1998 (9) TMI 182 - AT - Central Excise

Summary

Issues Involved:
1. Classification of Demineralised Water
2. Process of Manufacture and Excisability
3. Marketability and Valuation
4. Suppression of Facts and Invocation of Larger Period for Duty Demand
5. Imposition of Penalty

Issue-wise Detailed Analysis:

1. Classification of Demineralised Water:
The core issue was whether the Demineralised (D.M.) water manufactured by the appellants falls under Tariff sub-heading 2851.00 of the Central Excise Tariff Act, 1985. The Commissioner held that D.M. water, treated with ion exchange media, is classifiable under sub-heading 2851.00, which includes "distilled water, re-distilled water or electro-osmotic water, conductivity water and water of similar purity including water treated with ion exchange media." The appellants contended that the water in question was merely softened and not of the purity level of distilled water, thus should not be classified under 2851.00. The Tribunal, referencing the case of Gujarat State Fertilizers Ltd., concluded that the process of softening water does not transform it into a new excisable commodity and thus, it cannot be classified under sub-heading 2851.00.

2. Process of Manufacture and Excisability:
The Tribunal examined whether the process carried out by the appellants constituted "manufacture" under the Central Excise Act. The Commissioner argued that the process of demineralisation, which involved passing borewell water through various stages including cation and anion columns, resulted in a new product-demineralised water. The appellants countered that the process merely removed certain mineral ions to make the water suitable for use in distillery, and did not result in the creation of a new product. The Tribunal agreed with the appellants, noting that the removal of calcium and magnesium ions did not convert the water into a new product, and thus, it remained non-excisable.

3. Marketability and Valuation:
The Commissioner held that the D.M. water was marketable and imposed a duty based on the quantity supplied to M/s. United Breweries Ltd. The appellants argued that the water was not marketed as a distinct product and the price was based on the cost of purification, not market value. The Tribunal found that the water remained fundamentally the same product and was not marketed as a distinct commodity, thus rejecting the Commissioner's valuation and marketability conclusions.

4. Suppression of Facts and Invocation of Larger Period for Duty Demand:
The Commissioner invoked the extended period under Rule 9(2) read with the proviso to Section 11A(1) of the Central Excise Act, alleging that the appellants wilfully suppressed facts to evade duty. The appellants contended that they had a bona fide belief, supported by CBEC circulars, that the water was non-excisable. The Tribunal, referencing the Supreme Court's judgment in C.C.E. v. Chemphar Drugs & Liniments, held that the appellants' belief was bona fide and thus, the extended period for demand could not be invoked.

5. Imposition of Penalty:
The Commissioner imposed penalties on M/s. Mc Dowel & Co. Ltd. and M/s. UBL under Rule 173Q and Rule 209A of the Central Excise Rules, respectively. The appellants argued that penalties were unwarranted as there was no suppression or intent to evade duty. The Tribunal, agreeing with the appellants, set aside the penalties, noting that the appellants had acted under a bona fide belief that the water was non-excisable.

Conclusion:
The Tribunal concluded that the process carried out by the appellants did not result in the manufacture of a new excisable commodity and that the water remained non-excisable. Consequently, the demand for duty, confiscation orders, and penalties were set aside, and the appeals were allowed.