Full Judgment
2. The relevant portion of the Apex Court Order remanding the case back to the Tribunal is reproduced below : "From the various affidavits, which are on record, it appears that during manufacture of Ethambutol Hydrochloride I.P. the two substances DL-2 Aminbutanol and Tartaric Acid have to be mixed together. As stated above two intermediate products came into existence one of which is L-2 ABT. As per the affidavits, in layman's language, L-2 ABT is nothing else but contaminated Tartaric Acid. As per the affidavits, it is unusable without a process of recovery. Thus, as per the affidavits, there is only recovery of the Tartaric Acid which was the original imported product.
If this be the position then Tartaric Acid is merely being recovered for further use then there is no manufacture..., learned Attorney General has invited our attention to two statements made by Directors of the 1st respondent which shows that apart from recovery of Tartaric Acid (for and on behalf of Respondent Nos. 3 and 5) the 1st respondent is also selling Tartaric Acid, recovered from L-2 ABT, on its own account. If that be so, then duty is payable on such sales. We are informed that the 1st respondent has filed a classification list but they have cleared the goods without payment of any duty. These are aspects which the Tribunal has not looked into at all.
The other question which requires consideration is whether 1st respondent is only doing job work on behalf of the Respondent Nos. 3 & 5 and/or whether there are transaction of sale between these parties. If the 1st respondent is only doing job work and recovering on behalf of Respondent Nos. 3 & 5 who had imported Tartaric Acid then there would be no manufacture. But if there are transactions of sale between these persons or anybody else then duty would be payable in respect of those transactions. These aspects must also be looked into by the Tribunal." 3. Arguing the case on behalf of the department Shri M.K. Gupta, learned Jt. C.D.R. has submitted as follows : (1) Whether the transactions between M/s. Yash Pharma Chems vis-a-vis Themis Chemicals and Lupin Labs Limited are of sale is a question of fact and law both. Unless the documents are gone through between these parties, no conclusions can be reached. It was therefore, submitted that the case should be remanded to the adjudicating authority. It cannot be ruled out that in the guise of actual sale the transactions has been shown as of job work.
(2) Without prejudice to above submissions, it is submitted that as per Clause (h) of Section 2 of the Central Excise Act, 1944, sale means any transfer of possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration. It terms of this definition transactions between Yash Pharma Chem vis a vis Themis Chemicals and Lupin Labs would be termed as sale for the following reasons.
(b) there is valuable consideration for the transfer of possession.
M/s. Yash Pharma manufacture tartaric acid and supply to M/s. Themis Chemicals and Lupin Labs on getting certain amounts. These amounts instead of job charges could be considered as difference in prices of goods supplied by M/s. Themis and Lupin and those supplied by M/s. Yash Pharma Chem.
(3) M/s. Yash Pharma is manufacturing tartaric acid which is used by M/s. Themis and Lupin and intermediate product L-2 ABT so obtained is again sent to M/s. Yash Pharma for manufacturing tartaric acid.
Tartaric acid so obtained cannot be considered as if imported. It is required to be ascertained how much quantity of tartaric acid was obtained which was not imported. For this purpose also the case should be remanded to adjudicating authority.
(4) Facility under Rule 57F(2) was not available to M/s. Themis and M/s. Lupin. No Modvat credit was taken of duty paid on tartaric acid as CVD and nor it was admissible to them as the final products were exempt from duty. In fact, no Modvat credit was taken on tartaric acid imported by them. As per Rule 57F(2), inputs or partially processed inputs could be removed without payment of duty for manufacture of intermediate products to be used in final products.
As no credit of duty was taken, they were not entitled to follow Rule 57F(2). This procedure has been followed merely to evade duty on tartaric acid manufactured by M/s. Yash Pharma, and therefore this is a clear case of suppression of facts, wilful misstatement and contravention of rules with an intention to evade appropriate duty.
(5) M/s. Yash Pharma has also manufactured tartaric from the L-2 ABT which has been, it appears, purchased from M/s. Themis and Lupin. It requires to be established how the same manufacturer was purchasing as well as getting L-2ABT on so-called job work basis from the same supplier i.e. M/s. Themis and M/s. Lupin.
