ORDER Lajja Ram
1. In this appeal filed by M/s NEPC Agro Foods Ltd., (hereinafter referred to as 'NEPC'), the matter relates to the duty liability in respect of the mineral water, which was marketed under the brand name 'Trupthi'. The period involved is prior to 16.3.95. NEPC had claimed that no process of manufacture was involved in the production of mineral water and that the mineral water 'Trupati' was non-excisable prior to 16.3.95 when by virtue of insertion of Chapter Note 2 in Chapter 22 of the Central Excise Tariff, the process was deemed to be the process of manufacture. The Revenue had sought to classify the product in question under sub-heading No. 2201.90 of the Central Excise Tariff. In the show cause notice dated 27.11.95, extended period of limitation was invoked for demanding central excise duty of Rs. 58,235/-, and for levying penalty. The Commissioner of Central Excise, Coimbatore, who adjudicated the matter, after discussing the various submissions made by NEPC, confirmed the demand of Rs. 58,235/-. No penalty was however imposed.
2. The matter was heard on 19.01.2001 when Shri J. Shankerraman, Advocate appearing for NEPC submitted that prior to 16.3.95 when Chapter Note 2 was inserted in Chapter 22 of the Central Excise Tariff, the mineral water as manufactured by NEPC was not excisable. He also submitted that the appellants had not collected any central excise duty from their customers and if excise duty is found leviable then their sale price should be considered as cum-duty price for the purpose of determination of the assessable value and the quantum of duty payable by them. He relied upon the Tribunal's Larger Bench decision in the case of Srichakra Tyres Ltd. & Ors. Vs. Collector of Central Excise, Madras - 1999 (32) RLT 1 (Tribunal - LARGER BENCH), wherein it had been held that the excise duty held payable subsequently was to be abated from total sale price realisation by treating it as cum-duty price for the purpose of determination of assessable value and quantum of duty demand payable. He also prayed that the benefit of modvat credit should also be extended to them. In support of his contention that no process of manufacture was involved in the purification and production of mineral water, ld. Advocate referred to the following decisions:-
(1) Northern Plastics Ltd. and Other Vs. Collector of Central Excise, Meerut - 1995 (11) RLT 336 (Tribunal)
- Introduction of Chapter Note 2 to Chapter 37 was prospective in nature.
(2) Gujarat State Fertilizers Co. Ltd. Vs. Collector of Central Excise, Vadodara - 1998 (98) ELT 840 (Tribunal)
- Process of de-mineralisation of river water by cation exchange method for removing calcium and magnesium does not amount to manufacture.
(3) McDowell & Co. Ltd. and Other Vs. Commissioner of Central Excise, Cochin - 1999 (30) RLT (Tribunal).
(4) H.T. Chemical Laboratories Vs. State of U.P. -- 1972 (29) STC (Allahabad)
- Distilled water was nothing but a purified form of water. It was neither a medicine nor a pharmaceutical preparation nor was it prepared through any manufacturing process.
(6) S.D. Fine Chemicals Pvt. Ltd. Vs. Collector of Central Excise - 1991 (56) ELT (Tribunal)
- Process of purification of bought-out chemicals by distillation and recrystallisation did not amount to the process of manufacture, there being no change in name or chemical formula of chemicals.
(7) S.D. Fine Chemicals (Pvt.) Ltd. Vs. Collector of Central Excise - 1996 (12) RLT 121 (CEGAT)
- Process of distillation / re-crystallisation of the chemicals for improving their purity level would not amount to manufacture as no new and different commodity emerges.
