Job work exemption under small scale industrial relief depends on genuine principal-to-principal manufacturing, not mere input supply.

Small scale industrial exemption for job work units under Notification No. 175/86 turns on the real nature of the manufacturing relationship. Mere supply of raw materials by the principal manufacturer does not by itself defeat exemption; the decisive test is whether the job worker is a genuine principal-to-principal manufacturer or only a dummy unit or hired labour. The later trade notice clarified this standard and displaced the earlier approach that treated input supply alone as sufficient to deny relief. On that clarified test, exemption may remain available where the job worker is the actual manufacturer.

---

---

Issues: Whether goods manufactured on job work basis were entitled to the small scale industrial exemption under Notification No. 175/86 and whether the order disallowing the exemption could stand in view of the later trade notice clarifying the test to be applied.

Analysis: The exemption question depended on the real character of the relationship between the raw material supplier and the job worker. Under the earlier trade notice, the mere supply of inputs by the principal manufacturer was treated as sufficient to deny exemption. The later clarification changed that position and made the decisive test whether the job worker was a genuine unit acting on a principal-to-principal basis or merely a dummy unit or hired labour. Where the relationship is principal to principal, the job worker is the actual manufacturer and may claim the exemption. Because the impugned order proceeded only on the basis of the earlier trade notice, it could not be sustained without reconsideration under the clarified legal position.

Conclusion: The order denying exemption was quashed and the matter was remanded for fresh consideration under the later trade notice. The consequential show cause and demand notices also fell.

Final Conclusion: The exemption claim required reconsideration on the correct legal test, namely the genuineness of the job worker and the nature of the contractual relationship, rather than the mere fact that inputs were supplied by another party.

Ratio Decidendi: In job work cases, exemption for small scale units turns on whether the job worker is a genuine principal-to-principal manufacturer or only a dummy unit or hired labour; supply of raw materials by another party by itself does not defeat the exemption.

---