TaxTMI 
TaxTMI 
2018 (8) TMI 1797
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....orities have returned back the same unserved with the remarks "mills closed". We thus proceed ex parte against the assessee 2. The Revenue's identical pleadings qua its first and foremost substantive grievance in these five appeals challenges CIT(A)'s action(s) reversing the assessment findings disallowing assessee's claim of section 80IC deduction claims involving figures of Rs.436,98,601/-, Rs.32,43,234/-, Rs.80,97,963/-, Rs.57,051,53,98, Rs.19,38,38,674/-;(assessment year-wise) respectively, as deleted during the lower appellate proceedings. The Revenue states very fairly that at the outset that all the relevant fact qua the above sole issue are identical in these five assessment year(s). We therefore treat ITA 1962/Kol/2016 for assessment year 2007-08 as the "lead" case. 3. We now come to relevant facts. The assessee stated to be engaged in manufacturing and trading activities. The relevant manufactured items is "pan masala". The Assessing Officer issued section 148 notice dated 03.03.2014 after forming reasons to believe that the instant taxpayer's business activity neither amounted to manufacture nor production of any article or thing u/s 80IC(2) and therefore its corre....
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....s. Case file suggests that all this failed to evoke Assessing Officer's concurrence. He observed first of all that assessee's grinding activity in so-called manufacturing of "pan masala" stood excluded in the above "item 7 (supra). He then referred to Central Excise Department's notification dated 25.04.2007 prohibiting "pan masala" manufacturing in "Sikkim" vide its notification dated 25.04.2007 with effect from 01.04.2007. The Assessing Officer further held that "pan masala" could not be treated as a food item in view of National Food Processing policy specifying various projects namely fruits and vegetables, fisheries, meat and poultry products milk, diary, Brewesy items, consumer industry's major products & plantation major products. He took note of the legislative developments incorporating section 80IE of the Act with effect from 01.04.2007 specifically excluding the above corresponding manufactured items in the relevant list. 7. The Assessing Officer further went for a very comprehensive and detailed discussion on manufacturing aspect of the issue. He observed that the same had to involve inter alia production of article from use of raw material by giving such material of....
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....t is in business of manufacture of Pan Masala (Mouth Fresheners) and Wrist Watches? 1. I find that the Appellant Firm has produced all the relevant records and in some cases twice and thrice and also in Originals not only to the AO but also to the Appellate Authority. Based on the records I find that the Appellant firm is having valid registrations with A. Central Excise Department B. Sales Tax and VAT Department of the Govt of Sikkim. C. Registration under the relevant provisions of the Industries Act (DIC) of the Govt of Sikkim D. Service Tax Registration All the above registrations are valid and are effective form the date / year of manufacture viz 2006. C. I find that Gazetted Officers of the Ministry of Finance, Central Board of Excise and Customs have made sworn affidavits before the Hon'ble High Court of Sikkim certifying and confirming that the Appellant firm was engaged in the Manufacture of Pan Masala and Wrist Watches from the inception of the firm and also in the AY in question. D. Be that as it may be, the Apex Court in Arihant Tiles & Marbles Pvt. Ltd. case ([2010] 186 TAXMAN 439 SC) by a Thre....
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....om the Revenue side. We thus hold that assessee has indeed manufacture "pan masala". This tribunal's co-ordinate bench decision in DCIT vs. M/s Khushbu Industries ITA 371/Lkw/2016 decided on 19.10.2016 has declined Revenue's similar argument in identical fact as follows:- "4. The second ground taken by the Revenue relates to the claim of the assessee u/s 80IC, which was disallowed by the Assessing Officer but allowed by the CIT(A). The facts relating to this ground are that the Assessing Officer found that there had been search in the case of the assessee and during the course of search conducted at the residential and business premises, the statement of the employee of the assessee was recorded. The Assessing Officer, on the basis of the statement, took the view that the assessee was not doing any manufacturing or processing activity. It was only mixing and repacking various ingredients and selling these in the market. The Assessing Officer was not convinced with the reply of the assessee therefore, he took the view that the assessee has not complied with primary condition as given u/s 80IC of being engaged in manufacturing or processing. The Assessing Officer therefore, ....
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....lant is explained as under - The process of manufacture involves, melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is a proper reaction amongst the products to produce a distinct flavor or fragrance. It may be 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 0.1% to even 50% of the constitution of finished goods. The raw materials have to be added in a proper chronological manner and a proper formulation without which the finished goods cannot be produced. 6(6)(ii) Some of the features explained by the appellant outline the following significant characteristics - * Mixing has to be done at controlled temperatures to get the desired chemical reaction. The finished goods are themselves a result of Chemical reactions only. * Several raw materials used by the appellant are hazardous chemicals, which are not per se fit for human consumption or application. However scientifically derived formulations, whereby other chemicals and substances are mixed with such material, such that the hazardous propertie....
