2016 (12) TMI 727 - AT - Central Excise

Manufacture - deputation of manpower - Appellant for the purpose of administrative convenience deputed its persons to the premises of SPPL. There was no relation between both the parties to cause evasion to Revenue when the transaction was at arm s length. The party only agreed to manufacture medicine on behalf of appellant in its factory i.e., of the SPPL. According to the provisions of Central Excise Act, 1944 and according to the Loan License Agreement, appellant is not the manufacturer of the goods. Department merely relied on certain statements to proceed to hold that the appellant as the manufacturer. Held that - The moot question in these appeals is to decide who is the manufacturer. We are not concerned with any Loan License Agreement because such term is used for convenience of the parties and that has no relevance to the Central Excise law. We are also not concerned with the quality or standard of the drugs manufactured by the loan licensee or anybody manufacturing such product. We are only concerned with the parameters of Section 3 of the Central Excise Act. Mere supply of the raw material shall not alter the status of a manufacturer or a job worker. The term manufacture or the Loan Licensee if used in the Drugs and Cosmetics Act, 1940 has no relevance to Section 3 of the Central Excise Act, 1944. Both the statutes serve their own purpose. Revenue law is concerned with the manufacture of excisable goods. The factual scenario of the case brings SPPL to the fold of manufacture under Section 3 of the Central Excise Act, 1944. Therefore, in absence of any evidence to the contrary, appellant cannot be held to be a manufacturer of the product. Accordingly, its appeal is allowed - The other two appellants are the persons concerned with the appellant-company. Once the principal-appellant gets relief in its appeal, consequential appeals of these persons are allowed. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Manufacture of drugs by a third party on behalf of the appellant, determination of the manufacturer under Central Excise Act, 1944, liability for duty payment, relevance of Loan License Agreement, clandestine removal of goods, responsibility of job worker, application of Drugs and Cosmetics Act, 1940, interpretation of "manufacture" under Central Excise Act, 1944, liability under different statutes, applicability of Supreme Court's ruling in CCE, Goa Vs Cosme Farma Laboratories Ltd.

Analysis:

1. The appellant sent raw materials to a third party, SPPL, for manufacturing drugs. The appellant argued that SPPL had the necessary drug license and capabilities to manufacture the goods on its behalf. The Department alleged a clandestine removal of goods and attempted to hold the appellant liable for duty payment, treating SPPL as a job worker.

2. The central issue was to determine the manufacturer under the Central Excise Act, 1944. The Tribunal clarified that the Loan License Agreement was irrelevant to this determination. The focus was on Section 3 of the Central Excise Act, not the quality of the drugs or the terms of the agreement. Mere supply of raw materials did not change the manufacturer or job worker status.

3. The Tribunal emphasized that SPPL, being a drug license holder with manufacturing capabilities, was responsible for compliance with the Drugs and Cosmetics Act, 1940. The Department failed to investigate the manufacturing process or the role of the appellant's representatives. SPPL's adherence to quality control did not alter its manufacturing status for the appellant.

4. The judgment highlighted the distinction between the Drugs and Cosmetics Act, 1940, and the Central Excise Act, 1944. While the former regulates drug manufacturing, the latter concerns excisable goods. The factual circumstances led to SPPL being considered the manufacturer under the Central Excise Act, absolving the appellant of liability.

5. Citing the Supreme Court's ruling in CCE, Goa Vs Cosme Farma Laboratories Ltd., the Tribunal allowed the appeal, stating that in the absence of evidence to the contrary, the appellant could not be deemed the manufacturer. Consequently, the appeals of other individuals associated with the appellant were also allowed.

6. The judgment concluded by allowing all appeals, aligning with the Supreme Court's precedent and emphasizing the importance of evidence in determining liability under different statutes.