Hired labour manufacture and coir exemption principles upheld; demand and penalties failed on merits.

Where a manufacturer leased the premises, supplied the raw materials and machinery, paid wages, and controlled production, the manufacturing activity was treated as carried on through hired labour units, so the leased units were not the true manufacturers. The exemption under Notification No. 115/75-C.E. was available because the factory fell within the coir industry entry, the manufacturer was registered with the Coir Board, and the goods were not shown to fall within any excluded category; the benefit could not be denied merely because the finished goods were not themselves coir products. The demand and penalties were therefore unsustainable on merits, and the appeals succeeded.

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Issues: (i) Whether Duroflex Ltd. was the manufacturer of the goods, and the two units were only hired labour units; (ii) whether the benefit of Notification No. 115/75-C.E. was admissible to the goods.

Issue (i): Whether Duroflex Ltd. was the manufacturer of the goods, and the two units were only hired labour units.

Analysis: The premises used for manufacture were leased to Duroflex Ltd., which supplied the raw materials and machinery, paid the wages, and received the production for clearance. On these facts, the two units functioned only as hired labour units for Duroflex Ltd., and the contrary finding of the lower authorities was not sustainable.

Conclusion: The manufacturer was Duroflex Ltd., and not the two leased units.

Issue (ii): Whether the benefit of Notification No. 115/75-C.E. was admissible to the goods.

Analysis: The factory was covered by the coir industry entry in the Schedule to the notification, the manufacturer was registered with the Coir Board, and the goods were not shown to fall within any excluded category. The exemption could not be denied merely because the goods were not themselves products of the coir industry.

Conclusion: The exemption under Notification No. 115/75-C.E. was admissible.

Final Conclusion: The demand and penalties were unsustainable on merits, and the appeals succeeded.

Ratio Decidendi: Where the assessee supplies the raw materials, machinery, and wages and controls the production, the actual manufacturing activity may be treated as carried on by hired labour for the assessee; an exemption notification covering factories in a specified industry cannot be denied merely because the finished goods are not products of that industry if they are otherwise not excluded by the notification.

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