TaxTMI 
TaxTMI 
2019 (10) TMI 1001
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....18 in the ITA No.2183/Ahd/2015 for the A.Y.2004-05. 4. This tax appeal was ordered to be admitted on the following substantial questions of law; "(A) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in allowing the deduction u/s.10B of the Act r.w.t. Export of Copper Cladded Glass expoxy Laminate (CCGL) even though the assessee had not carried out any manufacturing activities qua the said product i.e. CCGL? (B) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in allowing the deduction claimed by the assessee u/s. 10B of the Act without appreciating the fact that there was no manufacturing activities carried out by the assessee which made it eligible to claim deduction u/s.10B?" 5. The facts giving rise to this appeal may be summarized as under; 5.1 The assessee is a hundred percent export oriented undertaking, having its place of business at Plot No.E-8, GIDC, Manjusar, Savli, District: Vadodara. The assessee has been registered as the EOU in the Kandla Free Trade Zone, State of Gujarat. The return of income was filed by the assessee on 30th O....
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....L to the file of the Assessing Officer for being examined afresh keeping in mind the stance of the Excise Department in respect of the export of the CCGL. It appears that the Assessing Officer passed a fresh assessment order under Section 143(3) read with Section 254 of the Act on 12th May, 2014 at Rs. 1,73,72,867/-, thereby disallowing the claim of deduction under Section 10B on the deemed export as well as on the export of the CCGL. 5.8 The assessee went in appeal before the CIT(A). The appeal of the assessee with regard to deduction under Section 10B of the Act came to be allowed by the CIT(A). The Revenue, being dissatisfied with the order passed by the CIT(A), preferred appeal before the ITAT. The ITAT dismissed the appeals preferred by the Revenue and thought fit to grant the deduction under Section 10B of the Act with regard to the export of the CCGL. 5.9 Being dissatisfied with the order passed by the ITAT, the Revenue is here before this Court with this appeal. Submissions on behalf of the Appellant-Revenue: 6. Mr. Varun K. Patel, the learned counsel appearing for the Revenue vehemently submitted that the term "manufacture" implies a change, and every change is....
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....the Store Department for identity and issuance of required material to the production department viz. Copper Gladded Glass Epoxy Laminates. (iv) Raw Material is sent to the Shearing Department. (v) The shearing machine is set for the desired size and the laminates are cut into specified sizes decided by the customer. (vi) After shearing, production inspection takes place where laminates are checked for oxidation effect. (vii) A thorough surface clearing is done to remove the oxidation. (viii) The cut pieces of laminates are checked by the Quality Control Department for final inspection. This department verifies various quality parameters like the thickness of material, thickness of copper using Alco Meter (Copper thickness guage), Micrometer, Measuring Tape, Verifier Caliper and Magnifying glass. (ix) Such inspected laminates are packed by the Packing Department. At this stage, the product is called as CCGL. The same is registered under the Excise and Kandla Economic Zone as "Sorting/Checking/Clearing/Packing/repacking of Copper Gladded Laminates." 10. Mr. Soparkar further submitted that his client is paying excise on the man....
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....jab & Harayan High Court, in the case of CIT vs. HSED Corporation Ltd., has held that the activity of manufacturing of voter identity card amounts to manufacture. (VI) In the case of CIT vs. Zainab Trading (P.) Ltd., (2011) 333 ITR 144; 200 Taxmann.com 91 (Mag.); 11 taxmann.com 355 (Mad.), the Madras High Court has held that the conversion of paper corrugated sheets into paper boxes was held to be manufacturing. (VII) The Supreme Court, in the case of CIT vs. Vinbros & Co., (2012) 210 Taxman 252; 25 taxmann.com 367, has held that blending and bottling Indian manufacture foreign liquor would amount to manufacturing. (VIII) In the case of CIT vs. Emptee PolyYarn (P.) Ltd., (2010) 188 Taxman 188; the Apex Court has held that twisting of yarn amounts to manufacturing. (IX) The Madras High Court, in the case of CIT vs. Balaji Hotels & Enterprises Ltd. (2009) 311 ITR 389; has held that printing of paper labels constitute manufacturing. (X) In the case of India Cine Agencies vs. Dy. CIT, (2012) 210 taxman 253; 25 taxman.com 366; the Supreme Court has held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing....
