Independent supplier manufactures goods on duty payment; buyer cannot be saddled with differential duty absent proof of dummy arrangement.

Differential duty and penalties could not be sustained against a buyer company and its directors where the goods were manufactured by an independent supplier that used its own raw materials and leased capital goods, filed returns, and paid duty. Mere deputation of supervisors, financial advances adjusted against sale consideration, or influence over job charges did not establish that the supplier was a dummy or facade of the buyer. As the department itself had accepted the supplier as the manufacturer, the demand against the buyer lacked legal foundation and was set aside.

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Issues: Whether the demand of differential duty and penalties on the buyer company and its directors was sustainable when the goods were manufactured by an independent supplier who had paid duty and filed returns.

Analysis: The supplier and the buyer were separate legal entities. The supplier manufactured the goods from its own raw materials and with capital goods lawfully taken on lease. The buyer did not supply raw materials, capital goods, or labour for manufacture. Mere deputation of supervisors, financial advances adjusted against sale consideration, or some influence over job charges did not establish that the supplier was a shadow or dummy of the buyer. Acceptance of the supplier's duty payments and returns showed that the department had treated the supplier as the manufacturer. On these facts, the demand raised on the buyer as if it were liable for the differential duty lacked legal foundation.

Conclusion: The demand of duty and the consequential penalties were not sustainable and the appeals succeeded in favour of the assessee.

Ratio Decidendi: Where an independent supplier manufactures and clears goods on payment of duty, the buyer cannot be fastened with differential duty merely on allegations of control, advances, or supervision unless the supplier is shown to be a dummy or facade and the buyer is proved to be the manufacturer.

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