TaxTMI 
TaxTMI 
2013 (9) TMI 1249
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....k Products (P) Ltd can be considered as a Small Scale Industrial Unit u/s 80IB or not. 3. The facts relating to the cases are stated in brief. Both the assessees are engaged in the business of extraction of granite boulders from hills and producing granite aggregates of different sizes by crushing them through mechanical process. M/s Poabs Rock Products (P) Ltd claimed deduction u/s 80IB of the Act in both the years under consideration. Deduction u/s 80IB(3)(ii) is allowed to a small scale industrial undertaking for certain number of years, if it begins to manufacture or produce articles or things or to operate its cold storage plant (not specified in sub-section (4) or sub-section (5)) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2002. The said claim was rejected by the AO in assessment year 2008-09 on the grounds that; (a) the activity carried on by the assessee would not fall under the definition of "Manufacture" as given u/s 2(29BA), which was inserted by the Finance Act 2009 w.e.f. 1.4.2009. and (b) the assessee has failed to produce SSI certificate valid for the FY 2007-08 relevant to the assessment ....
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....ssessee in the case of M/s Poabs Rock Products (P) Ltd in assessment years 2006-07 & 2007-08 in ITA Nos. 574 & 575/Coch/2010 that the activities carried on by the said assessee is Manufacturing activity eligible for deduction u/s 80IB of the Act. The Tribunal had also expressed the view that the definition of "Manufacture" inserted in sec. 2(29BA) by Finance Act, 2009 w.e.f. 1.4.2009 shall not apply to assessment years 2006-07 and 2007-08. Accordingly, the Ld CIT(A), by following the Tribunal's decision (referred supra) held that the activity carried on by M/s Poabs Rock Products (P) Ltd amount to "manufacture" for assessment year 2008-09. However, he upheld the rejection of deduction u/s 80IB on the ground that the assessee could not file valid SSI certificate and hence it cannot be regarded as a Small Scale Undertaking for the purposes of section 80IB of the Act, which was one of the conditions for allowing deduction u/s 80IB of the Act. 6. Both the assessees had filed appeals before Ld CIT(A) for the assessment year 2009-10. Since the definition of the word "manufacture" was introduced in sec. 2(29BA) w.e.f. 1.4.2009, the Ld CIT(A) examined the....
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....year 2009-10, even though the AO had not cited that reason. Accordingly, the Ld CIT(A) upheld the rejection of claim of deduction u/s 80IB in the hands of M/s Poab Rock products (P) Ltd in both the years under consideration and also the claim of additional depreciation in the hands of M/s Poab Granite products (P) Ltd in assessment year 2009-10. Aggrieved, both the assessees have filed these three appeals challenging the orders passed by Ld CIT(A). 7. The Ld Counsel for the assessee submitted that the activities carried on by the assessee has been held to be "manufacture" by the Hon'ble Tribunal in the earlier years. Hence, the tax authorities are not justified in holding that the very same activity cannot be considered as "manufacturing activity", in terms of definition of the word "manufacture" inserted in sec. 2(29BA) of the Act. Referring to the definition given in that section, the Ld Counsel submitted that the meaning of the word "manufacture", already explained by the Courts have only been codified in the definition. Ld Counsel submitted that the assessee is manufacturing granite aggregates of different sizes, viz., 1-½&quo....
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....al year 2000-2001. The A.R submitted that the assessee had filed the audit report in Form No.10CCB for both the years as prescribed in 80IB of the Act. The AO refused to recognize the provisional SSI certificate and also did not consider the Audit report. He submitted that the tax authorities are not correct in disregarding the above said documents and also in insisting upon a SSI certificate for the years under consideration, which is not required under the Act. 8. On the contrary, the Ld D.R submitted that the word "Manufacture" was not defined in the Act in earlier years, when the Tribunal rendered its decision in the assessee's own case for earlier years. Now the word "manufacture" has been defined in sec. 2(29BA) of the Act. The said section was inserted by Finance Act, 2009 w.e.f. 1.4.2009. The Ld CIT(A) has pointed out that the activities carried on by the assessee do not fall under the said definition and hence he has denied deduction u/s 80IB of the Act and also the additional depreciation u/s 32(1)(iia) of the Act. The Ld CIT(A) has also pointed out that all the case law relied upon by the assessee have been rendered prior to the insertion of the ....