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....ise Department. The Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt. Ltd. 320 ITR 79 (SC) has observed that when the activity undertaken by the assessee involves levy of excise duty then to say that the said activity does not amount to manufacture or production under section 80IA of the Act will have disastrous consequences. The appellant has demonstrated that it is engaged in the manufacturing of article and things. It fulfills all the essential conditions for availing deduction under section 80IC of the Act. I therefore direct the AO to allow deduction of Rs. 31,31,98,995/- to the appellant. The appellant gets consequent relief." 5. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below as well as the documents placed before us. The only question before us is whether the assessee is engaged in manufacturing activities to be eligible for deduction u/s 80IC of the Act. The provision of section 80IC although lays down various conditions to be complied with by an undertaking to be eligible for deduction u/s 80IC(3) of the Act but the Revenue did not raise any objection in this regard except t....
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....from as less as 10 to as much as 50 raw materials to manufacture the product. Furthermore, a raw material may have 0.1% to even 50% of the constitution of finished goods. The raw materials have to be added in a proper chronological manner and a proper formulation without which the finished goods cannot be produced. The mixing has to be done at controlled temperatures to get the desired chemical reaction. The finished goods are themselves a result of chemical reactions only. Several raw materials used by the assessee are hazardous chemicals, which are not per se fit for human consumption or application. However, scientifically derived formulations, whereby other chemicals and substances are mixed with the material, such that the hazardous properties are removed, are used by the assessee. Several natural oils and flavors, which may otherwise rot/decay with passage of time, and are in concentrated form are required to be treated and blended with other chemicals etc. so as to render them usable in various type of industries and applications. Mixing cannot be done without proper lab testing techniques and without studying the behavioral pattern of various blends over a period of time, w....
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....y 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 verify the same by visiting the industrial unit of the assessee. After having the discussion with D.R, we decided to call for the demonstration of the manufacturing process of the assessee in respect of one of the item and therefore, the case when it was initially fixed for 14/09/2016 when the detailed argument has taken place, adjourned the case for 15/09/2016 to see the demonstration of two of the products of the assessee i.e. sweet gulab and compound bela. 5.4 On 15/09/2016 the representative of the assessee appeared along with three chemical engineers of the assessee company having different chemicals in small bottles along with the induction and glass jars. The assessee first demonstrated how the sweet gulab is manufactured. The chemical engineer showed us 15 items out of which two were in solid form while 13 were in liquid form. He pointed out that the items brought by him for manufacturing 100 gms of sweet gulab were as under: 1. Aldehyde C 11 Undecylic 0.1....
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....t, 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 the purpose of the said section to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, 'process' was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word 'produce' for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no. 528 dated 16/12/1988 176 ITR ST. 154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the circular. In this circular, CBDT had clearly explained that the said new sec. 10B had been inserted in the statute book with a view to provide further incentive for earning foreign exchange so as to secure that the income of a 100% EOU shall be exempt from tax for a period of five consecutive asses....
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....ax 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 and distinct object or article or thing having a different name, character and use or (b)Bringing into existence of a new and distinct object or article or thing with a different chemical composition spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking." Where therefore any commodity is subjected to a process or treatment with a view to its "development or preparation for the market", as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever 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 c....
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....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 predetermined process and mixing them in a predetermined manner so that out of the mixing, entirely a new product come and its finished product technically after having the process of mixing has different names. There are different chemicals and the items which are being used for different product in a different proportion in a predetermined order of the mixing, as shown to us during the course of hearing and during the course of demonstration of two items, as given by us in the preceding paragraph, both the products manufactured are entirely different from the various chemicals and the items used by the assessee. These items so produced have a different name, different utility and they are being used for different purposes in soaps, detergents, edible items, juices etc. according to the fragrances and taste to be given to these items. These items so produced are different in physical appearance and chemical composition. We do not agree ....
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....sult 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' and 'horticulture' is significant and cannot be lost sight of. The intention in employing the word "produced" obviously was to introduce an element of volition and effort involving the employment of some process for bringing into existence some goods. 5.16 In paragraph 7 of its in the case of Chowgule & C0 (P) Ltd. Vs. UOI (supra), Hon'ble Apex Court also considered the question whether the different brands of tea purchased and blended by the assesses for the purpose producing the tea mixture could be said to have been 'processed', after the purchase, within the meaning of the proviso to section 8(a), so as to preclude the assesses from being entitled to deduct their turnover under section 8(a), so as to preclude the value of the tea purchased by them. The relevant observations made by the Hon'ble Supreme Court in this respective are quoted and set out herein below for ready reference: "7. The Revenue however relied on the decision of the Bombay High Court....
