2025 (10) TMI 549 - AT - Central Excise

Job-worker manufacturers treated as separate manufacturers; brand-owning claimant entitled to SSI exemption, turnover not clubbed

M/s Optho Remedies Pvt. Ltd. Versus Commissioner of Central Excise & Service Tax, Allahabad And (Vice-Versa)

CESTAT (Allahabad LB) held that units manufacturing goods on loan-license or principal-to-principal basis are the manufacturers for SSI exemption purposes ... Entitlement to SSI exemption - clubbing of turnover of the units manufacturing on Loan License Basis - manufacturer who are manufacturing the branded goods of the Respondents are actual manufacturer and paying central excise duty - Respondents are manufacturer in respect of the medicines manufactured at their factory at Allahabad, acting as trader for the medicines got manufactured from other manufacturers - Department is of the view that the units manufacturing on loan license basis are to be taken as manufactured by the Appellants - difference of opinion - matter referred to Third member. Whether the appeals of the assessee are liable be allowed and the appeal of the Revenue is liable be dismissed on the basis of judgment of Hon’ble Supreme Court in the case of CCE, Goa vs. Cosme Farma Laboratories Ltd [2015 (4) TMI 355 - SUPREME COURT] as held by the learned Member (Judicial) or the appeals of the assessee should be dismissed and the appeal of the Revenue should to be allowed as held by the learned Member (Technical)? HELD THAT:- In the present case, there is no dispute that the assessee are manufacturing their products and are availing the benefit under Notification No. 8/2003-CE dated 01.03.2003 and paying the duty after crossing full exemption limit. It is also not in dispute that the assessee are also getting the goods manufactured from the other manufacturers. As per the Revenue, the goods manufactured from the other manufacturers who are job workers on loan-license basis or principal-to-principal basis, should also be included in the turnover of the assessee for the purpose of SSI Exemption. Whereas, as per the N/N. 8/2003-CE dated 01.03.2003, the exemption can only be denied if the assessee is manufacturing the goods by using brand name of other manufacturer; but in the present case, the assessee is manufacturing the goods by using its own brand name and those are the other manufacturers-job workers, who are manufacturing the goods by using the brand name of the assessee-M/s Optho Remedies Pvt Ltd. The department cannot deny the SSI Exemption to the assessee rather it should be denied to the manufacturers-job workers who are using the brand name of the assessee. It is found that clause (4) of the N/N. 8/2003-CE dated 01.03.2003, clearly states that if the assessee is manufacturing the goods under brand name of another person then to that extent the value of goods will not be included for the purpose of counting the turnover SSI; whereas in the present case, the assessee M/s Optho Remedies Pvt Ltd are getting the goods manufactured from the other manufacturers and the goods so manufactured are also not brought in the premises of the assessee and are cleared from their premises on payment of duty and therefore, including the value of those goods in the goods manufactured by the assessee in their unit, will amount to double taxation, which is not permitted under law. Further, it is found that the turnover of the manufacturers under loan-license and also the turnover of the manufacturers on principal-to-principal basis, cannot be clubbed with the turnover of the assessee dying SSI benefit because the N/N. 8/2003-CE states that clearances bearing the brand name/trade name of another person - the decisions relied upon by the learned Member (Technical), are on the footing that SSI benefit will not be available if any manufacturer clears the goods bearing the brand name/trade name of another person. Therefore, those decisions are not applicable in the present case. It is a settled law that the value of goods manufactured on behalf of loan-licensee, not to be added in computing aggregate value of clearances of goods manufactured by the assessee on their own account, for the purpose of exemption under notifications - reliance can be placed in Omega Pharmaceuticals vs. CCE, Surat [2005 (10) TMI 156 - CESTAT, MUMBAI]. Further, it is found that in the case of Cosme Remedies Ltd vs. CCE, Goa [2006 (3) TMI 564 - CESTAT, MUMBAI] decided by the Tribunal, there was a difference of opinions between the Members, and by a majority view, it was held by the Tribunal that the principal manufacturer would be the job worker who has manufactured the goods on loan-license basis and not the assesse who is getting the goods manufactured from the job worker. Not satisfied with the majority order of the Tribunal, the Revenue filed the appeal before the Hon’ble Apex Court, reported CCE, Goa vs. Cosme Farma Laboratories [2015 (4) TMI 355 - SUPREME COURT] and the Hon’ble Apex Court, after examining all the facts of the case and agreements between the parties, has upheld the majority order of the Tribunal and rejected the appeal of the Revenue. Further, the Hon’ble Apex Court has held that the job workers were the manufacturers and the respondent-the loan licensee was not the manufacturer. Thus, the judgment of Hon’ble Apex Court in the case of