Exemption for pasteurised butter denied where used as an intermediate in ice cream manufacture; extended limitation rejected for lack of suppression.

Pasteurised butter cleared under Chapter X was not eligible for exemption under Notification No. 247/77-C.E. because the exemption was confined to butter used for regeneration of liquid milk, while here it was only an intermediate input in a continuous process of manufacturing ice cream. The exemption therefore failed on merits. The extended period of limitation was also unavailable because the records and licence application disclosed the intended use, and departmental checks showed no conscious suppression or deliberate misstatement of material facts. The demand was consequently confined to the normal limitation period.

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Issues: (i) Whether pasteurised butter obtained under Chapter X procedure was eligible for exemption under Notification No. 247/77-C.E. when it was used in the continuous process of manufacturing ice cream. (ii) Whether the extended period of limitation could be invoked on the facts, on the ground of suppression or misdeclaration.

Issue (i): Whether pasteurised butter obtained under Chapter X procedure was eligible for exemption under Notification No. 247/77-C.E. when it was used in the continuous process of manufacturing ice cream.

Analysis: The exemption was confined to pasteurised butter used for regeneration of liquid milk. The material on record showed that the assessee's process began with pasteurised butter and water, but the product was used as an intermediate step in the manufacture of ice cream. The phrase in the notification was treated as requiring actual use for regeneration of liquid milk as such, and not merely an intermediate appearance of liquid milk in a larger manufacturing chain.

Conclusion: The assessee was not entitled to the exemption, and the Revenue succeeded on the merits.

Issue (ii): Whether the extended period of limitation could be invoked on the facts, on the ground of suppression or misdeclaration.

Analysis: The larger period was held to depend on conscious and deliberate withholding of material facts. Here, the licence application itself disclosed that the material was to be blended with regenerated liquid milk and used for manufacturing assorted ice creams, and departmental verification, renewal of the licence, checking of accounts, and verification of returns supported the absence of concealment. On these facts, suppression was not established.

Conclusion: The extended period of limitation was not available, and the demand was confined to the normal period.

Final Conclusion: The exemption claim failed on merits, but the demand was sustainable only for the normal limitation period, so the Revenue appeal succeeded only in part.

Ratio Decidendi: An exemption confined to goods used for regeneration of liquid milk is not available where the goods are used only as part of a continuous manufacturing process for a different final product, and the extended limitation period can be invoked only on proof of conscious suppression or deliberate misstatement of material facts.

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