M/S. Redicura Pharmaceuticals (P) Ltd vs C.C.E. Delhi-Ii

[Arising out of Order-In-Appeal No. 16-CE/DLH/05 dated: 31.03.2005 passed by Delhi Commissionerate]

For approval and signature:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s. Redicura Pharmaceuticals (P) Ltd. ...Appellant

Vs.

C.C.E. Delhi-II Respondent

Appearance:

Mr. S. Sunil, Advocate for the Appellants

Mr. M.S. Negi, DR for the Respondent

CORAM:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

Date of Hearing/decision.04.02.2015

FINAL ORDER NO. 50303 /2015-Ex(Br)

Per Rakesh Kumar (for the Bench):

The appellants are manufacturers of P&P medicines chargeable to Central Excise duty. The period of dispute in this case is from 01.04.2003 to 31.10.2003. During this period, the appellant were availing of the SSI Exemption under Notification No. 9/03-CE. During this period, the appellant in addition to manufacturing the goods on their own account which were being cleared by affixing their own brand name, were also manufacturing the goods of other persons called loan licensee under job work agreement and those goods being manufactured for the loan licensee were being cleared by affixing the loan licensees brand name and in respect of those clearances, the duty at the normal rate was being paid. Beside this, the appellant also as loan licensee, were getting their goods manufactured through other manufacturers under job work agreements and those manufacturers were clearing the goods by affixing the appellants brand name and were paying duty at the normal rate on the same. The Departments case against the appellant is that their eligibiliity for SSI exemption during each financial year must be determined by clubbing the clearances of the goods manufactured by them on their own account on which their own brand name is affixed, with the clearances of the goods manufactured by them for loan licensees and also with the clearances of the goods which were got manufactured by them as a loan licensee through other manufacturers. It is on this basis that the Department seeks to deny the benefit of SSI exemption notification to the appellant for the period from 01.04.2003 to 31.10.2003 and on this basis, the Joint Commissioner vide order-in-original dated 11.11.2004 confirmed the duty demand of Rs. 6,39,190/- against the appellant for the period from 01.04.2003 to 31.10.2003 along with interest thereon under section 11AB of Central Excise Act, 1944 and beside this, imposed penalty of Rs. 10,000/- on them under Rule 25(1) of Central Excise Rule, 2002. On appeal being filed to Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order in appeal dated 24.03.2005 dismissed the appeal. Against this order of the Commissioner (Appeals), this appeal has been filed.

2. Heard both the sides.

3. Shri S. Sunil, Advocate the Ld. Counsel for the appellant, pleaded that the appellant during the period of dispute, in addition to manufacturing medicines on their own account on which their brand name was being affixed, were manufacturing medicines for loan licensees on which loan licensees brand name was being affixed and were also getting their goods manufactured as a loan licensee through manufacturers, that the appellant for manufacture of the medicines for loan licensees had entered into a job work agreements with them under which the raw material, manufacturing plan etc., was being given by the loan licensees and the manufacture was under the loan licensees supervision, but the factory and other infrastructure of the appellant was being used and as such the loan licensee had not taken the appellants factory or a shift on lease, that for manufacture of the medicines by the appellant as a loan licensee through other manufacturers, the appellant had entered into similar job work agreements with them under which the appellant supplied the raw material and the manufacturing plan to the manufacturers and manufacturing was being done under their supervision, that the appellant in respect of the goods manufactured for loan licensees on which the brand name of the loan licensee was being affixed, were paying the duty at normal rates by treating the same as the branded goods, that in view of this, in accordance with clause 3(a) of the SSI exemption, the clearances of the goods belonging to the loan licensees were not to be included in the aggregate value of clearances for home consumption and that in respect of these clearances it is the appellant who have to be treated as manufacturer, that similarly in respect of the goods got manufactured by the appellant as a loan licensee through other manufacturers and it is those manufacturers who has to be treated as manufacturer and it is they who had discharged its duty liability and hence the value of those goods got manufactured by the appellant as a loan licensee through other manufacturers on job work, cannot be included in the aggregate value of the clearances of the appellant, that in terms of judgment of Honble Gujarat High Court in the case of Indica Laboratories Pvt. Ltd vs UOI reported in 1990 (50) ELT 210 (Guj.), a loan licensee getting his medicines manufactured through another manufacturers can be treated as an independent manufacturer, only if,

(a) For the purpose of manufacture the loan licensee has hired the entire factory premises or a shift;

(b) The goods are being manufactured by the loan licensee out of the raw material etc., supplied/ brought by him; and

(c) The medicines are being manufactured under his own supervision,

that these conditions for treating the loan licensee as a manufacturer, as prescribed by Honble Gujarat High Court in the case of Indica Laboratories Pvt .Ltd vs UOI reported in 1990 (50) ELT 210 (Guj.) are not specified in this case, that this is clear from the terms of the agreement mentioned in para 11(i) of the Show Cause Notice, that the agreement of the appellant as a loan licensee with other manufacturers were also on the same terms, that in view of this, the value of the clearance of the goods manufactured by the appellant for loan licensees and similarly the value of the goods got manufactured by the appellant through other manufacturers as a loan licensee, cannot be included for the purpose of determining the aggregate value of the clearances for home consumption of the appellant, and that in view of the above submissions, the impugned order is not correct. He also pleaded that while the period of dispute in this case is 01.10.2003 to 31.10.2003, for subsequent period i.e. from November 2003 to 2005 period the Commissioner (Appeals) by a detailed order in appeal dated 24.03.2008, has held that the value of the clearances of the goods manufactured by the appellant for loan licensees and the value of the goods got manufactured by the appellant through other manufactures as a loan licensee are not to be included for determining the aggregate value of clearances for home consumption for the purpose of SSI exemption and the Department has not filed any appeal against this order of the Commissioner (Appeals).

