Custom, Excise & Service Tax Tribunal
Optho Remedies Pvt. Ltd vs Cce, Allahabad on 11 September, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
Excise Stay/1311 of 2012 in
Appeal No.E/1061 of 2012-Ex(DB)
Optho Remedies Pvt. Ltd. Appellant
Versus
CCE, Allahabad Respondent
Appearance: Rep. by Shri B.L. Narsimhan, Advocate for the appellant Rep. by Shri M.S. Negi, DR for the respondent.
CORAM : Honble Shri D.N. Panda, Judicial Member Honble Shri Rakesh Kumar, Technical Member Interim Order No.339/2013 Dated : 13/05/2013 FINAL ORDER NO. 57603/2013 Dated : 11.09.2013 Per. D.N. Panda It appears from the impugned order that the agreement made between the appellant and MARCK was to use facilities of MARCK for the purpose of manufacture of the medicine. On examination of the contents of the agreement appearing at page 97 to 108 of appeal folder, Department opined that arrangement between the parties was for manufacture of goods by the appellant itself for which there should be clubbing of such clearances in the rest of the clearances of the appellant and SSI exemption benefit was deniable to the appellant. Reading of para 5.2 of the adjudication order and the agreement, it supports the case of revenue.
2. Ld. Counsel submits that when duty was paid by MARCK to discharge its liability under excise laws, clearances made by MARC shall not be included in the clearances of the appellant.
3. Both sides are in rivalry contentions. Clause 4.1 read with Clause 6 of the agreement indicates that all along the appellant was owner of the raw materials and finished goods. Once such was the agreement between the parties, the goods ultimately manufactured by MARCK came to the appellant for ultimate disposal. Therefore, appellant getting its goods manufactured using facility of other became liable to duty. The appellant is, therefore, directed to deposit of Rs.6,00,000/- (Rupees Six Lakhs only) within 4 weeks and make compliance on 28.06.2013.
4. Ld. Brother, Shri Rakesh Kumar, Member (Technical) says that he will record a different order. Place the file before him to record his order.
(Dictated in the open court ) ( D.N. Panda ) Judicial Member ( Rakesh Kumar ) Technical Member Ckp.
Per Rakesh Kumar:
I have heard the order dictated by my ld. brother in the open court. Since I do not agree with his conclusions, I am recording a separate order.
2. The facts of this case, in brief, are as under:-
2.1 The appellant are engaged in the manufacture of Ophthalmic and liquid orals (medicaments) falling under Chapter 30 of the Central Excise Tariff. They are availing SSI exemption under notification no.8/03-CE dated 1.3.2003, as amended. The jurisdictional central excise officers after comparing clearances of excisable goods declared by the Appellant in their ER-I Returns during 2007-2008 and 2008-2009, with the total value of sales declared in their balance sheets of those years, found that the quantum of clearances declared in the balance sheet during each year were higher than the total of clearances reflected in the ER-I returns for the respective years. On this basis, the department was of the view that the appellant during 2008-2009 were not eligible for SSI exemption, as the aggregate of their clearances for home consumption during 2007-2008 had exceeded Rs.4 Crores. Besides this, it also appeared that their clearances during 2008-2009 had been under declared, as total value of the clearances declared in the balance sheet were higher than the total value of the clearances declared in the ER-I Returns during that year. On this basis, a show cause notice dated 15.12.2010 was issued for demand of the differential duty amounting to Rs.18,54,000/- for 2008-09 period along with interest and for imposition of penalty on them under Rule 25 of the Central Excise Rules, 2002 read with Section 11 AC of the Central Excise Act, 1944. This show cause notice was adjudicated by the original adjudicating authority vide order-in-original dated 28.4.2011 vide which he confirmed the duty demand alongwith interest, as raised in the show cause notice and imposed penalty. In course of adjudication proceedings before the original adjudicating authority, the appellant had pleaded that they have only one manufacturing unit at Allahabad, that on account of higher demand for their products, they have entered into loan licence manufacturing agreement and job work agreements with other manufacturers out of raw material supplied by them, that the goods got manufactured on loan licence basis and on job work basis had been cleared by the respective manufacturers on payment of duty, but had been sold from the Appellants depot at Allahabad, that while the loan licence manufacturing agreement is with M/s. Marck Bio Sciences Ltd., Ahmedabad, job work manufacturing agreements are with parties at Karnal, Bhiwadi and Ghaziabad, that difference between the value of clearances as reflected in the balance sheet and the total value of clearances as reflected in the ER-I Returns is the value of the goods manufactured under loan licence and on job work basis and that the value of these goods cannot be clubbed with the value of the clearances of their own goods for the purpose of SSI exemption. However, this plea was not accepted by the Original Adjudicating Authority.
