1993 (2) TMI 116 - AT - Central Excise

Skimmed Milk Powder Exemption Limited: Duty Applies When Used in Manufacturing Processed Food Products

COLLECTOR OF CENTRAL EXCISE Versus H. MM LTD.

COLLECTOR OF CENTRAL EXCISE Versus H. MM LTD. - 1993 (67) E.L.T. 436 (Tribunal) The core legal questions considered by the Tribunal in this matter revolve around the interpretation and applicability of Notification No. 38/78-C.E., dated 1-3-1978, which grants exemption from excise duty on skimmed milk powder used for regeneration into liquid milk. Specifically, the issues include:1. Whether the exemption under Notification No. 38/78-C.E. applies only to skimmed milk powder regenerated into liquid milk, or whether it extends to skimmed milk powder that is further used in the manufacture of other products such as Horlicks, Boost, or ice-cream.2. The relevance and applicability of conflicting judicial precedents, notably the Gujarat High Court decision holding a restrictive interpretation of the exemption, and the Andhra Pradesh High Court decision which took a different view on the excitability and use of skimmed milk powder.3. The proper approach to interpreting exemption notifications under excise law, particularly whether the intention behind the notification can be examined or whether a strict plain meaning rule applies.Issue-wise detailed analysis:Issue 1: Scope of exemption under Notification No. 38/78-C.E. regarding use of skimmed milk powderThe relevant legal framework is Notification No. 38/78-C.E., which exempts excise duty on skimmed milk powder used for regeneration of liquid milk within the same factory or elsewhere subject to certain conditions. The notification explicitly states that exemption applies to skimmed milk powder used for regeneration of liquid milk only.The Gujarat High Court decision in the Vadilal Dairy Frozen Food Industries case interpreted this notification strictly, holding that exemption is available only when skimmed milk powder is regenerated into liquid milk for consumption, and not when it is further processed into other products like ice-cream. The Court reasoned that the purpose of the notification is to augment the supply of liquid milk to the public, particularly to make fat-extracted milk available at affordable prices. The Court emphasized that the exemption is conditional on the final product being liquid milk, and incidental liquefaction during manufacture of other products does not qualify.The Andhra Pradesh High Court decision, cited by respondents, dealt with a different factual context concerning the excitability of skimmed milk powder stored for later regeneration into liquid milk during lean seasons. It did not interpret an exemption notification but rather addressed the question of excise liability under the Central Excise Tariff for such goods. This decision was rendered by a single judge and predates the Gujarat High Court ruling.The Tribunal noted that the Andhra Pradesh High Court judgment does not conflict with the Gujarat High Court decision since it does not deal with the same exemption notification or issue.The Court also referred to official interpretations by the Central Board of Excise & Customs, which aligned with the Gujarat High Court's view that exemption is limited to regeneration into liquid milk only.Applying the law to the facts, the Tribunal found that the respondents used skimmed milk powder not merely for regeneration into liquid milk but for manufacture of other products like Horlicks and Boost. Thus, the exemption under the notification does not apply.Issue 2: Treatment of conflicting judicial precedents and principles of statutory interpretationThe Department relied on the Gujarat High Court decision as authoritative on the interpretation of the exemption notification. The respondents argued that the Andhra Pradesh High Court decision should be considered and that the Gujarat High Court erred in examining the intention behind the notification, which they contended is impermissible under settled Supreme Court precedents.The Tribunal examined the Supreme Court precedents cited, which establish that exemption notifications should be construed liberally in favor of the assessee but must be judged by the plain meaning of the words used. The Court held that there is no room for intendment or reading into the notification conditions not explicitly stated.The Tribunal rejected the respondents' contention that the Gujarat High Court's consideration of the purpose behind the notification was improper. It noted that the Gujarat High Court's interpretation was consistent with both the language and the object of the exemption. Moreover, the Andhra Pradesh High Court decision was factually distinguishable and did not deal with the exemption notification.The Tribunal further observed that the concept of per incuriam does not apply between a statutory tribunal and a High Court decision. It emphasized that the Gujarat High Court's decision was a later, divisional bench ruling specifically on the exemption notification, whereas the Andhra Pradesh High Court decision was earlier and on a different issue.In light of these considerations, the Tribunal held that the Gujarat High Court decision is binding and authoritative in this matter.Issue 3: Application of exemption notification to the facts and final determinationThe Tribunal applied the legal principles and judicial precedents to the facts before it. It found that the respondents' use of skimmed milk powder extended beyond mere regeneration into liquid milk and involved manufacture of other products such as Horlicks and Boost.Since the notification explicitly restricts exemption to skimmed milk powder used for regeneration into liquid milk, the further processing into other products disqualifies the respondents from claiming exemption.The Tribunal also noted that no contrary High Court decision exists that would undermine the Gujarat High Court's interpretation.Consequently, the Tribunal concluded that the respondents were not eligible for exemption under Notification No. 38/78-C.E. for the skimmed milk powder used in their products.Significant holdings include the following verbatim excerpt from the Gujarat High Court decision:'It is manifestly clear viz. to augment the supply of liquid milk so that the poor can supply to their children at least fat extracted milk at a price within their reach... The insistence as regards regeneration on the very premises or elsewhere leaves no room for the argument that skimmed milk is entitled to exemption whatever be the ultimate product so long as for the ultimate product one has to liquefy the powder... 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 the destination it is incidentally liquefied on its way.'The core principle established is that exemption under Notification No. 38/78-C.E. is strictly confined to skimmed milk powder used for regeneration into liquid milk intended for consumption, and does not extend to skimmed milk powder used in the manufacture of other products, even if liquefaction occurs as an intermediate step.Accordingly, the Tribunal allowed the appeal filed by the Department and held that the respondents were not entitled to the exemption under the said notification for skimmed milk powder used in the manufacture of products like Horlicks and Boost.