2016 (6) TMI 576 - AT - Central Excise

Valuation - Under-valuation of goods - Loan license agreement - appellant procured the raw materials himself and discharged the duty liability based upon the cost of production and the profit margin - MAPL clears the same pharmaceutical goods from their depot at higher price - Held that - it is undisputed that the respondents herein is functioning loan license agreement from MAPL which permits them to manufacture of goods on behalf of MAPL. The respondent has done so as per the agreement entered by them with MAPL. The first appellate authority in his impugned order has recorded very detailed findings after considering the agreement which has been entered into by MAPL and the respondent. Therefore, the findings of the first appellate authority on the issue are no consonant with the law as the contract entered into by the respondent with MAPL was for the supply and sale of the pharmaceutical goods at pre-determined price during the relevant period normal price as well as transaction value were the requirement of the law for discharge of the Central Excise duty, which we find has been correctly applied in the case in hand. - Decided against the Revenue

Summary

Issues involved: Valuation of goods manufactured under loan license arrangements

In this case, the primary issue revolves around the valuation of goods manufactured by the respondent under a loan license agreement with another company. The dispute arises from the differing interpretations of the contract between the appellant and the company for whom they manufacture pharmaceutical products. The Revenue contends that the duty should be based on the prices at which the company sells the goods to their dealers, while the respondent argues that they have correctly valued the goods based on the agreement terms. The first appellate authority sided with the respondent, leading to the appeal by the Revenue.

Analysis:

The case delves into the interpretation of the loan license agreement between the respondent and the company for whom they manufacture goods. The Revenue asserts that the duty should be calculated based on the prices at which the company sells the goods to their dealers, implying undervaluation by the respondent. However, the first appellate authority scrutinized the agreement and found that the respondent operated under a loan license agreement that permitted them to manufacture goods on behalf of the company. The agreement specified a margin for the company, indicating a structured pricing mechanism. The authority highlighted that there was no evidence of any extra consideration received by the respondent beyond the agreed prices. This detailed analysis led to the conclusion that the respondent, as per Section 2(f) of the Central Excise Act, was the real manufacturer, and the duty was appropriately charged based on the prices agreed upon in the contract.

The Tribunal referenced previous cases where similar issues were addressed, emphasizing that a loan licensee can be considered a manufacturer, and the value as per the contract should be deemed the normal value or transaction value for duty calculation. The Tribunal also cited a Supreme Court judgment reinforcing the view that manufacturing by a loan licensee equates to being a manufacturer. This legal precedence further supported the decision that the respondent's valuation method aligned with the legal requirements for Central Excise duty discharge.

Ultimately, the Tribunal found that the first appellate authority's analysis was in accordance with the law. The contract between the respondent and the company stipulated predetermined prices for the pharmaceutical goods, meeting the criteria for duty calculation. As a result, the appeal by the Revenue was dismissed, affirming the validity of the respondent's valuation method and duty payment approach based on the contractual terms.

This detailed analysis highlights the importance of contractual agreements in determining the valuation of manufactured goods under loan license arrangements and underscores the significance of legal precedents in guiding such valuation disputes in Central Excise matters.