Full Judgment
"In exercise of the powers conferred by Sub-rule (1) of Rule8 of the Central Excise Rules, 1944, the Central Government hereby exempts, from the whole of the duty of excise leviable thereon, such quantities of pasteurised butter, falling under item No. 1-C of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as are used for regeneration of liquid milk within the premises of the same factory of production, or in a factory elsewhere than in the factory of production : Provided that where such use is elsewhere than in the factory of production, the exemption shall be allowable, if - (i) It is proved to the satisfaction of the Collector of Central Excise that such pasteurised butter is intended for use for the regeneration of liquid milk; and (ii) the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed." 3. M/s. Kwality Ice Creams (Pvt.) Limited (The respondents), obtained L-6 Licence under Chapter X of the rules for the manufacture of regenerated liquid milk from pasteurised butter and availed of the exemption under Notification No. 247/77-C.E., dated 23-7-1977. The pasteurised butter so received was, however, used for the manufacture of ice creams.
4. The process of manufacture as given by the respondents is that skimmed milk powder is regenerated in the liquid form by dissolving the same in water with pasteurised butter in proportionate quantities at a temperature of 160 degree F. for pasteurising. After pasteurising and continuous process it goes for manufacture of ice creams.
5. The Assistant Collector Central Excise, Calcutta who adjudicated the matter came to a finding that the pasteurised butter was not used for the regeneration of the milk but the manufacture of ice creams.
6. On Appeal by M/s. Kwality Ice Creams, the Collector of Central Excise (Appeals) Calcutta observed that "even if the pasteurised butter was regenerated into a liquid milk which is further used in the manufacture of ice creams, the purpose of exemption Notification No.247/77-C.E., dated 23-7-1977 is complied with the moment the butter is used for regeneration of liquid milk." 7. He held that since M/s. Kwality Ice Creams had fulfilled the requirement of the exemption notification, the demand for duty was not justified. He also came to a finding that the allegation of suppression of information was not sustainable.
8. He allowed the appeal and set aside the order of the Asstt.
Collector with the direction to grant consequential reliefs.
stipulated that "Pasteurised Butter" is exempt from the whole of duty if it is used within the factory of production for regeneration of 'Liquid Milk' and where such use is elsewhere than in the factory of production the exemption is allowable provided the 'Pasteurised butter' is intended for use for the regeneration of liquid milk and the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed.
(2) In the instant case the said Company availed of the benefit of exemption under the Notification No. 247/77-C.E., dated 23-7-1977 in respect of 'Pasteurised Butter' which they brought from outside by following Chapter X procedure for the purpose of regeneration of liquid milk from the 'Pasteurised Butter' in order to produce 'Ice-cream' which was the end-product by applying other processes in a continuous process of manufacture of Ice-cream.
(3) From the above it shows that the 'Pasteurised Butter' received by the said Company without payment of duty went into production of 'Ice-cream' and not the liquid milk which came into existence as an intermediate product in the continuous process of manufacture of 'Ice-cream'. The Notification No. 247/77-C.E., dated 23-7-1977 has not extended the benefit of exemption for such use of the 'Pasteurised Butter'.
(4) In this connection Notification No. 38/78-C.E., dated 1-3-1978 can be cited. Although this Notification has been issued allowing exemption in respect of "Skimmed Milk Powder" which falls under a different tariff item but the purposes of the benefit are identical as that under the Notification No. 247/77-C.E., dated 23-7-1977. The Hon'ble High Court of Gujarat in the case of M/s. Vadilal Dairy Frozen Food Industries, Ahmedabad v. Union of India and Ors. [1983 (12) E.L.T. 672] held that 'Skimmed Milk Powder' which is not utilised in the regeneration of liquid milk will not be eligible for exemption under Notification No. 38/78-C.E., dated 1-3-1978 if such 'Skimmed Milk Powder' is used in the Manufacture of Icecream irrespective of the fact whether at the intermediate stage such 'Skimmed Milk Powder' is made into Milk or not. This order is relied upon in the matter of decision in the instant case.
(5) Keeping in view that what is stated above it is clear that the said Company brought the 'Pasteurised Butter' without payment of duty in terms of exemption Notification No. 247/77-C.E., dated 23-3-1977 knowing fully well that such 'Pasteurised Butter' would be utilised for the manufacture of Ice-cream instead actual use of liquid Milk as such and suppressed the fact of utilisation of the pasteurised butter in the manufacture of Ice-cream, with intent to evade payment of the duty payable on the said pasteurised butter.
(6) The Collector, Central Excise (Appeals), Calcutta in his Order in Appeal failed to observe the aforesaid points and passed the orders against the provisions of the Notification. The Order-in-Appeal is therefore, not correct in law and may be set aside.
