TaxTMI 
TaxTMI 
2001 (5) TMI 43
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.... 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 assessees are claiming that they are treated as industrial under-takings by various tax authorities. They are holding licence under Central Excise Rules, 1944 as iron and steel obtained by breaking of ships are excisable and that they are registered as small scale industrial units with the Director of Industries. Their industrial units are situated in the rural areas, as such, they claim to be entitled t....
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....hip 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. (b) 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 steel (ii) Melting Steel (iii) Cast iron scrap. 2. Non-ferrous metals (i) Aluminium (ii) Brass (iii) Copper 3. Non-metallic material (i) PVC material (ii) Wooden material The yield of the above items depend upon the nature and origin of the ship, In a cargo ship, the yield of ferrous-metals is more. In a passenger ship, the yield of non-ferrous and non-metallic scrap is also substantial. These items are used as ra....
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....ss 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 7. 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 Corporation Ltd. (MSTC). This activity gives rise to altogether a new excisable produce such as re-rollable scrap, ferrous scrap, wooden and other metallic items. Ship-breaking activities involve very sophisticated technique, as such, the activities do amount to manufacturing and production activities within the meaning of terms used in ss. 80HHA and 80-I of the Act. 8. In their submissions, the statutory provisions in the form of ss, 80HHA and 80-I were brought on the statute to encourage industrial un....
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....ith 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 10. In rejoinder, the learned counsel appearing for the assessees contended that the judgment of the apex Court in CIT vs. N.C. Budharaja & Co. may not be directly applicable to the facts of the present case as the question involved in the said judgment was as to whether the construction of dam to store water (into reservoir) can be characterised as amounting to manufacture of production of articles or things as the case may be. In their submission, the said judgment of the apex Court advances the interpretation canvassed by the assessees. The learned counsel appearing....
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....uld 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 straight-jacket formula or principle can be applied. The manufacture implies a change but every change is not manufacture. There must be a transformation of kind and new different item should have been emerged having different features. For manufacture there should be some alteration in the nature or character of the goods. By process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the things produced is by itself a commercial commodity c....
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....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 the meaning of the word associated with it. The words manufacture and production have received extensive judicial attention both under the Act as well as the Central Excises Act and the various sales-tax laws. The word 'production' has a wider connotation than the word 'manufacture'. In order to appreciate and understand the scope and meaning of the said words, it is necessary to turn to the various judgments dealing with the said subject and law laid down by the various High Courts including this Court and the views expressed by the apex Court while dealing with ....
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....n manufacture and production of articles and things. 20. 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 following words: "Held, that the scrap iron and steel which were obtained by the respondents by dismantling and breaking up of the ship must be regarded as a different commercial commodity from the ship itself, and hence the activity would amount to manufacture. The goods manufactured would be the scrap iron and steel obtained or manufactured by the dismantling and breaking up of the ship, and the goods used in the manufacture of this scrap iron and steel would be the ship itself. The case was, therefore, covered by the provisions of s. 13(a) of the Act and the purchase tax was payable by the respondents in respect of the purchase price attributable to the frame or hull or the body proper of th....