Small scale exemption for loan licencees covers pharma manufacture without owning a factory under the successor notification.

A loan licencee manufacturing pharmaceutical products in another manufacturer's factory was treated as eligible for small scale exemption under the successor Central Excise notification. The earlier exemption scheme, as interpreted in relation to Notification No. 175/86, had already been understood to cover loan licencees without their own factory, and that interpretation was carried forward to Notification No. 1/93. On that basis, ownership of a separate manufacturing unit was not accepted as a condition for denial of exemption, and the duty demand was held unsustainable.

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Issues: Whether a loan licencee manufacturing pharmaceutical products in another manufacturer's factory, without owning its own factory, was entitled to small scale exemption under the successor exemption notification, and whether the duty demand could be sustained.

Analysis: The dispute turned on the interpretation of the exemption scheme under the Central Excise law in the light of the Gujarat High Court ruling on loan licencees. The earlier notification, Notification No. 175/86 dated 01.03.1986, had been construed to cover loan licencees who did not have their own factory for manufacture of pharmaceutical products. Notification No. 1/93 was treated as the successor to that notification, and the same interpretation was applied. In that view, the requirement that the manufacturer must possess its own manufacturing unit was not accepted as a condition for denial of the exemption.

Conclusion: The loan licencee was entitled to the exemption, and the duty demand was not sustainable.

Ratio Decidendi: A loan licencee manufacturing pharmaceutical products without owning a factory is covered by the small scale exemption where the successor notification continues the earlier exemption scheme.

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