ORDER
V.K. Agrawal, Member (T)
1. In these two Appeals filed by M/s. Ebers Pharmaceuticals Ltd. arising out of a common order in Appeal dated 29.12.1992, the issue involved is whether the value of the goods manufactured by and cleared by other units are to be included in the value of clearances of goods by the Loan Licensee for the purpose of Notification No. 175/86.
2. Briefly stated the facts are that the Appellants manufacture P or P medicaments. They also get the medicaments manufactured out of raw material supplied by them from M/s. Schefata Pharmaceuticals and Development Laboratories and M/s. Gan Pharmaceuticals P. Ltd. (hereinafter referred to as Schefata and Gan) on loan licence basis. The Assistant Collectors under two Adjudication orders dated 19.6.1992 and 28.7.1992 denied them the benefit of Notification No. 175/86-CE dt. 1.3.1986 and confirmed the demand of Central Excise duty, holding that the value of clearances of branded goods by M/s. Schefata and M/s. Gan are to be clubbed with the value of clearance of the Appellants for the purpose of Notification No. 175/86 for the following reasons:
i) Raw material for manufacture of branded goods is supplied by the appellants;
ii) They not only lay down the product specifications and quality controls procedure, but actually carry out the quality tests in the premises of Schefata and Gan.
iii) Terms of loan licence also make it clear that the products and their quality, specifications are their responsibility; and
iv) Prices are fixed by the Appellants who also sign the price list submitted by the actual manufacturers.
3. The Assistant Collector relied upon the decision of the Gujarat High Court in the case of Indica Laboratories v. U.O.I. . On appeal filed by the Appellants, the Collector (Appeals) in the impugned common order rejected the appeals, holding that the Notification No. 175/86 used the words ‘manufacture’ and ‘factory’ in different context and made it clear that the ‘place of manufacture’ and ‘manufacturer’ are different concepts in the Central Excise Act and Rules; that the omission of the word ‘on behalf of (a manufacturer) from text of the Notification is very significant in that clearances made from a factory is no more considered to be on behalf of a manufacturer in respect of goods manufactured out of raw material supplied by the loan licensee; that if it is proved that the loan licensee fits into the definition of a manufacturer under the provisions of Act, such clearances have to be considered as made by the loan licensee himself; that the concept of loan licensee is given a legal sanction under the Drugs and Cosmetics Act and such loan licensees are considered as manufacturers of the goods manufactured on loan licence basis elsewhere, under the Central Excise Act.
4. Shri M.M. Patil, Ld. Advocate, submitted that both M/s. Schefata and M/s. Gan are having their own independent manufacturing set up and are engaged in the manufacture of their own medicaments in their own factory; that both these companies have their own qualified technical staff and they are fully independent from the Appellant company; that products specifications and quality control procedure have to conform to F.D.A. Regulations and based on which loan licence is approved by F.D.A. Authorities; that loan licence arrangement has been in vogue all over India and it is settled law that the actual manufacturer who gives birth to a product is construed and is being considered as manufacturer under Section 2(f) of the Central Excise Act; that nowhere Adjudication orders suggest that medicaments were manufactured under their control or supervision or they had taken the factories of Schefata and Gan on hire; that the observation of the Assistant Collector that quality Control procedure was actually carried out by them has been made without having adduced any evidence whatsoever in this regard. He relied upon the decision of the Apex Court in Union of India v. Cibatul Ltd. it was held that according to agreement between the buyer and the seller/manufacturer, the goods were to be produced by the seller in accordance with a manufacturing programme and goods were to be manufactured in accordance with the restrictions and specifications constituting the buyer’s standard; that the buyer was entitled to test the samples and buyer was obliged to purchase the products if only they conform to his standard; that the buyer of excisable goods cannot be treated as their manufacturer nor it can be said that the seller was producing the goods not on his account but on behalf of the buyer even if under contract the seller was to use the Trade mark as an agent for and on behalf of the buyer.
