Packaged Drinking Water Not Liable to MRP-Based Excise Valuation: CESTAT

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has held that packaged drinking water cannot be assessed to central excise duty on the basis of Maximum Retail Price (MRP) under Section 4A of the Central Excise Act, 1944, unless it is specifically covered by statutory notifications. The bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has set aside the duty demand, extended limitation, penalties, confiscation and redemption fine imposed on M/s Sree Gokulam Food and Beverages (P) Ltd. and its Executive Director The dispute arose from a show cause notice issued to the Athur unit of the assessee, engaged in the manufacture of packaged drinking water under the brand “Holy Aqua”, proposing differential duty of about ₹21.79 lakh for the period from April 2007 to September 2010. The department alleged that the product should be assessed on an MRP basis under Section 4A, treating it at par with “mineral water”, and also invoked the extended period of limitation along with penalties under Section 11AC and Rules 25 and 26 of the Central Excise Rules, 2002. While the Commissioner (Appeals) partly modified the original adjudication order, he still upheld duty liability under Section 4, confirmed penalties on the company and imposed a personal penalty of ₹5 lakh on the Executive Director. Aggrieved by this order, the assessee approached the Tribunal. The principal issue before the Tribunal was whether packaged drinking water is covered by MRP-based valuation notifications issued under Section 4A, which expressly referred to “mineral water” and “aerated water”, and whether such notifications could be extended to packaged drinking water by implication. The Tribunal observed that notifications issued under Section 4A are statutory in nature and must be strictly interpreted. It noted that the relevant notifications relied upon by the department referred only to “mineral water” and did not expressly include packaged drinking water. The Tribunal emphasised that tax liability cannot be imposed by inference or presumption, and unless goods are clearly specified in the notification, MRP-based valuation cannot be applied. On facts, the Tribunal found no evidence that the manufacturing process involved addition or alteration of minerals so as to convert the product into mineral water. Filtration, UV treatment and ozonisation alone were held insufficient to classify the product as mineral water. Consequently, the Tribunal ruled that the product was packaged potable drinking water, liable to valuation only on transaction value under Section 4, and not under Section 4A. The Tribunal further held that the dispute was purely interpretational, involving classification and scope of notifications. In the absence of any evidence of suppression, fraud or wilful misstatement, invocation of the extended period under the proviso to Section 11A was found to be unsustainable. Relying on settled judicial principles, the Tribunal ruled that penalties cannot be imposed where the issue is one of bona fide interpretation of law. Accordingly, penalties imposed on the company as well as the personal penalty on the Executive Director under Rule 26 were set aside. The Tribunal also quashed the confiscation of goods and the redemption fine, noting that the primary demand itself did not survive. The Tribunal took note of its earlier decisions in favour of the same assessee for its other units at Coimbatore and Konnakuzhy, where identical demands had been set aside. Holding that there was no distinguishing factual matrix, the Bench stressed the need for consistency in adjudication when identical issues involving the same assessee had already been decided. The CESTAT set aside the Order-in-Appeal in its entirety and granted consequential relief to the assessee. The ruling reinforces the principle that packaged drinking water cannot be automatically equated with mineral water for MRP-based excise valuation, and that extended limitation and penalties cannot be sustained in cases involving genuine interpretational disputes under tax law Case Details Case Title: M/s. Sree Gokulam Food and Beverages (P) Ltd. Versus Commissioner of GST and Central Excise Case No.: Excise Appeal No. 41775 of 2017 Date: 16.12.2025 Counsel For Appellant: P. Satheesan, Advocate Counsel For Respondent: Anandalakshmi Ganeshram, Authorised Representative Click Here To Read Order Read More: Non-Filing of Creditor’s ITR Alone Not Enough to Make Income Tax Additions: Patna High Court

Packaged Drinking Water Not Liable to MRP-Based Excise Valuation: CESTAT

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