2015 (4) TMI 355 - SC - Central Excise

Supreme Court: Job workers as manufacturers under Central Excise Act

The Supreme Court upheld the Tribunal's decision, ruling that the job workers were considered the manufacturers under the Central Excise Act, 1944. The ... Manufacturer for purposes of the Central Excise Act - manufacturer/loan licensee under the Drugs and Cosmetics Act - distinction between statutory schemes governing quality (Drugs Act) and excise liability - assessable value on manufacture by job worker - raw material plus labour and profit - deference to concurrent findings of fact by the TribunalManufacturer for purposes of the Central Excise Act - manufacturer/loan licensee under the Drugs and Cosmetics Act - deference to Tribunal's findings of fact - Whether the respondent (loan licensee) was the manufacturer for the purposes of the Central Excise Act in respect of medicaments manufactured by job workers - HELD THAT: - The Court held that the term 'manufacturer' under the Drugs and Cosmetics Act (and the status of a loan licensee thereunder) is concerned with quality control and statutory liability under that Act and is distinct from the concept of 'manufacture' under the Central Excise Act, which determines excise liability. The agreements and factual findings showed the job workers carried out the manufacturing in their premises using their labour and machinery and were not agents of the respondent but independent manufacturers. Because whether a person is a manufacturer is a question of fact, and the Tribunal after appreciation of evidence had concluded that the job workers were the manufacturers, the Court would not reappraise the evidence or disturb those findings absent perversity. The Tribunal's conclusion that the respondent was not the manufacturer for excise purposes was correct and is upheld. [Paras 17, 18, 21, 22]The job workers are the manufacturers for purposes of the Central Excise Act and the respondent (loan licensee) is not the manufacturer for excise liability.Assessable value on manufacture by job worker - raw material plus labour and profit - price at which brand-owner sells not the assessable value at manufacture stage - What is the assessable value of medicaments manufactured by job workers and sent to the respondent - HELD THAT: - Having determined that the job workers were the manufacturers, the Court applied the law and authoritative guidance to hold that assessable value at the manufacture stage is to be calculated by adding the value of raw material to the cost of labour/work and the profit of the job workers, as reflected in the relevant circular and precedents. The market price or the price at which the brand-owner later sells the product is not the assessable value for excise duty, because duty is leviable at the stage of manufacture and not at the subsequent stage of sale by the brand-owner. [Paras 23]Assessable value is the sum of raw material cost, labour charges and profit of the job workers; the respondent's sale price is not the assessable value for excise.Final Conclusion: Appeals dismissed; the Tribunal's factual finding that job workers were the manufacturers is upheld and assessable value is to be determined on the basis of raw material, labour and profit of the job workers rather than the subsequent sale price by the brand-owner. Issues Involved:1. Whether the respondent, who was getting its medicaments manufactured through job workers, can be considered an independent manufacturer.2. The assessable value of the medicaments manufactured by the job workers for the purpose of assessment under the Central Excise Act, 1944.Detailed Analysis:Issue 1: Whether the respondent can be considered an independent manufacturer:The respondent is a manufacturer of medicaments with a license under the Drugs and Cosmetics Act, 1940. The respondent also gets certain medicaments manufactured through job workers and supervises the quality of these medicaments. The Commissioner of Customs and Central Excise issued notices to the respondent and job workers, questioning why the respondent should not be treated as a manufacturer under the Central Excise and Salt Act, 1944, and thus be liable for duty payments.The Commissioner concluded that the respondent was the manufacturer of the medicaments produced by the job workers. However, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) had a divided opinion. The Member (Technical) allowed the appeals, setting aside the Commissioner's order, while the Member (Judicial) upheld it. The third Member (Technical) agreed with the Member (Technical), leading the Tribunal to allow the respondent's appeals.The Supreme Court examined the arguments and evidence, including the agreements between the respondent and job workers. It was determined that the job workers were not agents of the respondent but independent entities. The job workers carried out the manufacturing activity independently, making them the manufacturers under the Central Excise Act, 1944. The Court emphasized that the term 'manufacturer' under the Drugs and Cosmetics Act, 1940, does not equate to the term under the Central Excise Act, 1944. The manufacturing activity was conducted by the job workers at their premises with their labor and machinery, and the respondent's supervision for quality control did not make them the manufacturer.Issue 2: Assessable value of the medicaments for assessment under the Central Excise Act, 1944:The Court considered the assessable value of the goods manufactured by the job workers. The learned counsel for the appellant argued that the respondent should be treated as the manufacturer, and the market price at which the goods were sold should be the assessable value. The counsel relied on precedents like M/s. Ujagar Prints and Pawan Biscuits Co. Pvt. Ltd. to support this view.On the other hand, the respondent's counsel argued that the job workers were the manufacturers, and the assessable value should be based on the cost of raw materials, labor, and profit of the job workers, as per the principles laid down in Pawan Biscuits. The Court agreed with this interpretation, stating that the assessable value should be determined by adding the value of raw materials to the cost of labor and profit of the job workers. The price at which the respondent sold the goods in the market was not relevant for determining the assessable value.Conclusion:The Supreme Court upheld the Tribunal's decision, concluding that the job workers were the manufacturers under the Central Excise Act, 1944. The assessable value should be based on the cost of raw materials, labor, and profit of the job workers. The appeals filed by the appellant were dismissed, affirming that the respondent was not the manufacturer for the purposes of the Central Excise Act, 1944. The decision emphasized the distinction between the definitions and responsibilities under the Drugs and Cosmetics Act, 1940, and the Central Excise Act, 1944.