AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 502
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....g of paper insulated wires and strips of copper and aluminium, which are used in the oil filled electrical transformers. It is claimed by the assessees that wires are drawn from wire rods and thereafter insulation coating is done on the wires with different chemicals by enamel coating, annealing and then paper is wrapped on the wire to make it insulated. Some of the assessees are also manufacturing insulated wire strips and their product is further used to manufacture coils. 3. In the regular assessment made, the A.O. held that the activity of drawing wires of thinner gauges from wires and rods of thicker gauges does not amount to manufacture or production as the original commodity i.e. wire did not undergo any change in the process and the resultant commodity was also wire, albeit of different dimensions. To come to such conclusion, he relied upon the judgment of the Hon'ble Supreme Court in Collector of Central Excise vs. Technoweld Industries Ltd, (2003) 11 SCC 798. 4. The assessment was confirmed in appeal by the CIT(A), who agreed with the AO that no new product had come into existence as a result of the process carried out and hence there was no manufacture or productio....
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....o as to avoid sticking of the wire to the die surface and, this process done at high speeds, results in tensile pulling of the wire, which produces residual stresses and, increases its temperature. These stresses can cause distortions in the wire, cracking and embrittlement of the wire, which could result in premature breaking in service. To overcome these deficiencies, the wire is heated above its recrystallization temperature to allow the metal grains to reform and relieve the stress. This process is called annealing. Further, to protect from oxidation, which would effect the mechanical and physical properties, the wire is galvanized. In other words, the process of drawing of wire involves following steps - annealing, pickling and, galvanizing, which can be briefly described as hereunder: a) Annealing: Annealing is a heat treatment in which a material is exposed to an elevated temperature for an extended time period and then slowly cooled. It is the process by which metals and other material are treated to render them less brittle and more workable. Any annealing process consists of three stages, firstly, heating to the desired temperature, secondly, holding or soaking at that t....
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....ng protects the surface against corrosion, oxidation and moisture. It shields the base metal from the atmosphere and, further the zinc provides anodic (or sacrificial) protection. The zinc protects the steel "Galvanizing", thus giving the process its name. When the steel is dipped in the zinc bath, it heats up to above the melting temperature and a zinc iron reaction occurs, creating several layers of inter-metallic alloys that bond the outer layer of pure zinc to the steel. The reaction can only occur if the iron in the steel is in intimate contact with the liquid zinc and any surface contamination will impair this reaction. d) Following the zinc hot dip, the wire is quenched in water to "freeze" the zinc layer and is then coiled or spooled, which is marketed as galvanized wire." 11. The above-mentioned processes were not contested by the revenue either before the authorities below or before this Court, yet, it is contended that such processes do not constitute 'manufacture' or 'production' of any article or thing within the meaning of Section 80 IC. 12. Now, what would appear from the aforesaid facts is that this Court is required to consider as to what would ....
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....nufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes 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. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any....
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....ing else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India (1985 (3) SCC 314). 8. The aforesaid aspects were highlighted in Kores India Ltd., Chennai v. Commissioner of Central Excise, Chennai (2005 (1) SCC 385)in the background of Central Excise Act, 1944 (in short the 'Excise Act') and Central Excise Rules, 1944 (in short the 'Excise Rules') and Central Excise Tariff Act, 1985 (in short the 'Tariff Act'). The stand of the revenue was that it amounted to "manufacture", contrary to what has been pleaded in these cases. This Court held that it amounted to manufacture. 9. The matter can be looked at from another angle. In Commissioner of Income Tax v. Sesa Goa Ltd. (2004 (271) ITR 331)this Court considered the meaning of word 'production'. The issue in that case was whether the extraction and processing of iron ore amounted to manufacture or not in view of the various processes involved and the vario....
