TaxTMI 
TaxTMI 
2008 (9) TMI 405
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....ts. The learned counsel explained the manufacturing process adopted by the assessee, like procurement of raw material wherein different herbs are collected and thereafter passed through various checks. After that it is dried, mixed in specified proportion, thereafter passed through chemical reaction and again mixed and dried upto particular extant based on set formulae and then grinded with the aid of power/machinery. The gist of arguments is that a new commercially known product has come into existence. Plea was also raised that the assessee is 100 per cent export-oriented unit. Our attention was also invited to certain judicial pronouncements, which will be discussed while concluding the issue. Reliance was placed in the case of M/s Shogi Communications, an order of the Chandigarh Bench of the Tribunal. On the other hand, the argument on behalf of the Revenue is that it is merely a processing which does not amount to manufacturing. Reliance was placed in D.D. Shah & Brothers vs. Union of India & Anr. (2005) 197 CTR (Raj) 1 : (2005) 148 Taxman 1 (Raj) and (2001) 251 ITR 178 (SC) (sic). In nutshell, the impugned order was supported. 3. We have considered the rival submissions an....
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....rom other sources. The assessment order was unsuccessfully carried in appeal before the learned CIT(A), which is under challenge before the Tribunal. 4. After considering the submissions from both sides and on perusal of records available on the file for asst. yr. 2003-04, the following fixed assets (plant and machinery) were found to be used by the assessee, as is evident from p. 3 of the assessment order. ------------------------------------------------------------- S.No. Name of the machinery Date of purchase/ Installation ------------------------------------------------------------- 1. Wet grinder 17-4-2002 -....
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....ssee was disallowed by the learned AO firstly, on the plea that the costs of the machines were to the tune of Rs. 3,28,152 only and secondly, on the plea that most of the machines under plant and machinery were purchased after 2002 and thirdly, the assessee firm sold herbal heena powder to the tune of Rs. 88,750 before August, 2002. We have found that the assessee firm claimed to have employed 13 workers for the manufacturing process. If the aforesaid grounds/reasonings for disallowance are analysed, rather this goes in the favour of the assessee because from 1st Aug., 2002 to 29th Oct., 2002, the assessee introduced/installed various machineries which are of automatic nature and after such installation the assessee made substantial manufacturing/sale. It is not the case of the Revenue that before August, 2002, there was no machine at all. Even before August, 2002, the assessee firm has sold the manufactured items only to the tune of Rs. 88,750 and for the whole year the total production/sales of the assessee firm are to the tune of Rs. 26,81,000 by declaring net profit at Rs. 12,91,111. From these facts, it can be safely inferred that the assessee can easily make production of end....
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....nd used following ingredients: ----------------------------------------------------------- Name of the raw material Percentage ----------------------------------------------------------- Heena 40 Barium 25 PPD &....
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....e are making it clear that branded heena powder is an excisable item, therefore, the claim of deduction cannot be denied to the assessee solely on the ground that no excise duty has been paid. Even otherwise, the only issue for adjudication before us is whether the assessee is a manufacturing unit or not and further whether herbal cosmetic products is eligible for deduction under s. 80-IB of the Act, therefore, we restrict ourselves to this issue only. 5. The learned AO denied the deduction by placing reliance upon the decision in the case of CIT vs. Sacs Eagles Chicory (2000) 164 CTR (Mad) 455 : (2000) 241 ITR 319 (Mad). We have found that this case was decided by the Hon'ble Madras High Court wherein only chicory roots were converted into chicory powder whereas in the present industrial unit, there are so many items, which are dried with the help of various acids/other methods and are mixed in a definite percentage and thereafter put to various processes and then grinded with the help of machines/aid of power and the resultant product/end-product is commercially known differently, therefore, in our humble opinion, aforesaid case relied upon by the learned AO and well as by the....