CCE, Goa vs. Cosme Farma Laboratories [2015 (4) TMI 355 - SUPREME COURT] is squarely applicable in the present case, therefore, the view expressed by the learned Member (Judicial) is legally correct, accordingly, the findings recorded by the learned Member (Judicial) affimed - Since, the original Division Bench in the Interim Order, has not discussed the issue of valuation and there is no difference of opinions on the issue of valuation as well as limitation, therefore, it is not proper to give any findings on valuation and limitation because primarily the difference opinion was only with regard to the application of the judgment of Hon’ble Apex Court in the case of CCE, Goa vs. Cosme Farma Laboratories [2015 (4) TMI 355 - SUPREME COURT] in the facts of the present case; therefore, limiting to the difference of opinions, it is held that the view taken by the learned Member (Judicial) is legally correct. Now, let the matter be placed before the original Division Bench for drawing majority view. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether excise-job-workers/loan-license manufacturers who manufacture goods bearing the brand name of the principal are to be treated as the actual manufacturers for purposes of liability and whether their clearances/turnover must be aggregated with the principal's clearances for determining eligibility to SSI exemption under Notification No.8/2003-CE. 2. Whether the presence of a brand name or trade name on specified goods results in denial of SSI exemption to the principal who uses its own brand (while third-party manufacturers affix that brand), or instead results in denial only to the manufacturer who clears goods bearing another person's brand. 3. Whether the Supreme Court decision in CCE v. Cosme Farma (deciding that job-workers were the manufacturers) applies to the present disputes, or is distinguishable as a consequence of subsequent statutory/regulatory changes (including Rule 10A and related amendments) affecting valuation/attribution of clearances. 4. Ancillary: whether issues of valuation and limitation (extended period) as raised in appeals were determinative or remained undetermined by the Division Bench majority. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of job-workers/loan-license units as 'manufacturers' and aggregation of turnover for SSI exemption Legal framework: Section 2(f) of the Central Excise Act defines 'manufacture' to include specified processes (including packing/re-labelling where covered by Third Schedule) and defines 'manufacturer' accordingly; Notification No.8/2003-CE prescribes conditions for SSI exemption and contains aggregation rules for clearances 'where the specified goods are cleared by one or more manufacturers from a factory' and for aggregate clearances from one or more factories. Precedent treatment: The Tribunal and the Supreme Court (Cosme Farma) have addressed whether a job-worker or loan-license manufacturer is the manufacturer for excise purposes by reference to factual agreements and the nature of control/independence of the job-worker. Other authorities (Kohinoor Elastics, Grasim, Australian Foods, Vir Rubber, etc.) have interpreted Notification provisions on 'brand name' and affixation/bearing and have been applied to determine entitlement to SSI benefits. Interpretation and reasoning: The Member (Judicial) and the Third Member accepted the factual finding that independent manufacturers/job-workers, who perform manufacturing processes and clear goods on payment of duty in their own name, are the actual manufacturers; consequently their clearances should not be aggregated with the principal for SSI eligibility. The reasoning relied on examination of agreements and the factual matrix showing independent manufacture and payment of duty by those units, and on the Cosme Farma ratio that job-workers who independently perform manufacture are manufacturers under the Act. The Member (Technical) took a different statutory approach, emphasising the expanded scope of 'manufacture' and the effect of statutory amendments (see Issue 3) to include processes undertaken at the principal's premises/depot and to treat clearances from places under the principal's control as attributable to the principal. Ratio vs. Obiter: The binding ratio applied by the majority (Member (Judicial) + Third Member) is that factual determination of who 'manufactures' is decisive - where an independent manufacturer/job-worker performs manufacturing and clears on payment of duty, it is the job-worker who is the manufacturer and its turnover is not to be aggregated with the principal for SSI calculation. The technical member's contrary reasoning is presented as an alternative statutory construction rather than an obiter. Conclusions: By majority, job-workers/loan-license manufacturers who manufacture independently and clear goods on payment of duty are manufacturers for excise; their clearances are not includable in the principal's turnover for SSI exemption under Notification No.8/2003-CE. Issue 2 - Effect of goods 'bearing' a brand name/trade name of another person and identification of the person to whom SSI exemption is denied Legal framework: Clause 4 of Notification No.8/2003-CE disqualifies exemption for 'specified goods bearing a brand name or trade name ... of another person' and contains