2014 (7) TMI 1026 - HC - Central Excise

Clandestine removal - manufacture of aerated water - appellant was draining out the aerated water without entering it first in the R.G.-1 register - water was not fit for human consumption - not in conformity with the specifications provided under the Prevention of Food Adulteration Act and Weights and Measures Act, 1976 - Held that - R.G.1 register only a finished product is required to be entered. - a finished product is a manufactured goods which is marketable. Under filled or over filled or badly crowned caps bottles cannot be treated as being fully manufactured nor could it be treated as finished goods and, consequently, there was no occasion for such goods to be entered in R.G.1 register. The finished goods after undergoing the screening test are only required to be accounted for in R.G.1 register having found that they are fit for sale. The authority had misdirected itself in holding that under filled, over filled, badly crowned cap bottles and even contaminated bottles were required to be entered in R.G.1 register. The authorities were wholly incorrect and misdirected itself in coming to the conclusion that since these under filled, overfilled, badly crowned bottles were not entered in R.G.1 register, it amounts to clandestine removal of goods without payment of excise duty, is patently erroneous. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Whether contaminated, under or over filled bottles or badly crowned bottles amount to manufactured finished goods requiring entry in R.G.-1 register and payment of excise duty?
2. Whether draining out contaminated water constitutes clandestine removal of goods necessitating payment of excise duty?

Analysis:
1. The appellant, a Public Limited Company manufacturing aerated water, faced a demand-cum-show cause notice alleging disposal of aerated water without accounting in R.G.1 register, leading to duty demand of Rs. 6,59,137. The appellant argued that drained water was unfit for consumption due to defects, hence not marketable or subject to excise duty. The Additional Commissioner upheld the demand, emphasizing the need to enter all manufactured goods in R.G.1 register, even if defective. The Commissioner (Appeals) and Tribunal affirmed this decision but reduced the penalty. The High Court analyzed the requirement of entering finished goods in R.G.1 register under Rule 53 and held that only marketable finished goods attract excise duty. Referring to FGP Ltd. Vs. Union of India, the Court emphasized marketability as essential for excise duty liability. It concluded that defective bottles were not marketable finished goods, hence not liable for duty.

2. The High Court examined whether draining contaminated water constituted clandestine removal. It noted the appellant's compliance with Rule 173-G(5) by disclosing production records. The Court found the production register as authentic evidence, contrary to the Additional Commissioner's view. R.G.1 register is mandated for finished goods liable to duty. The Court ruled that only marketable finished goods should be entered in R.G.1 register. As the defective bottles were not marketable, they were not subject to excise duty. The Court held that the draining of contaminated water did not amount to clandestine removal, as the goods were not excisable. It overturned the lower authorities' decisions, quashing the duty, interest, and penalty imposition.

3. The High Court highlighted a similar case where the Tribunal had set aside a demand for the appellant for a different period. The Court upheld the Tribunal's decision, emphasizing the absence of illegality. Ultimately, the Court allowed the appeal, holding that no excise duty, interest, or penalty was justified. The orders of the lower authorities were quashed, and parties were directed to bear their own costs.