2009 (6) TMI 509 - AT - Central Excise

Water- purified and supplied- The appellants are the manufacturers of aerated beverages which are excisable. The water supplied to the retail outlets is used to produce aerated beverages dispensed through vending machines. Revenue proceeded against the appellants on the ground that treated water so cleared was excisable. Duty demanded under Proviso to Section 11A of the Central Excise Act, 1944 interest was demanded. Equivalent Penalty under Section 11AC was imposed. The personal penalties of Rs.5,00,000/- each on Shri S. Sridhar Manager (Finance) and Shri K. Nageshwara Rao Manager (indirect taxes) was imposed under Rule 209A of the CE Rules. The respondents were aggrieved over the impugned order and approached the Commissioner (Appeals). The Commissioner (Appeals) held that the treated water is not excisable and therefore allowed the appeals of the respondents with consequential relief. Revenue is highly aggrieved over the impugned order. In the light of the decision of Crane Betel Nut Works 2007 (210) E.L.T. 171 (S.C.) , held that- the process undertaken for treatment of water did not result in the emergence of new product. Thus there is no infirmity in the order of Commissioner (Appeals), thus reject the revenue appeal.

Summary

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.