By TIOL News Service

NEW DELHI , OCT 03, 2013: 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 11AC 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 Appellant's 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.

The Member (J) was of the view that 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 and he ordered a pre-deposit of Rs. 6 lakhs. Member (T) did not agree observing 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.

So, the matter is before the Third Member.

"The Third Member summarized the issue as, 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."

"He was of the view that 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. 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 appellant's clearances are to be aggregated with the clearances made by the other manufacturing unit for the appellants. So, he agreed with the Member(J)."

By majority pre-deposit of Rs. 6 lakhs was ordered.

(See 2013-TIOL-1453-CESTAT-DEL)