Case: Commr.Of Central Excise, Goa Vs. M/S Cosme Farma Laboratories Ltd

2. The respondent is a manufacturer of medicaments having license under the provisions of the Drugs and Cosmetics Act, 1940. The respondent not only manufactures certain medicaments but also gets certain medicaments manufactured through other job workers so the respondent is a loan licensee – who is also permitted to get drugs manufactured at different places under the provisions of the Drugs and Cosmetics Act, 1940 and Rules made thereunder. Under the agreement entered into between the respondent on one hand and the job workers on the other hand, raw material as well as packing material is supplied to the job workers and as per the instructions of the respondent loan licensee, the job workers manufacture the medicaments under the supervision of the loan licensee, i.e. the respondent so as to see that the quality of the medicaments manufactured by the job workers is as prescribed by the loan licensee3. Several notices had been given to the respondent as well as to the job workers by the Commissioner of Customs and Central Excise calling upon them to show cause as to why the respondent, the loan licensee should not be treated as a manufacturer as per the provisions of the Central Excise and Salt Act, 1944 in respect of the medicaments manufactured by the job workers and on that basis the respondent was also called upon to make payment of certain duty and the job workers were also called upon to show cause as to why they should not be directed to pay penalty etc4. After hearing the concerned parties, the Commissioner came to the conclusion that the respondent was a manufacturer of the medicaments manufactured at the premises of its job workers within the meaning of the provisions of the Central Excise and Salt Act, 1944 and the Rules made thereunder5. Being aggrieved by the aforesaid decision of the Commissioner dated 6th August, 2004, the respondent filed the appeals before the CESTAT, Mumbai. The Division Bench of the CESTAT heard the appeals but both the Members of the Bench recorded separate judgments. The Member (Technical) allowed the appeals and set aside the order dated 6th August, 2004 passed by the Commissioner, whereas the Member (Judicial) upheld the said order passed by the Commissioner and held that the appeals were liable to be dismissed. In the aforesaid circumstances, as the said Members had given different opinions, the appeals were referred to a third Member for his decision. The third Member (Technical), ultimately, after hearing the concerned parties agreed with the views expressed by the Member (Technical) and the Tribunal finally allowed the appeals filed by the respondent6. Against the said order passed by the CESTAT, the appellant has filed the present appeals before this Court

Court's reasoning:
17. In our opinion, the submissions made on behalf of the respondent are correct and the appeals deserve to be dismissed for the reason that the manufacturing activity was done only by the job workers in their premises and with the help of their labour force and machinery. Simply because the job workers had to adhere to the quality control or the specification with regard to the quality prescribed by the respondent, it would not mean that the respondent is the manufacturer22. In the light of the above factual position, it is also pertinent to find out whether the respondent is a manufacturer under the provisions of the Central Excise Act, 1944. Whether a person has manufactured a particular item or whether a person is a manufacturer is a question of fact. Once the Tribunal, after appreciating relevant evidence, has come to a conclusion that the job workers were the manufacturers and the respondent – the loan licensee, was not the manufacturer, we see no reason to interfere with the said findings of fact, especially when the same is correct and not perverse. We are, therefore, in agreement with the findings arrived at by the Tribunal that the job workers are the manufacturers23. Once it has been determined that the job workers are the manufacturers, the assessable value of the goods would be a sum total of cost of raw material, labour charges and profit of the job workers, as per circular No.619/10/2002-CX dated 19th February, 2002 and the law laid down by this Court in the case of Pawan Biscuits (supra) and other cases. In such a case, the price at which the respondent brand owner sells its goods would not be the assessable value because the duty is to be paid at the stage at which the goods are manufactured and not at the stage when the goods are sold.