2009 (5) TMI 852 - AT - Central Excise

Valuation - loan license arrangement - demand on the ground that the price at which Dr. Reddys labs are selling the medicines from their Depot will be the basis for determining the assessable value and duty payable by the respondents as a loan licensee - Held that - It is absolutely clear that there is no sale involved in the transaction between the respondent and Dr. Reddys Labs Ltd. hence the valuation of the goods cleared by the respondents can not be done under Section 4(1)(a) and has to be done under Section 4(1)(b) only - appeal dismissed - decided against Revenue.

Summary

Issues:
- Valuation of goods manufactured and cleared to another company under loan license agreement.
- Application of Central Excise Act and Drugs and Cosmetics Act in determining duty liability.
- Interpretation of relevant legal precedents in similar cases.

Analysis:

Issue 1: Valuation of goods manufactured and cleared to another company under loan license agreement
The appeal concerns the valuation of medicaments manufactured by the respondents for another company under a loan license arrangement. The respondents requested provisional assessment of goods cleared to the other company, which was finalized by the adjudicating authority, resulting in a demand for differential duty. The dispute arose regarding the basis for determining the assessable value and duty payable by the respondents as a loan licensee. The Commissioner (Appeals) set aside the assessment order, leading to the Revenue's appeal. The Tribunal considered whether the value of goods should be based on the sale price of the other company or the cost construction method adopted by the respondents.

Issue 2: Application of Central Excise Act and Drugs and Cosmetics Act in determining duty liability
The Revenue argued that the loan licensee arrangement in the pharmaceutical industry is governed by the Drugs and Cosmetics Act, and the respondents must comply with the provisions of the Acts. The Revenue contended that the respondents should give a declaration under relevant Notifications and pay duty based on the value of raw materials supplied. The Tribunal observed that the respondents correctly adopted a formula for assessable value as per legal precedents, emphasizing that no sale was involved in the transaction between the parties. The Tribunal highlighted the application of CE Valuation Rules for goods manufactured on a job work basis.

Issue 3: Interpretation of relevant legal precedents in similar cases
The Tribunal referred to a previous case involving a similar issue and concluded that the appellant was a job worker, not the manufacturer, based on the terms of the agreement and the absence of evidence showing control over the manufacturing process. The Tribunal emphasized that loan licensees can also be considered manufacturers under the Central Excise Act, but the key factor is the actual control and supervision exercised over the manufacturing process. The Tribunal upheld the Commissioner's decision based on the settled legal position and the Supreme Court rulings on the valuation of goods cleared by job workers.

In conclusion, the Tribunal rejected the Revenue's appeal, aligning with the Commissioner's decision based on the legal principles and precedents discussed. The judgment emphasized the importance of correctly determining the assessable value in cases involving manufacturing under loan license agreements and job work arrangements, in compliance with relevant Acts and legal precedents.