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..... (XXIII) The Madras High Court, in the case of CIT vs. M.R. Gopal, (1965) 58 ITR 598 (Mad.); has held that the conversion of boulders into stones is a manufacturing. (XXIV) The Rajasthan High Court, in the case of Poonam Chand Prem Raj vs. CIT, (1994) 207 ITR 895; 74 Taxman 521 (Raj.) has held that ginning of cotton is process, thus entitled to deduction. ANALYSIS 14. We have already given a fair idea of the process through which the CCGL undergoes. The Supreme Court in India Cine Agencies vs. Commissioner of Income-Tax, Madras, (2009) 308 ITR 98 (SC) has, in details, clarified the position of law on the subject. In the case before the Supreme Court, the assessee was carrying on business of conversion of jumbo Rolls of photographic films into small flats and rolls in the desired sizes. The assessee claimed deductions under Section 32AB, 80HH and 80-I of the Act. The lower authorities disallowed the claim of the assessee on the ground that the activity undertaken by it was neither manufacture nor production. The High Court of Madras also held that in any event because of Item 10 of the Eleventh Schedule of the Act, no deduction was permissible. The Supreme C....
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.... connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works, Deedwana, Rajasthan (1991 (4) SCC 473). 5. 'Manufacture' is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that, in manufacture something is brought into existence, which is different from that, which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. (See M/s. Saraswati Sugar Mills and others v. Haryana State Board and others (1992 (1) SCC 418). 6. The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point wher....
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....ion within the meaning of Section 32A of the Act. It was inter alia observed as under: "There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after March 31, 1976, in the assessee's industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. -The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to "production" and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996) 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 TTR 185 and CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P.) Ltd, [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. The reasoning given by the High Court, in the decisions noted b....
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....e' 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 residual products, which emerge in the course of manufacture of goods. The expressions 'manufacture' and 'produce' are normally associated with movables articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road and a building. (See Moti Laminates Pvt. Ltd. and Anr. v. Collector of Central Excise, Ahmedabad (1995 (3) SCC 23). " 11. In Advanced Law Lexicon, 3rd Edn. by P. Ramanatha Aiyar, the expressions 'production' and 'manufacture' are described as under: "'Production' with its grammatical variations and cognate expressions; includes- (i) packing, labeling, relabelling of containers. (ii) re-packing from bulk packages to retail packages, and (iii) the adoption of any other method to render the product marketable. 'Production' in relation to a featur....
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..... 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. 16. It appears that in the case on hand, the raw material is first sent to the shearing department. The shearing machine is set for the desired size and the laminates are cut into the specified sizes as required by the customer. The laminates are, thereafter, checked for the oxidation effect. A thorough surface clearing is done to remove the oxidation. The Quality Control Department, thereafter, would verify the quality parameters like the thickness of the material, thickness of copper using Alco Meter etc.. At the end of the entire process, the final product is called as CCGL. 17. At this stage, we may also look into the findings recorded by the ITAT in its impugned order. "The facts of the case ITAT, Ahmedabad vide combined order dated 25.06.2013 for A.Y.2004-05, 2005-06, 2006- 07, 2007-08 & 2008-09 discussed the issue of 'manufacture' at length and has restored the issue of sale of CCGL to the file AO to examine afresh the exa....
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....us-Form A.R.E-I is placed. This is an application or removal of excisable goods for export. The AR has therefore contested that because of the manufacturing activity the excise was levied on the goods exported. However, the basis on which the excise was levied on the product exported has not been clarified. In fact, the assessee is required to clearly specify the specification of the CCGL sheets purchased. The specification such as size of the sheets surface of the sheets and thickness of the sheets are the subject matter of scrutiny. In this regard, an Inspection report can also be procured from a specialized person. The Inspection report which is not part at the matter book only mentioned that oxidation was done on the sheet. Meaning thereby the product in question has only passed the test of cleanliness As we have opined, the process of oxidization can only be held as "processing" and not "manufacturing". an another argument has been raised that, a Central Excise Department has given a registration certificate to the assessee. It has also been mentioned that a certificate has been issued by Kandla Special Zone, Gandhinagar. In this regard, we have noted that there is no denial o....
