TaxTMI 
TaxTMI 
2007 (6) TMI 230
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....o appeals: "1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not granting opportunity of being heard to the Assessing Officer despite being specifically requested in writing by the Assessing Officer of granting such opportunity, thereby ignoring the basic principles of natural justice as well as denying the right of being heard to the Assessing Officer as provided in section 250(2)(b) of the Act. 2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in adjudicating the issue without providing the findings and evidences recorded by him during his visit to the factory on the basis of which he has granted benefit to assessee, thereby denying revenue to place its point of view on such findings and evidences and thus the same is in contravention of rule 46A of the Rules by considering additional evidences and findings recorded by him without giving opportunity to the Assessing Officer. 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not granting opportunity to make necessary enquiries and cross-examination despite express request by the Assessing....
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....ssessing Officer made in the remand report. 5.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred at para 16 in holding the activity of the assessee as manufacturing on the ground that property of material changes after annealing, ignoring the correct fact that change in property is incidental to cutting, if there is any. 6. On the facts and circumstances of the case and in law, the, learned CIT(A) has erred in stating that the quality and structure of lamination strip improves ignoring the fact that exposing the newly cut CRGO sheet to heat for seconds, only repairs the original damage that occurred to the CRGO material at the time of transporting, handling and cutting. 6.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief on the ground of change in quality ignoring the fact that there cannot be any change in characteristics or quality nor intended to have such change. 6.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief ignoring the fact that such quality and characteristics are inbuilt in the material, fa....
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....f has held that he has not come across any decision of any Tribunal on the issue of transformer core or transformer lamination. 8. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding at para 29 (Para 38 for ITA No. 3373) that the report of the Assessing Officer is factually incorrect despite bringing several decisions to the notice of the learned CIT(A) in the remand report proving that an activity which is manufacturing under other Acts need not be manufacturing under the income-tax Act. 8.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding at para 29(Para 38 for ITA No. 3373) that the Assessing Officer has relied upon decision of Sales Tax and Central Excise, without understanding the correct fact that these decisions were referred to only to understand the term "manufacturing/production" broadly, whereas, the disallowance is deduction under section 80-IB is made by the Assessing Officer in the assessment order only on the basis of decisions related to Income-tax. 9. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in stating at par....
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....nch of the Hon'ble Apex Court in the case of CIT v. Relish Foods 273 ITR is not applicable to the case of the assessee. 12.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred at para 75 in holding that if the view expressed by the Hon'ble Bombay High Court, in the case of Ship Scrap Traders v. CIT 251 ITR 806 is applied to the case of the assessee, then there is no doubt in accepting the activity of the assessee as manufacturing activity. 13. On the facts and circumstances of the case and in law, the learned CIT(A) has erred at para 70 of the appellate order in rejecting the reliance placed by the Assessing Officer on the decisions in the cases of TELCO v. Union of India 89 ELT 36 (Bom.) and Computer Graphics (P.) Ltd. v. Union of India 52 ELT 491 (Mad.) on the ground that these decisions were not brought on record, ignoring the fact that these decisions were specifically brought to the notice of the learned CIT(A) in the remand report. 13.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief relying upon the decision of CEGAT, Special Bench, New Delhi, though the....
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.... held by the Hon'ble Apex Court in the cases relied by the Assessing Officer and heating that does not change any structure or character is not manufacturing as held by the Hon'ble Madras High Court in the case of CIT v. Meenakshi Asphalts [2004] 266 ITR 626. 15. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in agreeing to liberal interpretation of the provisions on the basis of decisions relied upon by the assessee ignoring the decisions of the Hon'ble Apex Court in the cases of CIT v. N.C. Budharaja & Co. [1993] 114 CTR 420 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278. 16. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing benefit to the assessee even after expressly forming a decision at para 50 of the appellate order that he has no doubt that the activity of the assessee is not a manufacturing activity. 17. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief to the assessee by holding that the activity of the assessee is manufacturing." 3. For ITA No. 3373 ground No. 16 reads as under: ....
