1996 (7) TMI 263 - AT - Central Excise

Summary

Issues:
Determining whether the value of clearances by two small-scale units should be added to the goods manufactured by another company.

Analysis:
The appeals involved the question of whether the value of clearances by two small-scale pharmaceutical units, M/s. HAB Pharmaceuticals and M/s. Cyto Pharmaceuticals, should be added to the value of goods manufactured by M/s. Group Pharmaceuticals, who got their goods manufactured by the former two firms. The Collector contended that since raw materials were supplied by M/s. Group Pharmaceuticals to the other units, the goods manufactured should be treated as those of M/s. Group Pharmaceuticals. The Assistant Collector had initially held in favor of this view, but the Collector (Appeals) disagreed, citing Notification No. 175/86 and stating that the other units were not employees or hired labor of M/s. Group Pharmaceuticals. The Collector (Appeals) emphasized that the goods manufactured by the smaller units should not be clubbed with those of the brand name holder for assessment purposes.

Argument by Appellant:
The learned SDR for the appellants argued that as per Section 2(f) of the Central Excises and Salt Act, 1944, the brand name holder is considered the real manufacturer of goods made by the smaller units on their behalf. He contended that for calculating the slab exemption under Notification No. 175/86, the quantities manufactured by the brand name holder and the smaller units should be combined. The appellant further argued that since the brand name holder provided raw materials and owned the final product, the smaller units were not entitled to the exemption under Notification No. 175/86.

Argument by Respondent:
The learned Advocate for the respondents countered by highlighting the lack of financial links or common funding between the brand name holder and the manufacturers. He pointed out that the brand name holder and the manufacturers were separate entities with distinct licenses and certificates. The respondent's counsel cited previous court judgments to support the argument that merely supplying raw materials or manufacturing goods as per specifications of the brand name holder does not establish a relationship of manufacturing for or on behalf of the brand name holder.

Judgment:
After considering the arguments and evidence, the Tribunal found that the smaller units received raw materials from the brand name holder, manufactured goods as per their specifications, and sold the products back to the brand name holder. Relying on the legal definition of 'manufacturer' and 'manufacture' under CESA, 1944, the Tribunal held that the brand name holder or raw material supplier does not become the manufacturer. The Tribunal noted the absence of evidence of financial links between the entities and referred to previous court decisions to support their finding. Ultimately, the Tribunal ruled in favor of the respondents, upholding their right to the exemption under Notification No. 175/86 and rejecting the appellant's contention to club the clearances of the smaller units with those of the brand name holder for assessment purposes.

Outcome:
In conclusion, the appeals were dismissed, and the orders in favor of the respondents were upheld. The Tribunal affirmed the independence of the brand name holder and the actual manufacturers, allowing them to individually benefit from the exemption under Notification No. 175/86 based on fulfilling the specified conditions.