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....re were held to be amounting to manufacture. Even book publishing and book binding [Addl. CIT vs. A. Mukherjee & Co. (P) Ltd. (1978) 113 ITR 718 (Cal)] were held to be manufacturing. There are certain decisions wherein it was held that there is a no manufacturing activity like packing of tea [Appeejay (P) Ltd. vs. CIT (1994) 120 CTR (Cal) 27 : (1994) 77 Taxman 208 (Cal)], tyre retreading [Tamil Nadu State Transport Corporation Ltd. vs. CIT (2002) 172 CTR. (SC) 230 : (2001) 252 ITR 883 (SC)], foundation work [CIT vs. N.C. Budharaja & Co. & Anr., Etc. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC)], processing of shrimps [CIT vs. Relish Foods (1999) 152 CTR (SC) 500 : (1999) 237 ITR 59 (SC)], rearing of chicks [CIT vs. Venkateswara Hatcheries (P) Ltd. (1999) 153 CTR (SC) 105 (1999) 237 ITR 174 (SC)], conversion of chicory roots into chicory powder [Sacs Eagles Chicory vs. CIT (2002) 175 CTR (SC) 201 : (2002) 255 ITR 178 (SC)], etc. The assessee may draw support from the ratio laid down by the Tribunal in the case of Doon Valley Rubber Industries vs. ITO (ITA 265/Chd/2008), wherein both of us are signatory to the order, the relevant portion of which is reproduced herewith. "This....
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.... AO was of the view that the claimed deduction under s. 80-IB amounting to Rs. 13,16,982 is not allowable to the assessee, consequently, it was treated as taxable business income. On appeal, the assessment order was affirmed by the learned CIT(A) which is under challenge before the Tribunal. Before coming to any conclusion, we are reproducing herewith the process of manufacturing, if any, claimed by the assessee. -------------------------------------------------------------- S.No. Activity/processing done by the assessee -------------------------------------------------------------- 1. Purchase of old tyres/scrap. -------------------------------------------------------------- 2. Tyres cut into small pieces with the help of chopping machine run with the electric motors. -------------------------------------------------------------- 3. Grinding of small pieces of tyres interest the grinders run with the help of electric motors. -------------------------------------------------------------- 4. The grinded ....
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.... (Rs.) -------------------------------------------------------------- 1. Weighing machine 8,000 -------------------------------------------------------------- 2. Electric motors -------------------------------------------------------------- 80 H.P. 1 8,000 -------------------------------------------------------------- 60 H.P.  ....
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....; equipment -------------------------------------------------------------- Total 5,68,000 -------------------------------------------------------------- If the process adopted by the assessee is analysed, at the initial stage, the assessee is purchasing old tyres/scrap, etc. and thereafter it is cut into small pieces with the help of chopping machine which runs with the help of electric motors. These pieces are put into grinders which again runs with the help of electric motors and thereafter the grinded material is sieved by different machines. Thereafter, clay is added and again mashed with the help of machines. Now, the question arises whether the end-product is same or commercially different. It can be said that the end-product prepared by the assessee is not identical to original one. After such processing the end-product is used as a raw material for manufacturing tyres. The final product is known as rubber cr....
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....eduction claimed under s. 80-IA amounting to Rs. 8,22,079. Rs. 5,85,192 and Rs. 16,097, respectively. The contention of the learned counsel for the assessee is that this issue is covered by the decision of the Hon'ble apex Court pronounced in the case of Lucky Minmat (P) Ltd. vs. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC) whereas the learned Departmental Representative contended that this issue is covered by the decision pronounced in the cases of Sacs Eagle Chicory vs. CIT (2002) 175 CTR (SC) 201 : (2002) 255 ITR 178 (SC) 255 ITR 178 (SC), Divisional Dy. CST & Anr. vs. Bherhaghat Mineral Industries (2000) 246 ITR 230 (SC) and the case of the Tribunal in ITO vs. Jitendra Stone Crushing Co. [reported at (2007) 108 TTJ (Chd) 983-Ed.]. We have considered the rival submissions. 3. The brief facts in the present appeal are that the assessee is claiming processing of limestone, consequently producing calcite powder, poultry grit and poultry feeds. The contention of the learned Departmental Representative/AO is that crushing of limestone lumps into grits or powder does not bring into existence a new commercial commodity by placing reliance upon the decision in the case of Dy....