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....hich 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 the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the Assessee, since in the present case the blending was done by application of mechanical force, but we do not think that is the correct test to be applied for the purpose of determining whether there is 'processing'. The question is not whether there is 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' we are clearly of view that the blending of ore in the course of loading through the mechanical ore handling plant amounted to 'processing' of ore within the me....
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.... consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering the judgment of the Bombay High Court in the case of Nilgiri Tea Co. [1959] 10 STC 500, Hon'ble Supreme Court observed that, 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 a qualitative change, in that the tea mixture which came into existence was of a quality and flavor from the different brands of tea which went into the mixture. 5.19 Hon'ble Kerala High Court had the occasion to consider whether assessee is engaged in the manufacture or production of an article or thing when assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285. Hon'ble High court noted in that case that the Revenue's stand is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even....
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....essee is that the purpose of removal of the definition of "manufacture" from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent export oriented unit even after the amendment is retained in the said section, which defines it as an undertaking which has been approved as a 100 per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 40 of the Industries (Development & Regulation) Act, 1951, and the Rules made under that Act. It is pertinent to note the products for which the assessee's unit is recognized as a 100 per cent export oriented unit are tea bags, tea in packets and tea in bulk packs. In fact, the assessee is exclusively engaged in blending and packing of tea for export and is not manufacturing or producing any other article or thing. Still it is recognized as a 100 per cent export oriented unit by the concerned authority within the meaning of that term contained in the definition clause of section 10B of the Income....
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....o the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for al....
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....before making flavour tea In The Tea (Distribution & Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce & Industry (Department of Commerce) the expressions "flavour tea", "green tea" "instant tea", "packet tea" "quick brewing black tea", "tea" and "test bag" have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions "manufacturer", "Buyer", "Packet Tea", "Tea Bag",- "Green Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define 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 and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or articl....
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....heir operations in FTZ, EOU, EPZ & SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Prevention of Food Adulteration Act, 1953 read with Prevention of Food Adulteration Rules, 1955. The Tea (Marketing) Control Order, 2003, The Tea (Distribution & Export) Control Order, 2005 as well as the Rules and Regulations framed by the Tea Board and also Calcutta Tea Traders Association from time to time as discussed above. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act, 2000, the definition of `manufacture' which included '....
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....f the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term `manufacture' under the common parlance, and it includes processing, blending, packaging etc. In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we "hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for....
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....o manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon'ble Apex Court accepted that manufacture/production includes processing also. 5.26 We have also gone through the decision of Hon'ble Supreme Court in the case of ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79(sc). In this case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words 'manufacture or production' in section 80-IA of the Income-tax Act, 1961? In this case, Hon'ble Supreme Court, after discussing the definition of 'manufacture' given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80- IA(2)(iii) and after going through various decisions, held as under: "22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs an....
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....." We adopt the above detailed discussion mutatis mutandis to decline Revenue's first and foremost plea qua "manufacturing" aspect to conclude that the assessee can be safely held to have manufactured / produced its "pan masala" in the specified unit site in Sikkim. 10. Next come the Revenue's latter arguments based on inter-play of impugned section 80IC deduction provision vis-à-vis operation of the restrictive covenant enshrined in Thirteen Schedule's negative list read with positive list of the Fourteenth Schedule (supra) relevant to the specified list of article(s) or thing(s) in issue. We find first of all that hon'ble apex court's latest constitutional bench's decision in Commissioner of Cusoms vs. Dilip Kumar Roy Civil Appeal No.3327 of 2017 decided on 30.07.2018 has gone into a very elucidate discussion on the issue of basic tenets of literal or strict interpretation to be adopted with regard to a taxing statute, their interplay, purposive construction (para 25) as well as application of equitable principles to inter alia conclude that there is no room for intendment in such a fiscal statute and regard must be had to clear meaning of the words and the matte....
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....ndustries, processing, preservation & food packaging of fruits and vegetables (excluding conventional grinding / extraction units). We are of the view that the above item in the positive list is meant to promote food processing including of agrobased industries, processing, preservation & food packaging of fruits and vegetables only. We go by ordinary grammatical meaning of food processing to be " the process by which food is processed for consumption by humans or animals" as per Collins English dictionary therefore. We repeat that the Assessing Officer threw sufficient light as per suitable references; sector-wise, that "pan masala" does not find place in National Food Processing policy as well. The assessee's section 80IC deduction claim therefore fails to satisfy the requisite test of its inclusion in positive list of specified articles or things prescribed in Item No.7, Part-B, Fourteenth Schedule to section 80IC(2) of the Act. It therefore fails to discharge its burden to be covered under the impugned deduction provision as per hon'ble apex court's constitutional bench's ratio hereinabove. 13. It further transpires that the assessee's manufactured item "pan masala" form....