4. It has been submitted by the learned Advocates appearing for the respondents as follows : - (1) In the present case, throughout the proceedings, it is an admitted position that o M/s. Lupin Laboratories Limited [Lupin] and Themis Chemicals Ltd. (Themis) imported D-2 Aminobutanol and Tartaric Acid, o During the course of manufacture of Ethambutol L-2 ABT - which is nothing but contaminated Tartaric Acid - was obtained and sent to Yash Pharma, the job worker, o Yash Pharma recovered Tartaric Acid and returned it back to Lupin and Themis, In view of this, since Yash Pharma was doing job work and recovering Tartaric Acid on behalf of, Lupin and Themis, there would be no manufacture, as held by the Hon'ble Supreme Court and the appeal filed by the department should be dismissed on this ground alone.
(2) In view of the judgment of the Hon'ble Supreme Court that "if the first respondent is only doing job work and recovery on behalf of Respondent Nos. 3 and 5 who had imported Tartaric Acid then there would be no manufacture". Nothing survives in so far as other respondents are concerned.
(3) During the course of the hearing, the learned JCDR made a feeble attempt to argue that definition of "sale" as defined under Section 2(h) of the Central Excise Act, 1944 should be read into the judgment of the Supreme Court. Section 2(h) reads : "sale" and "purchase" with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration." It was submitted by him that since there was transfer of the possession of goods by one person to another in the ordinary course of business, the transaction of job work should be treated as sale and the judgment of the Hon'ble Supreme Court should be interpreted accordingly.
(4) Two aspects were pointed out before this Hon'ble Bench. Firstly, it was submitted that the said reading by the learned JCDR conveniently omitted the later part of the definition which read : (5) Secondly, it was submitted that if this interpretation is accepted, it would render the judgment of the Hon'ble Supreme Court nugatory inasmuch as it would equate the sale with job work though the Hon'ble Supreme Court distinguished between sale and job work and directed the Tribunal to levy excise duty on sale and not on job work.
(6) It is submitted that the Annexure "B" and "C" to the Notice to show cause seeks to demand duty on the Tartaric Acid manufactured from L-2 ABT supplied by Themis and Lupin respectively and Annexure "D" specifically says "Manufacture on their own behalf claiming SSI exemption under Notification No. 175 of 1986, dated 1-3-1986.
Annexure "B", "C" and "D" makes very clear that the transaction of sale are only those mentioned in Annexure "D", whereas transactions mentioned in Annexure "B" and "C" are that of job work.
(7) This is further evident from the fact that the notice to show cause sought to deny the facility under Rule 57F(2) essentially on the ground that the Tartaric Acid recovered by Yash Pharma from L-2 ABT on behalf of Themis and Lupin is used in the manufacture of the Final Products, which was exempt from payment of duty.
(8) It is submitted that there are no allegation of whatsoever nature in the notice to show cause and no material is placed on record to show that the transaction between Yash Pharma with Themis and Lupin for the recovery of the said Tartaric Acid was that of sale. The transactions between Yash Pharma on one hand and Themis and Lupin on the other were transaction of bailment and not for sale.
(9) In order to treat the said transaction as sale, it has to be shown by the revenue with sufficient material on record that L-2 ABT was first sold by Themis and/or Lupin to Yash Pharma for consideration and Yash Pharma sold the recovered Tartaric Acid to Themis and Lupin for consideration.
(10) It is submitted that there is no material on record to show that Themis and Lupin transferred the possession of the said L-2 ABT to Yash Pharma in the ordinary course of business for a consideration. Admittedly no consideration was paid by Yash Pharma to Themis and Lupin for supply of L-2 ABT or by Themis and Lupin to Yash Pharma for supply of the said Tartaric Acid.
(11) It is an admitted position that what was paid to Yash Pharma by Themis and Lupin was job charges and the consideration was for doing the job work and not for sale.
(12) If, the transactions between Yash Pharma and Themis/Lupin are to be treated as transaction of sale by reason of alleged transfer of possession of L-2 ABT, without consideration of such transfer, there would be no transaction of job work (bilament) and the judgment of the Hon'ble Supreme Court of India in the case of Ujjagar Prints and Pawan Biscuits [2000 (120) (13) It is submitted that the order of the Hon'ble Supreme Court of India makes it very clear that the job work and sale are two separate transactions and in this context it has to be ascertained whether Yash Pharma was doing only the job work and recovering on behalf of Themis and Lupin or transactions between them are that of sale.
(14) The Notice to show cause makes clear distinction between job work and sale by making three distinct and different demands. The duty demand on sale of Tartaric Acid is only for those clearance mentioned in Annexure "D" on which Yash Pharma claimed benefit of exemption Notification No. 176/86 and therefore, no duty was payable.
