1993 (10) TMI 89 - HC - Central Excise

Summary

Issues Involved:
- Clubbing of clearances for exemption/concession under Central Excise Rules.
- Constitutional validity of notifications under Central Excise Rules.
- Applicability of exemption notifications to loan licensees.

Detailed Analysis:

Issue 1: Clubbing of Clearances for Exemption/Concession under Central Excise Rules
The central question was whether the clearances of Patent and Proprietary (P.P.) Medicines by factory owners could be clubbed with those of loan licensees for the purpose of exemption or concession under relevant notifications issued under Rule 8(1) of the Central Excise Rules. The court noted that the earliest relevant notification was Notification No. 80/80 dated 19-6-1980, and similar notifications were issued annually, including Notification Nos. 83/83, 85/85, and 175/86.

The petitioners contended that the value of clearances by loan licensees should not be clubbed with those by factory owners, as this practice denied both parties the exemption/concession granted under the notifications. However, the court found that this issue was not res integra, as it had been previously addressed in several judgments.

In "Smt. S. Pannadevi v. The Government of India," it was held that clubbing was permissible, and none of the loan licensees would be entitled to exemption if the aggregate value of goods cleared from the factory exceeded the prescribed limit. This decision was upheld in subsequent appeals and judgments, including "Vopak Pharmaceuticals v. The Union of India," where it was reiterated that the method of clubbing clearances from a factory was valid and not unconstitutional.

Issue 2: Constitutional Validity of Notifications under Central Excise Rules
The petitioners argued that the notifications violated Article 14 of the Constitution of India by creating an arbitrary distinction between different manufacturers. However, the court referred to the Division Bench judgment of the Gujarat High Court in "Indica Laboratories Pvt. Ltd. v. Union of India," which upheld the validity of clauses 2 and 3 of Notification 175/86. The court found that these clauses did not create any hostile discrimination but rather ensured a uniform application of the exemption scheme to all manufacturers using the same factory infrastructure.

The court concluded that the notifications were not ultra vires Article 14 and did not arbitrarily discriminate against multiple manufacturers using the same factory. The system of clubbing was seen as a necessary measure to prevent the inflation of exemption limits and maintain the integrity of the exemption scheme.

Issue 3: Applicability of Exemption Notifications to Loan Licensees
The court examined whether loan licensees could be considered independent manufacturers eligible for exemption under the notifications. It was noted that each loan licensee is an independent manufacturer, but for the purpose of exemption, their clearances must be considered subject to clauses 2 and 3 of the notifications.

The court referred to the judgment in "S.O.L. Pharmaceutical Ltd. v. Collector of C. Excise," where it was held that the value of goods manufactured by a loan licensee could not be added to the value of goods cleared by the factory owner if the loan licensee was genuinely independent. However, in the present case, the court found that the clearances from one factory had to be clubbed, unlike the situation in the S.O.L. Pharmaceutical case, which involved clearances from two different factories.

The court also considered the Circulars/Trade Notices issued by the Department, which stated that each loan licensee was an independent manufacturer. However, these circulars did not contradict the decisions that required clubbing of clearances for exemption purposes.

Conclusion:
The court answered the central question in the affirmative, holding that the clearances of factory owners could be clubbed with those of loan licensees for the purpose of considering exemption or concession under the relevant notifications. The petitions challenging this practice were dismissed, and the constitutional validity of the notifications was upheld. The court found no merit in the arguments against clubbing and dismissed the writ petitions accordingly.