Exemption for skimmed milk powder applies only for regeneration of liquid milk, not when the regenerated milk becomes sweetened flavoured milk.

Exemption under Notification No. 38/78-C.E. for skimmed milk powder applied only when the powder was used to regenerate liquid milk, because the notification was directed to augmenting milk supply and was confined to that stated end use. Once the regenerated milk was further processed into sweetened flavoured milk, the use no longer matched the exempted purpose. On that reasoning, sweetened flavoured milk made from regenerated milk was outside the notification, and the duty demand on that product was sustainable.

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Issues: Whether skimmed milk powder cleared under Notification No. 38/78-C.E. for regeneration of liquid milk remained exempt when the regenerated milk was used to manufacture sweetened flavoured milk, and whether duty demand could be sustained on that product.

Analysis: The notification granted exemption only for skimmed milk powder used in the regeneration of liquid milk. The exemption was held to be linked to the use of the powder for producing liquid milk as such, because the object of the notification was to augment supply of milk. Once the regenerated milk was converted into sweetened flavoured milk, the milk was no longer being used for the exempted purpose. The reasoning relied on the principle that exemption notifications must be applied according to their object and cannot be extended beyond the stated condition of use.

Conclusion: The sweetened flavoured milk manufactured from regenerated milk did not qualify for exemption under Notification No. 38/78-C.E., and the duty demand was sustainable.

Final Conclusion: The appeal was accepted and the order granting exemption was set aside, leaving the duty demand intact.

Ratio Decidendi: Exemption for skimmed milk powder under the notification is available only when it is used for regeneration of liquid milk as the end use contemplated by the notification, and not when the regenerated milk is further transformed into another product.

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