COMMISSIONER OF CENTRAL EXCISE, GOAversusM/S. COSME FARMA LABORATORIES LTD.

                        [2015] 4 S.C.R. 360


A        COMMISSIONER OF CENTRAL EXCISE, GOA
                                 v.
          M/S. COSME FARMA LABORATORIES LTD.

8              (Civil Appeal No. 1761 of 2007 etc.)
                         APRIL 07, 2015

            [ANIL R. DAVE AND DIPAK MISRA, JJ.]

C      Drugs and Cosmetics Act, 1940 - Central Excise Act,
  1944 - Drug manufacturing firm-loan licensee getting its
  medicaments manufactured through the job workers - Loan
  licensee, whether manufacturer - Payment of excise duty
  on goods - Liability of - Assessable value of goods -
0 Determination of - Held: Manufacturing activity was done
  only by the job workers in their premises and with the help
  of their labour force and machinery - Job workers were not
  manufacturing the drugs as agents of the loan licensee or
  on behalf of the loan licensee, but were carrying out the
E manufacturing activity independently and thus, were
  manufacturers of the drugs as per the provisions of the
  Central Excise Act - Merely because the job workers had
  to adhere to the quality control or the specification with
  regard to the quality prescribed by the loan licensee, loan
F licensee would not be manufacturer and would not be liable
  to pay duty under the provisions of the Excise Act -
  Further, since 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.
G
       Dismissing the appeals, the Court

        HELD: 1.1 Even if a manufacturer gets the drugs/


H                              360
  COMMNR. OF CENTRAL EXCISE, GOA v. COSME            361
         FARMA LABORATORIES LTD.

medicaments manufactured by another person and A
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 stated B
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 C
under the provisions of the Central Excise Act, 1944.
[Para 14] [368-H; 369-A-C]

    1.2 The term 'manufacturer' or the loan licensee
used under the provisions of the Drugs and Cosmetics D
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 have been
enacted for different purposes. The provisions of the
1940 Act pertain to manufacture of drugs and quality of E
the drugs etc. [Para 18] [369-G-H; 370-A-B]

    1.3 The provisions of the Central Excise Act, 1944
are for the purpose of imposing duty on the goods
manufactured. The manufacturer becomes liable to pay F
certain duty as per the provisions of the said Act.
Thus, the term 'loan licensee' is not much relevant as
the concern is not with the quality or standard of the
drugs/medicaments manufactured by the loan licensee
or anybody else manufacturing medicaments for him. G
[Para 19, 20] [370-E-G]

   1.4 Upon going through the said agreement
entered into between the respondent and the job
workers, it is found that the job workers were not H
362      SUPREME COURT REPORTS              [2015] 4 S.C.R.

A 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
B as agents of the respondent or on behalf of the
  respondent, but they were carrying out the
  manufacturing activity independently in their premises
  and with the help of their labour force and machinery.
  Therefore, they were manufacturers of the drugs as
C per the provisions of the Central Excise Act, 1944.
  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.
0
  Therefore, the findings arrived at by the tribunal that
  the job workers are the manufacturers is concurred
  with. [Para 17, 21, 22) [370-H; 371-A-C,E]

      1.5 The assessable value is to be determined by
E 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
  said factors can be considered and not the market
F value at which the respondent was selling the
  medicaments. 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,
G 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 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
H duty is to be paid at the stage at which the goods are
   COMMNR. OF CENTRAL EXCISE, GOA v. COSME                   363
          FARMA LABORATORIES LTD.

manufactured and not at the stage when the goods are          A
sold. [Para 13, 23) (368-E-F; 371-F-H; 372-A)

    Mis. Ujagar Prints and others v. Union of India and
others 1988 (3) Suppl. SCR 770: 1989 (3) sec 488;
Pawan Biscuits Co. Pvt. Ltd. v. Collector of Central Excise, B
Patna 2000 (1) Suppl. SCR 628: 2000 (6) SCC 489 -
referred to.

               CASE LAW REFERENCE

  1988 (3) Suppl. SCR 770        referred to.   Para 9        c
   2000 (1) Suppl. SCR 628 referred to.         Para 9

    CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1761 of 2007.                                                 D

   From the Judgment and Order dated 14.08.2006 of the
Customs, Excise and Service Tax Appellate Tribunal,
Mumbai Appeal No. E/3295/2004.