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....sary that the activity of a person should fall under both clause (a) and clause (b). 12. Before proceeding to examine the applicability of sec. 2(29BA) to the activities carried on by the assessee, we feel is apposite to discuss certain case law, which we consider as relevant in this case. Before us, the Ld A.R placed reliance on the decision of Hon'ble Rajasthan High Court in the case of Arihant Tiles & Marbles (P.) Ltd. (supra). The assessee therein was engaged in activity of sawing of marble block into slabs and tiles and marketing them in indigenous as well as foreign markets. It claimed deduction u/s 80IA as an industrial undertaking which "manufactures or produces" articles or things. The High Court was asked to consider following questions:- "(1) Whether the expression "production" used under section80IA/80IB of the Income tax Act, 1961 in which both expressions "manufacture" and "production" have been used whether they have been used as synonyms with each other or the word "production" has a wider meaning than "manufacture" so as to include within its purview, an activity, which may not amount to manufa....
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.....2 With regard to the second question, the Hon'ble Rajasthan High Court considered the decisions rendered by the Hon'ble Supreme Court and other High Courts and held that the activity of cutting of granite/marble block into usable slabs or tiles is a manufacturing activity. The relevant discussions are extracted below:-. '14. Karnataka High Court in CIT v. Mysore Minerals Ltd. (2001) 166 CTR (Kar) 142 : (2001) 250 ITR 725 (Kar) was considering whether the activity of cutting granite blocks into slabs and sizes and polishing them falls within the purview of s. 32A of IT Act, 1961 so as to allow the machinery used for such activity eligible for investment allowance and whether it also becomes eligible to deduction under s. 80-I which is available to 'industrial undertaking engaged in manufacturing or production of goods'. The Karnataka High Court opined as under: "Sec. 32A refers to investment allowance on plant and machinery. Plant and machinery should be used in manufacture or process of any article or thing and it should be of an industrial undertaking. There are a number of conditions mentioned in the section. In order to find out whether a particular....
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..... 33(1)(b)(B) shows that mining of ore is stated to be production. Thus the decision of Karnataka High Court affirmed by the Supreme Court deals with the same commodity and same expression in the same enactment with which we are concerned and clinches the issue in favour of the appellant. 16. We also find that even under the IT Rules, 1962 assessee under s. 44AB r/w r. 6G is required to furnish report of audit of his accounts and also required to furnish statement of particulars in Form No. 3CD provided under the rules which include furnishing information about the nature of business carried on by the assessee in Part B of the Annexure to be appended to the statement of particulars in which the 'marble and granite' has been classified under the manufacturing industry sector. Thus, for the purpose of income-tax, under the rules, marble and granite industry has been considered to be manufacturing industry. Under the rules governing the compulsory audit in respect of various businesses also, marble and granite industry has been included in the sector of manufacturing industry. This goes to show that so far as the authorities under the income-tax entrusted with the task o....
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....ntion has been rejected by the Supreme Court. 20. It is apparent that the aforesaid judgment is founded on the ground that the commodity in Best Chem's case (supra) being different than what was in the case in hand, the judgment was rightly distinguished. The Supreme Court was not examining the issue about the fact whether the business of mining of limestone and marble blocks, thereafter cutting and sizing the same before it is sold in market is manufacturing or production, as the case may be. Apparently, the earlier decision of the Supreme Court in Chowgule & Co. (P) Ltd. v. Union of India & Ors. (supra) in which the activity of mining was held to result in production of goods, and the later judgment of Supreme Court in CIT v. Sesa Goa Ltd. (supra) with the equal strength of Judges constituting the Bench had taken different views by examining the issue directly and in the process of affirming the aforementioned judgment of Karnataka High Court in Mysore Mineral's case (supra), wherein, the activity of converting marble block, which is not usable as such, into slabs and polishing them and making it marketable commodity was held to be manufacturing activity……....