2.2 On appeal to the Commissioner (Appeals), the Commissioner (Appeals) vide order-in-appeal dated 23.12.2012 upheld the order of the original adjudicating authority except for reducing the duty demand to Rs.12,36,000/- as there was mistake in the calculation of duty in the order passed by the original adjudicating authority. The Commissioner (Appeals) relied upon the para 4.2 of the Chapter 2 of the CBEC Excise Manual of the supplementary instructions for clubbing the clearances of the goods got manufactured by the appellant as loan licensee with the value of the clearances of the goods manufactured by the appellant in their own unit, for determining their eligibility for SSI exemption during 2008-2009 and also for determining the value of dutiable clearances during that year. Against this order of the Commissioner (Appeals), this appeal has been filed along with stay application.
3. Heard both sides in respect of stay application.
4. Shri B.L. Narsimhan, Advocate, ld. Counsel for the appellant pleaded that the appellant have only a single manufacturing unit at Allahabad, that besides this, the appellant also get the goods manufactured through other manufacturers against loan licence agreement or on job work basis, that the goods manufactured against loan licence agreement, or on job work basis through job workers are cleared by respective manufacturers on payment of duty, that there is absolutely no justification for clubbing the value of the clearances of the goods got manufactured against loan licence agreement, with the value of the goods manufactured by the appellant in their Allahabad Unit, for determining their eligibility for SSI exemption, that in terms of clause (v), (vi) & (vii) of the SSI exemption notification no.8/2003-CE, only the value of the clearances, from or more factory of the same manufacturer, or the value of the clearances of the goods manufactured by one or more manufacturers in the same factory are required to be clubbed, that the clubbing done by the department is contrary to the provisions of the SSI exemption notification, as the value of the goods manufactured in the factories of different manufacturers is not to be aggregated, that the appellate authority has totally mis-construed para 4.2 of the Chapter 2 of the Excise Manual of the Supplementary Instructions to mean that the appellant are required to club the clearances of the goods got manufactured through other manufacturers under loan licence agreement with the clearances of their own manufactured goods for determining the aggregate value of the clearances from their manufacturing unit, that such an interpretation is totally incorrect, that it is the manufacturer who manufactures goods for another person on loan licence basis, who is required to club the value of the goods manufactured and cleared under loan licence, with the value of the clearances of his own goods manufactured in the same factory, that accepting the Revenues contention would amount to charging duty on the same goods twice, first, at the time of clearance from the premises of the manufacturer, who has manufactured the goods for the appellant under loan licence agreement and thereafter again, in the hands of the Appellant, by clubbing the value of those goods with the value of the goods manufactured by the appellant, that the only reason for difference between the balance sheet figure of clearances and the ER-I return figures of clearances is that the balance sheet figures also include the sale value of the goods got manufactured on job work basis or under loan licence agreement through other manufacturers, that the impugned order is totally incorrect, that the appellant have a strong prima facie case and hence, the requirement of pre-deposit of duty demand, interest thereon and penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.
5. Ms. S. Bector, ld. Departmental Representative, opposed the stay application by reiterating the findings of the Commissioner (Appeals) and also relied upon the judgement of Honble Allahabad High Court in the appellants own case reported in 2012 (276) ELT 327.
