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TaxTMI 
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2019 (10) TMI 1001
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....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 October, 2004, declaring the total income of Rs. 19,04,308/....
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.... 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 not "manufacture". According to Mr. Patel, all that the assessee is....
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....xy 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 manufacturing of the CCGL on domestic sales. He would submit that if it is the case of the Revenue that the activity, referred to above, does not amount to manufactur....
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....inab 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. (XI) The Allahbad High Court, in the case of CIT vs. Shiv Oil & Dal Mill, (2006) 281 ITR 221; 153 Taxman 27; has held that refining of oil amounts to manufacturing. (XII) This High Court, in the case of CIT vs. Prabhud....
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....eld 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 Court has observed as under; "3. In Black's Law Dictionary, (5th Edition), the word 'manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use f....
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....acture' 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 where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between 'proces....
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....ed 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 by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, 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 in the Oxford English Dictionary as meaning "amongst ot....
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....les 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 feature film, includes any of the activities in respect of the making thereof. (Cine Workers and Cinema Theatre Workers (Regulations of Employment) Act (50 of 1981) S.2(i). The word 'production' may designate as well a thing produced as the operation of producing; (as) production of commodities or the production of a witness. 'Manufacture' includes any art, process or manner of producing, preparing or making an article a....
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....es 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 exact position of the Excise Department in respect of CCGL Export. The relevant portion of the ITAT order is reproduced under: We have heard both the sides. We have also perused the material place before us. According to us, this technical question about the manufacturing activity cannot be decided merely on the basis of certain documentation. To appreciate the correct factual position, it is always advisable to personally watch the process of manufacturing, if possible. Due to c....
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.... 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 of fact that the assessee as a whole in a manufacturing unit because a deduction was claimed in respect of the items manufactured of Rs. 1,67,47,045/-. But the dispute is only in respect of those sale which have not undergone manufacturing process. Even this argument is not very convincing that the product in question was an intermediary product manufactured by the assessee. In this regard, the Hon'ble Kerala High Court (supra) has examined the process of Lyre manufacturing and then arr....
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....acture", 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 our view, the judgment of this Court in Aman Marble Industries Pvt. Ltd. (supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the Excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut int....
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....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 while every manufacture can constitute production, every production did not amount to manufacture. 16. In our view, applying the tests laid down by this Court in Sesa Goa's case (supra) and applying it to the activities undertaken by the respondents herein, reproduced herein-above), it is clear that the said activities would come within the meaning of the word "production". 17. One more aspect needs to be highlighted. By the said judgment, this Court affirmed the decision of the Karnataka High Court in....
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....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 Supreme Court in Aspinwall & Co. Ltd. vs. Commissioner of Income Tax, (2001) 251 ITR 323 (SC), has observed as under; "11. The short point for consideration is whether the High Court was right in coming to the conclusion that the assessee was not involved in any manufacturing or production activity in the process of curing the coffee. 12. The word manufacture has not been defined in the Act. In the absence of a definition of the word manufacture it has to be given a meaning as is understood in common parlance. It is to be understood as meani....
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.... 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 manufacturing activity disentitling the assessee to the investment allowance provided under Section 32A of the Act. " 21. A Coordinate Bench of this Court in the case of Commissioner of Income Tax vs. Alfa Lamination, (2010) 329 ITR 348 (Guj.), has observed as under; "There is no dispute on facts, in as much as it is an accepted position between the parties that the assessee Company is engaged in making CRGO Core Lamination or Transformer Core, a vital component of various kinds and types of transformers used in power distribution. As already noted, the Core Lamination is made by ....
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....ically 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 process is down as per the mill's specification at a temperature of 820' for 72 to 90 seconds depending upon the thickness and grade of material. This process of annealing is to restore and improve the magnetic and electrical properties of lamination. VI-TESTING OF LAMINATION : After annealing, the laminations are physically inspected for technical details. They are verified to ensure that they are as per customer's drawings and specifications. Key aspects like length, width, thickness, mitering, holing, notching and physical appearances are verified and examined during this process. The verification is done by ....
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....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 department follows the Pyramid style of packing the laminations which is advantageous during core assembly. 9. Admittedly, the majority opinion has recorded that the aforesaid activities in cases of some assessees are without the process of annealing but the said fact by itself does not make any difference. The majority opinion, as expressed by the Third Member, in his order, reads as under: .... Looking to these facts, there cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes. I also find that there was no dispute that the raw material from which the core is made is called CRGO coils whereas the ....
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....formed. 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 view expressed by the experts. 11. In light of the aforesaid findings of facts recorded by majority of the members of the Tribunal, the Court is of the opinion that it cannot be said that any substantial question of law is involved. Whether a particular activity amounts to manufacture or not would always be a question dependent upon the facts and evidence on record and would be based on the facts of each case. The only issue which would call for an inquiry is as to whether correct tests have been applied after finding the facts on record. The tests to ascertain whether an activity amounts to manufacture or production of an article or thing have been laid down and reiterated by various....