In reply, the Departmental Representative pleaded that the chemicals were added to the chlorine treated water and it was also subjected to ultra-violet radiation. Even prior to 16.3.95, such a product in which minerals were specifically added, was excisable and dutiable. It was not a case of just purified or filtered water. It was marketed as a mineral water under all India brand name of the appellants as 'Trupthi'. Such a product even before 16.3.95 was excisable and dutiable under sub-heading No. 2201.90 of the Central Excise Tariff. He referred to the Board's Circular F. NO. 9/1/94/Cxl dated 20.12.94, wherein it had been clarified that when the treated water was being de-mineralised, and when mineral salts were added thereto, it was dutiable under sub-heading No. 2201.90. He submitted that the Board's Circulars were for the sake of uniformity and they have a binding effect. He pleaded that even prior to 16.3.95, the product in question was dutiable and that the facts had been suppressed from the Department. No duty was paid even when such goods were dutiable. In the circumstances, the ld. DR pleaded that the extended period of limitation has been correctly invoked and confirmed by the adjudication authority. In support of his contentions, the ld. DR relied upon the following decisions:-
(1) Ranadey Micornutrients Vs. Collector of Central Excise - 1996(87) ELT 19 (SC)
- Circulars issued by the Central Board of Excise & Customs were binding of the officers of the Department. Consistency and discipline are of greater importance than wining or losing a case.
(2) Collector of Central Excise, Patna Vs. Usha Martin Industries - 1997 (94) ELT 460 (SC).
- Departmental Circulars whether issued before enactment of Section 37 B of the Central Excise Act 1944 in December 1985 or thereafter were equally binding on the Revenue. The object in either case was the same viz to achieve uniformity in classification.
(3) Paper Products Ltd. Vs. Commissioner of Central Excise - 1999 (112) ELT 765 (SC).
- Circulars issued by the Central Board of Excise & Customs were binding on the Departmental authorities.
(4) Commissioner of Central Excise, Chandigarh Vs. Oswal Woollen Mills Ltd. - 2000 (39) RLT 283 (Tribunal).
- The Department was bound by its Trade Notice.
3. We have carefully considered the matter. The issue for our consideration in this appeal filed by NEPC is whether the mineral water as produced by NEPC was liable to pay duty on clearances prior to 16.3.95. From 16.3.95 onwards, there is no disputes and it is an admitted position that the packed, filtered and purified mineral water as produced by NEPC was excisable and dutiable in view of the insertion of Note 2 in Chapter 22 of the Central Excise Tariff, by the Finance Bill of 1995. In fact after 16.3.95, NEPC were paying full rate of central excise duty of 10% Adv. on the mineral water was marketed under the appellant Company's national brand name of 'Trupati'. They had three plants for producing mineral waters in different parts of the country. The demand of central excise duty in these proceedings is for the period prior to 16.3.95, from 17.12.94 to 15.03.95, under show cause notice dated 27.11.95.
4. The process of manufacture has been described by them as under:-
"Water stored in storage tanks is subjected to chlorine treatment by addition of Sodium Hypo Chloride. 20 to 30 mg. of Calcium carbonate is added to 500 Litres of water to give a taste to the water. To add or reduce the mineral contents in the water the necessary chemicals and equipments like Alum doser are used in their plants. They use Micron filters of different sizes to remove bacteria. To ensure that the water is bacteria free, it is subjected to a series of ultra violet radiation. Then the water is filled into cleaned bottles, closed in airtight manner and sealed."
It is seen from this process of manufacture that the mineral water in question had been de-mineralised to take out its impurities and thereafter certain specific chemicals were added to make it a mineral water. This process of manufacture is from the write-up given by the Manager of the appellants' Mineral Water Division on 7.2.95 and had not been denied or disputed by the appellants, NEPC.
5. The main plea taken by the appellants is that prior to 16.3.95, they were under a bonafide belief that their product was not excisable. In any case prior to 20.12.94 when Board's Circular No. 84/84/94 CX dated 20.12.94 issued from File No. 9/1/94 CX.I (appearing at 1994 (74) ELT T-13) was issued, it was also the understanding of the Department as could be seen from their earlier Circular No. 9/87 CXl dated 28.7.87 issued from File No. 9/1/87/CXl. In their Circular dated 28.7.87, the Central Board of Excise & Customs had clarified that the aqua mineral Bisleri treated water was non-excisable. The process of manufacture of the said product, which as found to be non-excisable, had been so described in the circular itself:-
"Water is treated with bleaching powder to eliminate injurious micro-organisms. Thereafter, it is purified by filteration. Subsequently, it is softened. Finally, it is sterilised to keep such drinking water free from bacteria and to avoid contamination during treatment."
