Principal-to-principal manufacturing arrangements do not make the raw material supplier the actual manufacturer for exemption purposes.

An independent processor operating its own plant and machinery and dealing on a principal-to-principal basis remains the actual manufacturer, even if the raw material supplier provides specifications, certain materials, inspection rights, or equipment. Manufacture to the buyer's specifications alone does not make the supplier the manufacturer unless the supplier controls the day-to-day manufacturing process or otherwise has the goods made on its account. On that basis, the supplier was not the actual manufacturer here, and denial of exemption under Notification No. 77/83 was unsustainable.

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Issues: Whether the appellants were the actual manufacturers of the slides and, if so, whether the benefit of Notification No. 77/83 was available to them.

Analysis: The appellants carried on printing activity on their own plant and machinery and also undertook similar work for other customers. The agreement with the raw material supplier provided for manufacture to specification, supply of certain materials and a right of rejection, but it also expressly stated that the relationship was principal to principal. Mere supply of raw materials, specifications, inspection rights, or supply of some equipment did not establish that the supplier controlled the day-to-day manufacturing process or that the processor was a hired labourer. Notification No. 305/77 could apply only if the supplier was the actual manufacturer getting goods made on its account, which was not the factual position here.

Conclusion: The appellants were the actual manufacturers, the supplier was not the manufacturer, and the denial of exemption under Notification No. 77/83 was unsustainable.

Ratio Decidendi: Where the processor is an independent legal entity operating on a principal-to-principal basis, manufacture to the buyer's specifications alone does not make the raw material supplier the actual manufacturer.

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