TaxTMI 
TaxTMI 
2001 (5) TMI 43
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....drawn in various cases while making reference give full account of the facts giving rise to the various references and batch of appeals. We give only the barest summary needed to understand the issue framed hereinafter. The petitioners and appellants are hereinafter referred to as assessees for the sake of clarity and brevity. 3. The assessees are engaged in the business of ship-breaking. They purchase ships which are not sea-worthy for the purpose of dismantling and sell the product derived therefrom. Deductions under ss. 80HHA and 80-I of the Act were claimed by the assessees for the respective assessment years involved in the respective assessment years involved in the respective cases under consideration, the details of which are not necessary for the purpose of deciding the issue involved in this batch of cases. The deductions claimed by the assessees were rejected by the Revenue authority on the ground that the business and activity of ship-breaking carried out by the assessee did not amount to manufacture or production of article or thing. For grant of deductions under ss. 80HHA and 80-I the assessee must manufacture or produce articles or things. In almost all cases, the....
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....n their own power and comply with statutory requirement of Indian Shipping Act and similar international law pertaining to shipping. The ship-breakers insist on including the words "ship for demolition in the contract to avail the benefits of lower customs duty levied on such ships. The ship-breakers take delivery of the ships at high seas against payment and subsequently ships are beached by the ship-breakers. The ship purchase contract entered into between the ship-breaker and the seller stipulates that the ship has to be seaworthy, afloat and beaching assistance be given by the seller for about seven days even after taking physical delivery of the ship by the breaker. In other words, what is purchased is a ship which is capable of plying and not merely a scrap. The port authorities levy their charges on the basis of GRT/LDT on the ship as per maritime practices. Thus, it is clear, what the ship-breakers bring for breaking, has separate identity as a ship, which is the input for the ship-breaking industry. 7. In the course of breaking activity, the ship loses its identity and results into production of the following items: 1. Ferrous metals (i) Re-rollable st....
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.... it compulsory for all the ship-breaking units to comply with all requirements applicable to the industrial units under the Factories Act, Pollution Control Board Regulations, and Explosive Regulations. That is how the ship-breaking activity is understood and carried out in the country treating it as an "industrial undertaking". 10. The petitioners have also produced on record visual material in support of their contention as to how the ship-breaking activities are carried out and tried to impress upon us that it is a systematic organised commercial business venture involving the component of finance, labour, skill so as to give birth to altogether a new identifiable commercial product i.e., articles or things different from its original raw material i.e., ship. The assessees thus prayed that a judicial note of all these activities should be taken while considering the issue in question. Rival contentions Submissions of the assessee 11. The learned advocates appearing for the various assessees submitted that the ship-breaking activity carried out by the assessees involves conversion of unserviceable ships obtained through Government agencies, like Metal Scrap Trading Co....
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....ssions of the Revenue 13. In reply, the learned counsel appearing for the Revenue contended that it would not be reasonable or permissible for the Court to rewrite the sections or substitute the words on its own for the actual word employed by the legislature in the name of giving effect to the supposed underlying object, After all, underlying object has to be gathered from the reasonable interpretation of the language employed by the legislature. In his submission, it is well settled that while dealing with the articles used for business purposes a term is required to be interpreted in clearly commercial sense. It should not be interpreted in technical sense. He heavily placed reliance on the judgment of the apex Court in CIT vs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420: (1993) 204 ITR 412 (SC): TC 25R.185 including decision of the another Division Bench of this Court in case of CST vs. Delhi Iron & Steel (P) Ltd. (1995) 98 STC 202 (Bom): wherein this Court held that the dismantling and breaking of ships to obtain iron, scrap and steel does not amount to manufacture. Submissions of the assessees in rejoinder 14. In rejoinder, the learned counsel appearing for the asse....
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....g". Therefore, reference to its definition in similar enactments or adoption of its ordinary meaning is inevitable. Considering the object of the enactment of the provision under consideration, the said expression will have to be construed liberally in a broader commercial sense, keeping its object in mind. There is no much debate on this aspect of the matter. The concept of industrial undertaking need not be necessarily be confined to manufacture and production of articles and even in the absence of either of them there could be an industrial undertaking. The assessees are, therefore, well within the expression of industrial undertaking. In this view of the matter, the only question arises, therefore, is whether the assessees had begun to manufacture or produce the articles after the specified date in any backward area. It is not in dispute that the assessees have commenced their work after the specified date. In short, the limited question is whether the ship-breaking can be characterised as an activity amounting to manufacture or produce an article or articles as the case may be. Whether a particular activity is a manufacturing activity is dependent upon several factors and no s....
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....of Words and Phrases Vol. 26, from an American judgment. The passage runs thus: "'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation a new land, different article must emerge having a distinctive name, character or use." 21. The expression manufacture has in ordinary acceptation a wide connotation. It means making of articles, or material commercially different from the basic components, by physical labour or mechanical process. However, it also needs to be considered that when the word manufacture is appearing in the company of word 'production' which has a wider connotation then the word 'manufacture', the word production 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. The associated words are indicative of the mind of legislature. Where a word is doubtful or ambiguous in nature the meaning has to be ascertained by considering the company in which it is found and t....
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....the apex Court in the aforementioned decision and the ordinary meaning of the word 'produce' as disclosed by the dictionary and by its ordinary connotation, we are of the opinion that when the word manufacture is appearing in the company of the word production, which has wider connotation than the word manufacture, then in that event, the word 'manufacture' will have to be interpreted in wider sense and will have to be understood at par with the meaning assigned to the word 'production' and if such approach as contemplated by legislature is adopted then in that event it is not difficult to reach to the conclusion that assessee are the industrial undertakings, engaged in manufacture and production of articles and things. 28. At this juncture, we may also make reference to the Division Bench judgment of this Court in the case of CST vs. Indian Metal Traders, wherein a direct question was involved as to whether the scrap iron and steel, which were obtained by the respondents therein by dismantling and breaking up of the ships should be regarded as different commercial commodity from the ship itself and the Division Bench answered the said question in the fol....
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.... the purchase of such ship the assessee acquired only the old materials and the articles contained therein, which were sold by it in the form in which they were acquired. No process whatsoever was applied to the said goods, not to speak of any process of manufacture. Thus, the said judgment of the Division Bench being a judgment based on the facts of that particular case cannot be relied upon as a precedent for deciding the issue involved in the present case. The Division Bench was not dealing with the ship as is involved in the present batch of cases, but the Division Bench was dealing with a condemned and unserviceable ship which by itself was nothing but a scrap. In the facts and circumstances of that case, the Division Bench was perfectly justified is including that the assessee had purchased scrap and not a ship. 30. We may also refer to another judgment of the Division Bench of this Court in the case of Ashish Steels (P) Ltd. vs. Mukhopadhyay (1989) STC 293 (Bom): wherein the Division Bench while dismissing the petition filed by the petitioner, relying upon the judgment of this Court in CST vs. Indian Metal Trader, held that the process or breaking up or dismantling a ship....