Effective control over outsourced manufacturing can still make an assessee an industrial company for concessional tax treatment.

An assessee may still be treated as engaged in manufacture, and therefore as an industrial company, where production is carried out through an outside contractor under the assessee's effective supervision and control. Here, the assessee supplied plant and machinery, most raw materials, technical know-how, drawings, specifications and instructions, while the contractor functioned mainly as a labour contractor and finished goods were accepted only after final inspection. On those facts, the manufacturing activity was held to be the assessee's own manufacture in substance, entitling it to the concessional rate of tax.

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Issues: Whether the assessee, though having manufacturing work carried out through an outside contractor, was engaged in the manufacture of goods so as to be treated as an industrial company entitled to the concessional rate of tax.

Analysis: The relevant test was whether the assessee was mainly engaged in manufacture or processing of goods within the meaning of the Finance Act. The assessee had supplied the plant and machinery, mostly supplied the raw materials, furnished technical know-how, drawings, specifications and instructions, and retained supervision and control over the fabrication process. The contractor functioned substantially as a labour contractor and the finished goods were accepted only after final inspection. On these facts, the manufacturing activity was held to be that of the assessee, even though the actual fabrication was done by another entity.

Conclusion: The assessee was held to be an industrial company and was entitled to the concessional rate of tax.

Ratio Decidendi: An assessee may be regarded as engaged in manufacture, and therefore as an industrial company, where the manufacturing is carried out through another agency under its effective supervision and control, with its plant, materials and technical inputs, and the activity is in substance the assessee's own manufacture.

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