TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 1367
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....hout any process that would qualify as "manufacturing" within the strict test of eligibility condition provided u/s 80IC of the I.T. Act, 1961. 2. That, on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Ahmedabad, has failed to appreciate the fact that the assessee was unable to produce evidence of manufacturing to the Assessing Officer nor could produce list of Plant & machinery with installed manufacturing capacity. 3. That, on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Ahmedabad has failed to note that the unit was running with only one mixer to manufacture 79120 pieces of wrist watches and 159529 Kgs of mouth fresheners to record a whopping income of Rs. 12,64,40,955/- allegedly claimed as deduction u/s 80IC of the I.T. Act, 1961. 4. That, on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Ahmedabad has erred in accepting the fact that 04 labourers could manufacture 159259 Kgs of Mouth Fresheners and 7910 wrist watches without the required technical expertise for quality control and quality assurance." 3. We notice at the outset that this....
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....cer thereafter came to assessee's profit and loss account. It had stated itself to be engaged in business of manufacturing "pan masala/mouth frershner"; as per the relevant sales, closing stock finished goods, raw material consumption and assets' depreciation details qua section 80IC deduction of Rs.436,98,608/-. Its manufacturing unit as per records was at Khasra (No.786/1064; opposite Nayabazar, Majhigaon, Jorethang, Sikkim). 6. The Assessing Officer then issued a detailed show cause notice dated 05.03.2015 inter alia spelling out various clarification(s) sought from the taxpayer. Both the Learned Departmental Representatives are very fair in informing us at this stage that the Revenue's grievance is confined to assessee's section 80IC deduction claim only. We keep in mind the same to notice that the assessee's reply dated 16.03.2015; as per page 6 in assessment order in issue, inter alia pleaded that it had commenced its manufacturing operations from 24.04.2006 i.e. during the relevant previous year only. Its case was stated to be covered under Item seven Part-B of the Fourteenth Schedule of the Act comprising of a positive list of articles or things to be ....
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....ing carried out any manufacturing as per the deduction provision in question. He noticed fluctuation in consumption of raw material purchases as well. Next came assessee's power and fuel consumption of Rs.9,116/- only unreasonably high gross profit ratio, purchase suppliers to have either closed down their business or suspicious resulting its disallowance of deduction claim of Rs.4,36,98,608/-. This followed disallowance of partners' remuneration of Rs.47,250/- and treatment of fixed deposit interest income and excise incentive receipts of Rs.1,300/- and Rs.295,28,821/-as income from other sources. 8. The CIT(A) has reversed assessment findings as follows:- "A. I find that effective from 01.04.2007, the Govt of India has notified that new unit which manufacture Pan Masala from 01.04.2007 will not be eligible for exemption as Pan Masala was shifted to negative list. I also therefore conclude that the converse is equally true. I find that manufacture of Pan Masala was covered as an exemption prior to 01.04.2007. I find that since the Appellant started manufacturing Pan Masala from 2006 the appellant squarely falls under the exemption from 2006. I find that the learned AO ....
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....y would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961.' 9. We have given our thoughtful consideration to Revenue's contentions inter alia pleading that the CIT(A) has erred in law and on facts in deleting section 80IC deduction disallowance in question after holding that the assessee had manufactured or produced it "pan masala" within the scheme of the Act. It is vehemently contended that this "pan masala" is an article or thing specifically included in the Thirteen Schedule and the instant taxpayer has failed to satisfy its case to be covered under item 7 part-B of the Fourteenth Schedule for Sikkim state. We find no force in Revenue's first argument. Learned Departmental Representative(s) are fair enough in not disputing. The fact remains that the assessee has been registered under the central excise department, Sikkim state government VAT law as well as Industries Department and under the service tax regime(s); right from the relevant previous year 2006- 07 onwards. Case file suggests that the both the parties had also been entangled in yet another litigation before hon'ble jurisdictional high court (Sikkim) wherein the Ministry of Fi....
