Exemption for soya milk does not extend to flavoured soya milk beverages; full disclosure also defeats suppression for penalty.

Flavoured soya milk beverages made from soya base were held outside the exemption for "soya milk" in Notifications No. 286/86 and 20/89 because the processed product was distinct from soya milk simpliciter after blending with sugar, flavour, colour and stabiliser. Contemporaneous materials and departmental clarification supported that construction, so the duty demand on merits survived. On limitation and penalty, prior disclosure of the product, manufacturing process and exemption claim negatived suppression, so the extended period was not sustained; the penal consequence was therefore moderated, with the penalty reduced.

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Issues: (i) Whether flavoured soya milk beverages manufactured from soya base were covered by the exemption for soya milk under Notification No. 286/86 and Notification No. 20/89; (ii) Whether the extended period and penalty were justified in the facts of the case.

Issue (i): Whether flavoured soya milk beverages manufactured from soya base were covered by the exemption for soya milk under Notification No. 286/86 and Notification No. 20/89.

Analysis: The product emerged only after the soya base underwent further blending with sugar, flavour, colour, stabiliser and related processing. The materials on record, including the project report, industrial licence and departmental clarification, showed that soya milk and soya milk beverages were treated as distinct products. The exemption covered soya milk simpliciter and not flavoured soya milk beverages. Contemporaneous exposition issued by the authority administering the notification supported this construction.

Conclusion: The exemption was not available to the assessees' product, and the demand on merits was upheld against the assessee.

Issue (ii): Whether the extended period and penalty were justified in the facts of the case.

Analysis: The assessees had intimated the department about the product, the proposed manufacture and the manufacturing flow chart, along with the claim for exemption. In that background, suppression of material facts was not established. The basis for invoking the longer period was therefore not made out. However, since the product remained dutiable, the levy itself survived, and only the penal consequence required moderation in the absence of deliberate evasion.

Conclusion: The longer period was not sustained on the facts, and the penalty was reduced to Rs. 25,000.

Final Conclusion: The duty demand on the product was sustained, but the penalty was substantially reduced because suppression and contumacious conduct were not established.

Ratio Decidendi: An exemption notification must be construed according to the product expressly covered by it, and where the evidence shows that the manufactured item is a distinct processed beverage rather than the exempted commodity itself, the exemption cannot be claimed; however, full disclosure by the assessee negatives suppression for the purpose of imposing an enhanced penalty.

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