Loan licencee treated as manufacturer; exemption depends on aggregate factory clearances and Tariff Item 68 stays included.

A loan licencee getting goods manufactured from another factory with its own raw materials, under its control or supervision, falls within the definition of manufacturer under Section 2(f) of the Central Excises and Salt Act, 1944. The exemption under Notification No. 80/80-C.E., as amended, applies by reference to the aggregate value of clearances from the factory and not separately to each loan licencee. Clearances of Tariff Item 68 goods are not excluded from that aggregate computation. The text also indicates that any demand must be tested on the correct factual basis of manufacture by the appellants under the governing excise standard.

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Issues: (i) Whether a loan licencee who gets goods manufactured from another factory using its own raw materials can be treated as a manufacturer under Section 2(f) of the Central Excises and Salt Act, 1944; (ii) whether the exemption under Notification No. 80/80-C.E. as amended by Notification No. 73/81-C.E. was available individually to each loan licencee or only with reference to the aggregate clearances from the factory; (iii) whether clearances of goods falling under Tariff Item 68 were to be excluded while computing the aggregate value of clearances for exemption; and (iv) whether the demand could be sustained on the facts without applying the correct test of manufacture by the appellants.

Issue (i): Whether a loan licencee who gets goods manufactured from another factory using its own raw materials can be treated as a manufacturer under Section 2(f) of the Central Excises and Salt Act, 1944.

Analysis: The applicable legal framework treated a person who engages in production on his own account as a manufacturer even if the manufacturing activity is carried out in another factory. On that basis, a loan licencee obtaining manufacture under its own control or supervision and from its own raw materials falls within the statutory concept of manufacturer.

Conclusion: Yes. The loan licencee is to be treated as a manufacturer within Section 2(f) when the stated conditions are satisfied.

Issue (ii): Whether the exemption under Notification No. 80/80-C.E. as amended by Notification No. 73/81-C.E. was available individually to each loan licencee or only with reference to the aggregate clearances from the factory.

Analysis: The amended notification spoke of the aggregate value of clearances from any factory by or on behalf of one or more manufacturers. The exemption was therefore intended to operate on the total clearances from the factory and not separately for each loan licencee using that factory.

Conclusion: The exemption was available only with reference to aggregate factory clearances and not individually to each loan licencee.

Issue (iii): Whether clearances of goods falling under Tariff Item 68 were to be excluded while computing the aggregate value of clearances for exemption.

Analysis: Explanation V excluded only specified goods exempted by another notification from the whole of the duty. Goods under Tariff Item 68 were not among the specified goods in the table to the notification, so their value could not be left out of the computation.

Conclusion: No. Clearances of Tariff Item 68 goods were not excludable for computing the aggregate value.

Issue (iv): Whether the demand could be sustained on the facts without applying the correct test of manufacture by the appellants.

Analysis: The demand could stand only if it was established on the evidence that the appellants themselves were carrying on manufacturing activity within the statutory test applicable to loan licencees. The matter therefore required reconsideration on the factual record.

Conclusion: The demand was not finally upheld and required fresh determination on the proper factual test.

Final Conclusion: The legal position on manufacture, the scope of the exemption notification, and the treatment of Tariff Item 68 clearances was settled against the appellants, but the matter was sent back for decision on the factual question whether the appellants satisfied the governing test of manufacture.

Ratio Decidendi: A loan licencee who gets goods manufactured under its own control or supervision and from its own raw materials is a manufacturer under excise law, and the aggregate-clearance exemption under the notification applies to total factory clearances rather than separately to each loan licencee.

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