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PJ/CASE LAW/2015-16/2722

Whether credit admissible if assessee has got goods manufactured on loan license basis?

Case:-COMMISSIONER OF C.EX., GOA VERSUSGENO PHARMACEUTICALS LTD.

Citation:-2015 (37) S.T.R. 136 (Tri. - Mumbai)

Appellant’s contention:- The appellant (Revenue) filed appeal against Order-in-Appeal No. GOA/CEX/GSK/66/2011 dated 18-7-2011 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals), Goa, whereby order-in-original No. 10/2010-11-CX-Div.I dated 31-8-2010 was upheld. The facts of the case was that the respondent, M/s. Geno Pharmaceuticals Ltd. availed Cenvat credit of Rs. 4,21,500/- in respect of some input services, i.e. GTA/Sales Promotion which was pertaining to use in the factory of their loan licensee, namely, (i) M/s. Elvina Pharmaceuticals, Dharwad and (ii) M/s. Simchem Pvt. Ltd. at Tuem. A show cause notice dated 7-4-2010 was issued proposing denial of Cenvat credit on the aforesaid services to the tune of Rs. 4,21,500/- and also for imposition of penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15 of the Cenvat Credit Rules. The adjudicating authority dropped the demand on the ground that there was no dispute that the goods were being manufactured by the respondent on their loan license basis. The original authority contended that the Cenvat Credit Rules, 2004 did not define the word manufacturer. However, Rule 2(t) of the said Rules states that words and expressions used in those Rules and not defined but defined in Excise Act or the Finance Act shall have the same meanings respectively assigned to them in those Acts. He referred on the new definition of manufacture in terms of 2(f) of Central Excise Act according to which it had been made inclusive of such person who engaged labour in the production or gets goods manufactured on their own accounts, accordingly, the fact of the present case were in consonance with the definition of word “manufacture” and “manufacturer”. It was further observed that excisable goods manufactured at Dharwad and Pernem was being manufactured by the assessee on the loan license basis. There is evidence that respondent name also appears on the packs of the medicines and the raw materials were supplied by them to the loan licensee unit. On this basis the learned original authority had dropped the demand. The Revenue aggrieved with the above order-in-original, filed appeal before the learned Commissioner (Appeals) who had upheld the order-in-original. Aggrieved with the order of the learned Commissioner (Appeals), the appellant (Revenue) filed appeal to the Tribunal.

Appellant’s contention:- The learned Additional Commissioner (AR) appearing for the appellant submitted that the credit of Service Tax in respect of the goods GTA and Sales Promotion Service availed by the respondent was in respect of the goods manufactured not in the factory of the respondent but in the factories of M/s. Elvina Pharmaceuticals, Dharwad and M/s. Simchem Pvt. Ltd. Tuem, Goa. He further submitted that the goods were manufactured by these two units on job work basis. Thus, the GTA services and Sales Promotion Services were not in respect of the goods manufactured by the respondent, who had taken the credit. He further submitted that since the job workers discharged the excise duty and the respondent had neither manufactured nor discharged the excise duty they were not entitled for the Cenvat credit. The job workers in fact had carried out the entire manufacturing process in their factory and it was the job worker who is availing the Cenvat credit in respect of other inputs and input services. Therefore, it was his submission that the credit in respect of GTA and Sales Promotion service which was relatable to the goods manufactured by the job-worker cannot be availed by the respondent. In support he relied upon the following case laws :
(i)        Ujagar Prints v. UOI - 1989 (39)E.L.T.493 (S.C.)
(ii)       Remidex Pharma Ltd. - 2007 (207) E.L.T. A183 (S.C.)
(iii)      Cosme Remedies Ltd. - 2010 (258) E.L.T. A72 (S.C.)
(iv)      Group Pharmaceuticals Ltd. - 2010 (261)E.L.T.238 (Tri. - Bang).
He submitted that as per the Central Excise law, for all the purposes such as availment of credit, manufacturing, discharge of Central Excise Duty, the loan licensees i.e. M/s. Elvina Pharmaceuticals and M/s. Simchem Pvt. Ltd. were the manufacturers. In such case, the respondent being non-manufacturer could not avail Cenvat credit in respect of input services relatable to the goods manufactured by the said two units.

Respondent’s contention:- On the other hand, the learned Counsel for the respondent submitted that since the loan licencee M/s. Elvina Pharmaceuticals and M/s. Simchem Pvt. Ltd. manufactured the goods on behalf of the respondent, the respondent was the manufacturer and therefore, they were entitled for the Cenvat credit. In support he relied upon the following judgments :
(i)        CCE, Ahmedabad v. Preet Pharma Pvt. Ltd. - 2009 (245)E.L.T.284 (Tri. - Ahmed.)
(ii)       Indica Laboratories Pvt. Ltd. v. UOI - 1990 (50)E.L.T.210 (Guj.)
He further submitted that the demand for the extended period was time barred and no suppression can be invoked on the basis of that they had recorded the availment of Cenvat credit in question in their statutory records.

