1991 (4) TMI 237 - AT - Central Excise

Issues Involved:
1. Whether a loan licensee can be deemed as a manufacturer under Section 2(f) of the Central Excises & Salt Act.
2. Whether the appellants as loan licensees were entitled to the benefit of the exemption in respect of clearances up to the limit of Rs. 15 lakhs in terms of Notification No. 80/80-C.E. (as amended).
3. Whether the aggregate value of drugs and pharmaceuticals falling under Central Excise Tariff Item 68 should have been excluded in computing the aggregate value of clearances for determining eligibility for exemption under Notification No. 80/80-C.E. (as amended).

Detailed Analysis:

Issue 1: Whether a loan licensee can be deemed as a manufacturer under Section 2(f) of the Central Excises & Salt Act.

The appellants, M/s. True Chem Pharma (P) Ltd., argued that they were not manufacturers as they did not employ or hire any labor nor undertook any process incidental to the completion of the manufactured products. They contended that the demand for duty should be raised only against the principal manufacturer, M/s. B. Pharma Labs (P) Ltd. The Tribunal examined the detailed interpretation of Section 2(f) of the Central Excises & Salt Act, which includes any person who engages in production or manufacture on their own account, irrespective of the place of manufacture. The Gujarat High Court in Indica Laboratories Pvt. Ltd. v. U.O.I. ruled that loan licensees who get goods manufactured under their control and supervision and out of their raw materials at another's factory are manufacturers under the Act. The Tribunal concluded that the appellants, as loan licensees, could be deemed manufacturers if they controlled the manufacturing process and provided the raw materials.

Issue 2: Whether the appellants as loan licensees were entitled to the benefit of the exemption in respect of clearances up to the limit of Rs. 15 lakhs in terms of Notification No. 80/80-C.E. (as amended).

The appellants argued that they should be entitled to the exemption for clearances up to Rs. 20 lakhs. However, Notification No. 73/81-C.E. amended Notification No. 80/80-C.E. to state that the aggregate value of clearances from any factory by or on behalf of one or more manufacturers should not exceed Rs. 7.5 lakhs in any financial year. The Madras High Court in M/s. S. Panna Devi & Co. v. Govt. of India upheld this amendment, emphasizing that the exemption was intended for genuine small manufacturers and to prevent exploitation by large manufacturers using loan licenses. The Tribunal concluded that the exemption from payment of duty up to the prescribed aggregate value of clearances was in respect of overall clearances from the factory and not available individually to each manufacturer or loan licensee.

Issue 3: Whether the aggregate value of drugs and pharmaceuticals falling under Central Excise Tariff Item 68 should have been excluded in computing the aggregate value of clearances for determining eligibility for exemption under Notification No. 80/80-C.E. (as amended).

The appellants argued that drugs and pharmaceuticals falling under Tariff Item 68, which were exempt from duty, should not be included in computing the aggregate value of clearances. However, Explanation V to Notification No. 80/80-C.E. clarified that the clearances of specified goods exempted from the whole duty by any other notification should not be taken into account. Since goods under Tariff Item 68 were not specified in the table annexed to the notification, their value could not be excluded. The Tribunal upheld that the value of clearances of drugs and pharmaceuticals under Item 68 should be included in the aggregate value for determining exemption eligibility.

Conclusion:

The Tribunal held that the demand issued to the appellants would be sustainable if it could be established that they were engaged in the manufacturing activity during the relevant period, based on the test of control and supervision over the manufacturing process. The appeal was allowed by remand to the Assistant Collector for a decision based on the material on record and any additional evidence.

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