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....tion' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and reside rodeos which emerge in the course of manufacture of goods." 10. In "Words and Phrases" 2nd Edn. by Justice R. P. Sethi the expressions 'produce' and 'production' are described as under: "In Webster's New International Dictionary, the word "produce" means something that is brought forth either naturally or as a result of effort and work; a result produced. In Black's Law Dictionary, the meaning of the word 'produce' is to 'bring into view or notice; to bring to surface'. A reading of the aforesaid dictionary meanings of the word 'produce' does indicate that if a living creature is brought forth, it can be said that it is produced. (See Commissioner of Income Tax v. Venkateswara Hatcheries (P) Ltd. (1999 (3) SCC 632) , Commissioner of Income Tax, Orissa and Ors. v. M/s N.C. Budharaja and Company and Ors. (1994 Supp 1 SCC 280). Production or produce- The word 'production&....
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....n in the Official Gazette as amounting to manufacture. (Central Excise Act (1 of 1944) S.2(f))." 14. At this stage, it may be worthwhile to note that the ITAT in the order impugned before us has taken note of number of judicial pronouncements of not only the various High Courts but also of the Hon'ble Supreme Court and proceeded to determine the issue in the following manner: "9.1. Now, we may refer to some of the judicial precedents on the issue. The Hon'ble J & K High Court in the matter of CIT v. Abdul Ahad Najar, 248 ITR 744 (J&K) considered the question, whether the undertaking of a assessee engaged in extraction of timber from forest and conversion of same into logs, planks, etc. constituted an industrial undertaking within the meaning of section 80J(4) of the Act or not ? In this case, the assessee claimed that it was engaged in the manufacture and production of articles. The case of the assessee was that the planks sawn out of logs and, articles produced therefrom were different in shape from the logs and the trees. However, the Assessing Officer did not accept the contention of the assessee as according to him the assessee did not manufacture or produce any artic....
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....aterials into a changed form for use'. In common parlance, manufacture means production of articles from raw or prepared materials by giving these materials new forms, qualities, properties or combinations, whether by hand labour-or by mechanical process. In other words, it means making of articles or materials commercially different from the basic components by physical labour or mechanical process, In its ordinary connotation, manufacture signifies emergence of new and different goods as understood in relevant commercial circles. So far as the meaning of the word 'produce' is concerned, though the word 'produce' has a wider connotation than the word 'manufacture', when used in juxtaposition with the word 'manufacture', it takes in bringing into existence new goods by a process which may not amount to manufacture. The activity of extraction of wood by the assessee from the forest by felling the trees and converting the same into logs, planks, sleepers and other articles, undoubtedly, falls within the definition of 'manufacture'." 9.2. The Hon'ble Supreme Court in the matter of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 (S.C)cons....
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....uction'. Section 35E also speaks of production in the context of mining activity. The language of these sections is similar to the language of section 32A(2). There is no reason for us to assume that the word 'production' was used in a different sense in section 32A." [underlined for emphasis by us] 9.4. Thus, having regard to the proposition as discussed above, particularly in view of the decision in Sesa Goa Ltd (supra) it is evident that, that the word "production" has been used in a very wide sense to mean-to bring out a new product, albeit not a commercially new product. Infact, it may be relevant to state here that, in the aforesaid judgment, The Hon'ble Supreme Court affirmed the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Mysore Minerals Ltd. 250 ITR 725 (Kar.) wherein activity of cutting granite blocks into slabs and sizes and polishing them was held to be manufacturing or production of goods. It was held therein as under: "Section 80-I also refers to profits and gains in respect of an industrial undertaking. In view of the decision given in the case of the assessee, we are of the view that the Appellate Tribunal is right in la....