6. I have considered the submissions from both the sides and perused the records. On going through the order of the Commissioner (Appeals), it is clear that the basis of departments case against the appellant is that the clearances made by the appellants unit at Allahabad should be clubbed with the clearances of the goods got manufactured by them under loan licence agreement/job work agreements through various manufacturers for the purpose of determining their eligibility for SSI exemption and value of clearances during 2008-2009. The only provisions for clubbing in the SSI exemption notification no.8/2003-CE are in Clause (V), (VI) & (VII) of para 2 of the notification, according to which, when a manufacturer clears the specified goods from one or more factories belonging to him, the exemption in his case would apply to the aggregate value of the clearances mentioned against each of the Sl.No. of the said table and not separately for each factory and that when the specified goods are cleared by one or more manufacturers from a factory, exemption shall apply to the aggregate value of the clearances mentioned against each of the Sl.No. of the said table and not separately for the each manufacturer. According to Clause VII of para-2 of the notification, SSI exemption under this notification would be applicable only if the aggregate value of the clearances of all excisable goods for home consumption by a manufacturer from one or more factories or from a factory by one or more manufacturers during preceding financial year does not exceed rupees four hundred lakhs. Thus, for the purpose of determining the eligibility of a manufacturer for SSI exemption, his clearances during the preceding financial year from one or more factories, or clearances for home consumption made by one or more manufacturers from that factory are to be clubbed Similarly, for the purpose of determining the value of clearances during a particular year, the clearances for home consumption from one or more factories of the manufacturer or one or more manufacturers from a factory are to be clubbed. There is no provision for clubbing the clearances of a manufacturer with the clearances of another manufacturer manufacturing from different premises, unless, there is evidence on record showing that both the units are actually owned by the same person. For this purpose, in this case, just because the appellant exercised some supervision over the manufacture of their goods in the premises of the other manufacturer, under loan licence agreement or job work agreements, it cannot be concluded that both the factories were owned by the same person. In fact when a manufacturer manufacturers medicine on his account and also manufactures medicines in the same factory on loan licence basis for another manufacturer, he is required to club the value of clearances of his own manufactured goods with the value of the goods belonging to another person manufactured on loan licence basis. But the manufacturer, who has got his medicines manufactured in the premises of another manufacturer, is not required to club the value of the medicines got manufactured under loan licence agreement through another manufacturer with the value of medicines manufactured by him in his own factory. The words principal manufacture in para 4.2, Chapter 2 of the Manual of supplementary instructions refer to the manufacturer who in his factory, in addition, to manufacturing the medicines for himself, also manufactures medicines for another manufacturer under loan licence agreement and he is required to aggregate the value of the clearances made by him of his own manufactured goods with the clearances made of the goods manufactured under loan licence agreements. The term principal manufacture does not refer to the person who has been issued a loan licence by the Drug Controller on the basis of which he can get the medicines manufactured through another manufacturer by using his factory. If the loan licensee has his own factory, but still due to some reasons, uses the factory of another manufacturer for manufacture of the medicines, he is not required to aggregate the clearances made from his own factory with the clearances made by the other manufacturer of the medicines manufactured for him under loan licence agreement. The interpretation of para 4.2, Chapter 2 of the supplementary instructions adopted by the Department is contrary to the provisions of clause (V), (VI) & (VII) of para-2 of the notification no.8/03-CE. The judgement of Honble Gujarat High Court in case of Indica Laboratories Pvt. Ltd. Vs. Union of India reported in 1990 (50)ELT 210 (Gujarat) cited by the Departmental Representative does not help the Department, as in this judgement, Honble Court, while holding that a loan licensee i.e. a person issued a licence by the Drug Controller to manufacture P&P medicines but who does not have his own manufacturing infrastructure and uses factory of another manufacturer by hiring a shift and in that factory he manufactures the P&P medicines using his own raw material and labour used under his own supervision, is a manufacturer within the meaning of Central Excise Act, 1944 and the rule made thereunder, has also upheld the validity of para 2 & 3 of SSI exemption notification no.175/86-CE, which are the provisions corresponding to clause (v), (vi) & (vii) of para 2 of the notification no.8/03-CE, the implication of which is that the duty liability of the goods manufactured in the factory of a manufacturer A by a loan licensee B under loan licence agreement is of A only. In this case, from the agreement of the Appellant with M/s. Marck, it is clear that it is an agreement for manufacture of medicines by M/s. Marck for the Appellant out of raw material and packing material supplied by them and the Appellant can not even be called a manufacturer in respect of these medicines manufactured for them by M/s. Marck. In the case of Optho Remedies (P) Ltd. reported in 2012 (276) ELT 327 (All), cited by the learned DR, the provisions of clause (v), (vi) & (vii) of para-2 of the notification no.8/2003-CE, the validity of which (corresponding provisions para 2 & 3 of notification no.175/86-CE) has been upheld by Honble Gujarat High Court in case of Indica Laboratories Pvt. Ltd. (supra) have not been considered.
