2006 (3) TMI 564 - AT - Central Excise

Valuation - Scope of the term Manufacturer - Job worker - Manufacture of medicaments - loan licences to manufacture P P medicines - Whether the job workers in the present case can be considered to be independent manufacturers or not based on the fact as to whether they are working under the supervision and control of the loan licensee or they are manufacturers in their own right ?- Difference of opinion between learned members - Third Member Order - HELD THAT - As regards the view taken by learned Member (Technical) and Member (Judicial), I find that the agreement between the loan licensee and the job worker is very clear that the supervision and control will be that of the job worker only and as in every job work, the manufacture has to be carried out as per the price indicated by the raw material supplier and as per the specifications laid down by the raw material supplier and the raw material supplier has a right to inspect and draw samples at each stage to ensure that the standards prescribed by him are being followed especially so in the case of drugs where he ultimately has to be held liable for any deficiency in quality where the human lives are involved. No evidence has been brought out to show that the premises had been hired on a shift basis or otherwise and on the contrary, the agreement clearly shows that the manufacturing charges will be paid at the rate specified in the Schedule on the basis of per unit and there is no reference to payment on the basis of any shift or any particular period. The agreement may be at variance with the undertaking given to the Drug Licensing Authorities but there is no evidence that the agreement has been departed with and that the payments were not being made as per the agreement or that the entire supervision was that of the raw material supplier. I am, therefore, of the view that the matter is fully covered by the Larger Bench decision of the Tribunal in the Lupin Laboratories case 1996 (9) TMI 559 - CEGAT, NEW DELHI and followed in subsequent judgments by the Tribunal. I am therefore in agreement with the views expressed by learned Member (Technical) Shri S.S. Sekhon. The reference is accordingly answered that appeals are to be allowed as held by Member (Technical). The appeals are sent back to the referral bench for passing appropriate orders - In view of the majority order, the impugned order is set aside and appeals are allowed with consequential relief to the appellants.

Issues Involved:
1. Valuation of medicament under the Central Excise Act.
2. Determination of the actual manufacturer in a loan license arrangement.
3. Applicability of the Supreme Court's decision in Ujjagar Prints and other related cases.
4. Interpretation of Section 4 of the Central Excise Act and the Valuation Rules.
5. Invocation of the extended period for duty demand.
6. Applicability of penalties under Section 11AC and Rule 209A.
7. Allowance of deductions/abatements for post-manufacturing expenses.

Detailed Analysis:

1. Valuation of Medicament under the Central Excise Act:
The central issue revolves around the valuation of medicament manufactured under a loan license arrangement. The loan licensee supplies raw materials and packaging materials, while the job worker manufactures the medicament. The Revenue contended that the duty should be based on the selling price of the medicament by the loan licensee, not just the cost of raw materials plus processing charges.

2. Determination of the Actual Manufacturer:
The Commissioner found that the loan licensee, not the job worker, should be considered the manufacturer. This conclusion was based on the facts that:
- The loan licensee held the manufacturing license.
- The job worker did not possess a drug manufacturing license.
- All records and raw materials were maintained and supplied by the loan licensee.
- The packaging indicated the loan licensee as the manufacturer.

3. Applicability of Supreme Court's Decision in Ujjagar Prints and Related Cases:
The Commissioner did not accept the plea of the noticees relying on Ujjagar Prints, Empire Industries, and Pawan Biscuits, which suggested that the value should be based on the cost of raw materials plus processing charges. Instead, the Commissioner held that the loan licensee was the manufacturer and the valuation should be based on the normal transaction value as per the Central Excise Valuation Rules.

4. Interpretation of Section 4 of the Central Excise Act and the Valuation Rules:
The Commissioner applied Section 4(1)(b) read with the Valuation Rules, concluding that the job worker was not an independent processor. Therefore, the valuation should be based on the normal transaction value of the goods sold from another place, not on the cost-plus-processing charges basis.

5. Invocation of the Extended Period for Duty Demand:
The Commissioner invoked the extended period for duty demand, citing the assessee's failure to declare to the department or apply for Central Excise Licence/Registration. However, the penalties under Section 11AC and Rule 209A were not upheld due to the lack of willful misstatement or suppression of facts.

6. Applicability of Penalties:
The Commissioner did not impose penalties under Section 11AC and Rule 209A, as the grounds of willful misstatement and suppression of facts were not proven.

7. Allowance of Deductions/Abatements:
The Commissioner rejected the plea for deductions/abatements for post-manufacturing expenses due to the non-furnishing of data by the appellants. However, Member (Judicial) suggested that the assessable value should be redetermined after allowing admissible deductions, subject to the production of evidence by the appellants.

Separate Judgments:
Majority Decision:
Member (Technical) and the third Member (Technical) concluded that the loan licensee should not be considered the manufacturer under the Central Excise law. The valuation should be based on the cost of raw materials plus processing charges, following the Supreme Court's decision in Ujjagar Prints. The appeals were allowed, setting aside the impugned order and providing consequential relief to the appellants.

Dissenting Opinion:
Member (Judicial) disagreed, holding that the loan licensee should be considered the manufacturer, and the valuation should be based on the normal transaction value as per Section 4(1)(b) read with Rule 7 of the Valuation Rules. The impugned order was upheld, but the assessable value should be redetermined after allowing admissible deductions.

Final Order:
In view of the majority decision, the impugned order was set aside, and the appeals were allowed with consequential relief to the appellants.

← Previous Next →