Blending and packing of tea qualifies as manufacture for Section 10A deduction under export incentive policy.

Blending and packing of tea in a Special Economic Zone unit was treated as manufacture or production for Section 10A purposes because the export incentive provision must be construed reasonably and in favour of the assessee. The court noted that the export policy definition of manufacture was wide enough to cover processing activities such as repacking, and that blending gave tea a distinct flavour and character. The later SEZ Act definition incorporated in Section 10AA was viewed as clarificatory and consistent with the same legislative policy, supporting the same understanding under Section 10A. Deduction was therefore available for the assessment year 2004-2005.

---

---

Issues: Whether blending and packing of tea in a Special Economic Zone unit constituted manufacture or production so as to entitle the assessee to deduction under Section 10A of the Income-tax Act, 1961 for the assessment year 2004-2005.

Analysis: The deduction under Section 10A is intended to implement the export incentive policy and must be construed reasonably and in favour of the assessee. The definition of manufacture in the Export Import Policy was wide enough to include processing activities such as repacking and similar operations, and blending of tea was held to give the finished product a distinct flavour and character. The later incorporation of the definition in Section 2(r) of the Special Economic Zones Act, 2005 into Section 10AA of the Income-tax Act, 1961 was treated as clarificatory and reflective of the same legislative policy, supporting application of that understanding to Section 10A as well.

Conclusion: Blending and packing of tea is a manufacturing activity for the purpose of Section 10A, and the assessee was entitled to deduction for the assessment year 2004-2005.

---