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     REPORTABLE     

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

            CIVIL APPEAL NO.  1761  OF 2007

     COMMISSIONER OF CENTRAL EXCISE, GOA     ...  APPELLANT

VS.

     M/S. COSME FARMA LABORATORIES LTD.   ...  RESPONDENT                                

WITH

CIVIL APPEAL NOS. 1759, 2276/2007, 5857, 7302-7303/2010  AND 7512/2009

        J U D G M E N T

ANIL R. DAVE, J.

1. A common order No.A/1559 to 1563/WZB/2006 (EB)  

dated 14th August, 2006 in Appeal Nos. E/3292 to 3295 of

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2004  passed  by  the  Customs  Excise  and  Service  Tax  

Appellate Tribunal, West Zonal Bench, Mumbai, has been  

challenged in these appeals. The facts giving rise to the  

present appeals in a nut-shell are as under:

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 licensee.

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3. 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 etc.  

4. 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 thereunder.

5. Being  aggrieved  by  the  aforesaid  decision  of  the  

Commissioner dated 6th August, 2004, the respondent filed  

the  appeals  before  the  CESTAT,  Mumbai.   The  Division

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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 respondent.

6. Against  the  said  order  passed by  the CESTAT,  the  

appellant has filed the present appeals before this Court.

7. In all these cases, we are concerned with the period  

commencing from 1998 to 2003 and the issues involved in  

the appeals are whether the respondent, who was getting  

its  medicaments  manufactured through the  job workers,  

can be considered to be an independent manufacturer and

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another  question  is  about  the  assessable  value  of  the  

medicaments  manufactured  by  the  job  workers  for  the  

purpose of assessment under the Central Excise Act, 1944.

8. The learned counsel appearing for the appellant, i.e.  

the Revenue, had submitted that the view expressed by  

the  Tribunal  is  incorrect.   As  a  matter  of  fact,  the  

respondent should have been treated as a manufacturer in  

view  of  the  fact  that  the  raw  material  as  well  as  the  

packing material for manufacturing the medicaments had  

been supplied by the respondent to the job workers and  

the  respondent  was  having  supervision  over  the  

manufacturing activity though the said activity was being  

carried out at different places, where the job workers were  

working.

9. The  learned  counsel  had  taken  us  through  the  

provisions of Rule 69-A and Form No.24A of the Drugs and  

Cosmetic Rules, 1945.  They pertain to the provisions with  

regard  to  the  manufacturer  of  medicaments,  who  gets  

medicaments  manufactured  at  different  places  and  by  

different persons. He had drawn our attention to the fact

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that as per the provisions of the Drugs and Cosmetics Act,  

1940 and the Rules made thereunder, liability in respect of  

the quality of the medicament was that of the respondent  

and therefore, the respondent was the real manufacturer  

and not the job workers.  He had further submitted that  

though the job workers were doing the work in their own  

premises, the raw material as well as packing material was  

being supplied to them by the respondent and they were  

working  under  strict  supervision  of  the  respondent  loan  

licensee and therefore, in fact the respondent loan licensee  

was  the  manufacturer.  Even in  Form No.24A referred  to  

hereinabove,  the respondent used to give details  of  the  

places  where  the  job  workers  were  carrying  out  

manufacturing  process  under  the  supervision  of  the  

respondent. It had been further submitted that as the loan  

licensee was the manufacturer of medicaments under its  

own brand name, the price at  which the goods,  i.e.  the  

medicaments were being sold was the assessable value in  

respect  of  the  medicaments  in  question.  The  learned  

counsel  had relied  upon the  judgments  delivered in  the  

case  of  M/s.  Ujagar  Prints  and  others  v.  Union  of

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India  and  others (1989  (3)  SCC  488)  and  Pawan  

Biscuits Co. Pvt. Ltd. v. Collector of Central Excise,  

Patna (2000 (6) SCC 489) to substantiate his case to the  

effect that the price at which the goods were sold for the  

first time in the market would be the assessable value of  

the goods in question.

10. Thus, it had been submitted by the learned counsel  

that the view expressed by the Tribunal was incorrect and  

the  respondent  should  have  been  treated  as  a  

manufacturer and the value at which the goods had been  

sold in the market by the respondent should be treated as  

assessable value.

11. On the other hand, the learned counsel appearing for  

the respondent had submitted that the view expressed by  

the  Tribunal  was  just,  legal  and proper  and had  further  

submitted that the appeals deserved to be dismissed. He  

had taken  us  through  the  provisions  of  the  agreements  

entered into between the respondent and the job workers  

in detail.   It  had been submitted by him that the issue,  

whether  the  job  workers  are  manufacturers,  is  an  issue

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pertaining to the fact and as the Tribunal had arrived at a  

conclusion that the job workers were the manufacturers,  

this  Court  should  not  re-appreciate  the  evidence  or  

reconsider the issue with regard to the same.  If it is done  

so,  there  would  not  be  any  finality  with  regard  to  the  

question of  fact  ascertained by the Tribunal.  It  had also  

been submitted on behalf of the respondent that the job  

workers were the manufacturers for  the reason that  the  

entire  activity  with  regard to  manufacturing was carried  

out in their  premises.  Supply of raw material  as well  as  

packing  material  to  them  by  the  respondent  was  not  

relevant.  It was duty of the job workers to manufacture  

medicaments  as  per  the  quality  prescribed  by  the  

respondent  and,  in  fact,  the  manufacturing  activity  was  

done by the job workers  and therefore,  the Tribunal,  by  

majority, had rightly decided that the job workers were the  

manufacturers.   He  had  also  tried  to  distinguish  the  

judgments relied upon by the learned counsel appearing  

for the appellant.

