Independent manufacturer status defeats clubbing of clearances and collapses a clandestine-removal demand under excise rules.

Manufacture under a buyer-supply agreement does not become manufacture on behalf of the buyer merely because the goods are made to specification, bear the buyer's brand name, or are packed and quality-checked as directed. The appellants were treated as independent manufacturers acting on a principal-to-principal basis, so their clearances could not be clubbed with the buyer's and the exemption under Notification No. 83/83-C.E. remained available. Because the goods were cleared under gate passes and the classification list had been filed and approved, the allegation of clandestine removal and suppression also failed, making the demand under Rule 9(2) unsustainable.

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Issues: (i) Whether the appellants manufactured the detergent goods on behalf of M/s. Kusum Products Ltd., so as to require clubbing of clearances and deny the benefit of Notification No. 83/83-C.E. dated 1-3-1983. (ii) Whether the demand could be sustained on the basis of alleged clandestine removal and contravention of Rule 9(1) and Rule 9(2) of the Central Excise Rules.

Issue (i): Whether the appellants manufactured the detergent goods on behalf of M/s. Kusum Products Ltd., so as to require clubbing of clearances and deny the benefit of Notification No. 83/83-C.E. dated 1-3-1983.

Analysis: The agreement required manufacture according to specifications, use of the buyer's brand name, packaging as per the buyer's directions, and conformity to prescribed quality standards, but these stipulations did not establish that the appellants were manufacturing as agents or on behalf of the buyer. The decisive test was whether the appellants were independent manufacturers or merely worked for the buyer. On the reasoning applied, the goods were manufactured by the appellants on their own account and sold to the buyer on a principal-to-principal basis. Clearances of the appellants could therefore not be clubbed with those of the buyer.

Conclusion: The appellants were not manufacturing the goods on behalf of M/s. Kusum Products Ltd., and they were entitled to the exemption under Notification No. 83/83-C.E.

Issue (ii): Whether the demand could be sustained on the basis of alleged clandestine removal and contravention of Rule 9(1) and Rule 9(2) of the Central Excise Rules.

Analysis: The goods were cleared under gate passes and the classification list had been filed and approved by the department. In the absence of a sustainable finding that the appellants were required to disclose manufacture on behalf of the buyer, the allegation of suppression could not stand. Since the appellants were covered by the exemption notification, the foundation for treating the removals as clandestine and for invoking the demand provisions failed.

Conclusion: There was no clandestine removal, and the demand of duty under Rule 9(2) was unsustainable.

Final Conclusion: The impugned order was set aside and the appellants succeeded on the merits, with the duty demand falling with the exemption.

Ratio Decidendi: Specifications, brand-label requirements, and price control in a supply agreement do not by themselves establish manufacture on behalf of the buyer; where the manufacturer acts independently and the clearance limit under an exemption notification is not crossed, clubbing of clearances and a clandestine-removal demand cannot be sustained.

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