AED Demand on Pre-Budget Aerated Drinks Stock Quashed by CESTAT Ahmedabad
Background and Dispute Overview
The appeal in Pepsico India Holding Pvt. Ltd. Vs Commissioner of CGST & Central Excise came up before the CESTAT Ahmedabad against an order dated 27.12.2017 passed by the Commissioner (Appeals), GST & Central Excise, Vadodara. That order had upheld a demand of Additional Excise Duty (AED) amounting to Rs. 4,94,549/-, along with interest and penalty.
The assessee is a private limited company engaged in manufacturing:
- Aerated water
- Soda
- Packaged drinking water
- Fruit juice-based beverages
These products fall under Chapter 22 of the First Schedule to the Central Excise Tariff Act, 1985.
The dispute stemmed from the introduction of AED on aerated waters under Chapter Sub-heading 2202 10 via amendments to the Finance Act, 2005, brought in through the Finance Act, 2014.
Legislative Changes: Introduction of AED
Finance Bill and Finance Act Amendments
- Through Budget 2014, the Union Government proposed, vide Clause 110 read with the Ninth Schedule to the Finance Bill, 2014, to amend the Seventh Schedule to the Finance Act, 2005.
- The objective was to impose Additional Excise Duty (AED) on aerated waters covered under Chapter Sub-heading 2202 10.
- With effect from 11.07.2014, this proposal took legal effect through Section 118 read with the Ninth Schedule to the Finance Act, 2014.
New AED Entry in the Seventh Schedule
An additional entry was inserted in the Seventh Schedule to the Finance Act, 2005, which covered goods liable to AED, with the following particulars:
Tariff Item: 2202 10
Description of goods: Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured
Unit: I
Rate of duty: 5%
From 11.07.2014, products manufactured by the assessee that fell under this description became liable to AED at 5%.
Assessee’s Intimation and Department’s Initial Stand
Assessee’s Letter Dated 11.07.2014
On 11.07.2014, the assessee formally wrote to the Department, stating that:
- Goods manufactured and cleared on or after 11.07.2014 would be subjected to AED @ 5%.
- Goods that had already been manufactured and were lying in stock as at midnight of 10.07.2014 would not attract AED at the time of their subsequent clearance, because the manufacture had occurred before the levy came into force.
Along with this communication, the assessee furnished details of the quantity of stock held as on the midnight of 10.07.2014, in respect of which AED was claimed as not payable.
Department’s Direction to Pay AED on Pre-Budget Stock
The Department, by letter dated 21.07.2014, took a contrary view and:
- Requested the assessee to pay AED on the pre-budget stock (i.e., goods manufactured prior to 11.07.2014 but cleared thereafter); and
- Asked for proof of such payment.
Subsequently, the Department proceeded on the premise that AED became payable on all clearances taking place on or after 11.07.2014, regardless of the date of manufacture.
Show Cause Notice and Adjudication History
Show Cause Notice
A show cause notice dated 18.03.2015 was issued to the assessee proposing:
- Demand of AED of Rs. 4,94,549/- (including cess)
- On goods which were manufactured prior to 11.07.2014,
- But were lying in stock as on 11.07.2014 and cleared thereafter,
- Along with interest and penalty.
The core departmental allegation was that the taxable event should be treated as clearance after 11.07.2014, thereby attracting AED.