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.... purposes as such until it is cut into different sizes to be used as building material. It is only by the process of cutting the marble block into slabs and tiles that it is made marketable. The marble block cannot be used for the same purpose as the marble slab or tile can be used and after the marble block has been cut into different sizes, the end product by putting it simultaneously cannot be used as a block. The principle in Kores India Ltd's case (supra) supports the contention of appellant….. 27. As a result, we hold that the decision of Supreme Court affirming the decision of Karnataka High Court in Mysore Minerals Ltd's case (supra), upholding cutting of granite/marble block into usable slabs or tiles is a manufacturing activity, governs the facts of present case, as directly arose and considered under the provisions of Income tax Act, with which we are concerned, hence, appeals deserve to be allowed.' 13. The revenue challenged the decision rendered by Hon'ble Rajasthan High Court in the above cited case by filing appeal before Hon'ble Supreme Court. The Hon'ble Apex Court considered the issue of "manufacture" vis-à-vis t....
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....61 by inserting s. 2(29BA) vide Finance Act, 2009, w.e.f. 1st April, 2009. 8. We quote herein below the relevant provisions of s. 2(29BA) as also the relevant provisions of s. 80-IA(2)(iii) of the IT Act, 1961 : "2(29BA) '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 or integral structure;" "80-IA(2)-(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India." 9. The authorities below rejected the contention of the assessee(s) that its activities of polishing slabs and making of tiles from marble blocks constituted "manufacture" or "production" under s. 80-IA of the IT Act. There was difference of opinion in this connection between t....
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....to be an activity of manufacture or production. The activity of conversion into lime and lime dust, according to this Court, in the case of Lucky Minmat (P) Ltd. (supra) certainly constituted a manufacturing process. It was clarified in the said case that mere mining of limestone and marble and cutting the same before it was sold will not constitute "manufacture" or "production" but conversion into lime and lime dust could constitute the activity of manufacturing or production. This distinction has not been taken into account by the Department while rejecting the claim of the assessee(s) for deduction under s. 80-IA of the IT Act, 1961. 12. There is one more judgment of which Shri Bhattacharya, learned Addl. Solicitor General, appearing on behalf of the Department, has placed reliance. That is the judgment of this Court in Rajasthan State Electricity Board v. Associated Industries & Anr. AIR 2000 SC 2382. In that case, the only question that arose for consideration was whether pumping out water from the mines came within the meaning of the word manufacture, production, processing or repair of goods so as to claim exemption from duty under notifications issued ....
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....In the present case, we are not considered (sic-concerned) with such activity. Therefore, in our view the judgment of this Court in Rajasthan Electricity Board (supra) has no application to the facts of the present case. 14. In the case of Aman Marble Industries (P) Ltd. v. CCE 2003 (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 s. 80-IA of the IT Act, 1961, which, as stated hereinabove, 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 (P) 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&quo....
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....that the assessee was entitled to deduction under s. 32A of the IT Act, 1961, in respect of machinery used in mining activity ignoring the 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 s. 32A(2)(b)(iii) of the IT Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under s. 32A of the IT 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 (supra) saying that the High Court's opinion was unimpeachable....
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....eyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of s. 80-IA of the IT Act, 1961.' 13.1 It is pertinent to note that the Act has inserted the definition of the word "manufacture" in sec. 2(29BA) of the Act with effect from 1.4.2009. But the Act does not give any definition to the word "production". It was held by the Hon'ble Supreme Court that the word "production" is wider in ambit and it has a wider connotation than the word "manufacture". It was held by Hon'ble Supreme Court in the case of CIT v. Sesa Goa Ltd. (supra) that while every manufacture can constitute production, every production did not amount to manufacture. In the said case, it was held that extraction of iron ore and the various processes would not constitute 'manufacture', but constitute "production". It is seen that it has been consistently held that the word "production" is wider in its scope....
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.... to be the same commodity or become a different commodity. The Apex Court held as follows : "6. It is clear on an application of this test that processed or frozen shrimps, prawns and lobsters are commercially regarded the same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are in common parlance known as shrimps, prawns and lobsters. There is no essential difference between raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. The dealer and the consumer regard both as shrimps, prawns and lobsters. The only difference is that processed shrimps, prawns and lobsters are ready for the table while raw shrimps, prawns and lobsters are not, but still both are, in commercial parlance, shrimps, prawns and lobsters. It is undoubtedly true that processed shrimps, prawns and lobsters are the result of subjecting raw shrimps, prawns and lobsters to a certain degree of processing but even so they continue to possess thei....
