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Friday, April 10, 2015

Once the Tribunal, after appreciating relevant evidence, has come to a conclusion that the job workers were the manufacturers and the respondent - the loan licensee, was not the manufacturer, we see no reason to interfere with the said findings of fact, especially when the same is correct and not perverse. We are, therefore, in agreement with the findings arrived at by the Tribunal that the job workers are the manufacturers.


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                   CIVIL APPEAL NO.  1761  OF 2007





    CIVIL APPEAL NOS. 1759, 2276/2007, 5857, 7302-7303/2010 AND 7512/2009

                          J U D G M E N T


1.    A common order No.A/1559 to  1563/WZB/2006  (EB)  dated  14th  August,
2006 in Appeal Nos. E/3292 to 3295 of 2004 passed by the Customs Excise  and
Service  Tax  Appellate  Tribunal,  West  Zonal  Bench,  Mumbai,  has   been
challenged in these appeals. The facts giving rise to  the  present  appeals
in a nut-shell are as under:

2.    The respondent is a manufacturer of medicaments having  license  under
the provisions of the Drugs and Cosmetics Act,  1940.   The  respondent  not
only manufactures certain medicaments  but  also  gets  certain  medicaments
manufactured through other job workers so the respondent is a loan  licensee
- who is also permitted to get drugs manufactured at different places  under
the provisions  of  the  Drugs  and  Cosmetics  Act,  1940  and  Rules  made
thereunder.  Under the agreement entered into between the respondent on  one
hand and the job workers on the other hand, raw material as well as  packing
material is supplied to the job workers and as per the instructions  of  the
respondent loan licensee, the job workers manufacture the medicaments  under
the supervision of the loan licensee, i.e. the respondent so as to see  that
the quality of the  medicaments  manufactured  by  the  job  workers  is  as
prescribed by the loan licensee.

3.    Several notices had been given to the respondent as  well  as  to  the
job workers by the Commissioner of Customs and Central Excise  calling  upon
them to show cause as to why the respondent, the  loan licensee  should  not
be treated as a manufacturer as per the provisions  of  the  Central  Excise
and Salt Act, 1944 in respect of the medicaments  manufactured  by  the  job
workers and on that basis the  respondent  was  also  called  upon  to  make
payment of certain duty and the job workers were also called  upon  to  show
cause as to why they should not be directed to pay penalty etc.

4.    After hearing the concerned parties,  the  Commissioner  came  to  the
conclusion that  the  respondent  was  a  manufacturer  of  the  medicaments
manufactured at the premises of its job workers within the  meaning  of  the
provisions of the Central Excise and Salt  Act,  1944  and  the  Rules  made

5.    Being aggrieved by the aforesaid decision of  the  Commissioner  dated
6th August, 2004, the  respondent  filed  the  appeals  before  the  CESTAT,
Mumbai.  The Division Bench of the CESTAT heard the  appeals  but  both  the
Members of the Bench recorded separate  judgments.  The  Member  (Technical)
allowed the appeals and set aside the order dated 6th  August,  2004  passed
by the Commissioner, whereas the Member (Judicial)  upheld  the  said  order
passed by the Commissioner and held that  the  appeals  were  liable  to  be
dismissed. In the aforesaid circumstances, as the  said  Members  had  given
different opinions, the appeals were referred to  a  third  Member  for  his
decision.  The third  Member  (Technical),  ultimately,  after  hearing  the
concerned parties agreed with the views expressed by the Member  (Technical)
and the Tribunal finally allowed the appeals filed by the respondent.

6.    Against the said order passed by the CESTAT, the appellant  has  filed
the present appeals before this Court.

7.    In all these cases, we are concerned with the period  commencing  from
1998 to 2003 and  the  issues  involved  in  the  appeals  are  whether  the
respondent, who was getting its medicaments  manufactured  through  the  job
workers, can be considered to be an  independent  manufacturer  and  another
question is about the assessable value of the  medicaments  manufactured  by
the job workers for the purpose of assessment under the Central Excise  Act,

8.    The learned counsel appearing for the  appellant,  i.e.  the  Revenue,
had submitted that the view expressed by the Tribunal is  incorrect.   As  a
matter of fact, the respondent should have been treated  as  a  manufacturer
in view of the fact that the raw material as well as  the  packing  material
for manufacturing the medicaments had been supplied  by  the  respondent  to
the  job  workers  and  the  respondent  was  having  supervision  over  the
manufacturing activity though the said activity was  being  carried  out  at
different places, where the job workers were working.