10. The case was posted for hearing on 12-7-1993 when Smt. J.M. Shanti Sundram S.D.R. appeared for the Revenue (Appellants). Sh. Lachman Dev, Consultant represented the respondents.
11. Smt. J.M.M. Shanti Sundram, the learned S.D.R. stated that the case related to the interpretation of Notification No. 247/77-C.E., dated 23-7-1977, as well as to the issue of time-bar. In this case the appeal has been filed by the Revenue.
12. On merits the learned S.D.R. relied upon the ratio in the case of Vadilal Dairy Frozen Food Industries, Ahmedabad v. Union of India [1983 (12) E.L.T. 672 (Gujarat)], where similarly worded Notification No.38/78, dated 1-3-1978 came for consideration and interpretation before the Gujarat High Court. This decision has been followed by the Tribunal in the Order No. E/57/93, dated 17-2-1993.
13. As regards time-bar, the learned S.D.R. submitted that in the facts and circumstances of the case the extended period of limitation was correctly invoked. In support of her arguments she relied upon the following decisions :Fertilizer Corp. of India Ltd. v. Collector, Central Excise -1990 (50) E.L.T, 494 (Tribunal), - demand for duty raised against the manufacturer and not the consumer of Ammonia, unsustainable.Indian Farmers Fertilizers Corp. Ltd. v. Collector, Central Excise -1989 (41) E.L.T. 474 (Tribunal) - time limit for demand of duty for goods unaccounted for in terms of Rule 196 of the Rules - demand of duty when made under specific provision in Rule 196, there is no warrant to import limitation of Section 11A for raising the demand under Rule 196 - demand not hit by limitation even if made after a period of two years (Majority decision).
(3) Collector, Central Excise v. Madras Radiators and Pressing Ltd. - 1988 (15) E.C.C. T-15 - removal of goods free of duty under Chapter X, - buyer - manufacturer not accounting for goods in prescribed manner - duty liability on buyer - manufacturer, not on seller, Section 11A has no application to seller in such case.Bajaj Auto Ltd. v. Collector, Central Excise - 1987 (31) E.L.T. 970 (Tribunal) - clearances under exemption - scope of Rule 196 - buyer also answerable for duty where exemption wrongly availed of by manufacturer - relevant date immaterial under Rule 196 of the Rules.Bajaj Tempo Ltd. v. Collector, Central Excise - 1984 (17) E.L.T. 205 (Tribunal) - no limitation under Rule 196 of the Rules for breach of the Rules - interpretation of Chapter X procedure.Collector, Central Excise v. Amber Paints - 1985 (22) E.L.T. 297 (Tribunal) - demand not circumscribed by any limitation when made under Rule 196.
14. Sh. Lachman Dev, the learned Consultant submitted that the demand was hit by the limitation.
15. He pleaded that in the show cause notice extended period of limitation has been invoked while there was no allegation regarding suppression of facts.
16. In support of his arguments the learned Consultant relied upon the following decisions:Brakes India Ltd. v. Collector, Central Excise - 1987 (31) E.L.T. 1030 (Tribunal) - reclassification - Brake Hose Assemblies - classification changed by Revenue not on the basis of new facts coming to light or change in tariff entry or in process of manufacture but merely on interpretation - reviewed - classification and consequent demand not operative retrospectively but from the date of the show cause notice.Arti Paints and Chemicals Industries v. Collector of Central Excise -1984 (15) E.L.T. 206 (Tribunal) - demand for short recovery cannot be made under Rule 196, if permission given by mistake under Rule 192 and clearances not made under Notification No. 35/73 -recovery can be made from manufacturer and not from L-6 licence holder.Rajasthan Navsagar Chemical Works v. Collector, Central Excise - 1987 (30) E.L.T. 969 (Tribunal) - remission of duty for goods brought for industrial purposes - Chapter 10 procedure- L-6 wrongly issued -demand for cannot be made under Rule 196 if permission given by mistake under Rule 192.
17. We have carefully gone through the facts and circumstances of the case and have given our due thought to the submissions made by the learned S.D.R. for the Revenue - (Appellants), and the learned Consultant for the assessee - (Respondents).
18. We find that the matter is covered by the decision of the Gujarat High Court in the case of M/s. Vadilal Dairy Frozen Food Industries, Ahmedabad v. Union of India reported in 1983 (12) E.L.T. 672 (Gujarat).
In that case the Gujarat High Court were concerned with the interpretation of Notification No. 38/78-C.E. dated 1-3-1978, which was identically worded as Notification No. 247/77-C.E. dated 23-7-1977, and provided exemption to skimmed milk powder used for regeneration of liquid milk.
