TaxTMI 
TaxTMI 
2007 (1) TMI 234
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....e for completing the assessment. (2) The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of deduction under section 80-IB holding that the asses see is not engaged in manufacturing activities and instead is only doing trading of mushroom powder in a capsule form though the assessee is engaged in the operation of production of capsules. (3) The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of payment of differential duty of tax demanded by the Excise Department. Alternatively, the Commissioner of Income-tax (Appeals) has erred in not directing the Assessing Officer to consider this claim of the assessee as a petition for rectification under section 154 of the Income-tax Act since this payment was actually made as per section 43B of the Act. (4) The Commissioner of Income-tax (Appeals) erred in not deciding the issue on the merits the taxability of interest income of Rs. 4,41,564 and Rs.7,53,385 for the assessment years 2003-04 and 2004-05, respectively, though the Assessing Officer treated it as income from other sources. (5) The Commissioner of Income-tax (Appeals) erred in confirming the levy....
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....ess of whatever nature on the inputs received in powder form. The so procured ready made mushroom powder was put in hard gelatin capsules which are polished and inspected before bottling in HDPE bottles which also contain Dhy Drating (dehydrating) agents. These bottles are capped, labelled, shrink packed and dispatched to the warehouse for final packing. According to the Department, the assessee' s job is limited to packing the pre-prepared powder in the form of capsules before marketing it. The assessee has got imported requisite mushroom powder RG and GC which is manufactured by the assessee' s parent company, a non-resident, by name M/s. DXN International (P) Ltd. The Department also relied on the agreement entered into by the assessee with M/s DXN International (P) Ltd., and the assessee-company did not have the know-how of any kind. According to the Department, the assessee has not manufactured any product to enable it to claim deduction under section 80-IB of the Act. 5. Before us, the contention of the assessee is that the Assessing Officer relied on the sworn statement and other information collected from its production in charge, and the copy of the sworn statem....
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..... During the production, it should be ensured that the temperature and humidity are within the limits and the weights of filled capsules are within the limit. Simultaneously, quality control will come for inspection and take samples of the filled capsules to carry out the necessary tests like disintegration test, microbiological test, moisture content test, stability test, weight test parameters and specification test, etc. The filling section maintains a separate production record. (ii) Polishing section.-In polishing, the outer surface of the capsules having powder masses shall be polished by polishing machine operated by the said machine operator. Again, QC inspector/personnel shall inspect and observe the quality of the capsules so polished. This section also maintains a separate job record. (iii) Sorting/inspection section.-The operators will inspect and sort out the defected capsules as per in-house specification. Again, QC inspector and personnel will inspect the capsules sorted and the capsules defected. Those defected filled capsules will be rejected accordingly. This section also maintains separate job record. (iv) Counting and bottling section.....
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....st, etc. (x) The warehouse also shall maintain the inventories of "raw mate rials", "packing materials" and "finished goods" . The "raw materials", "packing materials" and "finished goods" shall be stored and kept at separate places so as to comply with the Drugs and Cosmetics Rules, 1945. 8. From the above, it is evident that no injury was caused to the assessee by the Departmental authorities. The purpose of natural justice was not to defeat the justice but to promote and protect the justice. The argument of the assessee is only superficial and peripheral for which this forum cannot be a party. After going through the entire facts of the case, we feel that no useful purpose will be served by setting aside the matter back to the Departmental authorities for giving an opportunity to the assessee to cross-examine the production in charge. The object of the principles of natural justice is to foster justice and not to thwart justice. The principles of natural justice should reflect and guard the values of fairness and impartiality. It is true that audi alteram partem and nemo judex in causa sua are twin formidable pillars supporting the natural justice. In order to decide....
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....ist, they do not justify the proposed action. The core decision on this question will necessarily and invariably depend upon the peculiar facts and circumstances of each case, including the nature of the decision-making body, the nature of the action proposed, the grounds on which the action is proposed, the material on which the allegations are based, the attitude of the party against whom the action is proposed in showing cause against such proposed action, the nature of the plea raised by him, his admissions by conduct or otherwise of some or all of the allegations, the effect of the ruling made and all other matters which help the mind of the authority in coming to a fair conclusion on the question. In Smt. Maneka Gandhi v. Union of India, AIR 1978 SC 597, the Supreme Court was pleased to observe at page 628 that : "The rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint ....
