TMI Blog1996 (9) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... tics Rules, 1945 which enables the utilisation of factory premises of other persons where authorised PP medicines can be got manufactured, the respondents M/s. LLPL had, during the year 1986-87 (precisely during the period from 1-9-1986 to 31-3-1987), got PP medicine, namely, HEPP manufactured at the factory premises of M/s Jaychem Product (in short M/s JP ) by supplying all the raw materials including packing material and paying job charges thereof to M/s J.P. For this, the respondents M/s. LLPL had first filed a declaration dated 19-9-1986 and subsequently obtained Central Excise Licence dated 6-1-1987 when the value of clearances was about to cross Rs. 10 lakhs. Likewise, M/s. JP had also manufactured PP medicine on their own account from the said factory premises having obtained Central Excise Licence dated 6-1-1987. M/s. JP is a registered SSI unit eligible for the exemption under Notification No. 175/86 dated 1-3-1986 as amended. It was further the case of the Revenue that during the year 1986-87 the respondents M/s. LLPL has cleared PP medicine, namely HEPP valued at Rs. 17,67,985/- under loan licence from the premises of M/s. JP availing the full exemption from payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to pay the duty for the goods manufactured beyond Rs. 15 lakhs. He further held that the respondents had themselves determined the duty liability and already paid a sum of Rs. 2,27,600/-which could be taken only as a payment made on behalf of M/s. Jaychem. 4. When the case was taken up for hearing Shri M.H. Patil, ld. counsel for the respondents submitted that while ordering for the issuance of notice of hearing on stay application filed by the Revenue to the respondents for today the Bench also directed both sides to come prepared to argue the matter on merits in view of the judgment rendered in the case of Indica Laboratories (P) Ltd. v. Union of India, 1990 (50) E.L.T. 210 (Gujarat) and, therefore, he has come prepared to argue the matter on merits and he would have no objection on the said stay application and the matter be heard. In reply Sharad Bhansali, ld. SDR submitted that if the matter is heard on merits today itself he would not press the said stay application. Accordingly, the matter was heard on merits. 5. Arguing n behalf of the Revenue Shri Sharad Bhansali, Ld. SDR submitted that admittedly the respondents M/s. LLPL is not an SSI Unit and, therefor, they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect that M/s. JP has to ensure that the medicine manufactured by them for the respondents are out of their raw-material conforms to the quality standards. He further submitted that the respondents supply only negligible potion of material to M/s. Jaychem and the rest of the material required for the manufacture of the medicine is being procured by M/s. JP. He also submitted that the said M/s. Jaychem as well as the respondents Company are registered separately and have separate legal entity. In a nutshell he supported the impugned order. 7. We have considered the submissions. The Additional Collector of Central Excise has noted (at page 3) that The party replied to the Show Cause Notice, in their letter dated 11-11-1991. They stated that though they have supplied the raw materials to M/s. Jaychem Products and exercised quality control, the entire manufacturing activities were carried on by M/s. Jaychem Products, which is an SSI, and as such are entitled for free clearances up to 15 lakhs of the first clearance of P or P medicines manufactured by them. They also stated that they were forced to take out the Central Excise Licence by the Department and to observe all the exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture medicine is being produced by M/s. Jaychem Product cannot be expected as correct. In the case of Indica Laboratories Ltd. v. Union of India, supra, it was held if the loan licensee who get their PP medicine manufactured at SSI factories belonging to somebody else but under their own supervision or control from their own raw-material and if they affix their trade name and brand name on these manufactured goods, they will be entitled to the benefit of exemption Notification No. 175/86 read with Notification No. 223/87 but such loan licensee, that is to say who can aspire to get benefits of this Notification read with Notification No. 223/87 must be SSI units. In the instant case admittedly the respondents is not an SSI unit and, therefore, we have no alternative but to hold that they were not entitled for the benefit of exemption Notification No. 175/86 dated 1-3-1986. The case law refer to in the cross objections is not apt to the present controversy as these cases deal with the meaning of the term manufacture appearing in Section 2(f) of the Central excises and Salt Act under different situation. 