(15) It is submitted that Yash Pharma is entitled to benefit of Notification No. 175 of 1986 for sale of Tartaric Acid sold on its own account (demand made in Annexure "D" to notice to show cause).
The clearances mentioned in Annexure "D" are transaction of sale of Tartaric Acid out of L-2 ABT supplied by Themis and/or Lupin. These clearances are exempt under Notification No. 175 of 1986 and therefore no duty is payable thereon.
(16) Without prejudice to the submission that findings recorded by the then Collector of Central Excise in the impugned order is correct and proper, the benefit of Notification No. 175 of 1986 cannot be denied in view of the following submissions.
(17) The benefit of Notification No. 175 of 1986 is sought to be denied on the ground that Yash Pharma and Yash Pharma Laboratories P. Limited are having mutual interest in each other and are owned, managed and controlled by the very same persons with common machinery, finance, employees and facilities.
(18) It is submitted that benefit of Notification No. 175 of 1986 can not be denied in view of Circular No. 6/92, dated 29-5-1992 (Annexure "H") issued by CBEC in exercise of its powers conferred under Section 37B of the Central Excise Act, 1944. The CBEC laid down the following general principles applicable to Notification 175/86.
"... Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit".
(19) In view of the above circular Yash Pharma is entitled to separate exemption limit and the proposed denial of benefits of Notification No. 175/86 is unsustainable.Supreme Washers (P) Limited v. Commissioner of Central Excise, Pune, (Annexure "I") the Hon'ble Supreme Court of India in paragraph 6 held as follows : "6. In regard to the second contention of the appellant in Civil Appeal No. 6161 of 1999, it is seen from the Circular dated 1-3-1956, which according to the appellants have been reiterated by another subsequent Circular No. 6/92, dated 29th of May, 1992 by the Central Board of Excise & Customs, New Delhi that a limited company should be treated as a separate entity for the purpose of exemption limit. If that be the position in law, then there may be some justification for the appellant to urge, so far as M/s. Supreme Washers (P) Ltd. is concerned, it being a limited company, its production cannot be clubbed with the other units. However, since this aspect of the case and applicability of the Circulars referred herein above was not brought to the notice of the Tribunal we are in agreement with the suggestion made by the learned Attorney General that it will be just and proper to remand this matter, for this limited purpose, to the Tribunal for examining the applicability of the Circular relied upon by the Appellants, M/s. Supreme Washers (P) Ltd." (21) Consequent upon the proceedings being remanded to this Hon'ble Appellate Tribunal by the Hon'ble Supreme Court of India, this Hon'ble Tribunal it order in the case of L.D. Industries v. Commissioner of Central Excise, Pune, the Hon'ble Appellate Tribunal in its Order dated 29-8-2003 (Annexure "... The above portion would show that the limited companies whether public or private are to be treated as separate entities distinct from shareholders and that each such limited company which is a manufacturer will be entitled to separate exemption limit. By applying the above provisions the production of M/s. Supreme Washers (P) Ltd. has to be considered separately for the purpose of exemption limit. We clarify the above position and dispose of the appeals. We, therefore, hold that the production of Supreme Washers (P) Ltd. cannot be clubbed with the production of LD Industries and LR Industries for the purpose of assessment." (22) The combined reading of the judgment of the Hon'ble Supreme Court of India and the Order of this Hon'ble Appellate Tribunal referred above, makes it very clear that Yash Pharma and Yash Pharma Laboratories Private Limited being Private Limited Companies, the production of each of the units cannot be clubbed with the other and Yash Pharma is entitled to separate exemption limit under Notification 175/86.
(23) Without prejudice to the aforesaid, the demand being made from Yash Pharma itself shows that Yash Pharma is separate entity and in view of the judgment of the Hon'ble Supreme Court of India in the case of Gajanan Fabrics (Annexure "K") (24) It has been consistently held that the clubbing is not permissible if show cause notice is not issued to the Unit whose clearances are sought to be clubbed. Admittedly, no notice to show cause is issued to Yash Pharma Laboratories P. Limited.
(25) It is submitted that the clearances of Tartaric Acid by Yash Pharma on its own account is therefore exempt under Notification No. 175 of 1986 and not liable to duty.
(26) In any event, the extended period under Section 11A of the Act is not available to the Department.
