Small-scale exemption for loan licencee clearances fails without proof of independent manufacture and own inputs.

P.P. medicines cleared under another concern's brand name were not entitled to separate small-scale exemption under Notification No. 175/86-C.E. unless the alleged loan licencee was proved to be the manufacturer using its own raw material, labour and supervision in hired or leased premises. The commentary accepts that a genuine loan licencee can be treated as an independent manufacturer, and that para 7 of the notification does not apply in such cases. On the facts, however, the record showed only job work by the appellants and receipt of rent, with no reliable proof of independent manufacture by Morgendew Laboratories. The clearances were therefore treated as the appellants' own clearances and the demand was sustained.

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Issues: Whether P.P. medicines cleared from the appellants' factory, bearing the brand name of another concern, were independently eligible for exemption under Notification No. 175/86-C.E. as clearances of a genuine loan licencee, or whether such clearances had to be clubbed with the appellants' own clearances for the purpose of the small-scale exemption.

Analysis: The exemption under Notification No. 175/86-C.E., as amended, was examined in light of the principle that a genuine loan licencee may be treated as an independent manufacturer only where the goods are manufactured from its own raw material, with its own labour or hired labour, under its own supervision and control, in the SSI factory taken on lease or hire. The reasoning in the Gujarat High Court decision was accepted as laying down that para 7 of the notification does not apply to such genuine loan licencee cases. On the facts, however, the appellants failed to produce reliable evidence that Morgendew Laboratories had, during the relevant period, independently manufactured the goods in the appellants' premises by hiring shifts or using its own labour and raw material. The documents instead indicated job work by the appellants and receipt of rent for the premises, which negatived the claim of independent manufacture by Morgendew Laboratories.

Conclusion: The goods were not entitled to separate exemption as clearances of a genuine loan licencee, and the demand was sustained.

Ratio Decidendi: A brand-named SSI clearance qualifies for separate exemption only when the alleged loan licencee is shown to be the manufacturer carrying on manufacture with its own inputs and supervision in hired factory premises; absent such proof, the clearances are liable to be treated as the manufacturer's own clearances and the exemption is unavailable.

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