2004 (2) TMI 140 - AT - Central Excise

Valuation (Central Excise) of the goods manufactured - Hired labour vis-a-vis job worker - payment of duty on clearances - Imposition of penalties - HELD THAT - From the record, it is clear that for the purpose of Central Excise Act and Rules, there can be manufacturer who gets his goods manufactured on his own account from other person or persons thereby utilizing infrastructure of others. It is therefore, obvious that such loan licencees who are entitled to manufacture PP medicines and who are having relevant licences under the Drugs and Cosmetics Act read with relevant rules, can utilize factory premises of other persons where they can get their goods manufactured under their own control and supervision and if they manufacture excisable goods, they would be treated as manufacturers within the meaning of the Excise Act and the rules. It is also possible for a person who himself does net employ labour but gets goods manufactured through an independent contractor hired by him, that is to say that he was not manufacturer for he had not brought into existence an article or a product in question either himself or through his servant. To cover such a class of person, the legislature provided the implicit part of definition which would include a person who does not himself employ labour, but engages himself in the production or manufacture of goods through an independent contractor. In the present case, M/s. SDP has erected the plant and machinery by arranging their own finance and on their own land for manufacture of ENO fruit salt. For erection of plant and machinery and the manufacturing unit, they can take help of any technical authority whether it is M/s. SBCH or M/s. SBAL. As far as M/s. SDP are owners of the plant and they are responsible for the profit and loss of the plant, they are independent manufacturer. They have manufactured ENO fruit salt from the raw material supplied by M/s. SBAL. They are not under the supervision and control of M/s. SBAL for their day to day work. Therefore, the conclusion arrived at by the Commissioner that M/s. SDP is hired labour of M/s. SBAL is not correct. M/s. SDP are the job worker of M/s. SBAL. Once they are the job worker of M/s. SBAL, then for valuation of the goods, the principle laid down by the Hon'ble Supreme Court in case of Ujagar Prints 1989 (1) TMI 124 - SUPREME COURT and in case of Pawan Biscuits Co. Pvt. Ltd. 2000 (7) TMI 78 - SUPREME COURT will be applicable. We find that the Assistant Commissioner of Central Excise, Rajahmundry Division, Rajahmundry in his Order No. 9/2003, dtd. 20-8-2003 has approved the value declared by M/s. SDP and finalised the provisional assessments from 5-3-2001 to 31-12-2002 by taking M/s. SDP as manufacturer of ENO fruit salt. Therefore, for the earlier period the Department cannot take a different stand that M/s. SDP is a hired labour and not a manufacturer when the position remains the same. We therefore, find no justification in holding M/s. SDP as hired labour. They should be considered as the manufacturer and job worker of M/s. SBAL. The value of the product manufactured by them should be determined as decided by the Apex Court in the case of Pawan Biscuits Co. Pvt. Ltd. v. CCE, Patna (supra). Accordingly, we set aside the order of the Commissioner and allow all the appeals.

Summary

Issues Involved:
1. Determination of the real manufacturer between M/s. SDP and M/s. SBAL.
2. Valuation of goods for the purpose of excise duty.
3. Imposition of penalties and interest.

Summary:

1. Determination of the Real Manufacturer:
The primary issue was whether M/s. Southern Drugs and Pharmaceuticals (SDP) or M/s. Smithkline Beecham Asia Ltd. (SBAL) should be considered the real manufacturer of ENO fruit salt. The Commissioner concluded that M/s. SDP was not an independent manufacturer but rather hired labor for SBAL, who provided technical assistance and controlled the production. However, the Tribunal found that M/s. SDP had set up the plant with its own finances, owned the land and machinery, and bore the profit or loss of the venture. Therefore, M/s. SDP was deemed an independent job worker, not hired labor, and thus the real manufacturer.

2. Valuation of Goods:
The valuation of ENO fruit salt was contested. The Commissioner argued that the assessable value should include various costs and be based on the price charged by SBAL from their dealers. However, the Tribunal held that since M/s. SDP was the manufacturer, the valuation should follow the principles laid down by the Supreme Court in the Ujagar Prints case, which involves the cost of raw materials plus conversion charges and manufacturing profit.

3. Imposition of Penalties and Interest:
The Commissioner had imposed a demand of Rs. 4,32,19,642/- u/s 11A of the Central Excise Act, along with equivalent penalties u/s 11AC and interest u/s 11AB on M/s. SBAL. Additionally, penalties were imposed on M/s. SBCH and various individuals u/r 209A. The Tribunal, however, set aside these penalties and the demand, as it concluded that M/s. SDP was the actual manufacturer and the valuation method used by them was correct.

Conclusion:
The Tribunal set aside the Commissioner's order, recognizing M/s. SDP as the real manufacturer and job worker of M/s. SBAL. The valuation of the goods should follow the Supreme Court's guidelines in the Ujagar Prints case. Consequently, all appeals were allowed, and the penalties and demands imposed by the Commissioner were annulled.