7. I am, therefore, of prima facie view that the impugned order is contrary to the provisions of Clause V, VI and VII of Para-2 of the SSI exemption no.8/2003-CE and as such, the same does not appear to be sustainable. The appellant, therefore, have strong prima facie case in their favour and insisting on the requirement of pre-deposit of the duty demand, interest thereon and penalty would cause undue hardship. The requirement of pre-deposit of duty demand, interest and penalty is, therefore, waived and recovery thereof is stayed till the disposal of the appeal.
( Rakesh Kumar) Member (Technical) Ckp.
Since there is difference of opinion between Member (Judicial) and Member (Technical), Registry is directed to place this matter before the Honble President for constituting a Bench under Section 129 C(5) of the Customs Act, 1962 for referring the following points of difference for decision:-
Whether in the facts and circumstances of the case, the appellant have prima facie case in their favour warranting waiver of pre-deposit under Section 35 F?
OR Whether the appellant have not been able to establish prima facie case and deposit of Rs.6.00 Lakhs is to be directed for compliance with Section 35 F of the Central Excise Act, 1944 to safeguard the interest of Revenue?
( D.N. Panda ) Judicial Member ( Rakesh Kumar) Member (Technical) Ckp.
PER SAHAB SINGH:
9. I have gone through the order passed by Member (Judicial) Shri D.N. Panda and order passed by Member (Technical), Shri Rakesh Kumar and difference of opinion marked to me by the President.
10. Facts of the case have been fairly narrated by the Ld. Member (Technical) in para-2 of his order and I therefore do not find any necessity to repeat the same. Issue in brief is that the appellants are having one manufacturing unit at Allahabad but they are also getting the goods manufactured through other manufacturers against loan licence agreement or on job work basis. The goods manufactured by other units for the appellants are being cleared by respective manufacturers on payment of duty. The appellants are availing the small scale exemption under Notification No. 8/2003. The dispute is whether value of the clearances made by other manufacturers on payment of duty are to be clubbed with the value clearances of the appellant for the purpose of availment of exemption under Notification 8/2003.
11. Heard both sides and also seen the submissions made by both the sides before the Division Bench.
12. I find that the Notification No. 8/2003 dated 1.3.2003 grants the exemption from Central Excise duty in respect of specified goods up to the first clearances of aggregate value of Rs.1.5 crores made on or after first day of April in any financial year. This exemption is subject to the various conditions mentioned in the notification itself. The main conditions in relation to this case where a manufacturer has more than one unit or more than one manufacturer are clearing the goods from one factory are enumerated in Condition No. (v), (vi) and (vii) of para-2 of the notification. These conditions are reproduced below :-
(v) where a manufacturer clears the specified goods from one or more factories, the exemption in his case shall apply to the aggregate value of clearances mentioned against each of the serial numbers n the said Table and not separately for each manufacturer;
(vi) where the specified goods are cleared by one or more manufacturers from a factory, the exemption shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each manufacturer;
(vii) the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed (rupees four hundred lakhs) in the preceding financial year.
13. The present case does not relate to the Condition No. (vi) in which one or more manufacturers are clearing the goods from a single factory. The dispute in the present case relates to Condition No. (v) and (vii) of para-2 of the Notification. It is therefore necessary to examine whether the appellants are manufacturer as per definition under Section 2(f) of the Central Excise Act. The manufacture or manufacturer has been defined under Section 2(f) of the Central Excise Act which reads as under 2(f) the manufacture includes any process, -
(i) incidental or ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the Section or Chapter notes of (the First Schedule) to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to [manufacture; or]
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.
