ORDER
K.K. Agarwal, Member (T)
1. I have perused the order passed by Member (Technical) Shri S.S. Sekhon and Member (Judicial) Mrs. Archana Wadhwa and the difference of opinion referred to me.
2. The above orders have already narrated the facts and discussed catena of decisions on the points at length and therefore I do not feel the necessity of repeating the same.
3. The basic issue which needs to be decided is whether the job workers in the present case can be considered to be independent manufacturers or not based on the fact as to whether they are working under the supervision and control of the loan licensee or they are manufacturers in their own right.
4. The learned advocate Shri Barucha and Shri M.P. Baxi on behalf of the appellants submitted that a great reliance has been placed by Member (Technical) on the decision of the Gujarat High Court in the case of Indica Laboratories Pvt. Ltd and therefore it would be useful to look into the ratio of this decision which reads as under.
It has been held that loan licensees are also manufacturer, within the meaning of the term as envisaged by the said Act and the Rules and specially 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 someone else also and such premises they might have hired for the time being, shift wise or otherwise.
5. This is the key test laid down by the Hon’ble High Court as one of control and supervision. The agreement entered into by the appellants does clearly shows that there is hire of the factory shift-wise or any wise. In view of this, the loan licensee can not be held to be a manufacturer.
6. It was submitted that above test was recognized and was confirmed by a Larger bench of the Tribunal in Lupin Laboratories v. Commissioner wherein it was categorically held, interalia, by the Tribunal that “since there is no evidence on record that the respondents had hired any shift or shifts in the factory of M/Jay Chem Products for carrying out the manufacture of the disputed goods under their own supervision and control on the ratio of 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/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.” It was further held that “I am to respectfully follow the decision of the Tribunal in the True Chem Pharma in deciding the question posed before me. Going by this decision, I am to hold that in absence of any evidence brought out by Revenue to show that Lupin Laboratories engaged the factory of M/s Jaychem Product on shift basis and produced the drugs under their own control or supervision, they cannot be held be manufacture. M/s JP only can be construed to be manufacturer.” Thus it was held that the ratio of Indica Laboratories judgment was inapplicable as the test of control and supervision had not been made in a given case by the tribunal by producing cogent evidence in this behalf.
7. They referred to the various clauses of the agreement entered into between job worker and the loan licensee which makes it clear that the job workers were independently, carrying out the manufacture of said medicaments at their premises and were in fact responsible for ensuring that the said medicines conform to the prescribed quality of standards as also applicable laws. Clause 3 of the agreement states that the manufacturer shall follow technical and scientific data, prescription and advice so given or that may be given here after for Use of raw material and auxiliary substances, manufacturing, processing and/or finishing the product and shall conform to the same. Clause 7 states that manufacturer shall allow duly authorized representative / representatives of the Marketing Company to inspect at any time manufacture of the product and the methods of manufacturing, processing and / or finishing the product at the place of manufacture, process and / or finish and shall supply at the request of the representative/representatives samples of the product. The manufacturer shall be primarily responsible to ensure that the batches of products so manufactured, processed…are in accordance with the process / processes, specification/ specifications…of marketing company, since the control over production is entirely exercised by him. Clause 17 sates that the manufacturer will be entitled to charge towards processing and/or manufacturing charges which will include cost of production plus his profit for the services as here in provided at the rate/rates as mentioned in Schedule. A. The Marketing Company will reimburse the manufacturer towards the duty payable on the product inclusive of all taxes levies of duties which may be or becomes payable subsequent to the clearance of the final product from the licensed premises of the manufacturer.
8. It was submitted that these clauses clearly show that the job worker was not working in the supervision and control of the loan licensee and that the loan licensee has not hired the premises of job worker either shift-wise or any wise and that the manufacturer charges per unit manufactured at the rates specified in Schedule A. This decision was subsequently was followed by the Tribunal in the case of Dolphin Laboratories Ltd v. CCE, Ahmedabad and Remidex Pharma Ltd v. CCE, Bangalore .
9. in view of the above it was submitted that their case is squarely covered by the tribunal decision cited above and that in a situation of job work, furnishing of raw material is not determinative in deciding as to who is manufacturer and as held by the Hon’ble Supreme Court in the case of Ujagar Prints the raw material supplier can not be considered as a manufacturer.
10. The learned DRs Shri Diwalwar and Shri Yadav, on the other hand, referred to the decision of the Hon’ble Supreme Court and its clarificatory order in Ujagar Prints case reported at and submitted that as per this decision over and above the value of raw material and job work charges, manufacturing profit and expenses are required to be added and these manufacturing profit and expenses are that of the supplier of the raw material and what is prohibited to be included is trader’s profit which meant that profit or expenses of the trader only cannot be added and since the first sale takes place from the hands of raw material supplier only; the profit and expenses of a raw material supplier can be added.
11. I have considered the submissions. I find that the learned DRs contention goes beyond the point of reference as the Hon’ble Supreme Court’s decision in the Ujgar Printing case has been interpreted by them in f their own way inspite of a catena of judgments to the effect. This decision means that the value is to be arrived on the basis of cost of production plus job worker charges including job worker profit. I therefore do not consider necessary to deal with the contention raised by the DRs.
12. As regards the view taken by learned Member (Technical) and Member (Judicial), I find that the agreement between the loan licensee and the job worker is very clear that the supervision and control will be that of the job worker only and as in every job work, the manufacture has to be carried out as per the price indicated by the raw material supplier and as per the specifications laid down by the raw material supplier and the raw material supplier has a right to inspect and draw samples at each stage to ensure that the standards prescribed by him are being followed especially so in the case of drugs where lie ultimately has to be held liable for any deficiency in quality where the human lives are involved. No evidence has been brought out to show that the premises had been hired on a shift basis or otherwise and on the contrary, the agreement clearly shows that the manufacturing charges will be paid at the rate specified in the Schedule on the basis of per unit and there is no reference to payment on the basis of any shift or any particular period. The agreement may be at variance with the undertaking given to the Drug Licensing Authorities but there is no evidence that the agreement has been departed with and that the payments were not being made as per the agreement or that the entire supervision was that of the raw material supplier. I am, therefore, of the view that the matter is fully covered by the Larger Bench decision of the Tribunal in the Lupin laboratories case cited supra and followed in subsequent judgments by the Tribunal. I am therefore in agreement with the views expressed by learned Member (Technical) Shri S.S. Sekhon. The reference is accordingly answered that appeals are to be allowed as held by Member (Technical).
13. The appeals are sent back to the referral bench for passing appropriate orders.