Job-work manufacture under excise assessed on cost basis, not brand owner's market sale price.
Under the Central Excise Act, manufacture was attributed to the job workers who actually carried out production with their own labour and machinery; the respondent's supply of raw materials, packing materials, and quality control under the Drugs and Cosmetics regime did not make it the manufacturer. The agreement was treated as a principal-to-principal arrangement, and the finding that the job workers were manufacturers was upheld as a factual determination. Because duty had to be assessed at the manufacturing stage, the assessable value was to be computed on a cost-construction basis, including material cost, labour charges, and job workers' profit, rather than on the respondent's later market sale price.
Issues: (i) Whether the respondent, a loan licensee getting medicaments manufactured through job workers, was the manufacturer for the purpose of the Central Excise Act, 1944. (ii) Whether the assessable value of the medicaments was the market price at which the respondent sold the goods or the cost-based value at the job workers' stage.
Issue (i): Whether the respondent, a loan licensee getting medicaments manufactured through job workers, was the manufacturer for the purpose of the Central Excise Act, 1944.
Analysis: The manufacturing activity was carried out in the job workers' premises with their labour force and machinery. The fact that raw material and packing material were supplied by the respondent and that the respondent was responsible for quality control under the Drugs and Cosmetics regime did not make it the manufacturer for central excise purposes. The agreement indicated a principal-to-principal arrangement, not a principal-agent relationship. The character of a loan licensee under the Drugs and Cosmetics Act, 1940 was held to be distinct from manufacture under the Central Excise Act, 1944. The finding that the job workers were manufacturers was a finding of fact and was not shown to be perverse.
Conclusion: The job workers were the manufacturers and the respondent was not the manufacturer under the Central Excise Act, 1944.
Issue (ii): Whether the assessable value of the medicaments was the market price at which the respondent sold the goods or the cost-based value at the job workers' stage.
Analysis: Once the job workers were held to be the manufacturers, duty had to be assessed at the stage of manufacture. The assessable value was therefore to be determined on the basis of the cost of raw material, labour charges, and the job workers' profit, in line with the applicable departmental circular and the governing principle in valuation of job-worked goods. The respondent's later sale price in the market was not the assessable value.
Conclusion: The assessable value was to be computed on a cost-construction basis and not on the respondent's market sale price.
Final Conclusion: The appeals failed because the job workers, and not the respondent, were treated as the manufacturers, and valuation had to proceed on the basis applicable to job-work manufacture.
Ratio Decidendi: In central excise, manufacture is attributed to the person who actually carries out the manufacturing activity, and where goods are job-worked by independent job workers, assessable value is determined on the basis of cost of materials, labour, and profit at the manufacturing stage, not the brand owner's retail sale price.