6. The matter was clarified by the Board in their subsequent Circular No. 84/84/94-CX.I (appearing at 1994 (75) ELT T-13). It is clear from the Circular dated 20.12.94 that only that type of mineral water was non-excisable prior to 16.3.95 that had simply been clarified and purified. If the mineral water had been de-mineralised and further certain required minerals had been added then it was dutiable under sub-heading No. 2201.90 of the Central Excise Tariff. Board's Circular dated 20.12.94 is extracted below:-
Copy of Board's letter F.No. 9/1/94-CX.I Dated 20.12.94.
Please refer to Board's circular No. 9/87-CE (F.No. 9/1/87 CXI) dated 28.7.87 on the subject noted above clarifying that Aqua Mineral Bisleri treated water is non-excisable. The process of manufacture of the product has been explained in Para 2 of this circular and is reproduced below:-
"Water is treated with bleaching powder to eliminate injurious micro-organisms. Thereafter, it is purified by filtration. Subsequently it is softened. Finally, it is sterilised to keep such drinking water free from bacteria and to avoid contamination during treatment."
2. It has been brought to the notice of 'the Board that in addition to processes given above, some manufacturers are also demineralising the treated water and are adding minerals in it. The Chief Chemist has earlier advised that the process that distinguishes artificial mineral water from purified potable water, is whether mineral salt have ben added or not. In case, there is addition of mineral salt, the product will have to be treated as mineral water and will be liable to duty accordingly.
3.It is therefore, clarified that in case in addition to processes mentioned above, if mineral salt(s) are also added in the treated water, the resultant product will be mineral water and will be excisable and liable to duty under sub-heading 2201.90.
4. The word "Bisleri" wherever it occurs in circular No 8/87 stands deleted.
7. It is clear from the process of manufacture of the appellants that to add and to reduce the mineral contents in the product 'Trupthi' as per requirements, necessary chemicals and equipments were used in their plants. Sodium Hypo Chloride and Calcium Carbonate were added and the product was subjected to the ultra-violet radiation. Thus, the product was covered by the description as contained in the Board's Circular dated 20.12.94 for classification under sub-heading No. 2201.90 of the Central Excise Tariff.
8. The process of manufacture as given in the write-up of the Manager of the Mineral Water Division has already been extracted above. In the various decisions relied upon by the appellants, different treatments had been referred to. None of the decisions directly relate to the issue before us.
In the case of Gujarat State Fertilizers Co. Ltd. Vs. CCE, Vadodara - 1998 (98) ELT 840 (Tribubal), the matter related to the de-mineralisation of river water. No specific minerals were added to make it a mineral water. In the case of Mc Dowell & Company & Ors. Vs. CCE, Cochin - 1999 (30) RLT 201 (Tribunal), the matter related to the soft water. In the case of H.T. Chemical Laboratories Vs. State of U.P. - 1972 (29) STC 148 (Allahabad), the matter related to the distilled water. With regard to the water for injection, the Gujarat High Court in the case of J.G. Bavshi & Sons Vs. State of Gujarat - 1992 (84) STC 161 (Gujarat - - Ahmedabad), it had been held that the water for injection was not a water simplicitor. Similarly, two cases relating to S.D. Fine Chemicals (Pvt.) Ltd. (Supra) related to the process of purification, distillation, recrystallisation, etc. of the chemicals for improving their purity level.
We do not consider that any of these decisions deal directly with the question before us for consideration and decision.
