Full Judgment
Collector (Appeals) has also expressed the view that even if regenerated liquid milk were cleared as such from the factory of production in terms of Notification No. 38/78, there was nothing to prohibit its use for manufacture of any other product. As such, introduction of the condition of such a nature would amount to discrimination in case in which such regenerated liquid milk is captively consumed and those in which it is cleared from the factory of production and is used further at other place.
2. The department has contended in its appeal before us that the respondents herein who were holding an L6 licence and were obtaining skimmed milk powder free of duty from Indian Dairy Development Corporation, New Delhi and also from their own milk plants located at different places in Punjab in terms of Notification 38/78-C.E. for use in the generation of liquid milk then converted it into Sweetened Flavoured Milk (a ready-to-serve beverage exempted from duty under Notification 281/77 dated 28-8-1977). As regenerated milk was not cleared as such, but was converted into Sweetened Flavoured Milk, the respondents were not entitled to the exemption envisaged under the notification. Since the respondents did not inform the authorities that they were bringing skimmed milk powder for manufacture of Sweetened Flavoured Milk, they were charged with withholding this information which amounts to suppression of facts. We have heard both sides.
3. Reliance has been placed by the department on the decision of the Gujarat High Court in the case of Vadilal Dairy Frozen Food Industries, Ahmedabad v. Union of India and Ors. [1983 (12) ELT 672 (Guj.)] in which it was decided by the Division Bench that skimmed milk powder which is not utilised in the re-generation of milk will not be eligible for exemption under Notification 38/78-C.E., dated 1.3.78, if such skimmed milk powder is used in the manufacture of ice-cream irrespective of the fact whether, at the intermediate stage, such skimmed milk powder is made into milk or not. The High Court, while interpreting the notification, laid emphasis on the fact that the skimmed milk powder used for the regeneration of liquid milk within the premises of the same factory of production of skimmed milk powder was exempt from the whole of the duty. To quote from para 2 of the judgment :- "There is no need to search for a secret code in order to decipher the underlying purpose of granting exemption. It is manifestly clear viz., to augment the supply of liquid milk so that the poor can supply to their children atleast fat extracted milk at a price within their reach. Otherwise, why not grant an unqualified exemption to "skimmed milk" without any rider? If such a rider is not added skimmed milk would be entitled to exemption regardless of whether the ultimate product is ice-cream or barfi or some other product. But the rider is added purposefully so that skimmed milk is regenerated into liquid milk within the very premises of the factory, or when the Assistant Collector is satisfied that it is for 'use' for regeneration of liquid milk. ... In our opinion, what was born as milk and re-born as skimmed milk powder would be entitled to exemption only when it is again re-born as liquid milk for consumption in the last stage of its journey from milk to milk and certainly 'not' if it is ultimately re-born as ice-cream though on its journey to its destination it is incidentally liquefied on its way." 4. In view of the above observations of the High Court, and the reasons recorded in the judgment, it is clear that the respondents were not entitled to exemption from duty on Sweetened Flavoured Milk which was made out of regenerated liquid milk with the addition of sugar and flavour because the purpose of the exemption would then be defeated. In this view of the matter the appeal succeeds and is allowed.