Strict construction of exemption notification and limitation in excise proceedings: regenerated milk used for ice cream disqualified the claim, but demand was time-barred.

Exemption under Notification 38/78 was confined to cases where skimmed milk powder was converted into liquid milk and no further use followed; because the regenerated liquid milk was used as an intermediate input in ice cream manufacture, the exemption condition was not met. In relation to limitation, a reasonable period was treated as implicit in Rule 196 proceedings, and the extended period could not be invoked where the show-cause notice alleged no suppression and the demand related wholly to a period beyond six months. The exemption claim therefore failed, but the demand was held time-barred.

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Issues: (i) Whether the respondents, after regenerating liquid milk from skimmed milk powder and using that liquid milk in the manufacture of ice creams, were entitled to the benefit of Notification 38/78; (ii) Whether the demand for the period 26-12-1981 to 2-3-1984 was barred by limitation.

Issue (i): Whether the respondents, after regenerating liquid milk from skimmed milk powder and using that liquid milk in the manufacture of ice creams, were entitled to the benefit of Notification 38/78.

Analysis: The notification was construed in light of the cited precedent that exemption was available only where skimmed milk powder was converted into liquid milk and nothing further. Since the respondents used the regenerated liquid milk as an intermediate input in the manufacture of ice creams, the condition of the notification was not satisfied.

Conclusion: The benefit of Notification 38/78 was not available to the respondents.

Issue (ii): Whether the demand for the period 26-12-1981 to 2-3-1984 was barred by limitation.

Analysis: A reasonable period of limitation was held to be implicit even in proceedings under Rule 196 of the Central Excise Rules within Chapter X procedure. The absence of any allegation of suppression in the show-cause notice, together with the fact that the entire demand related to a period beyond six months, led to the conclusion that the extended period could not be invoked and the demand could not survive.

Conclusion: The demand was barred by limitation.

Final Conclusion: The exemption claim failed, but the demand itself could not be sustained because it was time-barred, so the assessee ultimately succeeded.

Ratio Decidendi: An exemption notification must be strictly satisfied on its terms, and where a demand is raised beyond the ordinary limitation period, the extended period cannot be invoked in the absence of suppression and other legal prerequisites.

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