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....eading No.3302. However the appellant's unit being situated in a Notified area, was granted exemption from excise levy by virtue of Exemption Notification No.50/2003-CE dated 10.06.2003. * The appellant has obtained an NOC from the Pollution Control Board, owing to effluent discharge from the manufacturing process undertaken by the appellant. * The appellant is also registered under the Factories Act. * The appellant was paying VAT on the products depending on the item produced and the VAT rates were different for different products and also for different raw materials. (6)(6)(i) The appellant is engaged in manufacture of Odoriferous Compounds and Industrial Perfumes. The appellant in its business activity consumes over 1500 raw materials and produces more than 500 finished goods, all different from each other. The finished goods manufactured by the appellant are used in various industries which include Skin care products, Detergents and toilet soaps, Consumer edibles, Incense Sticks and room fresheners etc, Industrial perfumes and Flavors used by pan masala and other industries. The manufacturing activity carried on by the appellant is explained as under - The process of....
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....are received in solid state, some liquid and sum in lumps. Some are essential oils, some are aromatic chemicals, some are spices, some are spice, extracts and some are oleoresins. Thus all these types of raw materials are required to produce the finished goods. It may be submitted that these raw materials fall under various tariff classifications of Central Excise and hence differ in type, properties, product groups, usage etc. Whereas several raw materials are unfit for human consumption or inhalation or application, the finished goods were used for all these purposes. Therefore the finished goods had a distinct chemical composition, properties and usage, which can only be achieved through manufacture which inter alia included studied and controlled chemical reactions, multiple stages of testing, formulations, R & D etc. 6(8) The facts and evidences brought on record therefore clearly establish that the activity carried on by the appellant is manufacturing process where a finished product distinct from the raw material has come into existence. The appellant is registered with Excise Department. The Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt. Ltd. 320 IT....
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....han 500 all of which are different from each other. The finished goods manufactured by the assessee are used in various industries which include (but are not limited to) skin care products, detergents and toilet soaps, consumer edibles, incense sticks and room fresheners, industrial perfumes and flavors used by pan masala and other industries. He furnished price list of the firm showing the nature and type of finished goods manufactured or produced and it was submitted that each of the above category of the product require the different chemical compositions and properties. For example, an essence of rose has to have different ingredients when it is used in a toilet soap, as an agarbatti compound, as a food flavor and as a perfume spray etc. He submitted a flow chart in this regard and pointed out that the process of manufacture involves melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is proper reaction amongst the products to produce a distinct flavor or fragrance. It was submitted that a perfume or a flavor may involve from as less as 10 to as much as 50 raw materials to manufacture the product. Furthermore, a raw material may have ....
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....2(29BA) of the Act. The reliance was placed on the following case laws: (i) CIT vs. Vinbros & Co. 349 ITR 697 (SC) (ii) CIT vs. Vinbros & Co. 218 ITR 634 (Mad) (iii) Shree Par Frangrances (P) Ltd. vs. Income Tax Officer 20 SOT 440 (Mum) (iv) Natural Frangrances Bhimtal vs. DCIT Nainital, I.T.A. No.4183/Del/2011 (Del) (v) DCIT Nainital vs. Natural Fragrances 219 TM 28 (Mag) (Uttaranchal) (vi) CIT vs. Innovative Industries (Guj) I.T.A. No. 2570 of 2010 (vii) Income Tax Officer Udaipur vs. Arihant Tiles and Marbles (P) Ltd. 320 ITR 79 (SC) (viii) Shree Veer Aromatic Herb Products vs. Income Tax Officer 147 ITD 86 (Del) (ix) Madhu Jayanti International Ltd. vs. DCIT 137 ITD 377 Kolkatta (SB) (x) Shree Bhavani Minerals vs. CIT, I.T.A. No.68/PNI/2013 (Goa) (xi) Fiberfill Engineers vs. ACIT, I.T.A. No.1853/Del/2015 (xii) Aspinwall & Co. Ltd. vs. CIT [2001] 251 ITR 323 (SC) 5.3 Learned counsel for the assessee vehemently contended that if this Tribunal wants to verify whether the product or the article produced by the assessee is different from the raw material having the different market value and which cannot be reconverted into the raw material, this Tribunal can....
