1996 (9) TMI 559 - AT - Central Excise

Manufacturer - Loan licensee - Manufacturer - Loan licensee - Appeal to Tribunal - Difference of opinion - Adjudication Burden of proof - Demand - Limitation

Issues Involved:
1. Determination of the real manufacturer between M/s. Lupin Laboratories (LLPL) and M/s. Jaychem Products (JP).
2. Applicability of Notification No. 175/86 for exemption from Central Excise duty.
3. Allegation of suppression of facts by LLPL.
4. Consideration of loan licensee status under the Drugs and Cosmetics Act.
5. Time-bar of the demand for duty.

Issue-wise Detailed Analysis:

1. Determination of the Real Manufacturer:
The primary issue was whether M/s. Lupin Laboratories (LLPL) or M/s. Jaychem Products (JP) should be considered the manufacturer of the PP medicines under the Central Excises and Salt Act, 1944. LLPL supplied raw materials and exercised quality control, while JP performed the actual manufacturing. The Additional Collector held JP as the real manufacturer, but the Revenue contended that LLPL, being the loan licensee, should be treated as the manufacturer. The Tribunal's final decision, influenced by the Gujarat High Court's judgment in Indica Laboratories, concluded that without evidence of LLPL hiring shifts or exercising direct supervision, JP should be considered the manufacturer.

2. Applicability of Notification No. 175/86:
The exemption under Notification No. 175/86 was contested. The Revenue argued that since LLPL was not an SSI unit and had significant clearances from its Aurangabad factory, it was ineligible for the exemption. The Tribunal noted that the exemption notification is intended for SSI units and that LLPL, being a large-scale unit, could not benefit from it. The Tribunal ultimately held that JP, being an SSI unit, could claim the exemption, but LLPL could not.

3. Allegation of Suppression of Facts:
The Revenue alleged that LLPL suppressed facts regarding its clearances and loan license arrangements to avail the exemption fraudulently. LLPL countered that they had complied with all necessary formalities and that the Department was aware of their operations. The Tribunal found that the Additional Collector did not provide sufficient evidence of suppression by LLPL, and thus, the allegation was not upheld.

4. Consideration of Loan Licensee Status:
The status of LLPL as a loan licensee under the Drugs and Cosmetics Act was critical. The Revenue argued that as a loan licensee, LLPL should be considered the manufacturer under Central Excise law. The Tribunal referred to the Indica Laboratories case, which held that loan licensees could be treated as manufacturers if they exercised control and supervision over the manufacturing process. However, since LLPL did not directly supervise the manufacturing at JP's factory, the Tribunal held that JP should be considered the manufacturer.

5. Time-bar of the Demand for Duty:
The issue of whether the demand for duty was time-barred was also raised. LLPL argued that the demand for September 1986 was time-barred, and the Tribunal agreed, noting that the Additional Collector did not adequately address this contention. The Tribunal held that the demand for September 1986 was time-barred, but the rest of the demand was valid.

Final Decision:
The Tribunal allowed the appeal, setting aside the impugned order and remanding the case to the Additional Collector to determine the duty liability afresh, considering JP as the manufacturer and excluding the time-barred demand for September 1986. The cross-objections by LLPL were also disposed of accordingly.

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