Principal-to-principal job work does not make the raw material supplier the manufacturer for excise purposes.

In a genuine principal-to-principal job-work arrangement, a supplier of base paper does not become the manufacturer of waxed paper merely by providing raw material and paying conversion charges. The decisive factor was that the independent factory carried out the actual manufacturing process in its own premises, under its own supervision, and held the relevant licence. The supplier had no shown control over the process, and there was no basis to treat the job worker as its agent or the unit as a dummy facade. On that footing, excise liability could not be fastened on the supplier as manufacturer.

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Issues: Whether the appellants, who supplied base paper to an independent factory for conversion into waxed paper and paid conversion charges, could be treated as the manufacturers of the waxed paper and made liable to excise duty.

Analysis: The inclusive definition of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944 was considered along with the scheme of licensing and the notice requirements under Section 6 and Rules 43 and 44 of the Central Excise Rules, 1944. The decisive factor was that the actual manufacturing activity was carried on by M/s. Industrial Packaging in its own factory, under its own supervision, and it held the relevant licence. The appellants merely supplied raw material, the dealings were on a principal-to-principal basis, and there was no material to show that the job worker acted as the appellants' agent or that the factory was a facade or dummy unit. The situation was found materially different from cases where the alleged customer had effectively controlled the manufacturing process.

Conclusion: The appellants were not the manufacturers of the waxed paper and were not liable for the excise duty demand on that basis.

Ratio Decidendi: In a genuine principal-to-principal job-work arrangement, the person who merely supplies raw material does not become the manufacturer; manufacture for excise purposes belongs to the independent licensee who actually carries out the manufacturing process unless the job worker is shown to be an agent or facade of the supplier.

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