By TIOL News Service

NEW DELHI, AUG 23, 2013: THE issue involved is about clubbing of clearances for the purpose of deciding eligibility of small scale exemption under Notification No 8/2003 CE. The appellant is manufacturing ophthalmic and liquid orals falling under Chapter 30 of the Central Excise Tariff at his only factory located in Allahabad and is availing small scale exemption under Notification No 8/2003 CE. In addition, the appellant is also getting the goods manufactured at different factories on loan licence agreements / job-work basis. The goods manufactured under such agreements are cleared on payment of duty by those manufacturers on payment of duty. It is the case of revenue that the goods manufactured by other manufacturers on job-work basis are to be clubbed with the value of clearances of the Allahabad unit of the appellant to decide the exemption limit under Notification No 8/2003 CE.

During the hearing of stay application, Member (J) held:

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 ( job -worker) 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 /-.

However, Member (T) recorded separate findings and held:

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.

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 manufacturer 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.

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 cannot even be called a manufacturer in respect of these medicines manufactured for them by M/s. Marck.

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.

In view of the difference of opinion, the Registry has been directed to place the matter before the President to resolve the issue.

(See 2013-TIOL-1257-CESTAT-DEL)