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TMI Blog1991 (4) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... eir own account M/s. B. Pharma Labs (P) Ltd. were manufacturing both patent and proprietary medicines and general pharmocopoeial items falling under Item 68 of the Tariff. The Supdt. of Central Excise demanded duty amounting to Rs. 24,745.94 under Rule 9(2) of the Central Excise Rules, 1944 from the appellants on the clearances of patent and proprietary medicines during the months of April and May, 1981 on the ground that the aggregate value of the clearances from the factory of M/s. B. Pharma Labs. (P) Ltd. during the financial year 1980-81 being in excess of Rs. 20 lakhs, the exemption in terms of Notification No. 80/80-C.E., dated 19-6-1980 read with Notification No. 73/81-C.E., dated 25-3-1981 was not admissible. The appeal filed by the appellants against the order of the Asstt. Collector confirming the demand was rejected by the Collector of Central Excise (Appeals). 2. The main point raised by the appellants in their written submissions is that they were not manufacturers of patent and proprietary medicines in terms of Section 2(f) of the Central Excises Salt Act inasmuch as they had neither employed or hired any labour nor undertaken any process incidental or ancillary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had to be deemed as a manufacturer. For this reason the demand of duty in respect of clearances effected on their behalf from the factory of M/s. B. Pharma Labs (P) Ltd. was rightly issued to them after the exemption limit of Rs. 20 lakhs in terms of Notification No. 80/80-C.E. (as amended) was exceeded. 5. We have heard both the sides and carefully examined the points made by the appellants in their written submissions. The main questions that arise for consideration are the following: - (i) Whether a loan licensee who gets his - goods manufactured out of his own raw materials in the factory of another manufacturer can - be deemed as a manufacturer within the meaning of Section 2(f) of the Central Excises Salt Act. (ii) Whether the appellants as loan licensee were entitled to the benefit of the exemption in respect of clearances upto the limit of Rs. 15 lakhs in terms of Notification No. 80/80-C.E. (as amended). (iii) Whether the aggregate value of drugs and pharmaceuticals falling under Central Excise Tariff Item 68 manufactured in the factory of M/s. B. Pharma Labs (P) Ltd. during the year 1980-81 should have been excluded in computing the aggregate value of the clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn to Rule 174-A, it provides that notwithstanding anything hereinbefore contained, if the Central Government is satisfied that it is necessary or expedient in the public interest so to do, it may by notification in the Official Gazette, and subject to such conditions or limitations as it may specify in such notification exempt from the operation of Rule 174 N(b) any class of manufacturers who get their goods manufactured on their account from other person or persons. The aforesaid procedure clearly postulates that for the purpose of the Excise Act and the Rules, there can be a manufacturer who gets his goods manufactured on his own account from other person or persons, meaning thereby, utilising infra-structures of others. It is, therefore, obvious that such loan licensees who are entitled to manufacture PP medicines and who are having relevant licences under the Drugs and Cosmetics Act read with relevant rules, can utilise 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. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be held that the loan licensees are also manufacturers within the meaning of the terms as envisaged by the said Act and the Rules, and especially when they get their goods manufactured under their own control or supervision and out of their own raw material at the factory premises belonging to some one and which premises they might have hired for the time being shiftwise or otherwise. The first point for determination, therefore, has to be answered in the affirmative. We may mention at this stage that the learned standing counsel for the respondents was not in a position to point out any provision in the Central Excise Act and the Rules which contra-indicated the said position. We answer point No. 1 accordingly. 7. On the ratio of this decision of the Honourable High Court of Gujarat only such loan licensees who get their goods manufactured under their own control or supervision and out of their own raw material at the factory belonging to some one else by hiring the premises shiftwise or otherwise can be deemed as manufacturers within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. 8. For examination of the second question, the changes made in the No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the petitioners with reference to Article 19(l)(g) of the Constitution of India, it is necessary to note the purpose of the impugned notification. The counter-affidavit in this respect refers to a genuine small unit for the purpose of allowing exemption. According to the respondents, the exemption is based on the economic policy of the Union of India to give relief only to the genuine small manufacturers. Reference is also invited to Jaipur Mills v. Raj (AIR 1971 SC 1330) where the following observations are found: - Generally speaking, it is not for the Court to decide whether the policy of exempting certain articles followed by the Government is justified or not. It is for the taxing authorities to take a decision as to which goods should be subjected to taxation and which should be exempted from it. The counter also proceeds to narrate how certain big manufacturers exploit the exemption notification in the guise of loan licences by floating benami firms/units and getting the goods manufactured in their factory and accounting them separately for the various benami firms for the purpose of claiming exemption. I am satisfied that the impugned notification does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of other units have to be treated as the clearance of the manufacturer only. In the light of this decision and also having regard to the case law cited on behalf of the appellants, M/s. B. Pharma Labs (P) Ltd. who actually carried out the manufacturing activity in their factory on behalf of the appellants and other loan licensees would have to be deemed as manufacturer unless as held by the Honourable High Court of Gujarat in the case of Indica Laboratories (P) Ltd. and Others v. U.O.I. (supra) it can be established that the appellants were carrying out manufacturing activity out of their own raw material at the factory of M/s. B. Pharma Labs (P) Ltd., under their own supervision by hiring the factory premises and equipment shiftwise or otherwise. Hence we hold that the demand issued to the appellants would be sustainable only if on the basis of this test it can be established that they were engaged in the manufacturing activity during the relevant period. 13. In view of the above finding the appeal is allowed by remand to the Assistant Collector who shall take a decision on the basis of material on record, and such evidence as may be adduced and permitted to be placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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