9. From the impugned order we find that the Additional Collector after h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SSI factory of M/s. Jaychem Products. In the case of Indica Laboratories Pvt. Ltd. v. Union of India, reported in 1990 (50) E.L.T. 210 the High Court of Gujarat has observed that loan licensees are persons who hold licences under the provisions of Drugs and Cosmetic Act, 1944 but who do not have their own facilities to manufacture, hire shift or shifts in the factories of other manufacturers for carrying out manufacturing of P.P. medicines under their own control and supervision and out of their own raw materials. In respect of the loan licencees the Court has held that if they get their P.P. medicines manufactured at SSI factories belonging to somebody else but under own supervision or control and from their own raw materials and if they affix their trade name or brand name on these manufactured goods, they will be entitled to the benefit of exemption Notification No. 175/86 read with Notification No. 223/87 but they must be genuine loan licensees who may be merely limbs of factory owners. The Court has also held that loan licensees aspiring to get the benefit of the exemption Notification No. 175/86 read with Notification No. 223/87 but be SSI units since large scale units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y loan licensees at the petitioners factories are concerned, according to the petitioners, these loan licensees are also entitled to exemption and payment of concessional rate of excise as per the aforesaid sub-paras of para 1 of the notification. However, according to the petitioners, excise authorities are wrongly denying the benefit of this exemption notification to loan licensees who manufacture their goods are aforesaid at the petitioners-factories and on the contrary, by wrongly applying sub-paras (2) and (3) of the exemption notification, they are clubbing the goods manufactured by the petitioners with the goods manufactured by loan licensees at the petitioners factories and accordingly slab of cleared goods for the purpose of exemption from payment of excise duty is wrongly inflated and on that wrong basis, the impugned show cause notices are issued to the petitioners which are liable to be quashed. The petitioners also challenge the views of para (2) and (3) of the exemption Notification No. 175/86 on the ground that they are ultra vires provisions of the Act and they are also ultra vires Art. 14 of the Constitution. 16. Final result : In the light of the aforesaid dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red any shift or shifts in the factory of M/s. Jay Chem Products for carrying out the manufacture of the disputed goods under their own supervision and control on the ratio of the judgment quoted above they cannot be deemed as the manufacturers of the goods in question. Under these circumstances, even though the respondents had supplied the major portion of raw materials and packing material and also exercised some supervision and control over the manufacturing activities, M/s. Jay Chem Products who actually carried out the manufacturing activity in their factory as job worker have to be deemed as the manufacturers of the goods. Hence, I am inclined to agree with the finding of the Additional Collector that M/s Jay Chem Products as an SSI unit could alone be deemed as the manufacturers of the goods in question. However, in my view the Additional Collector erred in holding that in respect of clearances of goods of Lupin Laboratories valued at Rs. 17,67,989.07 duty only in respect of clearances of goods in excess of Rs. 15 lakhs in value was recoverable. Since the Additional Collector has observed that on the products belonging to Lupin Laboratories were produced with their brand nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion as per the direction of the Hon ble President. 21. The only question referred to the third member for opinion is as below : "Whether in the facts and circumstances of the case, the respondents M/s. Lupin Laboratories is to be treated as a manufacturer of the goods in question, as held by Member (J) or M/s. Jay Chem Products be treated as a manufacturer of the goods in question, as held by Member (T). 22. For that purpose the facts giving rise to the appeal are recorded below : 22.1 M/s. Lupin Laboratories (Respondents-hereinafter referred to as Lupin ), holding a loan licence issued under the Drugs and Cosmetic Act, filed a declaration under Notification 175/86 and claimed exemption under the said notification, in respect of drugs manufactured on their behalf in the factory of M/s. Jay Chem Products (hereinafter referred to as J.P.) declaring the value of clearances during the preceding financial year 1985-86 as nil , as they have started manufacturing from 1-9-1986 only. When the value of clearances in the factory of J.P. exceeded Rs. 10.00 lacs, both Lupin and JP took out Central Excise licences and filed classification lists separately on 5-1-1987, claiming conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Even after they took out a licence, many officers visited the factory and hence all their activities were within the knowledge of the officers. There is no justification to invoke the provisions of Section 11A of the Central Excises Salt Act, 1944. Even the payment of Rs. 2,27,600/- towards the demand for 1-10-1986 to 31-3-1987 in respect of clearances of a value exceeding Rs. 15.00 lacs, is without prejudice to their contention that JP are the manufacturer and not the Respondents. 