Exemption for skimmed milk powder applies only when it is regenerated into liquid milk, not used as an intermediate input

Skimmed milk powder was held outside the exemption where it was regenerated into liquid milk only as an intermediate step in making other products such as Horlicks and Boost. The notification granted relief only when the powder was used for regeneration of liquid milk as such, whether in the same factory or elsewhere on proof of intended use and compliance with Chapter X of the Central Excise Rules, 1944. On a plain reading, that wording did not extend the exemption to downstream manufacture of other products. The construction was supported by the Gujarat High Court view, while the contrary Andhra Pradesh decision involved a different factual and legal setting.

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Issues: Whether skimmed milk powder cleared for manufacture of products like Horlicks and Boost, after being regenerated into liquid milk, was entitled to exemption under Notification No. 38/78-C.E. dated 1-3-1978.

Analysis: The notification exempted skimmed milk powder only when it was used for regeneration of liquid milk within the same factory, or elsewhere subject to proof of intended use for regeneration of liquid milk and compliance with Chapter X of the Central Excise Rules, 1944. The wording of the notification, read in its plain terms, confined the exemption to skimmed milk powder used for the production of liquid milk and did not extend it to cases where the regenerated milk was only an intermediate stage in making other products. The interpretation adopted by the Gujarat High Court on the same notification supported this construction, and the contrary Andhra Pradesh decision concerned a different factual and legal setting.

Conclusion: The respondents were not entitled to exemption when the skimmed milk powder was ultimately used in products other than liquid milk. The exemption applied only where the skimmed milk was regenerated into liquid milk as such.

Ratio Decidendi: An exemption notification expressed in clear terms must be applied according to its plain language, and where the notification limits relief to use in regeneration of liquid milk, the exemption cannot be extended to cases where liquid milk is only an intermediary stage in manufacture of other products.

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