9.    The learned counsel had taken us through the provisions of  Rule  69-A
and Form No.24A of the Drugs and Cosmetic Rules, 1945.  They pertain to  the
provisions  with  regard  to  the  manufacturer  of  medicaments,  who  gets
medicaments manufactured at different places and by  different  persons.  He
had drawn our attention to the fact that as per the provisions of the  Drugs
and Cosmetics Act, 1940 and the Rules made thereunder, liability in  respect
of the quality of the medicament was that of the respondent  and  therefore,
the respondent was the real manufacturer and not the job  workers.   He  had
further submitted that though the job workers were doing the work  in  their
own premises, the raw  material  as  well  as  packing  material  was  being
supplied to them by the  respondent  and  they  were  working  under  strict
supervision of the respondent loan  licensee  and  therefore,  in  fact  the
respondent loan licensee was the manufacturer. Even in Form No.24A  referred
to hereinabove, the respondent used to give details of the places where  the
job workers were carrying out manufacturing process  under  the  supervision
of the respondent. It had been further submitted that as the  loan  licensee
was the manufacturer of medicaments under its own brand name, the  price  at
which the goods, i.e. the medicaments were being  sold  was  the  assessable
value in respect of the medicaments in question.  The  learned  counsel  had
relied upon the judgments delivered in the case of M/s.  Ujagar  Prints  and
others v. Union of India and others (1989 (3) SCC 488)  and  Pawan  Biscuits
Co. Pvt. Ltd. v. Collector of Central Excise, Patna (2000 (6)  SCC  489)  to
substantiate his case to the effect that the price at which the  goods  were
sold for the first time in the market would be the assessable value  of  the
goods in question.

10.   Thus, it had been submitted by  the  learned  counsel  that  the  view
expressed by the Tribunal was incorrect and the respondent should have  been
treated as a manufacturer and the value at which the goods had been sold  in
the market by the respondent should be treated as assessable value.

11.   On the other hand, the learned counsel appearing  for  the  respondent
had submitted that the view expressed by the Tribunal was  just,  legal  and
proper and had further submitted that the appeals deserved to be  dismissed.
He had taken us through  the  provisions  of  the  agreements  entered  into
between the  respondent  and  the  job  workers  in  detail.   It  had  been
submitted by him that the issue, whether the job workers are  manufacturers,
is an issue pertaining to the fact and as the  Tribunal  had  arrived  at  a
conclusion that the job workers were the manufacturers,  this  Court  should
not re-appreciate the evidence or reconsider the issue with  regard  to  the
same.  If it is done so, there would not be any finality with regard to  the
question of fact ascertained by the Tribunal. It had also been submitted  on
behalf of the respondent that the job workers  were  the  manufacturers  for
the reason that  the  entire  activity  with  regard  to  manufacturing  was
carried out in their premises. Supply of raw material  as  well  as  packing
material to them by the respondent was not relevant.  It  was  duty  of  the
job workers to manufacture medicaments as per the quality prescribed by  the
respondent and, in fact, the manufacturing activity  was  done  by  the  job
workers and therefore, the Tribunal, by majority, had rightly  decided  that
the job workers were the manufacturers.  He had also  tried  to  distinguish
the  judgments  relied  upon  by  the  learned  counsel  appearing  for  the

12.    So  far  as  the  assessable  value  of  the  goods  manufactured  is
concerned, the learned counsel had relied upon  the  judgment  delivered  in
Pawan Biscuits (supra). According to him, the goods manufactured by the  job
workers were sent by the job workers to the  respondent.   The  job  workers
were not selling the goods in the market and therefore, the value  at  which
the goods were transferred to  the  respondent  by  the  job  workers  would
become assessable value and for determining the said value,  the  principles
laid down by this Court in the case of Pawan  Biscuits  (supra)  are  to  be

13.   Looking at the law laid down in the aforesaid judgment by this  Court,
the assessable value is  to  be  determined  by  adding  the  value  of  raw
material to the cost of labour work and profit of the  job  workers.   Thus,
for the purpose of determining the  assessable  value,  only  the  aforesaid
factors can be considered and not the market value at which  the  respondent
was selling the medicaments.

14.   It had been further submitted by the  learned  counsel  appearing  for
the respondent that the respondent-company was a loan licensee  as  per  the
provisions of  the  Drugs  and  Cosmetics  Act,  1940  and  the  Rules  made
thereunder.  He had submitted that the manufacturer of drugs/medicaments  is
having  certain  responsibilities  with  regard  to  quality  of  the  drugs
manufactured.   Even  if   a   manufacturer   gets   the   drugs/medicaments
manufactured by another person and sells the same under his brand name,  the
manufacturer,   who   has   been   given   license   to   manufacture    the
drugs/medicaments, is responsible and is liable under the provisions of  the
Drugs and Cosmetics Act, 1940.  A manufacturer, under the  aforestated  Act,
has nothing to do with payment of duty under the provisions of  the  Central
Excise Act, 1944 and therefore, the  revenue  authorities  should  not  have
looked into the provisions of the Drugs and  Cosmetics  Act,  1940  for  the
purpose of determining duty payable under  the  provisions  of  the  Central
Excise Act, 1944.

