Manufacture under brand collaboration depends on the real arrangement; the brand owner is not the manufacturer without proof the agreement is a sham.

In a collaborative cigarette-manufacturing arrangement, the brand owner was not treated as the manufacturer merely because it supplied temporary machinery, technical assistance, quality supervision and brand-use rights. The written agreement described the Mizoram unit as the manufacturer, the unit owned the factory and infrastructure, and the Revenue produced no evidence to show the agreement was a sham or that the apparent arrangement did not reflect the real state of affairs; on that basis, the duty demand and penalty could not be fastened on the brand owner or its officers.

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Issues: Whether the appellant company was the real manufacturer of the cigarettes cleared from the Mizoram unit and consequently liable for central excise duty and penalty, or whether the partnership firm operating the unit was the manufacturer.

Analysis: The dispute turned on the true character of the arrangement between the brand owner and the Mizoram unit. The agreement showed that the unit was described as the manufacturer, that it owned the factory premises and infrastructure, and that the appellant's role was confined to temporary supply of machinery, technical assistance, supervision of quality, and use of brand name for consideration. The Revenue relied on surrounding circumstances to contend that the unit was a front, but no evidence was produced to establish that the agreement did not reflect the real state of affairs. The settled principle applied was that the apparent tenor of a commercial agreement is ordinarily presumed to be real unless the Revenue discharges the burden of proving otherwise. The facts were also consistent with manufacture by an independent unit rather than by the brand owner, and the mere existence of brand-name control, technical collaboration, and commercial restrictions did not convert the brand owner into the manufacturer.

Conclusion: The appellant company was not the manufacturer of the cigarettes and was not liable for the duty demand or penalty; the duty and penalty could not be fastened on the appellant company or its officers on that basis.

Ratio Decidendi: In a collaborative manufacturing arrangement, the brand owner does not become the manufacturer merely because it supplies temporary machinery, technical know-how, quality controls, and brand use rights; the Revenue must prove that the written agreement is a sham and that the apparent arrangement does not reflect the real state of affairs.

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