation of the extended limitation period is not justified - penalties imposed on the company and on Executive Director of the Appellant company are not warranted. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the packaged drinking water manufactured and cleared by the unit in question was liable to valuation on MRP basis under Section 4A of the Central Excise Act, 1944, on the footing that it was covered by the relevant Section 4A notifications as 'mineral water'. (ii) Whether invocation of the extended period under the proviso to Section 11A(1) was justified on the allegation of suppression, in a dispute turning on interpretation/classification and notification coverage. (iii) Whether penalties on the company under Section 11AC and on the concerned executive under Rule 26 of the Central Excise Rules, 2002, and consequential confiscation/redemption fine, were sustainable when the foundational demand/valuation basis failed and no mens rea or evidence of deliberate evasion was established. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Applicability of Section 4A (MRP-based valuation) to packaged drinking water as 'mineral water' under the notified entries Legal framework (as considered by the Court): The Court treated Section 4A notifications as statutory instruments requiring strict reading and application only to goods expressly specified in the relevant notification entries. Interpretation and reasoning: The Court examined the wording of the relied-upon notifications and found that they specified 'mineral waters' (and aerated waters) and did not, by their plain text, include all forms of packaged drinking water. While departmental circulars were noted as suggesting that certain treatments (including processes resulting in 'artificial mineral water') may affect classification, the Court held that such circulars could not justify treating every packaged potable water as mineral water absent factual evidence that the process involved addition/removal/alteration of minerals to the extent the product became 'mineral water' in commercial parlance. On the record, the Court found process details showing filtration, chlorination, ozonization and UV treatment, and found no laboratory analysis or positive evidence demonstrating addition of mineral salts or demineralization/alteration converting the product into mineral water. Conclusion: The Court conclusively held that the product was packaged potable drinking water, not 'mineral water' for purposes of the relevant Section 4A notifications; therefore, valuation under Section 4A and the demand founded on MRP-based assessment were unsustainable and were set aside. Issue (ii): Justification for invoking the extended period under the proviso to Section 11A(1) Legal framework (as considered by the Court): The Court applied the settled principle that extended limitation is attracted only upon evidence of deliberate concealment, fraud, or suppression of material facts, and not where the dispute is essentially interpretational/classification-based and taken under a bona fide view. Interpretation and reasoning: The Court found the controversy to be one of interpretation/classification relating to the scope of MRP notifications. It further found no cogent evidence of concealment, and noted that returns/financials were on record and earlier departmental actions indicated the matter was within the Department's knowledge. The existence of favourable Tribunal decisions on the same issue for allied units was treated as reinforcing that the dispute was arguable and interpretational rather than evidencing suppression. Conclusion: The Court held that the proviso to Section 11A(1) was not attracted, the extended period was not invokable, and any demand dependent on extended limitation could not be sustained. Issue (iii): Sustainability of penalties (Section 11AC; Rule 26) and confiscation/redemption fine Legal framework (as considered by the Court): The Court treated penalty provisions under Section 11AC/Rule 25 as penal in nature, requiring mens rea or culpable negligence for deliberate evasion, and held personal penalty under Rule 26 required evidence of active dishonest conduct or deliberate concealment. Interpretation and reasoning: Since the duty demand itself was held unsustainable on the central finding that Section 4A valuation did not apply and the classification/notification-coverage basis failed, the Court held penal consequences could not follow. Independently, it found the assessee's position to be bona fide and interpretational, negating mens rea. For the personal penalty under Rule 26, the Court found the order recorded no evidence establishing active dishonest conduct by the concerned executive, and held that designation/control in the company did not ipso facto establish liability when the issue was interpretational and evidence of mens rea was absent. On confiscation/seizure and redemption fine, the Court held that once the primary liability failed and there was no evidence that the goods were prohibited or illegally cleared, confiscation and redemption fine could not stand. Conclusion: The Court set aside the penalties on the company and the concerned executive, and also set aside confiscation and the redemption fine, as not sustainable on the facts and in law.