15.   In view  of  the  aforestated  legal  position,  the  learned  counsel
appearing for the respondent  had  submitted  that  the  appeals  should  be
dismissed as the Tribunal has rightly decided all the relevant issues.

16.   We have heard the learned senior counsel for  the  parties  at  length
and have also considered the order passed by the Tribunal  as  well  as  the
judgments referred to by the learned counsel.

17.   In our opinion, the submissions made on behalf of the  respondent  are
correct and the appeals deserve to be dismissed  for  the  reason  that  the
manufacturing activity was done only by the job workers  in  their  premises
and with the help of their labour force and machinery.  Simply  because  the
job workers had to adhere to the quality control or the  specification  with
regard to the quality prescribed by the respondent, it would not  mean  that
the respondent is the manufacturer.

18.   At the outset, we would like to clarify that the  term  'manufacturer'
or the loan licensee used under the provisions of the  Drugs  and  Cosmetics
Act, 1940 has  nothing  to  do  with  the  manufacturing  activity  or  term
'manufacture' under the provisions of the Central Excise  Act,  1944.   Both
the Acts referred to hereinabove have been enacted for  different  purposes.
The provisions of the Drugs and Cosmetics Act, 1940 pertain  to  manufacture
of drugs and quality of the drugs etc.  The manufacturer of  the  drugs  has
to see that the quality of the drugs manufactured by him is as  per  certain
standards and if there is any defect in the drugs  manufactured  by  him  or
someone working under him, he becomes responsible or liable under  the  said
Act.  There is also a provision in the said Act with regard to  getting  the
drugs manufactured by someone else.  So a  manufacturer,  who  is  having  a
license to  manufacture,  can  get  the  drugs/medicaments  manufactured  by
another person under his supervision and he would be  liable  if  the  drugs
manufactured by someone else are not as per the prescribed  quality.  Though
the drugs/medicaments might not have been manufactured by the one who  is  a
licensee and the actual manufacturer is guilty of manufacturing  substandard
drugs, the licensee becomes responsible and liable under the  provisions  in
the said Act.

19.   On the other hand, the provisions of
the Central Excise Act, 1944 are for the purpose of  imposing  duty  on  the
goods manufactured. The manufacturer becomes liable to pay certain  duty  as
per the provisions of the said Act.

20.   Thus, the term 'loan licensee' used by the learned  counsel  appearing
for the appellant is not much relevant as we  are  not  concerned  with  the
quality or standard  of  the  drugs/medicaments  manufactured  by  the  loan
licensee or anybody else manufacturing medicaments for him.

21.   The learned counsel appearing for the respondent had  also  drawn  our
attention to a copy of one  of  the  agreements  entered  into  between  the
respondent and the job workers.  Upon going through the said  agreement,  we
find that the said agreement shows that the job workers  were  not  assigned
the work as agents of the respondent.  The said  agreement  shows  that  the
relationship between the parties is that of the principal and the  principal
and not that of the principal and the agent.  Thus, it  is  clear  that  the
job workers were not manufacturing the drugs as agents of the respondent  or
on behalf of the respondent, but they were carrying  out  the  manufacturing
activity independently and therefore, they were manufacturers of  the  drugs
as per the provisions of the Central Excise Act, 1944.

22.   In the light of the above factual position, it is  also  pertinent  to
find out whether the respondent is a manufacturer under  the  provisions  of
the  Central  Excise  Act,  1944.   Whether  a  person  has  manufactured  a
particular item or whether a person is  a  manufacturer  is  a  question  of
fact. Once the Tribunal, after appreciating relevant evidence, has  come  to
a conclusion that the job workers were the manufacturers and the  respondent
- the loan  licensee,  was  not  the  manufacturer,  we  see  no  reason  to
interfere with the said findings  of  fact,  especially  when  the  same  is
correct and  not  perverse.   We  are,  therefore,  in  agreement  with  the
findings  arrived  at  by  the  Tribunal  that  the  job  workers  are   the

23.    Once  it  has  been  determined  that  the  job   workers   are   the
manufacturers, the assessable value of the goods would be  a  sum  total  of
cost of raw material, labour charges and profit of the job workers,  as  per
circular No.619/10/2002-CX dated 19th February, 2002 and the law  laid  down
by this Court in the case of Pawan Biscuits  (supra)  and  other  cases.  In
such a case, the price at which the respondent brand owner sells  its  goods
would not be the assessable value because the duty is  to  be  paid  at  the
stage at which the goods are manufactured and not  at  the  stage  when  the
goods are sold.

24.   For the aforesaid reasons, we do not agree with the  submissions  made
on behalf of the learned counsel appearing for the Revenue. We  dismiss  all
the appeals along with the main appeal, with no order as to costs.

                                                              [ANIL R. DAVE]

                                                               [DIPAK MISRA]
New Delhi;
April 7, 2015.

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