an Explanation defining 'brand name'/'trade name' and the circumstances in which bearing/affixation indicates a connection in the course of trade. Precedent treatment: Kohinoor Elastics, Grasim, Australian Foods and subsequent decisions held that where a manufacturer affixes or clears goods bearing another's brand such that the goods indicate a connection in the course of trade, exemption is lost. Post-amendment jurisprudence recognises that 'bearing' suffices (affixation not necessary) and that denial of exemption targets the manufacturer who clears goods bearing another's brand. Interpretation and reasoning: The majority emphasised that the notification's disqualification applies to goods bearing another person's brand and therefore operates against the manufacturer who clears such branded goods. In the present facts the principal's own brand was borne on goods cleared by independent manufacturers who paid duty; hence disallowing SSI to the principal would effect double taxation. The technical member's analysis emphasised the circumstances where the principal's specification/control over manufacture and labelling could bring the manufactured output within the principal's production ambit. Ratio vs. Obiter: The majority treated as ratio the proposition that where other manufacturers (who are registered and pay duty) clear goods bearing the principal's brand, the legal incidence of Notification clause 4 is to deny exemption to the manufacturer actually clearing goods bearing another's brand - not to the principal whose brand is used by those manufacturers. Conclusions: The Court in majority held that where independent manufacturers clear goods bearing the principal's brand and pay duty, the SSI exclusion in clause 4 targets those manufacturers; the principal's turnover should not be reduced by inclusion of such third-party clearances for computing SSI eligibility. Issue 3 - Applicability of Cosme Farma (Supreme Court) and effect of subsequent statutory/regulatory changes (including Rule 10A) on attribution of clearances and valuation Legal framework: Cosme Farma is a Supreme Court decision examining whether job-workers were the manufacturers; subsequently Rule 10A (inserted w.e.f. 01.04.2007) prescribes valuation and attribution rules where excisable goods are produced by a job-worker on behalf of a principal manufacturer, including valuation where goods are sold by the principal or transferred for sale from other premises. Precedent treatment: Member (Judicial) and Third Member applied Cosme Farma to the facts and found it squarely applicable. Member (Technical) contended Cosme Farma is distinguishable because it pre-dated Rule 10A and related statutory changes and therefore the post-amendment statutory scheme supports a different result on attribution/valuation. Interpretation and reasoning: The divergence turns on whether the change in statutory framework (Rule 10A and related clarifications) alters the factual-legal enquiry performed in Cosme Farma. The majority held Cosme Farma applicable because the determining question is factual manufacture and the existence of independent manufacture and clearance by job-workers; the technical member maintained that Rule 10A and the widened definition of manufacture/processes must be applied to attribute clearances/value to the principal in specified circumstances. Ratio vs. Obiter: The majority treated Cosme Farma as binding on the central factual/legal issue before the Tribunal; the technical member's view constitutes a distinguish-and-apply alternative grounded in statutory amendment (to be treated as a divergent legal interpretation rather than obiter). Conclusions: The majority concluded Cosme Farma is applicable and controlling on the facts - independent job-workers/loan-license units who manufacture and clear on payment of duty are manufacturers; Rule 10A and later provisions did not displace that conclusion on the facts presented. The technical member concluded the opposite on statutory grounds; the matter was referred for Third Member adjudication and majority affirmed the judicial view. Issue 4 - Valuation and limitation (extended period) - treatment in the decision Legal framework and issues raised: Revenue raised valuation and extended limitation as grounds; assessee raised limitation/filing of returns ER-1/RT-12 to challenge invocation of extended period. Precedent treatment and reasoning: The original Division Bench majority focussed the difference on the Cosme Farma applicability and did not resolve valuation and limitation issues because they were not material to the difference of opinion; the Third Member observed these points were not in dispute between members and declined to give definitive findings on valuation and limitation beyond noting the parties' submissions and precedent citations. Ratio vs. Obiter: Observations on valuation and limitation are incidental (obiter) to the majority's disposal; no binding determination on those ancillary issues was made in the majority order. Conclusions: Valuation and limitation issues were raised but not decided by the majority on the merits; the Tribunal's final majority disposition addresses the principal manufacturing/aggregation question while leaving valuation and extended limitation aspects undetermined for the purposes of the difference referred.