V.P. Gulati, Vice-President
1. The issue in the appeal relates to the benefit of Notification No. 247/77 dt. 23.7.1977 in respect of Butter which the appellants had obtained for regeneration of milk which ultimately came to be used for the manufacture of Ice Creams.
2. After going through the facts of the case, the learned consultant fairly concedes that the percentage of the fat in the so-called “regenerated milk” was 11% which is in conformity with the percentage of the fat required for the manufacture of ice cream.
2.1. The learned consultant was asked as to how the skimmed milk which had been mixed with butter and which, according to appellants, gave rise to the milk having a 11% fat content could be considered as ‘milk’ in the trade. While stating that the regenerated milk from skimmed milk powder had higher percentage of fat, the normal cow and buffalo do not have percentage of fat anywhere near 11%.
3. He also pointed out that the learned lower authority has not recorded the fact of regeneration of the milk correctly. He has pleaded first the skimmed milk powder is mixed with hot water and after skimmed milk powder gets dissolved in the water, the butter which is obtained under 16 licence is added and the necessary stirring is done to make the butter miscible and after this process sugar is added to the desired extent and thereafter the whole mixture is homogenized. It is this mixture, he has pleaded which is used for the purpose of manufacture of ice cream.
4. He has pleaded that the appellants had obtained 16 licence required to be taken-out in terms of notification as above and in their application dated 5.10.1994 they had squarely come on record to say that the butter in question that they will be obtaining under chapter X procedure will be directly used in the process of manufacture of ice cream and is meant to reconstitute /regenerate skimmed milk powder to bring out the fat percentage in the milk as per IS 2802.
5. This IS 2802, he pleaded, is the standard prescribed for the ice creams. He has pleaded that the appellant had been thereafter issued the 16 licence for obtaining the butter and using it for the purpose as brought on record before the authorities. The appellants have therefore in good faith had continued to use this butter and availed of the benefit of the procurement of the butter duty free from outside. The departmental authorities also, he pleaded, would have been aware of the use of butter as above not only by reason of their letter dt. 11.12.1984 but also from the fact that the appellants were manufacturers of ice creams and the manner in which the milk was being used.
6. He has therefore pleaded that the provision of Rule 196 of Central Excise Rules as it is could not be invoked, even if it is held that the appellant had not used the butter for regeneration of milk and in any case there was no warrant to levy the penalty.
7. Heard the JDR for the department. He has adopted the reasonings of the learned lower authority. He has pleaded that the milk as has been admitted to have been reconstituted by the appellants is not known in the trade and market as ‘milk’ by reason of its percentage of fat being near 11%. He has pleaded what was prepared was a pre-mixture for the manufacture of ice cream, answering to the requirements of IS 2802.
8. He has therefore pleaded that the duty was rightly demanded and the appellants have been rightly penalised.
9. We have considered the pleas made by both the sides. We observe that the claim of appellant is that by a mixture of water, skimmed milk and the butter in question, regenerated milk was produced. We observe that it is not shown that milk of 11% fat content was either sold or it was known in the trade. The appellants have stated that there are sources of milk of certain animals which have a higher fat content, but that is not to say that the milk as understood in the trade is the milk of these animals.
10. In the McGraw-Hill Dictionary of Science and Technology under the heading of ‘Milk’, the composition is set out as under:
Composition–Average composition of milk is 87.2% water, 3.7% fat, 3.5% protein, 4.9% lactose, and 0.7% ash. This average composition varies from cow to cow and breed to breed, as well as during the lactation period and the different seasons of the year, and is dependent upon the feed, nutritional level, age, and health of the animal and mammary gland. See
DAIRY CATTLE PRODUCTION.
Nutritionists state that milk is the most nearly perfect food. Although this is true, there are some limitations, particularly in iron and vitamin C. The data in the table compare the daily nutritional requirements of males and females in two age groups with the nutrients supplied by an 8-oz cup of whole milk and skim milk. Whole milk and skim milk are classified as excellent sources of calcium, phosphorus, and riboflavin because 10% of the daily nutritional requirement is supplied by not over 100 kilocalories (kcal). These two beverages are also classified as good sources of protein and thiamin; and whole milk is a good source of vitamin A. To be classified as good, the source must contribute 10% of a nutrient in not over 200 kcal. Milk is a good source of protein rich in all the essential amino acids. See FOOD.
11. The milk, therefore, as understood in the trade is the one which is obtained from Buffaloes or cows for day-to-day consumption of the humans. The content of this milk has not been shown to be having anywhere near 11% of fat content.
12. Admittedly the mixture of certain milk powder and fat was prepared specifically for the manufacture of ice creams and the fat added was to conform to IS: 2802. Hence the product manufactured may be milk like but it could not be considered as milk.
13. In that view of the matter, we hold that the learned lower authority has rightly concluded that the benefit of notification as has been enjoyed by the appellants could not have been availed of.
14. We, however, observe that the authorities had allowed the appellants to receive the butter for the purpose as per their application in this regard and had not been kept in the dark as to what the appellant were doing. The appellants have squarely come on record to say that their exercise for regeneration of the so-called milk was in conformity with IS: 2802. This IS: 2802, we have been informed, provides for a minimum 10% of fat content for the purpose of manufacture of ice creams.
15. Further, the appellants were functioning under excise control, and were filing regular returns as to the use of the goods in question and the ice creams which were manufactured by them.
16. The appellants therefore was squarely on record and had used the goods for the purpose for which the licences had been issued.
17. In this back ground, therefore, we are of the view that the provisions of Rule 196 as it is could not have been invoked and for any demand to be raised reasonable period of limitation would have to be allowed. It is a case where the goods have not been accounted for or the way it used for the manner in which stated above in the application for the licence.
18. The learned consultant has referred us to a judgment of the Tribunal in the same context of similar case has held under para 5 as follows:
In view of the above discussions, we hold that as the concession was wrongly extended by the Department to the appellants, the Department is entitled to recover duty for a period of six months in terms of Rule 10(1) of the Central Excise Rules. The demand for a period beyond the period of six months is held to be barred by limitation. Since L-6 licence was granted through mistake, the department is at liberty to revoke it according to the provisions of law. The decision of the lower authorities of cancelling the L-6 is confirmed.
19. Following the ratio of the decision held as above, we hold that the demand, which would sustainable, would be for a period of 6 months from the date of issue of the show cause notice.
20. So far as the penalty is concerned, we observe in the facts and circumstances of the case, there was no warrant to levy any penalty as the appellant had not held back any information from the authorities and had squarely shown the purpose for which the butter was being used by them and also the manner of use of the same.
21. We, therefore, set aside the order of levy of penalty on the appellants. The appeal is partially allowed on the above terms.
(Pronounced and dictated in the open court).