Assessable value of the medicaments manufactured by the loan licensee.

PJ/Case Law /2016-17/3280

Case:- INTAS PHARMACEUTICALS LTD. VERSUS COMMR. OF C. EX. & S.T., AHMEDABAD-II

Citation:- 2016 (338) E.L.T. 422 (Tri. - Ahmd.)

Brief Facts:- The relevant facts of the case, in brief, are that M/s. Intas Pharmaceuticals Ltd. (for short ‘M/s. IPL’) supplied the raw material to the loan licencee/job workers, who are the co-appellants in the present appeals, for manufacturing Medicaments which is a proprietary medicine classifiable under Chapter Heading 30.03 of Central Excise Tariff Act, 1985. The said job workers/loan licencee paid duty on the basis of formula prescribed by the Hon’ble Supreme Court in the case of M/s. Ujagar Prints - 1988 (38)E.L.T.535 (S.C.).They have paid the duty on the cost of raw materials and conversion charges. There is no dispute that prior to 1-3-2003, the job workers were paying duty on the basis of sale price of M/s. IPL. After 1-3-2003, the job workers started paying duty on the basis of M/s. Ujagar Prints, following the Board’s circular dated 19-2-2002.
A show cause notice dated 28-9-2007 was issued by the Additional Director General, DGCEI, New Delhi to the appellants proposing the demand of Central Excise Duty of Rs. 5,33,948.00 along with interest and to impose penalty on M/s. IPL. It has also proposed to impose the penalties on other appellants i.e. job workers. By the Adjudication order, the Commissioner of Central Excise confirmed the demand of duty along with interest and imposed penalty of equal amount of duty on M/s. IPL and also appropriated the amount as deposited by them during Investigation. There are further penalties imposed on the co-appellants/job workers.

Appellant’s Contentions:-The learned Advocate on behalf of the appellants contested the demand of duty along with interest and penalty on jurisdiction, limitation and merit. He submits that the issue involved in this case is already decided by the Hon’ble Supreme Court in favour of the appellant in case of Commissioner of Central Excise, Goa v. M/s. Cosme Farma Laboratories Ltd. dated 7-4-2015 in Civil Appeal No. 1761 of 2007[2015 (318)E.L.T.545 (S.C.)].He further submits that the Tribunal in case of M/s. Cosme Remedies Ltd. v. Commissioner of Central Excise, Goa - 2006 (203)E.L.T.567 (Tri.-Bom.)on the identical issue, allowed the appeal of the assessee. The appellant produced the Tribunal order before the Adjudicating authority. It is submitted that the Adjudicating authority observed that the Revenue already filed appeal before Hon’ble Supreme Court. The Adjudicating authority proceeded on the basis of minority view in the said decision. He also drew the attention of the Bench to the relevant portion of the Adjudication order to establish that the fact of the case in the case of M/s. Cosme Farma Laboratories Ltd. (supra) and the present appeals are identical. He submitted that there is no suppression of facts with intent to evade payment of duty. It is further contended that the Adjudicating authority has no jurisdiction to decide the matter in respect of the various job workers situated in different States of the country. Alternatively, the proceedings should be initiated against the various job workers who are the manufacturers of the goods, as per the provisions prior to 1-3-2003. He filed the compilation of case laws.

Respondent’s Contentions:-Authorised Representative for the Revenue submits that Hon’ble Supreme Court in the case of Cosme Farma Laboratories Ltd. (supra) allowed the appeal of the assessee after examining the agreement and the factual findings of the Tribunal, which is not applicable in the present case. It is submitted that in the present case, it is evident from the record that M/s. IPL provided raw material, supervisory staff, hired the premises and control over the job workers. He further submits that the Adjudicating authority has not only proceeded on the basis of decision of Cosme Farma Laboratories Ltd. He has also discussed the other decision of Hon’ble High Court on the identical issue in the case of Indica v. U.O.I. - 1990 (50)E.L.T.210 (Guj.).He also drew the attention of the Bench to the relevant portion of the Adjudication order and other decisions.

Reasoning Of Judgement-After hearing both the sides and on perusal of the records, we find that the issue is no more res integra in view of the decision of Hon’ble Supreme Court in the case of Cosme Farma Laboratories Ltd. (supra). We find that on the identical issue, the Tribunal in the case of Cosme Remedies Ltd. by majority decision held as under :-
As regards “28. 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 he 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).”
In the impugned order, theCommissioner observed that though by majority, it was held by the Tribunal that the actual processor of the goods was the manufacturer and that the duty demanded on the price at which the raw material supplier sold the goods, was not sustainable, the Department has filed a Civil Appeal before Hon’ble Supreme Court. The Adjudicating authority proceeded on the basis of the minority view of the said decision. We find that the Hon’ble Supreme Court upheld the majority view in the case of M/s. Cosme Farma Laboratories Ltd. (supra). It has been held as under :-
Once it has“23. 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 19-2-2002 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.”
We find that the facts of the present case are identical to the case of Cosme Farma Laboratories Ltd. (supra). Hence, the impugned order passed by the Commissioner cannot be sustained and accordingly it is set aside. All the appeals filed by the appellants are allowed with consequential relief. As the appeal is allowed on merit, we are not going into the issue of limitation and jurisdiction.

Decision:-Appeal allowed.

Comment:- The crux of the case is that after 01.03.2003, the valuation of goods cleared by job worker is to be done on the basis of decision given in the case of M/s. Ujagar Prints - 1988 (38)E.L.T.535 (S.C.). being value of raw material plus job charges.

Prepared By- Tushar Gupta

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PJ/Case Law /2016-17/3280

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