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....ss. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place." 11. Learned counsel for the assessee submitted that the final product of the assessee is in the capsule form which is different from original raw material used and it is a new and distinct product from what it was prior to the process employed. For this process of production, the assessee has obtained various licence and the assessee has carried out various process by which imported raw material has to undergo changes to become final product. He further submitted that by putting the raw mushroom powder into gelatin capsule, new product has been emerged which is different from raw material and only capsulation makes the product marketable and consumable. It is only ....
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....e assessee further relied on the case law in the case of CCE v. Eastend Paper Industries Ltd. [1990] 186 ITR 105 (SC), and submitted that the honourable Supreme Court held : "excise is a duty on manufacture" . Manufacture is the process or activity, which brings into existence new, identifiable and distinct goods. Goods have been understood to be articles known as identifiable articles known in the market as goods and marketed or marketable in the market as such. It was an essential requirement to be goods to be wrapped in paper. Anything required to make the goods marketable must form part of the manufacture and any raw material or any materials used for the same would be a component part of the end-product. Processes incidental or ancillary to wrapping are to be included in the process of manufacture, and manufacture in the sense to bring the goods into existence, as these are known in the market. Here the paper to be marketed is not complete until it is wrapped in wrapping paper. Apart from that, under rule 56A of the Central Excise Rules, the assessee would be entitled to the benefit of deduction of the duty to be charged on all wrapping papers, if any. 14. Learned counsel f....
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.... 4. If properly stored, the shells contain 12-15 per cent. of moisture which gives flexibility and, consequently, very considerable resistance to mechanical stress. 5. Less adjuncts are necessary than for tablets (see Carter et al., 1972b). 6. The contents are usually in fine powder which, combined with freedom or near-freedom from adjuncts, provides rapid and uniform release of medicament in the gastro-intestinal tract. 7. The shells can be specified (with titanium dioxide) or coloured, to give protection from light (contrast cachets). 8. The shells are made to very fine limits ; hence the cap and base fit well and give substantial protection against air and moisture (contrast cachets). 9. The shells are physiologically inert and easily and quickly digested in the gastrointestinal tract. 10. Presentation of a drug in capsules, rather than in tablets, allows quicker submission of a new drug for clinical trials, because fewer development problems are involved. Also it is easier to vary the dose. 11. Complicated machinery is unnecessary for the extemporaneous dispensing of a few capsules (contrast tablets). 17....
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....enefit of section 80HH." 19. Apart from the above decision, learned counsel for the assessee relied on the following judgments : (i) CIT v. S. P. Jaiswal Estates P. Ltd. [1992] 196 ITR 179 (Cal) (ii) S. P. Jaiswal Estates P. Ltd. v. CIT [1994] 209 ITR 307 (Cal) (iii) CIT v. S. P. Jaiswal Estates P. Ltd. [1995] 214 ITR 448 (Cal) (iv) S. P. Jaiswal Estates P. Ltd. v. CIT [1995] 216 ITR 145 (Cal) (v) CIT v. Bharath Sea Foods [1999] 237 ITR 46 (Ker) (vi) CIT v. Relish Foods [1999] 237 ITR 59 (SC) (vii) CIT v. Venkateswara Hatcheries P. Ltd. [1999] 237 ITR 174 (SC) (viii) CIT v. Hindusthan Metal Refining Works P. Ltd. [1981] 128 ITR 472 (Cal) (ix) CIT v. Lucky Mineral P. Ltd. [1997] 226 ITR 245 (Raj) (x) CIT v. Anjani Kumar and Co. Pvt. Ltd. [1997] 227 ITR 786 (Raj). 20. We have heard the rival submissions and perused the material on record. We have gone through the case law relied on by the parties. The main contention of the assessee is that it is engaged in the capsulation of mushroom powder. This capsulation makes the commodity marketable and consumable. Without capsulation the commodity ....
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.... of India: Provided that the condition in this clause shall in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub- section (4) shall apply as if the words ' not being any article or thing specified in the list in the Eleventh Schedule had been omitted' ." 23. Thus, it is important that the assessee is engaged in the manufacture or production of any article or thing. 24. Now, the first question for consideration before us is whether there is a difference between the expressions "produce" and "manufacture" or they are exactly synonyms. The words "manufacture" or "production" have not been defined in the Income-tax Act, therefore, have to be accepted in their ordinary meaning as part of the statute. The expressions "manufacture" and "produce/production" have definite connotations in the judicial vocabulary and have been held to be not an expression of art. The expression "manufacture" has been explained in the Black' s Law Dictionary as under : "The process or operation of making goods or any material produced by hand, by machinery or by other agency ; anything made from raw materials by the hand, by mac....