14. I find that the issue whether persons who are getting the goods manufactured under loan licence from other manufacturers are manufacturers was examined by the Honble Gujarat High Court in the case of Indica Laboratories Pvt. Lrd. Vs. Union of India 1990 (50) ELT 210 (Guj.) and in para 12 of decision it was held by the Honble Court that such persons are covered under the definition of manufacturers in Excise Act. In view of this decision in my view the appellants who are getting these goods manufactured against the loan license or on job work basis from other manufacturers are also the manufacturers under Section 2(f) of the Central Excise Act.
15. Since the appellants are the manufacturers now it is to be seen whether the value of the goods manufactured for the appellants by the other manufacturers is to be clubbed with value of the clearances from the appellants manufacturing unit. As per Condition (v) of the para-2 of the notification where a manufacturer clears the specified goods from one or more factories exemption is applicable to aggregate value of the clearances mentioned against each serial number of the table and not separately for each factory, that means the appellants clearances are to be aggregated with the clearances made by the other manufacturing unit for the appellants. Similarly as per Condition No. (vii) of the para 2 of the notification for eligibility of the small scale exemption in a current financial year aggregate value of clearances of all excisable goods for home consumption made by a manufacturer from one more factories are to be clubbed and value of these clearances should not exceed Rs. 4 crore in the preceding financial year for eligibility of exemption under this notification in the current financial year.
16. Exclusion of the certain clearances from the aggregate value of clearances is given in para 3 of the notification. The clearances which are exempt from the whole of the excise duty under any other notification, the clearances bearing a brand name/trade name for another person which are ineligible for exemption under this notification and the clearances of specified goods which are used as inputs for further manufacture of the specified goods within the factory of the production are to be excluded for the computation of aggregate value of the clearances. From the combined reading of para 2 and 3 of the notification it is noticed that the value of duty paid clearances cleared by a manufacturer are also to be included while computing the value of clearances of all excisable goods in the preceding financial year for computing the limit of Rs. 4 crores for the purpose of eligibility of the exemption notification for the current financial year. Therefore the value of the goods cleared by the appellant against loan license or job work basis from other units are to be clubbed for the purpose of ascertaining Rs.4 crore limit in the preceding financial year.
17. However, as regard the value of the clearances made in the current financial year under condition 3(b) the clearances bearing the brand name or trade name for other persons which are ineligible for exemption are to be excluded for computing the first clearances of Rs.1.5 crore. I find the goods cleared under a brand name or a trade name which are ineligible for exemption are cleared on payment of duty. Therefore the duty paid clearances bearing a brand name or trade name of other persons are to be excluded for computation of Rs. 1.5 crores in the current financial year. In my view, the duty paid clearances of the appellants made by other manufacturing units do not fall under any of exclusion under para 3 of Notification for computing the first clearances up to Rs.1.5 crores in the current financial year.
18. It is also noticed that in the appellants own case a writ petition was filed before Allahabad High Court by the appellant when the Commissioner (Appeals) has ordered the pre-deposit under Section 35F of the Central Excise Act in the similar facts and circumstances of the case and Honble Court in its order dated 11th October 2011 reported in 2012 (276) ELT 327 (Alld.) has upheld the order of pre-deposit made by the Commissioner (Appeals).
19. In view of the above, I find that appellants do not have a prima facie case for complete waiver of pre-deposit and I agree with the orders passed by Shri D.N. Panda, ld. Member (Judicial) and the reference is answered accordingly. Registry is directed to put up papers to the referral bench for further necessary action.
(Sahab Singh) Member (Technical) RM MAJORITY ORDER PER: D.N. PANDA In reference, ld. third Member has agreed for a direction for pre-deposit. Accordingly, appellant is directed to deposit Rs.6,00,000/- within 4 weeks from today and make compliance on 28.10.2013.
(RAKESH KUMAR) (D.N. PANDA)
(TECHNICAL MEMBER) JUDICIAL MEMBER
??
??
??
??
1 Excise Stay/1311 of 2012 in
Appeal No.E/1061 of 2012-Ex(DB)