(27) It is submitted that admittedly the permission was granted by the Assistant Collector of Central Excise, having jurisdiction over the respective factories of Themis and Lupin under Rule 57F(2) and both Themis and Lupin gave the requisite undertaking to the Assistant Collector of Central Excise, having jurisdiction over the factory of Yash Pharma. In these circumstances, it cannot be alleged that Yash Pharma suppressed any facts.
5. We find that the Adjudicating Commissioner had held that recovery of Tartaric acid from L-2 ABT did not amount to manufacture and he had also held that M/s. Yash Pharma was entitled to small scale exemption under Notification No. 175/86 in respect of the sale made by it. In its earlier order, the Tribunal had also held that recovery of Tartaric acid did not amount to manufacture. There was no necessity, therefore, for the Tribunal to go into the question of eligibility to small scale exemption. We find that the subsequent order of the Apex Court requires the Tribunal to consider the following : (1) Whether the first respondent was selling Tartaric acid recovered from L-2 ABT on its own account apart from recovering Tartaric acid for and on behalf of respondents Nos. 3 & 5. According to the Apex Court order, if this is so, then duty is payable on such sale.
(2) Whether the first respondent was only doing job work on behalf of the respondents Nos. 3 & 5 and/or whether there were transactions of sale between these parties. According to the Apex Court order if the first respondent was only doing job work and recovering Tartaric Acid on behalf of respondents Nos. 3 & 5 then there would be no manufacture. But if there is transaction of sale between these persons and anybody else, then duty would be payable in respect of those transactions.
(3) Whether extended period of limitation would be available to the Department.
6. It is clear from the Apex Court's directions that the Tribunal has to come to a finding whether the recovery of Tartaric acid from L-2 ABT has been done on job work basis or there are transactions of sale between Lupin and Themis on the one hand and Yash Pharma on the other, and secondly whether Yash Pharma has sold Tartaric acid on its own account. Normally for determining dutiability of goods under the excise law, the criteria for satisfaction of the test of manufacture as laid down under various earlier decisions of the Apex Court provide a guidance. However, in the present case the Apex Court has itself directed the Tribunal to examine dutiability with reference to existence of sale and recovery on job work basis. There is, therefore, no scope for us to go into the question of manufacture in all its aspects. In any case, this question has been dealt earlier in the order-in-original and order-in-appeal by the Commissioner and the Tribunal respectively.
7. It has been contended by the Department that the transactions between Lupin and Themis and Yash Pharma in the context of sending L-2 ABT and receiving back recovered Tartaric acid should be considered as transaction of sale. We are of the view that this argument has been adequately rebutted by the learned advocates for the respondents. It was never the case of the department at any stage that L-2 ABT was sold to Yash Pharma. On the other hand, both Lupin & Themis had sought for permission to remove L-2 ABT on job work basis and to receive back recovered Tartaric acid. What was paid to Yash Pharma was only the job charges. No evidence has been produced by the department to show that either sale invoices have been issued or any amount other than the job charges have been paid by way of consideration for sale of goods. Under the circumstances, we are unable to agree with the contention of the learned Jt. C.D.R. that the case requires to be remanded back for verifying the documents at this stage when not even a single document has been shown to us in the course of this proceedings to suggest that the transactions between Lupin & Themis on the one hand and Yash Pharma on the other were sale transactions. As such, we have no hesitation in holding that the transactions involved were merely clearances of L-2 ABT for recovery of Tartaric acid and return of the same on job charges Consequently, in terms of the Apex Court's direction, no duty is leviable on such transactions.
8. As regards sale by Yash Pharma on its own account, we find from the records that there were some sales but we ore of the view that the Adjudicating Commissioner has correctly extended the benefit of small scale exemption to these clearances The learned Advocates appearing for the respondents have contended that extension of the small scale exemption to Yash Pharma without clubbing the clearances of Yash Pharma Laboratories Private Limited is in conformity with the aforecited Circular No. 6/92, dated 29-5-1992 and the Apex Court decision in the case of Supreme Washers (cited supra). We are of the view that the said circular and the said decision of the Apex Court fully support the grant of exemption to sale of Tartaric acid by Yash Pharma as earlier decided by the Adjudicating Commissioner.
9. Since we have decided the issue of duty demand in favour of the respondents on merits, the question of applying extended period of limitation is not relevant. However, as directed by the Apex Court, we have considered this question also and we find that in view of the fact that details of the transactions were known to the department all along and that the clearances were made after seeking permission of the departmental authorities, the extended time period is also not applicable.
10. Accordingly, we find no merit in the appeals filed by the department and we dismiss the same.