1994 (3) TMI 187 - AT - Central Excise

Issues Involved:
1. Eligibility of pasteurised butter for exemption under Notification No. 247/77-C.E.
2. Interpretation of Notification No. 247/77-C.E.
3. Allegation of suppression of facts and extended period of limitation for demand.

Detailed Analysis:

1. Eligibility of Pasteurised Butter for Exemption:
The primary issue was whether pasteurised butter received without payment of Central Excise duty under exemption Notification No. 247/77-C.E., dated 23-7-1977, was eligible for exemption when used in the manufacture of ice creams. The respondents, M/s. Kwality Ice Creams (Pvt.) Limited, obtained an L-6 Licence under Chapter X of the Central Excise Rules, 1944, for the manufacture of regenerated liquid milk from pasteurised butter and availed of the exemption. However, the pasteurised butter was used to manufacture ice creams.

The Assistant Collector found that the pasteurised butter was not used for the regeneration of milk but for manufacturing ice creams, thus not complying with the exemption notification. The Collector of Central Excise (Appeals) held that the exemption was valid as long as the pasteurised butter was used for regenerating liquid milk, even if the milk was subsequently used to make ice creams.

2. Interpretation of Notification No. 247/77-C.E.:
The notification exempts pasteurised butter used for the regeneration of liquid milk from excise duty. The Revenue argued that the exemption did not extend to pasteurised butter used in the manufacture of ice creams, even if liquid milk was an intermediate product. They cited the Gujarat High Court decision in Vadilal Dairy Frozen Food Industries v. Union of India, which held that skimmed milk powder not used directly for regenerating liquid milk was not eligible for exemption.

The Tribunal found the matter covered by the Vadilal Dairy case, where similarly worded Notification No. 38/78-C.E. was interpreted. The Tribunal held that the exemption applied only when the pasteurised butter was used directly for the regeneration of liquid milk, not when it was an intermediate product in ice cream manufacturing.

3. Allegation of Suppression of Facts and Extended Period of Limitation:
The Revenue alleged that the respondents suppressed the fact that pasteurised butter was used for manufacturing ice creams, invoking the extended period of limitation under Section 11A of the Central Excises and Salt Act, 1944. The respondents argued that they had disclosed their manufacturing process and the use of regenerated liquid milk for ice creams in their L-6 licence application and maintained proper accounts and returns.

The Tribunal examined whether there was suppression of facts justifying the extended period of limitation. The majority found that the respondents had disclosed the use of regenerated liquid milk for ice cream manufacturing in their licence application and returns, negating the suppression charge. The Tribunal referenced the Supreme Court's observation in Collector of Central Excise v. Chemphar Drugs & Liniments, which stated that extended periods require proof of conscious and deliberate withholding of information.

Conclusion:
The Tribunal concluded that the respondents were not entitled to the exemption under Notification No. 247/77-C.E. for pasteurised butter used in ice cream manufacturing. However, the demand for duty was enforceable only for six months and not for the extended period, as the charge of suppression was not established. The Revenue's appeal was allowed to this extent, confirming the demand for six months.

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