Aerated waters - Whether contaminated, under or over filled bottles or badly crowned bottles amounts to manufactured finished goods, which are required to be entered under R.G.-1 register and which are exigible to payment of excise duty ? - 'No' High Court answers question of law in favour of assessee
By TIOL News Service
ALLAHABAD, AUG 26, 2014: THE appellant is a manufacturer of aerated waters. Central Excise Officers visited the factory of the appellant and, upon investigation, found that the appellant was draining out the aerated water without entering it first in the R.G.-1 register and were not maintaining any record relating to draining out of the aerated water. The officers also found that the aerated water so drained out was not on account of being unfit for human consumption, but on account of the fact that it was not in conformity with the specifications provided under the Prevention of Food Adulteration Act and Weights and Measures Act, 1976. Accordingly, Show Cause Notice was issued demanding duty and penalty, confirmed in adjudication, upheld by the Commissioner (Appeals) and the Tribunal with partial relief in respect of penalties imposed. The assessee is in appeal before the High Court with the following questions of law:
(1) Whether the contaminated, under or over filled bottles or badly crowned bottles amounts to a manufactured finished goods, which is required to be entered under R.G.-1 register and which is exigible to payment of excise duty ?
(2) Whether the draining out of contaminated water amounts to clandestine removal of the goods and, consequently, the excise duty is payable ?
After hearing both sides, the High Court held:
Where a product is manufactured but is not marketable, no excise duty would be leviable. The law requires the appellant to provide a screening test before it can declare the manufacture product as a finished product, which is marketable. If the product does not pass the test for the reasons of being contaminated under filled or over filled or where the bottle has a badly crowned cap, such bottles are not manufactured finished goods which are marketable and, consequently, are not required to be entered in R.G.1 register.
In the instant case, the drainage of the aerated water from the contaminated bottles or over filled or under filled or badly crowned caps bottles had taken place during the production stage. The appellant contended that in terms of the provisions of Weights and Measures Act they were required to fill the bottles with aerated water containing the declared quantity of goods, failing which, they would be liable to penal action in terms of the said Act. Consequently, filling less or more aerated water in the bottles is not marketable under the Weights and Measures Act. We are of the opinion that such over filled or under filled or badly crowned bottles were not completely manufactured finished goods and, therefore, would not be exigible to excise duty. As such, under filled or over filled or badly crowned caps bottles cannot be treated as being fully manufactured nor could it be treated as finished goods and, consequently, there was no occasion for such goods to be entered in R.G.1 register. The finished goods after undergoing the screening test are only required to be accounted for in R.G.1 register having found that they are fit for sale.
The authorities were wholly incorrect and misdirected itself in coming to the conclusion that since these under filled, overfilled, badly crowned bottles were not entered in R.G.1 register, it amounts to clandestine removal of goods without payment of excise duty, is patently erroneous.
(See 2014-TIOL-1436-HC-ALL-CX)
