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Commissioner of Central Excise, Goa v. M/s. Cosme Farma Laboratories Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1761 of 2007)Decided 7 Apr 2015
Civil Appeal No. 1761 of 2007
Justice Anil R. Dave · Justice Dipak Misra

Background

The respondent, a licensed pharmaceutical manufacturer, was a "loan licensee" who supplied raw and packing material to independent job workers, who then manufactured medicaments to the respondent's specifications under its supervision/quality control, under the Drugs and Cosmetics Act, 1940. The Revenue sought to levy excise duty by treating the price at which the respondent (the brand owner) ultimately sold the goods as the "assessable value," rather than the value at the job-worker/manufacturing stage. The CESTAT had rejected this approach, and the Commissioner of Central Excise appealed to the Supreme Court, along with several connected appeals raising the same question.

Decision Breakdown

Relying on its own prior decisions (including the Pawan Biscuits line of cases), the Supreme Court held that excise duty is a duty on manufacture, and must therefore be assessed at the value prevailing at the stage of manufacture, not at the later stage when the brand owner sells the finished goods to the market. Since the job worker, not the brand owner/loan licensee, is the actual manufacturer for excise purposes in such arrangements, the price at which the respondent brand owner subsequently sold its goods could not be treated as the assessable value. The Court rejected the Revenue's submissions and dismissed all the connected appeals along with the main appeal, with no order as to costs.

Lesson Learnt

For excise duty purposes, what matters is the value of goods at the point of manufacture, not the price the brand owner later charges to the market: a business using job workers/loan-licensing arrangements cannot be taxed on its downstream retail/brand-sale price.

Official source (sci.gov.in)View Judgment (PDF)

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