22.3 The Additional Collector of Central Excise, Madras, under his Order-in-Original No. 4/92 dated 17-2-1992, however, held that it is only under the Cosmetics Drug Act, Lupin has to be construed as a manufacturer, as they hold a loan licence and permission to manufacture the drugs. But the position under the Central Excise Act is different. It is found that place of manufacture is JP s factory. JP only could be construed to be a manufacturer and not Lupin. In fact, under Central Excises Salt Act, there is no such thing as loan licensee. Notification No. 175/86 also refers to factory of manufacture only. It is seen that Lupin only places orders on the JP, for manufacture according to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the demand relates to the period 1-9-1986 to 31-3-1987 whereas condition No. 7 was inserted in Notification No. 175/86 by amending Notification No. 223/86, effective only from 1-10-1987. Hence condition No. 7 can not be held against them in the facts and circumstances of the case. 23.3 The facts narrated in their reply to show cause notice and the arguments based on those facts for pleading the time bar aspect of the demand have not been considered by any of the two members and no findings are given. If the demand per se is held to be time barred it is futile to consider the academic question raised for the third member s opinion. 24.1 On the basis of the above submissions made during the earlier hearing on 22-12-1993, I placed the matter before the President for considering whether the reference can be heard for giving my opinion. The President has ordered that the reference may be decided by me and the third member has powers to deal with facts and law required to answer the question referred. 24.2 In the position in which, I am placed, I find only on the facts and law as may be relevant for considering the question referred to me, I can go into them for arriving at my opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng personal hearing. When this was pointed out to Shri Patil, he agreed that the factual position as given out in their reply to show cause notice accepting the supply of raw material and exercising quality control, may be taken as correct and he would advance his argument on that basis, on the question of law. 25.1 The main plank of Shri Patil s argument is that the ratio of decision of Gujarat High Court in the case of Indica Laboratories Ltd. - 1990 (50) E.L.T. 210 (Guj.) would not apply to the facts of this case, so also the decision of Madras High Court Judgment in the case of Dukes Pharma reported in 1994 (69) E.L.T. 433 (Mad). He also referred other case laws in his support, which will be discussed in my findings in this order. 25.2 Shri V.K. Puri, the ld. SDR, on behalf of revenue pleads that once it is not disputed that Lupin are holding loan licence under the Drugs Cosmetics Act, and only under that arrangement, they could manufacture drugs in another factory (not owned by them), they are to be regarded as manufacturer even under the Central Excise Act. The case laws holding that so long as the supplier of raw material and the job worker are independent and the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermitted under the loan licence to get their goods manufactured in another factory, by taking shift or shifts in that factory. Hence it was pleaded that both the SSI units owning factory as well as the loan licensees can claim the benefit of exemption contemplated in para 1 of the Notification No. 175/86 separately. They also challenged the vires of the provision contained in paras (2) and (3) of the said Notification. After hearing the rival contentions, the following points were framed for consideration by the Gujarat High Court. 1. Whether the loan licensee governed by the provisions of Drugs and Cosmetics Act, 1940 read with Drugs and Cosmetics Rules, 1945 getting his goods manufactured under his control, supervision and direction and out of his own raw material, is manufacturer within the meaning of Section 2(f) of the Central Excises and Salt Act? 2. Whether paras (2) and (3) of the general exemption Notification No. 175/86, dated 1-3-1986 read with latter Notification No. 223/87 dated 22-9-1987 are ultra vires the Central Excises and Salt Act, 1944 and also ultra vires Articles 14 of the Constitution? 3. Whether the loan licensees referred to in point No. 1 are entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant, who does not have his own arrangement for manufacturing but who intends to avail himself of the manufacturing facilities owned by licensee in para 25. (2) The licensing authority, shall, before the grant of a loan licence, satisfy himself that the manufacturing unit has adequate equipment, staff, capacity for manufacture and facilities for testing, to undertake the manufacture on behalf of the applicant for a loan licence. There is no requirement of taking the manufacturing unit on shift or shifts basis nor is there any requirement that manufacturing activity should be directly under the supervision and control of loan licensee. No doubt, it is stated in Explanation (1) that it is issued to a person who does not have his own arrangement for manufacture. In this case Lupin is having their own factory in Aurangabad