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....olide 100% 2.1 9 Hexyl Cinnamic Aldehyde 1.7 10 Hedione 0.4 11 Indole 2.5 12 Linalool 6.1 13 Methyl Anthranilate 2.8 14 Folione 0.015 15 Phenyl Ethyl Alcohol 1.7 16 Sandela 2 17 S Absolute 0.1 5.6 The chemical engineer has also brought the small bottle showing the fragrance and the smell of the product which were handed over to Learned D. R. On the basis of the demonstration held before us, we noted that the product being produced by mixing the various chemicals is entirely different from the raw material. Its usage as well as the utility is different. It cannot be converted again in the same form of the raw material. It has resulted in the transformation of the object or the article which is entirely new and distinct having a different name, character and use. We noted that the provision of section 80IC was inserted in the statute by the Finance Act, 2003 with effect from 2004. Section 80IC nowhere defines the word 'manufacture' or 'production' of an article. We noted that the word 'manufacture' or 'production' of an article or thing has also been used u/s 80IA as well as u/s 10B of the Act. Section 10B defined the word 'manufacture' for....
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.... fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, reengineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining". 5.9 This definition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) 'Manufacture' shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. 5.10 As per the said definition 'process' is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defining the expression "manufacture" as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a)Resulting in transformation of the object or article or thing into a new an....
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....ed out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what process is utilized for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions. 5.12 Thus, the Hon'ble Supreme Court accepted that there is change in chemical compositions after processing of the iron ore. From the said decision of the Apex Court, it is apparent that Hon'ble Apex Court held even blending of iron ore for the purpose of export involves change in the chemical and physical composition of iron ore. If we look to the facts of the impugned case of the assessee, we find that the assessee is mixing various chemicals either in liquid or solid form by applying a predeterm....
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....facture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." 5.14 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". For the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production' since ore is 'a thing', which is the result of human activity or effort. 5.15 According to Webster International English Dictionary, the verb "produce" means to bring forward, beget, etc. The juxtaposition of the word "manufacture" with 'agriculture&#....
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....ds of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore. Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case [10 STC 500 (Bom HC)] and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case [10 STC 500 (Bom HC)] as laying down the correct law. When different brands of tea were mixed by the assessee in Nilgiri Tea Company case [10 STC 500 (Bom HC)] for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavor than the different brands of tea which went into the mixture. There are, it is true, some observations in t....
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....ions were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is 'processing'. (iii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes "processing". 5.18 Therefore, Hon'ble Supreme Court, in construing the expression "processing" allowed the appeal of the assessee, in Chowgule & Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity within the meaning of Central Sales Tax Act, 1956. Hon'ble Supreme Court, in the said judgment, did not consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering th....
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....the ground that products exported were not produced or manufactured in the industrial units of the assessee's 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee's case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under: "The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word "manufacture" which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of "manufacture" contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of the counsel for the assessee is that the purpose of removal of the definition of....
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....ved by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders "Manufacture/Producer" of the tea for the purpose of Section 10A/10B of the I.T. Act, 1961?" 5.23 The brief facts in the case of Madhu Jayanti International Ltd. in ITA No. 1463/Kol/2007 were that the assessee was engaged in the business of manufacturing, processing, exporting and dealing in various commodities, more particularly tea, coffee, jute, pepper, chillies, cardamom, turmeric and similar other spices, etc. The assessee, as per the claim is a 100% EOU within the meaning of section 10B of the I.T. Act, 1961 and claimed exemption under that section. The assessee buys tea from auctions held in Tea Board recognized Auction centres at Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auc....
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....nd mining". In Exim Policy, the expression "manufacture" is defined, in paragraph 9.30 & 9.31 thereof almost in the same manner as in the Special Economic Zone Act, 2005, which is as under: "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing and labeling. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea : manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribu....