We consider that the process adopted in the present case clearly established that the mineral water 'Trupthi' was classifiable under sub-heading No. 2201.90 of the Central Excise Tariff. Heading No. 2201 of the Central Excise Tariff is extracted below:-
22.01 Natural or artificial mineral waters and aerated wa- ters, not containing added sugar or other sweeten- ing matter, not flavoured; Ice - Aerated waters, not containing added sugar or other sweetening matter, not flavoured: 2201.11 --For each bottle containing 200 millilitres of less 2201.12 --For each bottle containing more than 200 millilitres 2201.19 --Other 2201.90 --Other
9. We therefore, consider that as mineral salts were added in the treated water, in the present case, the Tribunal's decision in the case of Commissioner of Central Excise, Jamshedpur Vs.Kamani Foods - 1999 (114) ELT 644 (Tribunal) is clearly distinguishable.
10. We, therefore, consider that mineral water 'Trupthi' was correctly classifiable under sub-heading No. 2201.90 of the Central Excise Tariff even prior to 16.3.95.
11. Central excise duty had been demanded for the period 17.12.94 to 15.03.95 under show cause notice dated 27.11.95. The extended period of limitation has been invoked. In para-6 of the show cause notice, it was alleged as under:-
"6. From the aforesaid facts, it appears that M/s NEPC have engaged themselves in the manufacture of mineral water and have cleared them without following central excise procedure and without payment of central excise duty in contravention of the provisions of Rule 9(1), 49, 51, 52-H, 53, 173-B, 173-F, 173-G and 226 of the Central Excise Rules, 1944. They also appear to have deliberately suppressed the information from the department with an intent to evade payment of central excise duty."
The limitation has been discussed by the Commissioner of Central Excise, Coimbatore, who adjudicated the matter in para-14 of the impugned adjudication order as under:-
"14. As far as the question of extended time limit is concerned, it is apparent that the party is fully aware of the clarification issued holding the impugned product to be excisable and hence their failure to take out a registration and pay duty can only be viewed as intentional with the purpose of evading duty. Hence, I hold that the extended time limit of 5 years is applicable in this case."
12. While we agree with the adjudication authority that there was suppression of facts, in the facts and circumstances, demanding duty prior to the date of the Board's Circular dated 20.12.94 does not appear to be justified. The adjudication authority had not imposed any penalty. Accordingly, the demand is restricted to the period from 20.12.94 to 15.03.95.
13. Further, the appellants in Grounds S and T of their appeal had prayed as under:-
"S. Without prejudice to the above, as per Section 4(4)(d)(ii) of the Act value does not include the amount of the duty of excise payable. In the present case, the Commissioner has held the excise duty is now payable and therefore, ought to have allowed the deduction while quantifying the demand.
T. The Commissioner has wrongly placed reliance on the Supreme Court's judgment in the case of ACCE Vs. Bata India Ltd. - 1996 (84) ELT 164 (SC) for denying deduction towards duty. The Supreme Court in the above cited case denied deduction towards excise duty where the duty payable was nil. Whereas in the present case the duty now payable as pere the Commissioner's order and therefore, the deduction towards duty has to be followed."
We consider that this aspect of the matter is covered by the Larger Bench decision of the Tribunal in the case of Srichakra Tyres Ltd. Vs. CCE, Madras - 1999 (32) RLT 1 (Tribunal).
We, accordingly, hold that the duty demand needs to be re-calculated in the light of this Tribunal's Larger Bench decision.
14. Although no specific ground has been taken in the grounds of appeal for extending the benefit of modvat credit in respect of the duty paid inputs, in the interest of justice, we consider that if the appellants are able to satisfy the jurisdictional Central Excise Authorities about the use of the duty paid inputs and such inputs during the relevant time were covered by the scheme of modvat credit then the benefit be extended after due verification and the benefit was not be denied on the sole ground that during the relevant time, the appellants could not comply with the procedural formalities in this regard.
15. Thus, the demand is to be restricted for the period 20.12.94 ti 15.03.95 and the benefit of the decision in the case of Srichakra Tyres Ltd. Vs. CCE, Madras - 1999 (32) RLT 1 (Tribunal) as well as that of modvat credit in the light of our observations above, has to be extended.