for manufacture. But it is stated that they are to cater to a larger demand and hence they have obtained loan licence. From this it appears that even in a case where the applicant has a factory of his own, seeks for loan licence on the ground that his own arrangements for manufacture cannot cater to the demand made on him for such medicine, his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture shall include not only a person who employs hired labour but also a person getting goods manufactured through an independent contractor. From this it is evident that Indica judgment does not lay emphasis on hired labour by a manufacturer or taking a factory on shift basis or exercising supervision and control over manufacture. They have concluded that loan licensee is a manufacturer in his own right because he hold a loan licence under the Drugs and Cosmetics Rules and he would also fall within the definition of Section 2(f) of the Central Excise Act and be governed by provision of Rule 174A and 174B of the Central Excise Rules. Hence Lupin s objection to taking out a Central Excise licence or filing a declaration for exemption from licensing control does not seem to have any support from the Gujarat High Court judgment. (4) Moreover, in para 16 of the judgment (Indica Laboratories) discussing the final result, Gujarat High Court observed thus It has also to be kept in view that loan licensees, who can aspire to get benefit of the exemption under Notification No. 175/86 read with Notification No. 233/87 must be SSI units. If they are large scale units or medium scale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically considered. However, in the decision of True Chem Pharma, the Judgment of Indica Lab. is profusely extracted. After considering the judgment of Indica Lab. the Bench consisting 3 members held that unless such loan licensees get their goods manufactured out of the raw materials supplied by them, by exercising supervision and control in another factory by hiring the factory on shift or shifts, they cannot be held to be manufacturer of medicine in the other factory. This view has been taken by three members which is contrary to the view, I have held, on my reading of Indica Lab. decision, as discussed in the earlier paras. 26.6 In such a circumstance, with no option available to a third member for placing the matter before a Larger Bench (since that is not in the question referred), I am to respectfully follow the decision of the Tribunal in True Chem Pharma reported in 1991 (56) E.L.T. 690 (Tri.) in deciding the question posed before me. Going by this decision, I am to hold that in the absence of any evidence brought out by the revenue to show that Lupin engaged the factory of JP on shift basis and produced the drugs under their own control or supervision, they cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting with the order, I deem it necessary to invite the attention of the learned members of the referring Bench to certain points on factual position raised by the ld. Counsel Shri M.H. Patil recorded in para 4 of my order, two of which could not be considered by me, because of the limited jurisdiction available to third member. These points are open for consideration, if necessary, by the refering Bench. 30. Under these circumstances, we feel that the judgment cannot be pronounced in the instant case as the notice has to be issued to the parties concerned in this regard so that they may appear if so desire. A copy of the order shall be sent to both parties along with the notice of hearing to be issued. Sd/- (G.R. Sharma) Member (T) Dated : 4-6-1996 Sd/- (G.P. Agarwal) Member (J) FINAL ORDER 31. [Order per : G.R. Sharma, Member (T)]. - When the file was listed for pronouncement of the order, it was noticed by the Bench that the Third Member had made the following observations in para 4.2(23.2) and 4.3(23.3) of his order : 4.2 Another point on the factual position pleaded by Shri M.H. Patil, is that Member (T) Shri Kapoor has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officers periodically and they filed the returns regularly inasmuch as they have taken out the licence, they requested to drop the proceedings. We do not see any discussion or rebuttal of these contentions. We observe that the respondents in their reply to the show cause notice had claimed limitation only in respect of the demand for the month of Sept. 1986. Though at the time of personal hearing, the appellant extended the scope of their contention however, having regard to the facts of the case and the contentions of the appellant in the show cause notice and having regard to the fact there is no rebuttal we hold that the demand for the month of Sept. 1986 alone is time barred. 34. The majority order will be that we hold that in the absence of any evidence brought out by the Revenue to show that Lupin Laboratories engaged the factory of M/s. Jay Chem Products on shift basis and produced the drugs under their own control ot supervision, they cannot be held to be manufacturer. M/s. Jay Chem. Products only could be construed to be manufacturer. Sd/- (Archana Wadhwa) Member (J) Dated : 25-9-1996 Sd/- (G.R. Sharma) Member (T) - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