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....l Kunwa Stone Crushers (P) Ltd., the question was raised whether gitty, stone chips and dust continued to be stone or on crushing stone into gitty, stone chips and dust, a different commercial goods has emerged, the Hon'ble apex Court held that the goods continued to be stone and they were not commercially different. Admittedly, there are decisions which are in favour and against the assessee. However, the words 'manufacture' and 'processing' are not clearly demarcated fields. The test of manufacture lies in the answer to the question whether what is processed or produced as the end-product is commercially known as a different product from the materials out of which it is produced. The Hon'ble Karnataka High Court in the case of CIT vs. Darshak Ltd. (2001) 165 CTR (Kar) 17 : (2001) 247 ITR 489 (Kar) wherein the transformation of plain glassware into decorative glassware with a process which is irreversible, the assessee was held to be eligible for deduction under s. 80-I. Likewise, the Hon'ble apex Court in the case of CIT vs. Gem India Manufacturing Co. (2002) 172 CTR (SC) 615 : (2001) 249 ITR 307 (SC) held that in conversion of raw diamonds into cut and polished diamonds, n....
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....te by stone crushers could legitimately be considered to be a manufacturing process. In such a situation, we tend to follow this decision in place of Bherhaghat Mineral Industries and Sacs Eagle Chicory which are on the issue of refund of sales-tax whereas the decision in Lucky Minmat (P) Ltd. is on the issue under the IT Act. For this proposition, we are also fortified by the decision of the Hon'ble apex Court pronounced in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) to the effect that where two views are possible or capable of more meaning than one, the Court has to adopt the interpretation which favours the assessee. Therefore this issue is decided in favour of the assessee." Identical ratio was laid down by the Bench in the case of Anil Steel Traders vs. Dy. CIT (2007) 111 TTJ (Ahd) 747, wherein the assessee was doing the activity of annealing of steel rods. The activity of the assessee was annealing and straightening the steel rods/steel quails as per orders of the customers. It was held to be activity of manufacturing and deduction under s. 80-IA was allowed. While coming to this conclusion, the Bench considered the decision in th....
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....cturing or processing of articles, therefore not entitled to special deduction as manufacturers. In the case of CIT vs. S.S.M. Processing Mills (1997) 138 CTR (Mad) 106 : (1997) 227 ITR 596 (Mad), wherein assessee was purchasing cloth manufactured by others and then bleaching, dyeing and entering the same. It was held that assessee is not engaged in manufacture or production of textiles, therefore, not entitled to higher development rate. The Hon'ble apex Court in the case of Dy. CIT vs. Bherhaghat Mineral Industries, wherein there was crushing dolomite lumps into chips and powder held that it is not a process of manufacture as there was no commercial commodity produced by the assessee. It is pertinent to mention here that the aforesaid conclusion was rendered by the Hon'ble apex Court in relation to Madhya Pradesh General Sales-tax Act. In another case of CIT vs. Gem India Manufacturing Company (2002) 172 CTR (SC) 615 : (2001) 249 ITR 307 (SC), wherein there was cutting and polishing of uncut raw diamonds. It was held to be not amounting to manufacture or production of article of thing. In another case of Sacs Eagles Chicory vs. CIT wherein there was conversion of chicory roots in....
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....Hon'ble jurisdictional High Court in the case of CIT vs. Oswal Woollen Mills Ltd. wherein there was conversion of crude oil into refined oil by degumming/bleaching, etc. was held to be amounted to manufacturing activity further supports the case of the assessee. The Hon'ble Court found that the end-product is distinct commodity known differently in the market as refined oil, therefore, it was tantamount to manufacture of an article or a thing. While coming to this conclusion, the Hon'ble Court followed the decisions like Union of India vs. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 and Aspinwall & Co. Ltd. vs. CIT (2001) 170 CTR (SC) 68 : (2001) 251 ITR 323 (SC) and also considered various decisions which are available at p. 739 of the order. In view of these facts and judicial pronouncements, we are of the view that the assessee is entitled to deduction claimed under s. 80-IB of the Act, therefore, this appeal of the assessee is allowed." If the aforesaid facts and the judicial pronouncements contained therein are analysed, a provision in the taxing statute granting incentives for promoting growth and development should be construed liberally. Since the provision inte....