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....ig boulders and such produce retain the basic metallic attributes or properties of stone, it cannot be stated that the resultant product of 'Bajri' or 'Gitti' would be one and the same as the block of stones/big boulders unearthened or excavated from earth/mines. When bigger stones and boulders are cut and shaped into specified shapes and sizes in crushers or manufactured into ballast, metal or 'Gitti' or 'Bajri', in our view, there certainly takes place the required transformation in stone boulders and in substance a different commercial article fit for construction of roads, houses, bridges and dams are produced." 10. A Division Bench of the Madras High Court in CIT v. Sacs Eagles Chicory (2000) 164 CTR (Mad) 455 : (2000) 241 ITR 319 (Mad) dealt with the issue as to what is 'manufacture'. In the case before the Madras High Court, chicory roots were being roasted and then changed it into powder form. The question was whether this amounted to manufacture within the meaning of IT Act. The Madras High Court held as follows : "The fact that the chicory powder is used for consumption in combination with coffee powder does not make t....
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....ant and found that the process of coffee into roasted coffee went through nine processes. Firstly the coffee was dried in the sunlight. Then the outer husk of the coffee been was removed, if necessary, by mechanical operation. The coffee seeds were then extracted and polishing was done. Thereafter, gradation was done where the good coffee was separated by mechanical as well as manual grading. The Court held that net product is absolutely different and separate from the input. The apex Court held as follows : "Adverting to facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognized in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product. The submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the ma....
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....evenue. Accordingly, all the questions are answered in favour of the assessee and against the Revenue.' Thus it is seen that the Hon'ble Himachal Pradesh High Court has held that the stone crushing activity resulting in conversion of stone boulders into grit (stone concretes) amount to manufacture. 15. The activities carried on by both the assessees herein have been narrated as under by the assessee before the tax authorities in the case of Poabs Rock Products (P) Ltd. (a) Holes are dug in rock deposits using Mechanical devices and the said holes are filled with explosives for carrying blasting. (b) Rock boulders so obtained are sized using Rock breakers for making the boulders into uniform sizes. (c) The boulders are fed into the Primary Rock Crushers and thereafter to the secondary rock crushers. (d) The crushed aggregates are sieved using a mechanical screen to segregate the aggregates into various sizes. (e) The aggregates so segregated are transferred to overhead hoppers for delivery. In the case of Poabs Granite Product (P) Ltd, the activities are explained in a detailed manner as under:- 1. Digging holes using jack hammers and air compressors and blast....
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....) Ltd. case (supra) would fall under both the category, viz., "manufacture" or "production". In the instant case also, the assessees are engaged not only in extracting boulders, but also converting them into granite aggregates, commonly called "metals", sand, dust. 17. At this stage, we would like to refer to the decision rendered by Hon'ble Supreme Court in the case of Kores India Ltd. v. CCE 2004 (174) ELT 7 (SC), which was referred to by Hon'ble Delhi High Court in the case of Arihant Tiles & Marbles (P.) Ltd case (supra). The Hon'ble Supreme Court in the case of Kores India Ltd. (supra) has held that the activity of cutting of jumbo rolls into type writer/telex rolls was manufacturing activity on the reasoning that the jumbo rolls as such could not have been used as ribbons in typewriter and vice versa and they are not interchangeable. It is to be noted that the "typewriter ribbon" had different name, character and use in the common parlance. In the instant case also the metals and sand are obtained from rock boulders, but they have different name, character and use in the common parlance. 18. We have already noticed that th....
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....e manufactured by using cloth materials. Even after conversion, the cloth remains as cloth in the garments. In that situation, it cannot be said that there is no change in "character", though there is change in the name and use. Similar is the position, when stainless steel sheets are converted into utensils. Accordingly, in our view, the expression 'character' has to be understood as "commercially different product having distinctive features". 21. In the instant cases also, granite boulders are extracted from hills and then they are converted granite metals, sand and dust, after undergoing the process indicated above. These activities certainly results in emergence of a new and distinct commodity, having different name, character and use. The original block does not remain the granite block, it becomes metals of different sizes or sand or dust. In the circumstances, in our view, there are manufacturing as well as production activities in the instant cases in terms of s. 80-IB of the IT Act, 1961. Accordingly, we set aside the orders of tax authorities on this issue. 22. The next issue is whether furnishing of SSI certificate is mandatory for the purp....