                          WITH                                E

   C. A. Nos. 1759, 2276 of 2007, 7512 of 2009, 5857, &
7302-7303 of 2010.

    K. Radhakrishnan, Raji Joseph, B. Krishna Prasad, Anil    F
Katiyar for the Appellant.

    Arvind P. Datar, S. Ganesh, Pratap Venugopal,
Meenakshi Chauhan, Anuj Sharma, Debarshi Bhuyan, K. J.
John & Co., Balaji Srinivasan, Mayank K., Sumeet Bhatia,      G
Rajeev Waglay, Rukhsana Choudhury for the Respondent.

    The Judgment of the Court was delivered by

   ANIL R. DAVE, J. 1. A common order No.N1559 to
1563/WZB/2006 (EB) dated 14th August, 2006 in Appeal          H
364         SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A     Nos. E/3292 to 3295 of 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:
 B
       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
C 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
D 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 medicarry8'1ts '
  under the supervision of the loan licensee, i.e. the respondent
E so as to see that the quality of the medicaments
  manufactured by the job workers is as prescribed by the loan
  licensee.

       3. Several notices had been given to the respondent as
 Fwell 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
G 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
H etc.
   COMMNR. OF CENTRAL EXCISE, GOA v. COSME                   355
    FARMA LABORATORIES LTD. [ANIL R. DAVE, J.]

    4. After hearing the concerned parties, the A
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.                                      B

     5. Being aggrieved by the aforesaid decision of the
Commissioner dated 5th August, 2004, the respondent filed
the appeals before the CESTAT, Mumbai. The Division
Bench of the CESTAT heard the appeals but both the C
Members of the Bench recorded separate judgments. The
Member (Technical) allowed the appeals and set aside the
order dated 5th 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 D
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 E
(Technical) and the Tribunal finally allowed the appeals filed
by the respondent.

   5. Against the said order passed by the CESTAT, the
appellant has filed the present appeals before this Court.    F

    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 G
considered to be an independent manufacturer and 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.
                                                            H
366         SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A      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
B 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.
c
           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
D      medicaments manufactured at different places and by
      different persons. He had drawn our attention to the fact 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
E     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
F     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:i the
G     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
H     assessable value in respect of the medicaments in question.
     COMMNR. OF CENTRAL EXCISE, GOA v. COSME                      367
      FARMA LABORATORIES LTD. [ANIL R. DAVE, J.]

  The learned counsel had relied upon the judgments delivered      A
•• in the case of M/s. Ujagar Prints and others v. Union of
  India and others (1989 (3) SCC 488) and Pawan Biscuits
  Co. Pvt. Ltd. v. Collector of Central Excise, Patna (2000
  (6) sec 489) to substantiate his case to the effect that the
  price at which the goods were sold for the first time in the     B
  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    c
  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 D
  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 E
  detail. It had been submitted by him that the issue, whether
  the job workers are manufacturers, is an issue 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 F
  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 G
  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
                                                                  H
368       SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A  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
 B the appellant.

       12. So far as the assessable value of the goods
  manufactured is concerned, the learned counsel had relied
  upon the judgment delivered in Pawan Biscuits (supra).
C 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
D 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
 E 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
 F 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 Drugs and
G 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
H
   COMMNR. OF CENTRAL EXCISE, GOA v. COSME                        369
    FARMA LABORATORIES LTD. [ANIL R. DAVE, J.]

same under his brand name, the manufacturer, who has A
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, B
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.
                                                                   c
    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.
                                                                   D
     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.
                                                                   E
     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           F
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.
                                                                   G
     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          H
370         SUPREME COURT REPORTS                [2015] 4 S.C.R.


A referred to hereinabove have been enacted for different
  purposes. The provisions of the Drugs and Cosmetics Act,
  1940 Pyrtain 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
B 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,
C 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
0
  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.
 E        19. On the other hand, the prov1s1ons of
      the Central Excise Act, 1944 are for the purpose of imposing
   duty on the goods manufactured. The manufacturer becomes
   liable to pay certain duty as per the provisions of the said
 F 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
G 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
 H workers. Upon going through the said agreement, we find
   COMMNR. OF CENTRAL EXCISE, GOA v. COSME                  371
    FARMA LABORATORIES LTD. [ANIL R. DAVE, J.]

that the said agreement shows that the job workers were not A
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 B
respondent or on behalf of the respondent, but they were
carrying out the manufacturing activity independently and
therefore, they were manufacturers of the drugs as per the
provisions of the Central Excise Act, 1944.
                                                              c
      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. D
(·:i~ 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 E
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 F
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 G
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 H
372         SUPREME COURT REPORTS             [2015] 4 S.C.R.


A     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
 B along with the main appeal, with no order as to costs.
      Nidhi Jain                             Appeals dismissed.