19. In the Notification No. 247/77-C.E. with which we are concerned, exemption has been provided to 'pasteurised butter' used for regeneration of liquid milk.
20. In para 2 of their decision, the Gujarat High Court observed as under: 21. This decision have been followed by the Five members' Bench of this Tribunal in the case of Collector, Central Excise, Chandigarh v. H.M.M.Ltd. Final Order No. E/57/93-D, dated 17-2-1993. The Tribunal held in that case that the respondents were not eligible for exemption under Notification No. 38/78-C.E., for the skimmed milk powder which is ultimately used in the products such as Horlicks, and the exemption thereunder was applicable only where the skimmed milk was regenerated into liquid milk, as such.
22. As regards the point of limitation we find that the respondents had not declared correctly the process of manufacture of ice-creams. They started with the pasteurised butter and ended with its dissolution in water. They did not declare that this dissolution in water was for the purpose of manufacturing ice-creams.
23. The period involved in the case is from March 1980 to May, 1984 and the show cause notice was issued on 25-5-1984. In the show cause notice, the provisions of Section 11A of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act') were invoked. Their L-6 licence was for the manufacture of regenerated liquid milk from pasteurised butter while they used the pasteurised butter for manufacture of ice-creams. As per CT-2 certificate the licencee was authorised to obtain pasteurised butter for the manufacture of liquid regenerated milk. There was no mention that pasteurised butter was to be used for the production of ice-creams. The assessee had admitted that use of pasteurised butter in the manufacture of ice-creams is a continuous process. They had stated as under : "The manufacturing process of ice-cream by us is that skimmed milk powder is regenerated in the liquid form by dissolving the same in water along with pasteurising butter in proportionate quantities at a temperature of 160 degree F. for pasteurising. After pasteurising and cooling it goes for manufacture of ice-creams." 24. The expression used in the notification is not "regenerated in the liquid form" but "regeneration of liquid milk".Jai Shri Engg. Company Pvt. Ltd. v. Collector, Central Excise -1989 (40) E.L.T.214 (S.C.), the question whether there was any fraud, collusion, wilful mis-statement or suppression of facts for the department to be justified to claim duty beyond a period of six months, is a question of fact. The Hon'ble Supreme Court observed that "the fact that the department visited the factory of the appellant and they should have been aware of the production of the goods in question, were no reason for the appellant not to truly and properly describe these goods."Collector of Central Excise v. Wipro Information Technology Ltd. - 1989 (39) E.L.T. 113 (Tribunal), the Tribunal has observed that the extended time limit of 5 years was to apply in cases of suppression of facts. It was held that as the letter written to the department was in vague terms without disclosing true position, provisions of Section 11A of the Act were applicable.Jai Shri Engg. Company Pvt. Ltd. v. Collector, Central Excise, it was observed that the visits of departmental officers to factory were of no avail in case of mis-declaration.Ice and Diesel Engg. Works v. Collector, Central Excise [1991 (53) E.L.T. 70 (Tribunal)], it was held that the extended period was applicable, if assessee makes a mis-declaration or suppression of facts.
29. Thus, in the circumstances of the case, the charge of suppression is established, and the extended period of limitation has been correctly invoked for demanding Central Excise duty under Section 11A of the Act.
30. As a result, the appeal filed by the Revenue is allowed and the impugned order is set aside.
31. I agree with the findings given by my ld. brother, in so far as merit of the case is concerned. As regards the question of extending the larger period is concerned, I beg to disagree with my ld. brother's finding on account of the following reasons.
32. The Asstt. Collector has confirmed the duty under Rule 196 read with Section 11A of the Central Excises & Salt Act, 1944. The assessee denied the plea of mis-statement or suppression on the ground that the pasteurised butter has been and still used by them for the regeneration of liquid milk which is a continuous process, in the manufacture of Ice Cream. It is their plea that this process is in existence since 1978 and the department is fully aware of their process of manufacture. That the benefit had been granted after proper verification and hence Rule 196 is not attracted. The ld. Asstt. Collector had not addressed himself on this plea. The ld. Collector has examined this issue and has held as follows : 33. The Ld. Consultant referred to L-6 and C.T.-2 certificate and argued that the use of regenerated milk in the manufacture of ice-cream is within the knowledge of the department and that the assessee had not committed any mistake, wrong or mis-stated any facts. He further pleaded that if permission had been wrongly granted then no duty can be charged and Rule 196 has no applicability. In this context, he has relied on the following rulings :Arti Paints & Chemicals Industries, Bombay v. Collector of Central Excise, BombayRajasthan Navsagar Chemical Works, Dhule v. Collector of Central Excise, Pune 3. Govt. of India v. Citadel Pharmaceuticals -1989 (42) E.L.T. 515 (S.C.) The ld. Consultant further pointed out from the facts of M/s. Vadilal Dairy Frozen Food Industries's case (Supra) and submitted that the department had admitted in that case that the quantities covered by C.T.-2 Certificate, for the period upto December 31,1982 will not be disturbed.
