1991 (5) TMI 159 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification 38/78-C.E. regarding the use of skimmed milk powder for regeneration of liquid milk and its exemption.
2. Whether sweetened flavoured milk produced from the regenerated liquid milk can enjoy the exemption under the notification.
3. Allegations of suppression of facts by the respondents regarding the use of skimmed milk powder for manufacturing sweetened flavoured milk.
4. Comparison with a previous judgment by the Gujarat High Court on the eligibility for exemption under the notification.

Detailed Analysis:
1. The central issue in this appeal before the Appellate Tribunal CEGAT, New Delhi was the interpretation of Notification 38/78-C.E. dated 1-3-1978, specifically regarding the use of skimmed milk powder for the regeneration of liquid milk and the consequent exemption from duty. The Assistant Collector had confirmed a demand under Rule 196 read with Section 11A, arguing that sweetened flavoured milk, produced from the regenerated liquid milk, did not qualify for the exemption under the notification.

2. The Collector (Appeals), however, allowed the appeal, stating that the notification does not mandate that the regenerated liquid milk should be the end product and cleared as such. Moreover, the Collector opined that even if the liquid milk was cleared from the production factory as per the notification, there was no restriction on its use for manufacturing other products. Imposing such a condition would lead to discrimination between captive consumption and external use of the regenerated liquid milk.

3. The department contended that the respondents, holding an L6 license, were not entitled to the exemption as they converted the regenerated milk into sweetened flavoured milk, a ready-to-serve beverage exempted under a different notification. The department accused the respondents of withholding information about the intended use of skimmed milk powder, alleging suppression of facts. The department relied on a Gujarat High Court decision emphasizing that skimmed milk powder not utilized for regeneration would not be eligible for exemption under Notification 38/78-C.E.

4. The Tribunal referred to the Gujarat High Court's judgment, which highlighted the purpose of the exemption under the notification - to increase the supply of liquid milk for affordable consumption. The High Court's interpretation clarified that skimmed milk powder must be regenerated into liquid milk within the same factory premises to qualify for the duty exemption. Based on this precedent and reasoning, the Tribunal concluded that the respondents were not entitled to exemption for sweetened flavoured milk made from the regenerated liquid milk, as it defeated the purpose of the exemption. Consequently, the appeal was allowed in favor of the department.