CESTAT Ahmedabad Sets Aside Rs 4.94 Lakh Excise Duty Against Pepsico Over Pre-Levy Aerated Water Stock

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Ahmedabad has set aside a Rs 4.94 lakh Additional Excise Duty demand against Pepsico India Holding Pvt. Ltd. over aerated waters manufactured before the levy came into force but cleared later, holding that the department could not sustain the demand.

“Since, the department has accepted the earlier orders in favour of the appellant and has not filed any appeal, therefore, now the department is prevented from taking a contrary stand today,” the tribunal held.

A single-member bench of Judicial Member S.S. Garg passed the order.

The dispute arose after Additional Excise Duty at 5% was imposed on aerated waters with effect from July 11, 2014. Pepsico, which manufactures aerated water, soda, packaged drinking water, and fruit juice-based drinks at its Jhagadia plant in Gujarat, informed the department that while goods manufactured after that date would attract the duty, stock already manufactured and lying as of midnight on July 10, 2014 would not.

The department disagreed and issued a show cause notice in March 2015 seeking Rs 4.94 lakh in duty, including cess, along with interest and penalty. The demand was confirmed by the Additional Commissioner in February 2017 and later upheld by the Commissioner (Appeals) in December 2017.

Before the tribunal, Pepsico argued that adjudicating authorities in Delhi, Hyderabad, and Palakkad had already dropped identical demands in its own cases, and the department had accepted those orders without appeal.

It also relied on the Allahabad bench's ruling in the case of franchisee Varun Beverages Ltd., which had applied the Supreme Court's judgment in CCE, Hyderabad v. Vazir Sultan Tobacco Co.

The tribunal found the issue covered by the settled legal position that excise duty is attracted at the stage of manufacture, not removal.

The tribunal reproduced the Supreme Court's observation in Varun Beverages Ltd. v. CCE, Lucknow, that “It is not as if the levy is at the stage of removal; it is only the collection that is done at the stage of removal.”

Relying on Supreme Court rulings including Jayaswals Neco Ltd., Birla Corporation Ltd. and Indian Oil Corporation Ltd., the tribunal set aside the impugned order and allowed the appeal with consequential relief.