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.... by the process of cutting the marble block into slabs and tiles that it is made marketable. The marble block cannot be used for the same purpose as the marble slab or tile can be used and after the marble block has been cut into different sizes, the end product by putting it simultaneously cannot be used as a block. The principle in Kores India Ltd.'s case [2004] 3 RC 613 (SC) supports the contention of appellant." [underlined for Emphasis by us] 9.6. Also, the aforesaid view has been followed by the Hon'ble Bombay High Court in the case of CIT v Fateh Granite (P) Ltd 314 ITR 32 (Bom.) and, the Hon'ble Delhi High Court in the case of CIT v Sophisticated Granite Marble Industries reported 225 CTR 410 (Del) and, it was held that, process of purchasing marble slabs and then converting these into tiles by applying various processes like cutting, sizing, polishing so as to produce marketable tiles constitutes "manufacturing" an article. 10. Now, we may revert back to the facts of the captioned appeals. On consideration of the principles stated above and, the different steps of manufacturing through which the raw materials i.e. wire rods are processed, we are of the consi....
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....table to the qualitative change having been brought about by well termed process, as referred to above, we may now proceed to consider and decide the moot question as to whether the activities carried on by the assessee namely, receiving untreated crankshafts and forgings and castings from its clients and subjecting them to heat treatment to toughen them up for being used as automobile spare parts can ever the construed as activities relatable to manufacture and, consequently enable it to claim investment allowance under s. 32A of the IT Act." "13. We have to take note of the fact that the process of heat treatment to crankshaft, etc. were absolutely essential for rendering in marketable. Automobile parts as crankshafts, need to be subjected to heat treatment to increase the wear and tear resistance to remove the inordinate stress and increase tensile strength. The raw untreated crankshafts and the like can never by used in an automobile industry. Thus, in the crankshafts subjected to the process of heat treatment etc., a qualitative change is effected, to be fit for use in automobiles, although there is no physical change in them. In such state of affairs, it cannot at all the st....
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....ircumstances of the case, the process undertaken by the appellants amounts to manufacture of thing or article within the meaning of section 80IC of the Act. 14. In any case, the process amounts to production, as interpreted by the Hon'ble Supreme Court in the case of Sesa Goa Ltd. (supra) wherein it has been held that, the word "production" has been used in a very wide sense to mean to bring out a new product, may be not a commercially new product. In this case, undisputedly and, irrefutably new product has been produced as a result of the various processes undertaken by the appellant and, as such, even on this ground, the appellants are eligible for claim of deduction u/s 80IC of the Act." 15. In CIT vs. M/s Doon Valley Rubber Industries ITA No.2 of 2009 decided on 6.11.2013 this Court has taken into consideration all the relevant judgments to hold that the rubber crumb produced by the assessee therein was commercially different from its raw material and further held that it was commercially known to be different in the market. This Court proceeded to hold as under: "5. The question as to what amounts to manufacture is no more resintegra. The three Judges Bench of the Apex ....
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....ent in Mamta Surgical Cotton Industries, Rajasthan vs. Assistant Commissioner (Anti-Evasion), Bhilwara, Rajasthan (2014) 4 SCC 87. Though in that case the Hon'ble Supreme Court was dealing with an entirely different Act and the word 'manufacture' therein was in no manner pari materia with the term 'manufacture', now introduced in the Income Tax Act, how even the judgment assumes importance as it has dealt with the word 'manufacture' and 'processing' in detail alongwith relevant case law and held as under: "13. It is, therefore, relevant to notice the definition of 'manufacture' as defined in the dictionary clause of the Act. Section 2(27) of the Act defines the expression 'manufacture' as under: "2.(27) "manufacture" includes every processing of goods which bring into existence a commercially different and distinct commodity but shall not include such processing as may be notified by the State Government." The definition aforesaid is an inclusive definition and therefore would encompass all processing of goods which would produce new commodity which is commercially different and distinctly identifiable from the original goods. ....