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....0.94%), Packet Tea and Tea Bags .(99.06%),. as. per different descriptions, brand names and varieties, as listed APR. Assessee Company is duly registered as a 100% EOU by the Government of India, Ministry of Industry, Department of industrial Policy and Promotion Secretarial for Industrial Approvals, ECU Section in the state of West Bengal for manufacture of Packet Tea, Tea Bags/Bulk Tea with annual capacity of 3110 Mt. in terms of Registration Certificate dated 26th December, 1995, inter alia, with the condition that its 100% production (excluding rejects not exceeding 5%) would have to be exported and that its registered EOU Unit shall make value addition to a minimum extent of 79%. Undisputedly, the exported consumer products, blended by Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India. The subject for consideration under sections 10A and/or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ & SEZ are....
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....or export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee's 100% EOU, it would defeat the very object of sections 10B of the Act. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word "manufacture" as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from ....
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....des 'processing'. Therefore, following the decision of Kerala High Court in the case of Girnar Industries and Tata Tea Ltd. (which was discussed by us in the preceding paragraphs) held that the assessee is entitled for exemption u/s 10B of the Act on account of blending of tea. 5.25 We have also gone through the decision of Hon'ble Supreme Court in Indian Cine Agencies Vs CIT 308 ITR 98. In this case the question before the Hon'ble Supreme Court was: When the assessee was engaged in the activity of cutting jumbo roll films into flat and small rolls in desired sizes, whether such activity undertaken by the assessee was manufacture or production? In this case, the Hon'ble Supreme Court after discussing various cases, the provisions of different Acts and the dictionary meaning took the view that the assessee was engaged in manufacture / production. While holding so under para 12 of its order, Hon'ble Supreme Court has given the same analogy for the purpose of eligibility of deduction under section 80HH and 80-I as has been given by the Kerala High Court in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no man....
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....isastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961." 5.27 In this case also, Hon'ble Supreme Court took the view that cutting and polishing of the marble blocks is the activity which constitutes 'manufacture or production' as after processing marble block no more remains as marble block. This decision has also duly considered, in our opinion, whether the activity of processing is manufacture / production. 6. In view of our aforesaid discussion, we hold that the assessee is engaged in manufacturing and production of an article and therefore, the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion, no illegality or infirmity is found in the order of CIT(A....
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....g unless such a construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. Their lordships further invoked "Golden Rule" of interpretation that the words of a statute must prima facie to be given their ordinary meaning. We find it very much relevant at this stage that their lordships yet another judgment in Smt. Tarulata Shyam vs. CIT (1977) 108 ITR 345 (SC) also made it clear that it is the fundamental rule of taxation that where there is no scope for importing into the statute words which are not there, such an important word would be not to construe but to amend the statute. And also that even if there is any casus omisus, the defect can be remedied by the legislation alone and not by judicial interpretation. 12. We keep in mind all these settled legal principles to avert to the taxpayer's impugned section 80IC deduction claim. There is hardly any dispute by now that it has manufactured "pan masala" in its specified unit situated in Sikkim state. Its claim throughout was that "pan masala" is covered in 7th item Part-B in the Fourteenth Schedule (applicable for the state of Sikkim) to be "Food....
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....ereto describing very categories of tobacco products to be not eligible for section 80IC deduction. We conclude in these peculiar facts and circumstances that the assessee's impugned claim fails to clear the rigor of the above negative list in Thirteenth Schedule Part-1 Item No. 1 applicable for Sikkim. We further are of the view that an item covered in the negative list cannot be held to have been simultaneously included in the positive list as such an interpretation would lead to absurdity in interpretation of the two limbs of section 80IC deduction provision. We accordingly restore Assessing Officer's action making assessee's deduction claim of Rs.436,98,608/- in lead assessment year 2007-08. 4. Mr. Banerjee vehemently contends during the course of hearing that the Revenue has not filed its appeal after annexing form no. 35 and statement of facts. His further case is that section 80IC deduction issue does not emanate from the Revenue's grounds. We find no merit in this technical objection as both form no. 35 as well as statement of facts form part of record before us in the instant case file. It further transpires that the above stated grounds sufficiently seek ....