Municipal water exempted from excise duty
Drinking water supplied by civic bodies taxable? Surprisingly the answer is yes. Look at the statute. These are the headings for water in the tariff.
2201 | Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured; ice and snow | ||
2201 10 | - | Mineral waters and aerated waters: | |
2201 10 10 | --- | Mineral waters | 16% |
2201 10 20 | --- | Aerated waters | 16% |
2201 90 | - | Other: | |
2201 90 10 | --- | Ice and snow | Nil |
2201 90 90 | --- | Other | 16% |
Note 5 of Chapter 22 states,
5. In relation to waters, including natural or artificial mineral waters of heading 2201 and waters, including mineral waters of heading 2202 processes, such as filtration, purification of any other process or any one or more of these processes, labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to "manufacture".
From the above, it is clear that municipal water which undergoes processes, such as filtration, purification falls under heading 2201 90 90 and is excisable.
But the benign government was kind enough to exempt such waters from excise duty by Notification No. 3/2005 – Sl. No. 13 of the notification fixed an effective rate of duty of NIL on this if the water did not have a brand name.
13. | 2201 10 10, 2201 90 90, 2202 10 90, 2202 90 30 or 2202 90 90 | All goods not bearing a brand name | Nil |
So far so good and the menacing duty collecting officers were not attacking the civic corporations for tax collections. But in the 2006 budget, in the process of withdrawing exemptions, this exemption to unbranded water also got washed away. Notification No. 7/2006 deleted the entry 13 from the above notification. So from 1.3.2006 any water sold was liable to excise duty and all the civic bodies in the country supplying water to the citizens were liable to pay excise duty. It is really surprising why the shrewd excise men did not pounce upon Municipal Corporations to pay duty. Obviously the government realized the lapse and now a notification is issued exempting waters not cleared in sealed containers. But this notification is dated 4.5.2006, which means and proves that such water was taxable till that date. Will a retrospective exemption be given or will the department collect the duty from civic corporations till 3rd May 2006?
A similar exemption is now given to “Food preparations not cleared in sealed containers” which would mean that all hotels were liable to pay excise duty on all food items served by them. They are still liable for the months of March and April.
NOTIFICATION NO. , Dated: May 4, 2006