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.... Tax Officer, Udaipur vs. Arihant Tiles & Marbles (P.) Ltd., (2010) 320 ITR 79 (SC), has observed as under; "13. In the case of Aman Marble Industries Pvt. Ltd. vs. Collector of Central Excise, reported in 157 ELT 393 (SC), the question that arose for consideration was whether cutting of marble blocks into marble slabs amounted to manufacture for the purposes of Central Excise Act. At the outset, we may point out that in the present case, we are not only concerned with the word "manufacture", but we are also concerned with the connotation of the word "production" in Section 80IA of the Income Tax Act, 1961, which, as stated herein-above, has a wider meaning as compared to the word "manufacture". Further, when one refers to the word "production", it means manufacture plus something in addition thereto. The word "production" was not under consideration before this Court in the case of Aman Marble Industries Pvt. Ltd. (supra). Be that as it may, in that case, it was held that "cutting" of marble blocks into slabs per se did not amount to "manufacture". This conclusion was based on the observations made by this court in the case of Rajasthan State Electricity Board (supra). In....
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....fact that the assessee was engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing. The High Court in that case, while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore did not amount to "manufacture". However, it came to the conclusion that extraction of iron ore and the various processes would involve "production" within the meaning of Section 32A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product. The view expressed by the High Court that the activity in question constituted "production" has been affirmed by this Court in Sesa Goa's case saying that the High Court's opinion was unimpeachable. It was held by this Court that the word "production" is wider in ambit and it has a wider connotation than the word "manufacture". It was held that w....
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....n by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961. 20. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognised by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous 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" 20. The Supre....
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.... identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product. 15. Submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 16. For the reasons stated above, we are of the opinion that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans ready for consumption would not be a ma....
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.... AND HOLDING: The fourth step of the process is known as Punching and Holing of limbs and plates. As per customer's drawings and cutting instructions holes are punched on to the yoke plates. The yoke plates are kept under the holing power press machines to achieve the desired position of holes. The position of holes may even be off centre with respect to the longitudinal axis of the limb. During step lap, punching of holes varies according to different sizes of plates. These holes are utilized during bolting and assembling the core lamination. All Limbs/Plates or Laminations: After the above processes, physically all the limbs or plates are prepared, however every single and individual plate is yet to be further processed to restore or improve its quality characteristics. V-ANNEALING : The fifth and one of the most important step of the process is the annealing process. This process is undertaken to de-burr and relieve the stress and strains on the limbs / plates through a roller hearth annealing furnace, CRGO electrical steel and core laminations develop stress, strains and burrs during shipment transit and processing which affects its quality. Annealing proc....
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....uilding, window height, air gapping and other technical aspects are within technical limitations / details. IX-TESTING OF ASSEMBLED CORE : After assembling and building the core, it is mandatory to test and certify the no load losses of the built core. EMCO no load tester measures and ensures that its technical results are within standard limits specified in customer's drawings. The technical staff and testing laboratory are fully equipped to detect and rectify any lapse in the built core. Certificates are prepared by quality department. X-PACKAGING AND FORWARDING : For packing the assembled cores, the whole core is horizontally laid down onto wooded skids then securely wrapped with jute cloth and plastic covers. The core is then strapped tightly to the skids/pallets with steel straps. For packing stacked core laminations, individual limbs/ laminations are packed separately with jute cloth and plastic wrappers, further they are strapped tightly onto wooden skids/pallets. Strapping the final product onto wooden skids ensures and prevents any damaged or disturbance to the material during transportation. Packing lists provided to customers. The Packaging departme....
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....reinabove, cannot be used in a transformer unless all the processes were completed. That after completion of all the processes, CRGO/CRNO coils get converted into transformer core which is the end product which can be used in manufacture of transformer. There is no dispute that due to various processes, the end product, which is an input for the purpose of manufacturing transformer, has a distinct name, shape and use. After the raw-material in the form of CRGO/CRNO Coils and/or sheets goes through all the aforesaid processes, the raw-material looses its identity and a new product comes into existence which is commercially distinct from raw-material on which the processes have been performed. The Tribunal has further referred to various opinions of different experts on the subject and recorded that such technical opinions should be considered on merits, and though not sacrosanct, either the same should be accepted or rejected on merits, but cannot be ignored. That the experts have opined that various activities performed by the assessee for making the transformer core amount to manufacturing activities and nothing was pointed out to take a different view, i.e. different from the vie....