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.... South Bihar Sugar Mills Ltd. v. Union of India, (1968) 3 SCR 21 ; Laminated Packings (P) Ltd. v. CCE, (1990) 4 SCC 51 ; Dy. CST v. Coco Fibres, 1992 Supp (1) SCC 290; CST v. Jagannath Cotton Co., (1995) 5 SCC 527; Ashirwad Ispat Udyog v. State Level Committee, (1998) 8 SCC 85; State of Maharashtra v. Mahalaxmi Stores, (2003) 1 SCC 70; Aspinwall & Co. Ltd. v. CIT, (2001) 7 SCC 525 ; J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO, (1965) 1 SCR 900 ; CCE v. Kiran Spg. Mills, (1988) 2 SCC 348 and Park Leather Industry (P) Ltd. v. State of U.P., (2001) 3 SCC 135). 16. The following observations by the Constitution Bench of this Court in Union of India v. Delhi Cloth & General Mills Co. Ltd., 1963 Supp (1) SCR 586 where the change in the character of raw oil after being refined fell for consideration are also quite apposite: (AIR p.794, para 14) "14. ... The word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance' and does not mean merely 'to produce some change in a substance.'......" 17. For determining whether a process is "manufacture" or not, this Court in Union of India v. J.G. Glass Industries Ltd., (....
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....21st Century Dictionary, the term "process" has been defined as "Process.- (1) a series of operations performed during manufacture, etc. (2) a series of stages which a product, etc. passes through, resulting in the development or transformation of it." 22. In East Texas Motor Freight Lines v. Frozen Food Express, 351 US 49 the Supreme Court of United States of America has held that the processing of chicken in order to make them marketable but without changing their substantial identity did not turn chicken from agriculture commodities into manufactured commodities. 23. A three-Judge Bench of this Court in Pio Food Packers case (supra) has dealt with the distinction between "manufacture" and "processing". Therein the appeals were filed against the order of the Kerala High Court holding that the turnover of pineapple fruits purchased for preparing pineapple slices for sale in sealed cans is not covered by Section 5- A(1)(a) of the Kerala General Sales Tax Act, 1963. This Court while deciding whether such conversion of pineapple fruit into pineapple slices for sale in sealed cans amounted to manufacture or not has observed as follows: (SCC p. 176, para 5) "5. ...... Commonly, man....
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...."manufacture", has reiterated that if by a process, a change is effected in a product and new characteristic is introduced which facilitates the utility of the new product for which it is meant, then the process is not a simple process, but a process incidental or ancillary to the completion of a manufactured product. 27. In Kores India Ltd. v. CCE, (2005) 1 SCC 385 the cutting of duty-paid typewriter/telex ribbons in jumbo rolls into standard predetermined lengths was considered by this Court and it was held that such cutting brought into existence a commercial product having distinct name, character and use and amounted to "manufacture" and attracted the liability to duty. In Standard Fireworks Industries v. Collector of Central Excise, (1987) 1 SCC 600 this Court held that cutting of steel wires and the treatment of paper is a process for the manufacture of goods in question. 28. In Lal Kunwa Stone Crusher case (supra), the decision relied upon by Shri Giri, this Court has considered that whether on crushing stone boulders into gitti, stone chips and dust different commercial goods emerge so as to amount to manufacture as per the definition of "manufacture" under Section 2(e-1....
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....at the paper insulated wires and strips of copper and aluminium being manufactured/processed by the assessees were commercially different from its raw material and further it is commercially known different in the market. In other words, the assessees were engaged in the manufacture of the product and, therefore, were entitled to the deductions claimed under Section 80IC of the Act. We find no reason to disagree with the said opinion of the Tribunal and the question No.1 is, therefore, answered accordingly against the revenue. Question No.2: 20. The learned counsel for the revenue has heavily relied upon the judgment of the Hon'ble Supreme Court in the case of Technoweld Industries (supra), to contend that the case of assessees is fully covered by the ratio laid down in the aforesaid case. We have considered the aforesaid judgment in detail and are of the considered view that the facts in the aforesaid case were totally different from the facts in the present case. The assessee in that case was engaged in the business of wire drawing from thicker gauge to thinner gauge by cold drawing process and was in fact not engaged in manufacture or production of wire with different chem....