TaxTMI 
TaxTMI 
TaxTMI 
2007 (2) TMI 267
X X X X Extracts X X X X
X X X X Extracts X X X X
....med relief under section 80-IB in respect of the income from the new industrial undertaking. This was allowed by the assessing authority. For the assessment year 2001-02, the assessee claimed relief under section 80-IB. While considering the aforesaid relief in the assessment under section 143(3), the assessing authority allowed the same. The assessee filed returns for the subsequent assessment years. The relief was granted for the assessment years 2001-02 and 2002-03. While this was so, the Commissioner of Income-tax invoking his powers under section 263 has revised the assessment for the year 2001-02. The proceedings under section 263 were initiated on two grounds:- (i) That the undertaking was not new and was only an expansion of the existing unit and hence not entitled to relief under section 80-IB; (ii) That the activity does not constitute "manufacture" and hence the undertaking is not eligible for the said relief. However, while passing the order under section 263, the Commissioner accepted the position that the undertaking was new and held that the assessee had produced evidence to establish the undertaking is new and hence the said objection will not survive. With reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rk force. The process of manufacture is subject to Excise and registered with the Pondicherry Government for this purpose. "(i) The Commissioner has accepted the Unit as new unit and hence the parameters set out under section 80-IB are satisfied in this regard; (ii) Apart from what the Commissioner has noticed, it is relevant to submit that (a) the new Unit is located at a place more than 10 kms. away from the old Unit; (b) totally new plant and machinery have been installed in the new Unit; (c) the new Unit has obtained separate licenses for its activity; (d) the new Unit is totally identifiable apart from the old Unit; (e) no plant or machinery used in the old Unit have been brought or installed in the new Unit. (iii) The activity constitutes 'manufacture': (a) The activity is covered by a license which specifically mentions that it is 'manufacture'; (b) The input is 'rectified spirit' which undergoes various processes to achieve the final output viz., 'IMFL'; (c) 'Rectified Spirit' which is the input is not potable, while 'IMFL' is potable. Thus, this output is a product totally different from input and is commercially identifiable as a separate product. (d) The deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. 8. Upon a careful reading of the above, in our opinion, in this case for claiming relief under the aforesaid section the assessee has to satisfy two broad conditions:- (i) Firstly, the assessee has to produce evidence to establish that it is a new undertaking as envisaged under the Act; and (ii) Secondly, that it manufactures or produces any article or thing not being any article or thing. 9. As regards the issue whether it is a new unit or not, we find that under section 263 for assessment year 2001-02 the learned Commissioner of Income-tax, vide order dated 2-3-2006, had de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are totally different. 13. The submission in brief is as under:- "We may in this connection submit that the facts in Shaw Scott Distilleries case are totally different and distinct from those of the assessee's case. The Tribunal has consistently noted while recounting the facts, that the assessee had purchased 'potable spirit' from Rampur Distilleries as per the agreement and that the potable spirit is already manufactured and does not require any manufacturing and some processing was required to produce IMFL like Brandy, Whisky, Rum by adding certain percentage of water colour, essence and for safe marketing requires bottling. It is on the basis of this fact that the Tribunal came to the conclusion that there was no manufacturing process involved. In other words, the assessee in that case started from potable spirit. In the assessee's case the input is rectified spirit, which is not potable liquor. Both Tribunal and the Supreme Court have categorically held that rectified spirit is not potable liquor. In the case of Bihar Distilleries v. Union of India AIR 1997 SC 1208, the Supreme Court has highlighted the difference between Rectified Spirit which is non-potable and IMFL which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turing activity held in Deputy CST v. Pio rood Packers [1980] 46 STC 63; [1980] Supp. SCC 174: that the test for determination whether manufacture can be said to have taken place is whether commodity which is subject to the process of manufacture can no longer be regarded as the original commodity, but is recognized in the trade as a new and distinct commodity. It was observed: 'Commonly, 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 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 recognised as a new and distinct article that a manufacturer can be said to take place'." 17. Adverting to the facts to the present case the assessee after obtaining rectified spirit which is not potable and other materials processed them to obtain IMFL. The raw ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lts in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after thrashing and redrying, which is called as Virginia Flue-cured Tobacco (VFT) in commercial parlance, converts them into lamina and N.R. Stems, etc. The end-product is used in the manufacture of cigarettes and the raw materials, namely, Virginia Flue-cured Tobacco (VFT) could not be used directly in the manufacture of cigarettes. The assessee after processing the raw Virginia Flue-cured Tobacco converts them into tobacco which is a commercially different commodity. Conversion of the Virginia Flue-cured Tobacco into tobacco would be a manufacturing activity." 19. We also note that in section 80HH, with respect to which the Shaw Scott decision itself was delivered no mention of Eleventh Schedule is there, while in section 80-IB mention of Eleventh. Schedule is there. The Act itself envisages that manufacture or production are involved to bring about items referred in Eleventh Schedule and so small scale industries engaged in manufacture or production of those articles are eligible for relief ....