Packing of loose tea as manufacture depends on genuine principal-to-principal job work, not a dummy arrangement for the supplier.

Packing of loose tea can amount to manufacture for excise purposes, and package tea falls under Tariff Item 3(2). The manufacturer is the person who actually undertakes the packing work on a genuine principal-to-principal basis, unless the arrangement is proved to be a dummy or camouflage for the loose tea supplier. Where the packer has its own licensing arrangement, performs the work for consideration, and receives labour, input, profit, and transport charges under a real commercial contract, the packer is treated as the manufacturer. In that situation, concessional benefit under Notification No. 198/76-CE is available and differential duty is not sustainable.

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Issues: Whether the appellants, who packed loose tea supplied by others and received packing charges, were the manufacturers of package tea for purposes of excise duty and were entitled to the concessional benefit under Notification No. 198/76-CE, or whether the suppliers of loose tea were to be treated as the manufacturers, rendering the differential duty demand sustainable.

Analysis: Package tea fell under Tariff Item 3(2) of the Central Excise Tariff, and packing of loose tea itself amounted to manufacture. The controlling question was whether the appellants were independent manufacturers or mere dummies acting for the loose tea suppliers. On the findings recorded, the appellants had their own licensing arrangements, carried out the packing work for consideration, and the remuneration included labour charges, cost of inputs, profit, and transport charges, which showed a real commercial contract rather than a sham device. The record did not establish that the appellants were under the direct control and supervision of the suppliers or that the arrangement was a make-believe one. The reasoning applied the established distinction between a genuine principal-to-principal job work arrangement and a dummy or camouflage arrangement meant to conceal the true manufacturer.

Conclusion: The appellants were the manufacturers of the package tea and were entitled to the concessional benefit under Notification No. 198/76-CE. The demand for differential duty was not justified.

Final Conclusion: The appeals succeeded and the orders of the lower authorities were set aside with consequential relief.

Ratio Decidendi: In a genuine packing or conversion arrangement on principal-to-principal terms, the processor who actually carries out the manufacturing process is the manufacturer for excise purposes unless the department proves that the processor is merely a dummy or camouflage for the raw material supplier.

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