5. The Ld. Advocate further mentioned that following the judgements of Supreme Court and various High Courts, the Appellate Tribunal has been holding that the actual manufacturer is the manufacturer and the raw material supplier is not the manufacturer if relation between them is on Principal to Principal basis and none of the manufacturer are dummy. He also mentioned that in order to invoke the ratio of Indica Laboratories case, supra, it is mandatory that loan licensee should not have his own manufacturing set up, he utilised infrastructure belonging to somebody where he manufactures the goods which are manufactured under his own control and supervision out of his own raw material. He contended that none of the exigencies envisaged in the judgement are present in their matters as they had neither hired the factories of Schefata and Gan nor there was any manufacturing supervision or otherwise by the Appellants through their personnel; that this was the view of the Tribunal in True Chem Pharma (P) Ltd. v. C.C.E. wherein the Tribunal held that “on the ratio of this decision of the Hon’ble 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 someone else by hiring the premises shiftwise or otherwise can be deemed as manufacturers within the meaning of Section 2(f) of the Central Excise Act”. The Ld. Advocate contended that even if all the points mentioned by the Assistant Collector in Adjudication orders are accepted, it cannot be said that the manufacturing activity was undertaken by the loan licensee under his own supervision by hiring the factory. He also placed reliance on the decision in Sol Pharmaceuticals Ltd. v. C.C.E. Hyderabad 1991 (37) ECR 638 wherein it was held that “the manufacturer of the goods is that person who actually makes the goods and not the supplier of the raw material or even the owner of the manufactured goods.” The Ld. Advocate, further submitted that the deletion of words “by and on behalf of” in Notification No. 175/86, supports the case of the Appellants as the goods manufactured on his behalf will not be his goods as Notification now requires that excisable goods should be manufactured by him alone and not on his behalf. He also referred to Explanation IV to Notification No. 175/86 according to which specified goods, manufactured by a manufacturer and affixed with a brand name of another manufacturer, shall not merely by reason of that fact be deemed to have been manufactured by such other manufacturer. He also relied upon the decision in the case of CCE, Madras v. Lupin Lab. P. Ltd. 1997 (70) ECR 149 in which it was held that the Respondents are not the manufacturer, though they had supplied the raw materials and packing material and also exercised some supervision and control over the manufacturing activities, as there is no evidence that they had hired any shift or shifts in the factory of the actual manufacturer for carrying out the manufacture of the goods. Reliance was also placed on the decision in Techma Engineering Enterprise, Calcutta v. C.C.E. .
6. Countering the arguments, Shri H.K. Jain, Ld. S.D.R., reiterated the findings of both the Assistant Collector and Collector (Appeals) and emphasised that the Appellants were exercising the quality control over the goods manufactured by M/s. Schefata and M/s. Gan. Further the Appellants were fixing the prices of the medicines manufactured under the loan licence scheme. The Ld. S.D.R. further submitted that in Indica Laboratories case nowhere it has been laid down that the shift or factory is required to be hired before the value of their clearances could be clubbed with the value of clearances effected by the loan licensee.
7. We have considered the submissions of both the sides. The undisputed facts are that the appellants were getting the medicaments manufactured from M/s. Schefata and M/s. Can out of the raw material supplied by them as per their specifications. The Apex Court in the case of Ujagar Prints v. U.O.I. has settled the question as to who is the manufacturer. The Supreme Court held that excise duty is on the manufacture of goods and is levied upon the manufacturer in respect of the commodity taxed. The question whether the producer is or is not the owner of the goods is not determinative of the liability. The Apex Court held that processors of fabrics become liable to pay excise duty because they cause the manufacture of the goods. Similar views have been expressed by the Supreme Court in the case of Kerala State Electricity Board and in C.C.E. v. M.M. Khambhativala . The Appellate Tribunal also in C.C.E. Bombay-II v. Hab Pharmaceuticals held that according to Section 2(f) of the Central Excise Act, a brand name holder or supplier of raw materials does not become manufacturer. It is thus settled that the manufacturer will be the person who actually manufactures the goods and not the supplier of the raw materials. The lower authorities have denied the benefit of Notification No. 175/86 to the Appellants as the total value of clearances exceeded Rs. 200 lakhs in 1990-91 taking into consideration the clearance of medicines effected by M/s. Schefata and M/s. Gan who were manufacturing their medicines under loan licence scheme. Paragraph 3 of the Notification 175/86 provides that the Notification shall not apply if the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories has exceeded Rs. 200 lakhs in the preceding financial year. There is substance in the submissions of the Ld. Counsel that merely by getting the medicaments manufactured from other units, it cannot be said that the Appellants had manufactured and cleared excisable goods from more than one factory and the value of all these clearances have to be clubbed for computing the aggregate value of clearance. In Indica Laboratories case, the Gujarat High Court did mention that loan licensee who “brings his own raw material to SSI factory and gets his goods manufactured by hiring labour but under the own supervision and who affixes his own marks of brand name or trade name” will be manufacturer. The Tribunal in True Chem Pharma case, supra, therefore, observed that only such loan licensees who get their goods manufactured at the factory belonging to some one else by hiring the premises shiftwise or otherwise can be deemed as manufacturer. Similar views were held by the Tribunal in Sol Pharmaceuticals case, supra, as Tribunal held that value of the goods manufactured by M/s. Natcofine Pharmaceuticals P. Ltd. out of raw materials supplied by the Appellants as a loan licensee could not be added to the value of goods cleared by the Appellants from their own factory as the Department had not led any evidence to establish that the appellants were carrying out the manufacturing activity under their own supervision and Control and out of their own raw materials by hiring shiftwise or otherwise the factory premises and equipment of M/s. Natco Fine Pharmaceuticals Pvt. Ltd. In the present matter also no such evidence has been brought on record by the Revenue. Thus following the ratio of these decisions, we hold that the value of clearances of the medicaments by M/s. Schefata and M/s. Gan is not to be taken into consideration for determining the aggregate value of clearances for the purposes of Notification No. 175/86. Accordingly we allow both the appeals.