16. Subject to above, the appeal is otherwise rejected. Ordered accordingly.
Shri S.L. Peeran
17. With due respect to my Ld. brother, my order in the present case is as follows:-
18. In my considered opinion, the appeal is required to be allowed both on merits as well as on time bar. My Ld. brother has upheld the order on the ground that the appellants were marketing the brand name "Trupthi" as mineral water prior to 16.3.95. The appellants in the present case has denied that they have added minerals in the water which is marketed by brand name "Triputhi". They in their reply dated 26th Dec. 1995 to the show cause they have clearly contended that they were only carrying on the process of purification and filtration by various process and subjecting the water to chlorine treatment for removing bacteria in the water. They have specifically denied addition of any mineral salt to such purified water. The mineral water was not subjected to excise duty prior to 16.3.95 and the same introduced as a commodity and goods, by virtue of the introduction of Chapter Note 2 to Chapter 22 on 16.3.95. The period in question is prior to this introduction of Chapter Note. Therefore, the question raised by the appellant assessee is that prior to this introduction of Note 2 to Chapter 22 where the process of purification and filtration without addition of mineral salt would not bring into existence new goods by virtue of Section 2(f) of the Act. It has also been contended that the Board of Revenue by their Circular No. 9/87 dated 28.7.87 had clearly states that mineral water would be non excisable even under the new tariff, therefore the appellants' contention is that purification of water will not result into a new product as water remains water and there being no introduction of any legislative intent by introduction of Chapter Note of treat this as a process of manufacture, the clearance of purified branded water in the name of "Triputhi" will no be goods. In this regard, large number of judgments have been cited on this very issue. On a careful consideration, I totally agree with the appellants' contention. I notice that in the case of S.D. Fine Chemicals Pvt. Ltd. Vs. CCE [1991 (56) ELT 396] the process of purification of brought out chemicals by distillation and re-crystallization was held to be not a process of manufacture as it did not bring any change in the name or chemical formula of chemicals. Although the minority order was drafted by me, the majority held that the chemical remain chemicals and purified chemicals are not new goods. This judgment has since been confirmed by the Apex Court. In this judgment, large number of other Tribunal and Supreme Court judgments have been noted to uphold the view expressed by the majority. The 3rd Member expressed the view agreeing with the Member (T) and the said order has been reported in 1996 (12) RLT 121 which noted large number of Supreme Court judgments which have a very clear bearing on the present case.
19. On this very item of water which was distilled and sold the authorities under the U.P. Sales Tax Act intended to treat it as a commodity. However, the Allahabad High Court in the case of H.T. Chemical Laboratories Vs. the State of U.P. & Others as reported in 1992 (29) STC 148 held that distilled water is nothing but a purified form of water. It is neither a medicine nor a pharmaceutical preparation nor is it prepared through any manufacturing process and held it to be not taxable. The Tribunal also in the case of Gujarat State Fertilizers Co. Ltd. Vs. CCE- 1998 (98) ELT 840 upheld this very contention and held that purification of water and selling the same would not bring into existence new goods and set aside the demands. The said order has been followed by this bench in this case of McDowel & CO. Others Vs. CCE Cochin - 1999 (30) RLT 201 (Tri). Both these judgments would clearly apply to the facts of the present case and a different view is not possible to be taken.
20. Even on the aspect pertaining to time bar, it is seen that the department was fully aware of the manufacture and sale of the product by the appellants. Further more, the Board by their own Circular Vide No. 84/84/94-Cx dated 20.4.94 - 1994 (75) ELT T-13 had clearly mentioned that Aqua mineral Bisleri treated water would be non-excisable even in the new Tariff. The Circular further added that Explanatory note to H.S. at pate 163 includes clarified or purified water under the category of "ordinarily natural water of all kinds". It noted that "but there is no such entry of Central Excise side, the manufacture of only mineral bisleri treated water is not excisable". In view of this Board's Circular, it cannot be alleged that appellants had suppressed the fact of manufacture and they did not hold bona fide belief for contending the demands are time barred. This was further clarified by Board Letter F.No. 9/1/94-Cx-1 dated 20.12.94 stating that water which is treated with bleaching powder to eliminate injurious micro organisms and further purified by filtration and softening the water to make it bacteria free and to avoid contamination during treatment that by itself would not make the water an excisable unless there is addition of mineral salt to be treated as mineral water for classification under Sub Heading 2201.90. In the present case, there is no addition of minerals by the appellants and therefore to hold that the water treated by them as "Trupthi" water was a mineral water by addition of mineral salts is totally incorrect finding which is not supported by any facts. There is no evidence produced by Revenue to show that appellants have added mineral salts and therefore the appellants' contention that they are not goods is to be accepted. Further, there is no grounds for extending larger period in the matter and hence the appeal is to be allowed both on merits as well as on time bar. Ordered accordingly.