Reasoning of judgment:- Tribunal carefully considered the submissions made by both the sides. It was held that the learned Commissioner (Appeals) had upheld the allowance of the credit on the ground that the Service Tax invoices were in the name of the respondent, payment of Service Tax was done by the respondent. The respondent had the shift and carried out the manufacture under their supervision and the material was also supplied to them. The packing and labels on the manufactured goods indicated that the respondent was the manufacturer. He also gave findings on the admissibility of the input services by referring the judgment of Coca Cola India Pvt. Ltd. v. CCE - 2009 (242)E.L.T.168 (Bom.) = 2009 (15)S.T.R.657 (Bom.). The undisputed fact in the case was the respondent was not the actual manufacturer; the excisable goods were manufactured by M/s. Elvina Pharmaceuticals and M/s. Simchem Pvt. Ltd. even though on behalf of the respondent. The input services in question were undisputedly related to the goods manufactured by the said two units. In terms of Section 2(f), the person who carried out the manufacturing activity was the manufacturer and such manufacturer only shall be entitled to Cenvat credit in respect of input services relatable to the goods manufactured in the units of such manufacturer. It made more clear from the following definitions of Rule 2 of Cenvat Credit Rules :
(i)         “final products” means excisable goods manufactured or produced from input, or using input service;
(ii)        “input” means all goods, except ……………used in or in relation to manufacture of final products …………within the factory of production……..
(iii)       “input services” means any service………….. used by the manufacturer……… in or in relation to manufacture of final products…………..
From the above definition it was very clear that for the purpose of Cenvat credit, final product meant excisable goods manufactured using input and input service also should be used in or in relation to the manufacture of final products. In the present case the manufacture of the goods was carried out by the job workers, and excise duty liability was also discharged by them. The Cenvat credit was relatable to the goods which were manufactured and the person who was manufacturing the goods. Therefore, the Cenvat credit in respect of inputs service relatable to the manufacture of goods can only be availed by the actual manufacturer and not by anyone else. The respondent, since not undertaking any manufacturing activity nor they were discharging the excise duty liability cannot be entitled to take Cenvat credit merely on the basis that invoices of input service was in their name and payment of service invoices made by them. As regards the loan licence concept it was for the purpose of Drug Act. However, as regards the concept of manufacture, availment of Cenvat credit, discharging of excise duty liability there was no separate provision in respect of pharmaceutical goods manufactured on loan licence basis by some other manufacturer. As per Central Excise provision irrespective of ownership of the goods, the person who undertook the manufacturing of the goods shall only be considered as manufacturer. Therefore, the respondent by any stretch of imagination was not the manufacturer of the goods in the present case. If this was so, then the respondent was also not entitled for Cenvat credit in respect of any services relatable to the goods which was not manufactured by the respondent but manufactured by the job workers. As regards the learned Commissioner’s reliance and the judgment of Coca Cola India Pvt. Ltd. the ratio of the judgment was not applicable in the present case as the said judgment was on the issue of admissibility of input services whereas the present case had no dispute regarding the admissibility of the input service but the dispute relates to whether the respondent was a manufacturer for the purpose of availing Cenvat credit. As regards the reliance placed by the respondent’s counsel on the judgment of Preet Pharma Pvt. Ltd. and Indica Laboratories Pvt. Ltd., on careful reading of the said case laws, it was found that both the case laws did not deal with the present issue involved in this case. Therefore, the ratio of these cases was not applicable.
In view of his above observations, he was not convinced with the findings of the learned Commissioner (Appeals). Accordingly, he held that the respondent was not entitled for the Cenvat credit in respect of GTA, Sales Promotion, etc.
As regards the submission of the respondent that the demand for the extended period was not sustainable, neither the adjudicating authority nor the Commissioner (Appeals) have dealt with the issue of invoking extended period of time. Therefore, the matter was remanded to the original adjudicating authority for deciding the limited issue of time bar. Needless to say, that the respondent should be given sufficient opportunity to present their case on the only aspect of invocation of extended period of time.
The appeal was disposed of in the above terms.

Decision:- Appeal disposed of.

Comment:- The gist of the case is that the credit of input services was admissible to the manufacturer of goods. The manufacturer for the purpose of excise and service tax laws is the one who manufactures the goods and credit was admissible to him only. As the goods were manufactured on the behalf of assessee by some other company therefore the assessee not being the manufacturer of goods cannot take the credit of input services just because his name was mentioned on the invoices.

Prepared by: Prayushi Jain

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