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....hus, learned counsel for the assessee is right when he says that the word "produce" or "production" has a wider connotation than the term "manufacture" . 29. The expression "produce" in the context of producing any thing or article has been assigned its meaning in the Oxford Dictionary as under : "3b. of an animal or plant ; to generate, bring forth, give birth to, bear, yield (offspring, seed, fruit, etc.) ; (d) To work up from raw material, fabricate, make, manufacture (material objects) ; (e) To produce the goods, money, results." 30. Apparently, the expression used in the provision with which we are concerned relates to "produce" . 31. In contrast, the word "manufacture" has been defined to mean : "1b. The action or process of making articles or material (in modern use, on a large scale) by the application of physical labour, or mechanical power. 1. To work up (material) into forms suitable for use" . 32. These definitions denote one inherent property of the term "manufacture" that is, existence of raw material which is subjected to a certain process, whether manually or by machine or by chemical treatment and as a result....
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....is a presentation of fruit in a more convenient form and by reason of being canned, it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pine apple fruit." 36. In coming to this conclusion, the court referred to yet another decision from the East Texas Motor Freight Lines v. Forzen Food Express [1995] 100 L ed 917, where the United States Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out (page 66) : "killing, dressing and freezing a chicken is certainly a change in the commodity. But, it is no more drastic a change than the change which takes place in milk from pasteurizing, homogenizing, adding vitamin concentrates, standardizing, and, bottling. . . There is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cotton seed in the field and cotton seed at the gin, than between a chicken in the pen and one that is dressed. The ginned and bal....
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.... interpreting the like provision contained under section 80HH of the Income-tax Act, 1961, as is contained in section 80-IB with which we are concerned. Under section 80HH, one of the conditions for availing of the benefit of deduction under section 80HH was prescribed under sub-section (2) which was couched in the same language as is the provision of section 80-IB(2)(iii) with which we are concerned. The assessee had claimed that the foundation for superstructures on which the dam is to be constructed is an article manufactured by the assessee. The court referring to its earlier decision in Pio Food Packers [1980] 46 STC 63 (SC) ; [1980] Supp. SCC 174, reiterated the difference as under (page 423) : " Commonly, manufacture is the end result of one or more pro cesses through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing, at each stage. With each process suffered, the original commodity experiences a change. But, it is only when the change, or a series of changes, take the commodity to the point where commerci....
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....as held that the expression "manufacture and production" used in the Act are to be understood in the context in which they have been used. These words used in different taxation statutes are not inter-changeable. Every process does not mean "manufacture" unless the processing results in the production of an article having a distinctive character, name, use and value. In the case of Deputy CST v. Pio Food Packers [1980] 46 STC 63 (SC) ; [1980] Supp. SCC 174 it was held that "manufacture" normally involves consumption of a particular commodity in the process of manufacture of another commodity. The goods purchased should be consumed and the consumption should be in the process of manufacture and result must be manufacture of other goods. There are special criteria for determining whether the commodity is consumed in the manufacture of another. Generally, the prevalent test is whether the article produced is regarded in the trade by those who deal in it as distinct in identity from the commodity involved in its manufacture. Manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one ....
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....t word in a particular statute under consideration is similar to that constituted in the decision. The case of Laminated Packings (P) Ltd. v. CCE [1990] 4 SCC 51, and CCE v. Eastend Paper Industries Ltd. [1990] 186 ITR 105 (SC), and CCE v. Johnson and Johnson Ltd. [2005] 188 ELT 467 (SC) are all related to the Central Excise Act and hence the ratio of these cases cannot be applied to the present case on hand. Similarly, the judgment in the case of Deputy CST v. Coco Fibres 80 STC 249 (SC) was delivered in the context of the Kerala General Sales tax Act, 1963, and hence the ratio of this case also cannot be applied to the present case. The Supreme Court in the case of Aspinwall and Co. Ltd. v. CIT [2001] 251 ITR 323 and in the case of N. C. Budharaja [1993] 204 ITR 412 was of the opinion that bringing into existence a new commodity is of essence of manufacture or production. 48. Now, the question before us is whether putting the mushroom powder into the gelatin capsule to make it fit for marketing, the product can be considered as producing the thing or article under section 80-IB. It is a matter of fact that mushroom powder can be consumed in bulk form nakedly without being put ....