2015 (4) TMI 355 - SC - Central Excise

Valuation - Scope of the term Manufacturer - Job worker - Manufacture of medicaments - whether the respondent, who was getting its medicaments manufactured through the job workers, can be considered to be an independent manufacturer and another question is about the assessable value of the medicaments manufactured by the job workers for the purpose of assessment under the Central Excise Act, 1944. - Held that - term manufacturer or the loan licensee used under the provisions of the Drugs and Cosmetics Act, 1940 has nothing to do with the manufacturing activity or term manufacture under the provisions of the Central Excise Act, 1944. Both the Acts referred to hereinabove have been enacted for different purposes. The provisions of the Drugs and Cosmetics Act, 1940 pertain to manufacture of drugs and quality of the drugs etc. The manufacturer of the drugs has to see that the quality of the drugs manufactured by him is as per certain standards and if there is any defect in the drugs manufactured by him or someone working under him, he becomes responsible or liable under the said Act. There is also a provision in the said Act with regard to getting the drugs manufactured by someone else. So a manufacturer, who is having a license to manufacture, can get the drugs/medicaments manufactured by another person under his supervision and he would be liable if the drugs manufactured by someone else are not as per the prescribed quality. Though the drugs/medicaments might not have been manufactured by the one who is a licensee and the actual manufacturer is guilty of manufacturing substandard drugs, the licensee becomes responsible and liable under the provisions in the said Act. Once the Tribunal, after appreciating relevant evidence, has come to a conclusion that the job workers were the manufacturers and the respondent - the loan licensee, was not the manufacturer, we see no reason to interfere with the said findings of fact, especially when the same is correct and not perverse. We are, therefore, in agreement with the findings arrived at by the Tribunal that the job workers are the manufacturers. Once it has been determined that the job workers are the manufacturers, the assessable value of the goods would be a sum total of cost of raw material, labour charges and profit of the job workers, as per circular No.619/10/2002-CX dated 19th February, 2002 and the law laid down by this Court in the case of Pawan Biscuits (2000 (7) TMI 78 - SUPREME COURT OF INDIA) and other cases. In such a case, the price at which the respondent brand owner sells its goods would not be the assessable value because the duty is to be paid at the stage at which the goods are manufactured and not at the stage when the goods are sold. - Decided against Revenue.

Summary

Issues Involved:
1. Whether the respondent, who was getting its medicaments manufactured through job workers, can be considered an independent manufacturer.
2. The assessable value of the medicaments manufactured by the job workers for the purpose of assessment under the Central Excise Act, 1944.

Detailed Analysis:

Issue 1: Whether the respondent can be considered an independent manufacturer:

The respondent is a manufacturer of medicaments with a license under the Drugs and Cosmetics Act, 1940. The respondent also gets certain medicaments manufactured through job workers and supervises the quality of these medicaments. The Commissioner of Customs and Central Excise issued notices to the respondent and job workers, questioning why the respondent should not be treated as a manufacturer under the Central Excise and Salt Act, 1944, and thus be liable for duty payments.

The Commissioner concluded that the respondent was the manufacturer of the medicaments produced by the job workers. However, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) had a divided opinion. The Member (Technical) allowed the appeals, setting aside the Commissioner's order, while the Member (Judicial) upheld it. The third Member (Technical) agreed with the Member (Technical), leading the Tribunal to allow the respondent's appeals.

The Supreme Court examined the arguments and evidence, including the agreements between the respondent and job workers. It was determined that the job workers were not agents of the respondent but independent entities. The job workers carried out the manufacturing activity independently, making them the manufacturers under the Central Excise Act, 1944. The Court emphasized that the term 'manufacturer' under the Drugs and Cosmetics Act, 1940, does not equate to the term under the Central Excise Act, 1944. The manufacturing activity was conducted by the job workers at their premises with their labor and machinery, and the respondent's supervision for quality control did not make them the manufacturer.

Issue 2: Assessable value of the medicaments for assessment under the Central Excise Act, 1944:

The Court considered the assessable value of the goods manufactured by the job workers. The learned counsel for the appellant argued that the respondent should be treated as the manufacturer, and the market price at which the goods were sold should be the assessable value. The counsel relied on precedents like M/s. Ujagar Prints and Pawan Biscuits Co. Pvt. Ltd. to support this view.

On the other hand, the respondent's counsel argued that the job workers were the manufacturers, and the assessable value should be based on the cost of raw materials, labor, and profit of the job workers, as per the principles laid down in Pawan Biscuits. The Court agreed with this interpretation, stating that the assessable value should be determined by adding the value of raw materials to the cost of labor and profit of the job workers. The price at which the respondent sold the goods in the market was not relevant for determining the assessable value.

Conclusion:

The Supreme Court upheld the Tribunal's decision, concluding that the job workers were the manufacturers under the Central Excise Act, 1944. The assessable value should be based on the cost of raw materials, labor, and profit of the job workers. The appeals filed by the appellant were dismissed, affirming that the respondent was not the manufacturer for the purposes of the Central Excise Act, 1944. The decision emphasized the distinction between the definitions and responsibilities under the Drugs and Cosmetics Act, 1940, and the Central Excise Act, 1944.