REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1761 OF 2007
COMMISSIONER OF CENTRAL EXCISE, GOA ... APPELLANT
VS.
M/S. COSME FARMA LABORATORIES LTD. ... RESPONDENT
WITH
CIVIL APPEAL NOS. 1759, 2276/2007, 5857, 7302-7303/2010 AND 7512/2009
J U D G M E N T
ANIL R. DAVE, J.
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
thereunder.
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,
1944.
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
appellant.
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
followed.
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
manufacturers.
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.
.....................J.
[ANIL R. DAVE]
.....................J.
[DIPAK MISRA]
New Delhi;
April 7, 2015.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1761 OF 2007
COMMISSIONER OF CENTRAL EXCISE, GOA ... APPELLANT
VS.
M/S. COSME FARMA LABORATORIES LTD. ... RESPONDENT
WITH
CIVIL APPEAL NOS. 1759, 2276/2007, 5857, 7302-7303/2010 AND 7512/2009
J U D G M E N T
ANIL R. DAVE, J.
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
thereunder.
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,
1944.
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
appellant.
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
followed.
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
manufacturers.
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.
.....................J.
[ANIL R. DAVE]
.....................J.
[DIPAK MISRA]
New Delhi;
April 7, 2015.