12. So  far  as  the  assessable  value  of  the  goods  

manufactured is concerned, the learned counsel had relied

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upon the judgment delivered in  Pawan Biscuits (supra).  

According  to  him,  the  goods  manufactured  by  the  job  

workers were sent by the job workers to the respondent.  

The job workers were not selling the goods in the market  

and  therefore,  the  value  at  which  the  goods  were  

transferred  to  the respondent  by the job  workers  would  

become  assessable  value  and  for  determining  the  said  

value, the principles laid down by this Court in the case of  

Pawan Biscuits (supra) are to be followed.  

13. Looking  at  the  law  laid  down  in  the  aforesaid  

judgment  by  this  Court,  the  assessable  value  is  to  be  

determined by adding the value of raw material to the cost  

of labour work and profit of the job workers.  Thus, for the  

purpose  of  determining  the  assessable  value,  only  the  

aforesaid  factors  can be considered and not  the market  

value  at  which  the  respondent  was  selling  the  

medicaments.

14. It had been further submitted by the learned counsel  

appearing  for  the  respondent  that  the  respondent-

company was a loan licensee as per the provisions of the

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Drugs  and  Cosmetics  Act,  1940  and  the  Rules  made  

thereunder.   He had submitted that the manufacturer of  

drugs/medicaments is having certain responsibilities with  

regard to quality  of  the drugs manufactured.   Even if  a  

manufacturer  gets  the drugs/medicaments manufactured  

by  another  person  and  sells  the  same  under  his  brand  

name, the manufacturer,  who has been given license to  

manufacture the drugs/medicaments, is responsible and is  

liable under the provisions of the Drugs and Cosmetics Act,  

1940.   A  manufacturer,  under  the  aforestated  Act,  has  

nothing to do with payment of duty under the provisions of  

the Central  Excise Act,  1944 and therefore,  the revenue  

authorities should not have looked into the provisions of  

the  Drugs  and  Cosmetics  Act,  1940  for  the  purpose  of  

determining  duty  payable  under  the  provisions  of  the  

Central Excise Act, 1944.

15. In view of the aforestated legal position, the learned  

counsel appearing for the respondent had submitted that  

the appeals should be dismissed as the Tribunal has rightly  

decided all the relevant issues.  

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16. We have heard the learned senior  counsel  for  the  

parties  at  length  and  have  also  considered  the  order  

passed by the Tribunal as well as the judgments referred to  

by the learned counsel.

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 manufacturer.   

18. At the outset, we would like to clarify that the term  

‘manufacturer’  or  the  loan  licensee  used  under  the  

provisions  of  the  Drugs  and  Cosmetics  Act,  1940  has  

nothing  to  do  with  the  manufacturing  activity  or  term  

‘manufacture’  under the provisions of the Central Excise  

Act,  1944.   Both  the  Acts  referred  to  hereinabove have  

been enacted for different purposes.  The provisions of the

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Drugs and Cosmetics Act, 1940 pertain to manufacture of  

drugs and quality of the drugs etc.  The manufacturer of  

the  drugs  has  to  see  that  the  quality  of  the  drugs  

manufactured by him is  as  per  certain  standards and if  

there is any defect in the drugs manufactured by him or  

someone working under him, he becomes responsible or  

liable under the said Act.  There is also a provision in the  

said Act with regard to getting the drugs manufactured by  

someone else.  So a manufacturer, who is having a license  

to  manufacture,  can  get  the  drugs/medicaments  

manufactured by another person under his supervision and  

he would be liable if the drugs manufactured by someone  

else  are  not  as  per  the  prescribed  quality.  Though  the  

drugs/medicaments might not have been manufactured by  

the one who is a licensee and the actual manufacturer is  

guilty  of  manufacturing  substandard  drugs,  the  licensee  

becomes responsible and liable under the provisions in the  

said Act.

19. On  the  other  hand,  the  provisions  of   

the  Central  Excise  Act,  1944  are  for  the  purpose  of  

imposing  duty  on  the  goods  manufactured.  The

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manufacturer becomes liable to pay certain duty as per  

the provisions of the said Act.

20. Thus, the term ‘loan licensee’ used by the learned  

counsel appearing for the appellant is not much relevant  

as we are not concerned with the quality or standard of  

the drugs/medicaments manufactured by the loan licensee  

or anybody else manufacturing medicaments for him.        

21. The  learned  counsel  appearing  for  the  respondent  

had  also  drawn  our  attention  to  a  copy  of  one  of  the  

agreements entered into between the respondent and the  

job workers.  Upon going through the said agreement, we  

find that the said agreement shows that the job workers  

were not assigned the work as agents of the respondent.  

The said agreement shows that the relationship between  

the parties is that of the principal and the principal and not  

that of the principal and the agent.  Thus, it is clear that  

the  job  workers  were  not  manufacturing  the  drugs  as  

agents of the respondent or on behalf of the respondent,  

but  they  were  carrying  out  the  manufacturing  activity  

independently and therefore, they were manufacturers of

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the drugs as per the provisions of the Central Excise Act,  

1944.  

22. 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 manufacturers.

23. 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

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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.

24. For the aforesaid reasons, we do not agree with the  

submissions  made  on  behalf  of  the  learned  counsel  

appearing  for  the  Revenue.  We  dismiss  all  the  appeals  

along with the main appeal, with no order as to costs.

………............J. [ANIL R. DAVE]

……...............J. [DIPAK MISRA]

New Delhi; April 7, 2015.