2024 (3) TMI 490 - AT - Central Excise

Method of valuation - section 4 or 4A of CEA - Packaged Drinking Water - SSI Exemption - Eligibility for abatement Notification No.2/2006, 14/2008 and 49/2008 - threshold exemption limit of Rs.150 lakhs of all the four units crossed - failure to account details of production and clearance in daily stock account - non-issuance of invoices - non-payment of duty - Demand alongwith interest and penalty - invocation of Extended period of limitation - HELD THAT - The whole confusion has arisen for the reason that the Notification No.2/2006-CE (NT) noticed in para 14 above has mentioned the chapter heading in Col. 2 as CETH 22019090 as well as 22011010. As per the Tariff Act, Heading 22011010 applies to Mineral Waters and Heading 22019090 applies to Packaged Drinking Water . However, the description in column (3) of the notification is given as Mineral Waters . The department has therefore held that the Packaged Drinking Water would fall within the category of Mineral Water . A product has to be classified on the basis of Tariff Act and not on the basis of the notifications. The present notifications are Central Excise Notifications giving the details of abatement in regard to valuation of goods under Section 4A. Merely because the chapter heading, sub heading has been mentioned in Col. 2, the goods cannot be said to be assessed under Section 4A unless the goods also fall under the description given in Col.3. At the cost of repetition, in Column 3 of Notification No.2/2006, 14/2008 and 49/2008, the description of goods is given as Mineral Water only. The process of manufacturing Mineral Water and Packaged Drinking Water is different. From the Circulars issued by the Board, it can be seen that when no minerals are added to the water, it cannot be classified as mineral water. So also, it is clarified by the Board that when the water is demineralized by reduction of minerals the same would form artificial mineral water . The Packaged Drinking Water is entirely different product falling under separate chapter sub-heading. Further, the price of Packaged Drinking Water is less than the price applicable to Mineral Water. Again, BIS specification for Mineral Waters is different from that of Packaged Drinking Water. The appellant has been issued BIS certification for packaged drinking water as IS 14543. The valuation of the product has to be based upon the classification of the product. When the classification unambiguously falls under 22019090 the valuation has to be on transaction value as per Section 4 of Central Excise Act, 1944. Merely because the abatement notification mentioned heading 22019090 in column (2) it cannot be said that the Packaged Drinking Water is included in the Mineral Waters. Interestingly, the department does not dispute the classification adopted by appellant for packaged drinking water . However, department construes that packaged drinking water is mineral water as per notifications 2/2006, 14/2008 and 49/2008. These notifications are issued under subsection (1) and (2) of Section 4A - The department is of the view that sub-heading 22019090 applicable to packaged drinking water when mentioned in column (2) of the notification, it is implied that packaged drinking water is to be included in the category of mineral water. This view cannot be endorsed with. Taxation statutes cannot be interpreted on any presumptions or assumptions. In other words, there is no implied power of taxation. It has often been held by courts that subject goods is not to be taxed, unless the words of the statute unambiguously impose a tax. An ambiguity in a taxation provision is to be interpreted in favour of assesee. In Notification 49/2008, the Sl.No.24 referred to Mineral Water and Sl.No.25 to Aerated Water . As per amendment brought forth in Notification 49/2008 w.e.f. 1.3.2015, a new Sl.No.25A was added which referred to all goods except mineral water and aerated water . This makes it clear, that drinking water was never intended to be specified as goods to which Section 4A would apply - the duty demand cannot sustain. Time Limitation - Penalty - HELD THAT - The issue is purely interpretational in nature. Further, there were earlier notices issued to the appellant on the very similar set of facts. In other similar matters, the department has set aside demand and taken the view that Packaged Drinking Water cannot be assessed under Section 4A of the Act ibid. For these reasons, the invocation of extended period cannot sustain. For the same reasons, the penalty imposed on the Executive Director of appellant-company is not warranted and requires to be set aside. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:

1. Whether the Packaged Drinking Water is to be assessed under Section 4A of the Central Excise Act, 1944 or under Section 4 on the basis of transaction value.
2. Whether the demand of duty, interest thereon, and penalties are sustainable.
3. Whether the show cause notice issued invoking the extended period is legal and proper.

Summary:

Issue 1: Assessment under Section 4A or Section 4

The appellant classified their product, Packaged Drinking Water, under CETH 22019090, which the department did not dispute. However, the department argued that the product should fall under 'Mineral Water' as per Notification Nos. 2/2006, 14/2008, and 49/2008, thus making it subject to MRP-based assessment under Section 4A. The court noted that the classification should be based on the Tariff Act and not on notifications. It was clarified that 'Packaged Drinking Water' and 'Mineral Water' are distinct products with different manufacturing processes, BIS specifications, and market prices. Therefore, Packaged Drinking Water should be assessed on transaction value under Section 4, not under Section 4A.

Issue 2: Sustainability of Duty, Interest, and Penalties

The department's contention that the product should be valued under Section 4A was found to be incorrect. The court held that the duty demand based on this incorrect interpretation could not be sustained. Additionally, the penalties imposed on the appellant and the Executive Director were found to be unwarranted and were set aside.

Issue 3: Legality of Extended Period Invocation

The court found that the issue was interpretational in nature and that there were previous notices issued on similar facts. The department had also set aside demands in other similar matters, indicating inconsistency. Therefore, the invocation of the extended period was deemed unsustainable.

Conclusion:

The impugned order was set aside, and the appeals were allowed with consequential reliefs. The court emphasized that Packaged Drinking Water should be assessed based on transaction value under Section 4 and not under Section 4A, and that the extended period for issuing the show cause notice was not justified.