3. Shri M.S. Negi, Ld. DR, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and in this regard he pointed out to para 3.2 of the CBEC manual. Shri Negi also pleaded that in terms of Honble Gujarat High Court judgment in the case of Indica Laboratories Pvt .Ltd vs UOI reported in 1990 (50) ELT 210 (Guj.) for treating the loan licensee as a manufacturer, it is not necessary that the loan licensee must have hired the entire factory for specified period or hired a particular shift and, that even if, the goods are manufactured for the loan licensee out of the raw material supplied by him and as per his manufacturing plan and under his direct supervision, the loan licensee would have to be treated as an independent manufacturer and in that case in view of the provisions of clause 2(v), the value of clearances of the goods manufactured by loan licensee would have to be included for the purpose of determining the aggregate value of the clearances for home consumption even if the goods manufactured and cleared for loan licensee were bearing the loan licensees brand name. He, therefore, pleaded that there is no infirmity in the impugned order.

4. We have considered the submissions from both the sides and perused the records. The undisputed facts are that the appellant during the period of dispute were availing of SSI exemption under notification no. 09/03-CE. There is also no dispute that during that period, the appellant, beside manufacturing the goods on their account on which their own brand name was being affixed, were also getting their goods manufactured as a loan licensee through other manufacturers and for this purpose they had entered into a job work agreements with them inasmuch as they were supplying the raw material to the manufacturers and also giving the manufacturing plan and the manufacture was under their supervision and as such they had not hired or leased the factory premises or a shift of the manufacturers. There is also no dispute that during the same period the appellant were also manufacturing the medicines for other loan licensees under agreements with them in terms of which, while the loan licensees had not hired or leased their factory or a shift for any specified period, they were manufacturing the medicines for them out of the raw material supplied by them and as per their manufacturing plant and under their provision. The point of dispute is as to whether the loan licensee are to be treated as independent manufacturer and accordingly, in accordance with the provisions of section 2(v), the value of the goods manufactured by the appellant for loan licensee on which loan licensees brand name had been affixed is to be included for determining the aggregate value of the clearances of the excisable goods for home consumption by the appellant. Similarly, another point of dispute is as to whether the value of the goods got manufactured by the appellant as a loan licensee through other manufacturers is also to be included in the aggregate value of the clearances of the excisable goods for home consumption by the appellant. There is no dispute that in respect of the goods being manufactured by the appellant for loan licensees and on which the loan licensee brand name was being affixed, the duty had been paid by the appellant at a normal rate.

5. The basic point of dispute in this case is as to whether in respect of the goods manufactured in the appellants factory for the loan licensees, the loan licensees are to be treated as manufacturer or the appellant are to be treated as manufacturer. In this regard Honble Gujarat High Court in para 12 of this judgment in the case of Indica Laboratories Pvt .Ltd vs UOI (supra) has prescribed three conditions, namely,

(a) That the goods must have been manufactured by the Loan Licensee by hiring either the factory or a shift of a manufacturer.

(b) The Loan Licensee must have brought his own raw material.

(c) The Loan Licensee must have manufactured the goods directly under his own supervision.

In this case admittedly the Loan Licensee had not been hired any shift or any part of the factory premises of the appellant and similarly the appellant as a Loan Licensee, had not hired any shift or any part of the factory of the other manufacturers. In view of this, it has to be held the appellant had manufactured the goods for Loan Licensee as a job worker only and, therefore, it is the appellant who have to be treated as the manufacturer and since, the goods manufactured for Loan Licensees had been affixed with the Brand Name belonging to the Loan Licensees, and for this reason the same had been cleared on payment of normal duty, in terms of clause 3(a) of the exemption notification, the value of the clearances to Loan Licensees would not be includible for determining the aggregate value of clearances for home consumption. Similarly, in respect of the goods got manufactured by the appellant as a Loan Licensee through other manufacturers, it is the other manufactures, who have to be treated as manufacture and not the appellant, more so, when there is no dispute that the duty liability in respect of those goods had been discharged by those manufacturers. Therefore, the value of these clearances also cannot be included for determining the aggregate value of clearances of the appellant for home consumption for determining their SSI exemption. In view of this, the impugned order is not correct. The same is set aside. The appeal is allowed.

(Dictated and pronounced in open court)

(S.K. Mohanty) (Rakesh Kumar) Member(Judicial) Member(Technical)

Neha

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