POINTS FOR DIFFERENCE OF OPINION In view of difference of opinion, the following question is referred to the 3rd Member for answering the same.
(a) Whether the appeal is required to be rejected and matter remanded to the authorities for re-calculation of duty in the light of Larger Bench judgment rendered in the case of Shri Chakra Tyres Ltd. for extending the benefit of Modvat credit as held by Member(T) OR
(b) whether the appeal is required to be allowed both on merits and on time bar as held by Member(J).
This matter has been referred to determine the points as recorded herein above. I have heard both sides and have the privilege of going through orders prepared by learned Member (Technical) and Member (Judicial). Therefore, I am not repeating the facts which are recorded therein. After considering the submissions and material on record, I find -
(a) The order impugned in this case recorded -
"Water stored in storage tanks is subjected to chlorine treatment by addition of Sodium Hype Chloride. 20 to 30 mg of Calcium Carbonate is added to 500 Litres of water to give a taste to the water. To add or reduce the minerals contents in the water the necessary chemicals and equipments like Alum doser are used in their plants. They use Micron filters of different sizes to remove bacteria. To ensure that the water is bacteria free, it is subjected to a series of ultra violet radiation. Then the water is filled into cleaned bottles, closed in airtight manner and sealed."
However, in the finding portion, the Commissioner has not come to any findings on Calcium Carbonate, which is being alleged to be added for taste and Sodium Hypo Chloride are in the nature of mineral salts or only chemicals. He has also not come to a clear findings of such additions, to amount to mineralisation of water. It is not clear if the products were at any time tested before any after the processing, to come to a conclusive findings, that the minerals content are being increased or decreased, as the case may be, to come to a desired mineral level content. The appellant, before me, submitted that sodium Hypo Chloride and other chemicals are being added to kill the bacteria in the water. This claimed used cannot be confirmed or overruled from the findings in the Order.
(b) I find that the Ld. Member (T), in the order prepared by him, in this case, has come to a conclusion, in para 7 & 8 thereof, that the process of manufacture undertaken by the appellants is to add and to reduce minerals content of the product 'Trupthi' as per requirements. Therefore, it was covered by Boards Circular dated 20.12.94. In spite of my pursuing the material, I am very sorry to find myself in conflict with this opinion of Ld. Member(T), on this point. I am satisfied to reflect that what has occurred in this case is not likely to happen frequently, for I understand, that subsequently due to amendment of the Tariff description, dutiability of the water in question is now well settled. I would consider the proposed remand to include be required to determine the elementary fact of addition or reduction of minerals to be very necessary. Since there is no findings on record to come to a conclusive finding on the positive Rheus on part of the manufactures to be manipulating the mineral contents. But full remand is not the option available, I am not therefore able to agree, with the findings arrived at regarding applicability of Boards Circular on manufacture and to order a limited remand as proposed in the points for difference of opinion as a (a) recorded by the Ld. Bench in this case. I would therefore reluctantly agree, to allow the appeal on merits.
2. In view of my findings I would agree with answering the question referred to me above, by (sic) question (b) herein; i.e. this appeal is required to be allowed on merits. Reference is answered accordingly.
3. The matter now be placed before the Bench for final orders.
MAJORITY ORDER In view of the majority order, the impugned order is set aside and aside and the appeal is allowed on merits with consequential benefit, if any.
Pronounced in open court on 11.5.2001.