1. The appeal is against the order-in-appeal dated 3-3-1986 passed by Collector of Central Excise (Appeals), Madras holding the appellants liable to Central Excise duty on skimmed milk powder produced by them and packed in polythene bags of 25 Kg., 20 Kg., 15 Kg., 10 Kg. packing under Tariff Item 1B of the Central Excise Tariff as was applicable at the material time which covered Prepared Preserved Food put in unit containers and ordinarily intended for sale including preparation of ... milk ... not elsewhere specified. He took note of the fact that the goods were specified in Item No. 12 of Notification No. 17/70-C.E., dated 1-3-1970. He held that polythene packing of 25 Kg., 20 Kg., 15 Kg. and 10 Kg. with markings and numbers would constitute unit containers ordinarily intended for sale. H also observed that they had not satisfied the two conditions under Notification No. 145/73 exempting skimmed milk powder used for regeneration of liquid milk within the premises of same factory of production or elsewhere than in the factory subject to the satisfaction of the Collector that skimmed milk powder is intended for use in regeneration of liquid milk and procedure set out in Chapter X of Central Excise Rules is followed.
2. In contesting the findings of the Collector (Appeals) the appellants have contended that there was no predetermined quantity to be packed in the bags. The goods were meant for regenerating milk in the same factory and also in their Madras Unit to which the bags were sent. The milk powder itself was not for sale in either place. Their failure to follow the Chapter X Procedure for their removal of the skimmed milk powder to their Madras Unit was only a technical or venial breach and they should be given the benefit of exemption. They have then raised an alternative plea that even if it is held that the skimmed milk powder in question fell under Tariff Item 1B and was also not eligible for exemption, the notice was barred by limitation as there was no suppression of facts.
3. The appellants had sent written submissions in response to the notice of hearing. The same has been taken on record and considered.
The respondent Collector was represented by Shri J.M Sharma, learned Departmental Representative who argued in support of the impugned order.
4. We find that this case has had a long and chequered history. The duty demand relates to two periods, 1974-75 to July 1976 and 1-8-1976 to 26-10-1976. Two adjudication orders were passed by the Deputy Collector of Central Excise which are dated 21-4-1977 and 12-5-1977.
The Appellate Collector by his order in appeal dated 9-11-1978 remanded the matter to the Deputy Collector for de novo decision inter alia, on the applicability of Notification No. 145/73 for skimmed milk powder used for regenerating liquid milk. The Deputy Collector accordingly passed his de novo adjudication order holding that from the total demand of duty on the quantity of skimmed milk powder sold during the period December 1974 to 26-10-1976, the quantities cleared for the purpose of regeneration of milk in the same factory should be excluded.
The exemption was not extended to the quantity of skimmed milk powder cleared to their unit at Madras on the ground that there was no evidence that the Madras Unit was a holder of L6 Licence and that Chapter X Procedure was observed. This was challenged by them before the Appellate Collector who rejected their appeal. Their Revision Application before the Government of India against the order in appeal came to be transferred to the Tribunal which, by its Order No. 163/85-D dated 26-4-1985, set aside the order and remanded the matter to the Collector (Appeals) for a finding on the basic issue of classification of the product under Item 1B of the Tariff. The impugned order in appeal dated 3-3-1986 came to be passed under these circumstances.
4. The finding in the impugned order is that the skimmed milk powder in question fell under Tariff Item 1B. The applicability or otherwise of exemption Notification No. 145/73 is contingent upon finding. As the classification has been held to be under Item 1B. The wording of this item has been mentioned earlier. The important criteria are - 5. The scope of the expression "unit containers" used in the said Tariff Item came to be considered in Collector of Central Excise, Chandigarh v. Himachal Pradesh Horticulture Produce Marketing and Processing Corporation Ltd. -1988 (34) E.L.T. 160. The Tribunal took note of the instructions dated 3-4-1969 issued by the Ministry to the following meaning of Unit containers : "The expression 'unit container' used in Tariff Item 1B means a container in which prepared or preserved food is intended to be sold by the manufacturer, it may be a small container like tin, can, box, jar, bottle or bag in which the product is sold by retail, or it may be a large container like drum, barrel or cannister in which the product is packed for sale to other manufacturers or dealers. In short, 'unit container' means a container, whether large or small, designed to hold a pre-determined quantity or number which the manufacturer wishes to sell whether to a wholesale or retail dealer or to another manufacturer." The two to one majority decision in this case was that the product (apple juice concentrate) cleared in big plastic containers or carboys of 62 Kg. and 29 Kg. was classifiable under Item 68 and not under Item 1B as prepared or preserved food put up in unit containers for sale.
The excisability of skimmed milk powder itself came up before the Andhra Pradesh High Court in the A.P. Dairy Development Corporation Private Limited v. Union of India reported in 1976 Tax LR 1267 which was reproduced in 1977 Census 11D. In Page 15D of the report, in paragraph 10 of the judgment it was held that "Milk Powder whole or Skimmed put up in Kraft Paper bags with polythene liner and which is not sold to third parties but is used in the petitioner's factory or factories in the State for regeneration into fluid milk does not attract and is not liable to excise duty leviable by Item 1B introduced by the Finance Act, 1969 in Schedule I to the Central Excises & Salt Act. It is, however, not in dispute that if any sales are effected to third parties of such milk powder in any containers including the Kraft paper bags with polythene liner they are liable to excise duty." The judgment was followed by Government of India in their Order Nos. 15-17 of 1982, dated 14-4-1982 in Hindustan Milk Food Manufacturers Ltd. - 1982 (10) E.L.T. 739 (GOI). The judgment of the Andhra Pradesh High Court is fully applicable to the present case. The Collector (Appeals) has stated that the goods in question are specified as Item 12 of Notification No. 17/70-C.E., dated 1-3-1970. This is a totally faulty approach particularly in the circumstances of this case. The fact that an exemption Notification refers to a product as falling under a particular Tariff item is not conclusive of that classification. The following decisions of the Tribunal are relevant in this connection :- (1) 1983 E. L. T. 1216 - International Conveyors Ltd. v. CCE, Aurangabad.Lal Woollen & Silk Mills v. CCE.6. The classification under Item 1B is ruled out for skimmed milk powder of the type packed and cleared in the manner followed by the appellants. Even going by the finding given by the Collector (Appeals), if Tariff Item 1B comes (into reckoning), can Notification No.17/70-C.E., dated 1-3-1970 and S. No. 12 therein be far behind. The Collector was in error in classifying the product under Item 1B in the first instance. He compounded that error by denying the exemption available under Notification No. 17/70 which specifically included skimmed milk powder. Ironically he had relied upon the exemption Notification to decide the Tariff Classification but failed to give the benefit of that Notification itself. His ultimate rejection of the appeal confirming duty demand on the product in question is untenable and has got to be set aside.
7. Following the Andhra Pradesh High Court judgment referred to above, the product was not excisable at all during the period upto 28-2-1975.
After the introduction of Tariff Item 68 the goods became classifiable under that item. That would be in line with the Tribunal decision in the H.P. Horticulture Corporation Ltd. case referred to earlier. But under that item also no duty would be payable because of exemption Notifications No. 118/75. No duty is payable by the appellants under Tariff Item 1B as held by the authorities. As the appeal is allowed on merits it may be superfluous to record a finding on the alternative plea of limitation. However, we would like to observe that from that angle also the appellants succeed.