34. I have carefully perused these citations and pleas and I am convinced that there is force in the submission of the Ld. Consultant and that it has to be held that the demand for extended period beyond 6 months is not recoverable. In the case of Arti Paints, it has been held that the licence holder cannot be blamed for misuse of licence and demand for short recovery cannot be made under Rule 196 if permission had been given by mistake under Rule 192.
35. In the case of Rajasthan Navsagar Chemical Works, it has been held in para 4 as follows : These findings are totally applicable to the facts of the present case.
The citation of Jaishree Engineering case relied by ld. S.D.R. and other rulings are not directly applicable to the facts of the case.
Hence, I hold that demands beyond 6 months are not recoverable and are time-barred, by applying the above rulings, for the reasons given by me.Dt.: 13-9-1993 (S.L. Peeran) Member (J) In view of difference of opinion between the members, following question arises for determination and reference to third Member by Hon'ble President, as per law.
i. whether the demand is enforceable for larger period as held by ld. Member (Technical) or ii. whether the demand is not enforceable for extended period for the reasons given by ld. Member (J).Dt.: 13-9-1993 (S.L. Peeran) (Lajja Ram) Member (J) Member (T) 36. Addressing arguments on the point of difference learned Senior Departmental Representative Smt. J.M.S. Sundaram contended that the demand in this case under Rule 196 is valid since the respondents had taken the exemption without in fact being entitled thereto. The learned Senior Departmental Representative urged that the facts of the present case differ from those of Arti Paints & Chemicals Industries, Bombay and that of Rajasthan Navsagar Chemical Works, Dhule (Supra) because here the L-6 licence had been granted by the Department to the respondents on the basis of their own declaration claiming the exemption and it was not a case where the Department had erroneously granted it to an ineligible assessee. The learned Consultant Shri Lachman Dev for the respondents argued that they cannot be charged with suppression of facts as they had disclosed all the relevant particulars regarding the manufacturing process and the finished products in their application for L-6 licence. They had also maintained the R.G.-16 accounts prescribed for the purpose which had been checked from time to time by the Department. They had filed monthly returns R.T. 11 to the Department which had been duly verified. The learned Consultant further pointed out that the very fact that on the question of correct interpretation of a similar notification had to be resolved by a Larger Bench of the Tribunal amply shows that the matter was not free from doubt. This would be an added factor in favour of the respondents and against charging them with suppression of facts so as to invoke the longer period for the demand.
37. On a careful consideration of the submissions made it is seen that the charge of suppression of facts against the respondents and hence to invoke the longer period for demanding the duty is not well-founded.
This is because a perusal of the A.L.-6 application which is on record shows that in the Schedule thereto, against Column No. 5 relating to "manner of manufacture", it has been stated, "By blending with regenerated liquid milk and then pasteurising". Against Column No. 6, "Purpose for which manufactured product is applied", it has been stated, "For manufacturing assorted ice creams". Based on such a declaration L-6 licence had been granted by the Department and subsequently renewed also. So also C.T 2 Certificate had been issued.
Therefore, the argument that there had been non-disclosure of relevant particulars by the assessee is not sustainable. In this context, the contention of the respondents that their statutory R.G. 16 accounts had been checked and their R.T. 11 returns had been finalised by the Department and that hence there had been no suppression of facts on their part, also acquires force. In such a context of the facts of this case, the Supreme Court's observation in the case of Collector of Central Excise v. Chemphar Drugs & Liniments, reported in 1989 (40) E.L.T. 276 (S.C.) becomes relevant laying down that in order to invoke the longer period for demanding duty, it has to be shown that there had been a conscious and deliberate withholding of information by the assessee when he knew otherwise. In the present case from the discussion supra, this cannot be said to have happened. In the circumstances, the order proposed by Hon'ble Member (Judicial) that the demand in this case is not enforceable for the extended period, is concurred with.Dt.: 2-3-1994 (K.S. Venkataramani) Member (T) 38. In terms of the majority order, it is held that the assessee is not entitled to the benefit of exemption Notification No. 247/77-C.E., dated 23-7-1977 and in view of the matter the Revenue appeal is allowed subject to the demands being confirmed for only six months and that the demands are not enforceable for the extended period.