2009 (12) TMI 566 - HC - Income Tax

Court rules stone crushing as manufacturing activity, favors appellant

The court ruled in favor of the appellant, allowing the appeals and rejecting the revenue's contentions. It held that the process of converting boulders ... Operation of mining and crushing - stone crusher - Manufacturing activity within the meaning of Section 80 IB of the Income Tax Act - Held that: - As far as conversion of boulders into grit is concerned, a Division Bench of this Court in the case M/s.Panth Stone Crusher has already held that this process amounts to manufacture though in the context of the Sales Tax Act. However, there is no definition of 'manufacture' in the Sales Tax Act and the Division Bench decided this matter under general law which would be applicable to the present case also. It would also be pertinent to mention here that in Lucky Minmat case (2000 -TMI - 5818 - SUPREME Court), the Apex Court has clearly held that conversion of concrete by stone crushers could legitimately be considered to be a manufacturing process. The observation of the Supreme Court cannot be termed to be 'obiter dicta' since the Supreme Court has held that the process of concrete by stone crushers is a manufacturing process. Issues:- Whether the operation of mining and crushing in a stone crusher amounts to manufacturing under Section 80 IB of the Income Tax ActRs.Detailed Analysis:The case involved an appellant-assessee running stone crushers claiming 100% deduction under Section 80IA of the Income Tax Act, asserting that the process of crushing stone into grit constitutes a manufacturing activity. However, the Assessing Officer rejected this claim, leading to the dismissal of appeals by the assessee on the grounds that stone crushing is not a manufacturing activity.The definition of 'manufacture' from Black's Law Dictionary was cited, emphasizing the transformation of raw materials into new forms by hand, machinery, or art. Previous judgments were referenced, such as the case involving shrimps, prawns, and lobsters, where processing did not change their identity as commodities. Another case discussed the production of 'bajri' or 'gitti' from stone blocks, highlighting the distinct commercial uses and identities of the manufactured products.Further judicial precedents were examined, including a case concerning chicory powder and pineapple slices, where a change in form did not alter the identity of the commodity. The Apex Court's rulings on processing raw food items and cutting and polishing raw diamonds were also considered, emphasizing that the final product must be commercially different to constitute manufacturing.The judgment referred to a case involving coffee beans, where the process of converting raw berries into coffee beans resulted in a new and distinct commodity with independent identity. The court emphasized that a complete transformation leading to a commercially different article signifies a manufacturing activity.The appellant's counsel relied on a Supreme Court judgment stating that converting lime and lime dust by stone crushers qualifies as a manufacturing process. The respondent argued that this observation was not the ratio of the decision and that each case should be assessed individually. However, a Division Bench had previously held that converting boulders into grit amounts to manufacture under the Sales Tax Act, a decision applicable to the present case.Ultimately, the court ruled in favor of the appellant, allowing the appeals and rejecting the revenue's contentions. The judgment emphasized that the process of converting boulders into grit through stone crushers constitutes a manufacturing activity, aligning with previous legal interpretations and precedents.