2018 (5) TMI 8 - AT - Central Excise

Manufacture - production and sale of packaged drinking water - Held that - The natural water is treated with chemicals in different stages and finally water is packed in different size of jars from 200 ml to 20 litres affixed with brand name and then are cleared for market - The process undertaken by the appellant to make the product fit for market to the consumers is squarely covered by the said Chapter Note and the process is deemed to be manufacture for the purpose of levy. Penalty - Held that - a penalty of ₹ 1,00,000/- (Rupees one lakh only) will meet the ends of justice. Appeal dismissed - decided against appellant.

Issues:
1. Duty liability on packaged drinking water.
2. Whether the process undertaken amounts to manufacture.
3. Reduction of penalty under Section 11AC of the Central Excise Act, 1944.

Issue 1: Duty liability on packaged drinking water
The dispute in the case revolved around the duty liability on packaged drinking water. The Revenue argued that any process undertaken with reference to water to make it marketable to the consumer shall amount to manufacture, as per Note 2 of Chapter 22 of the Central Excise Tariff. The Revenue held that the appellant's processes resulted in a product liable for excise duty, leading to a duty confirmation of &8377; 8,71,048/- with an equal penalty under Section 11AC of the Central Excise Act, 1944. The Commissioner (A) confirmed the duty liability but reduced the penalty to &8377; 2 lakhs.

Issue 2: Whether the process undertaken amounts to manufacture
The appellant contended that the process they undertook did not amount to manufacturing and, therefore, the packaged water should not be liable to Central Excise duty. The appellant argued that they were simply packing the water with minimal processing involved, and there was no manufacturing activity. However, the Tribunal noted that the appellant treated natural water with chemicals in various stages, packed it in different-sized jars affixed with a brand name, and then cleared it for the market. The Tribunal held that these processes made the product fit for the market, falling within the ambit of Note 2 to Chapter 22 of the Central Excise Tariff, deeming it as manufacture for levy purposes.

Issue 3: Reduction of penalty under Section 11AC
Regarding the penalty imposed, the original authority had imposed a penalty under Rule 173Q read with Section 11AC of the Central Excise Act, 1944, equal to the duty amount. The Commissioner (A) reduced this penalty to &8377; 2 lakhs, which was about 25% of the tax levy. The Tribunal, considering the facts and circumstances of the case and the appellant's plea, further reduced the penalty to &8377; 1,00,000/- (Rupees one lakh only), deeming it sufficient to meet the ends of justice. Apart from this modification of the penalty, the appeal was rejected.

In conclusion, the Tribunal upheld the duty liability on the packaged drinking water, determining that the processes undertaken by the appellant constituted manufacture for levy purposes. The penalty under Section 11AC was reduced to &8377; 1,00,000/- to align with the circumstances of the case and the appellant's arguments.

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