Processing of raw food materials into food articles qualifies as "manufacture or processing" u/s2(6)(d); industrial company status upheld

Whether the activity of converting raw food materials into articles of food amounts to "manufacture or processing" under s.2(6)(d) of the Finance Act, 1968: the HC applied the statutory test of transformation and commercial manufacture, focusing on physical-chemical change, resultant new marketable product, and systematic industrial process rather than mere packaging or storage; it held that the operations effected a change of identity and involved organised industrial activity. Consequently, the entity qualifies as an "industrial company" within s.2(6)(d) and the Tribunal's classification was upheld.

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Issues: Whether the activity of preparing food articles from raw materials in the assessee's hotel constitutes "manufacture or processing of goods" within the meaning of section 2(6)(d) of the Finance Act, 1968, and whether the assessee is therefore an "industrial company" for the purposes of that definition.

Analysis: The Court examined the statutory phrase "manufacture or processing of goods" in the context of the Finance Act, 1968, applying the rule that ordinary or popular meaning is to be preferred unless the context requires otherwise. The Court surveyed authorities distinguishing mere treatment or preparation from manufacture, emphasising that manufacture requires a process resulting in a commercially new or different article. The Court considered the purpose and context of the definition of "industrial company" (which grants preferential tax rates to enterprises mainly engaged in specified activities) and concluded that the context points to manufacturing concerns rather than trading undertakings. Applying the foregoing principles, the Court held that preparing food in a hotel, although involving conversion of raw ingredients into dishes, is essentially a trading activity of supplying food to customers and would not, in ordinary commercial parlance, be described as "manufacture" or "processing" in the sense used in section 2(6)(d).

Conclusion: The activity of the assessee does not constitute "manufacture or processing of goods" under section 2(6)(d) of the Finance Act, 1968, and the assessee is not an "industrial company". Decision for the Revenue.

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