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....nt end-product emerges which has distinct new marketable product, having different name, classification, end-use and application. The raw material known as CRGO can never be used as such in transformers, without processing them under as above stated engineering process. 6. It is stated that the assessee is required to manufacture the said product as per the designs/drawing and technical specification required by the customer as per their purchase order, which specify mainly following steps and conditions, i.e., (i) Grade, (ii) Core Dimension, (iii) Leg Length, (iv) Lamination thickness, (v) Duct in Core, (vi) Leg Centers and (vii) Total weight, etc. The length and thickness of the core varies from size 22 mm to 800 mm width and 550 mm to 4000 mm length as per the requirements of different customers. The most important condition of the customer is to maintain total watt loss/load loss per kg. and tolerance power in thickness, width and length. In-house software developed by qualified I.T. professionals in assistance of designed personnel are used to assure the reliability and accuracy of design and to incorporate specific requirements of customer, if any and translating their nee....
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....es, employing the following methods of cutting and activities: (a) Testing -wherein, material to be cut is tested. (b) Slitting -wherein, CRGO rolls/coils are cut to required width. (c) Shearing -wherein, it is cut to required length. (d) Notching -wherein, a V shape is cut on sheets. (e) Holing -wherein, a hole is cut on the sheets. (f) Annealing -wherein, the cut sheets are passed through electric furnace. (g) Deburring -wherein, burrs formed on the edges of sheets while cutting is removed. (h) Core assembling -wherein, the cut CRGO sheets of various dimensions are stacked one over the other in a specific pattern. (i) Packing -wherein, it is packed in wooden boxes." 9. He observed that these activities performed by the assessee neither brings about any inherent change in the structure or chemical composition of the original commodity nor does it brings into existence a new commodity. Annealing process performed by the assessee though decreases the iron loss of the core and relieves the laminations of plastic and elastic stresses and improves the conductivity and magnetic value of the transformer c....
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.... transformers as stampings or laminations. In this case, the cut laminated strips can be used only for the purpose of placement as a cave in a transformer and not for any other purpose. It would indicate that the manufacture of this cut strips was with a view to manufacture electrical stampings; that when the manufacture is for particular utility, namely, lamination for transformers, the manufacturing activity would be established. It is the effect of the operations that is mattering for deciding the issue; that there is a substantial and basic change in the product in view of the processes of cutting and the design involved. The steel sheets or strips, which are subject to cutting would no longer be sheets but become stampings or laminations for use in the transformer. Thus, it is a new product compared with a steel sheet or laminated sheets. After cutting to particular shapes, the strips left their character of strips, plane and simple and became laminations or stampings. The strips that have been formed, shaped and worked upon would never be strips again to be used as such. Thus, cutting of the strips amounts to "manufacture". He also observed that, "The annealing process has be....
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....IT(A) held the activity of assessee to be the manufacturing activity. He found that one set of lamination core is having five separate bases, called outer limb plates-two, one middle limb plate and yoke plates-two. As per the specific drawing various such sets are required for the transformer in which, every set is of different size. The assembled transformer core is looks like five pyramids made up of outer limb, middle limb and yoke. It is covered in a water proof sheet and packed. The raw material used by the assessee is called the CRGO coil whereas the product supplied by the assessee to the transformer manufacturers is called transformer core. This name is found place in the sale invoices of the assessee. It is accepted by the Central Excise department and excise duty @ 16 per cent is charged. The same is also accepted by the Sales Tax department as assessment orders were passed by giving benefit of tax-free sales. Thus, he held that there is a change in the name of the final product; that the CRGO transformer core is definitely a new and different marketable article having different qualitative characteristic due to annealing and assembling processes; that the CRGO coil in it....
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....s of the opinion that the term 'manufacture' is differently treated in Income-tax Act and Central Excise Act. If inference has to be drawn from the decisions delivered in Excise Law, then he observed that there is a direct decision of the CEGAT, Special Bench, New Delhi referred to above. 16. As regards the opinion of Shri Ramesh J. Trivedi, the Standing Counsel of the Income-Tax Department, Gujarat sent vide his letter dated 5-5-2004 the CIT(A) stated that there is no provision in the Act, which empowers the Assessing Officer to refer the matter to the Standing Counsel to seek his express opinion. Even, the reference to the Valuation Officer for determining the cost of construction of a property has been annulled by the Supreme Court in the familiar case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 even though, the Valuation Officer is a Departmental Officer on deputation and is a technical hand. How an Advocate by profession, he observed, can decide the issue of manufacturing of a product on which even the High Courts and Supreme Court have not came to a definite and similar conclusion. The reference to the Standing Counsel is against the provisions of law. He, th....
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.... held that the assessee-company was engaged in the manufacturing of transformer core, a distinct and commercially different article. The activity of the assessee-company is, therefore, held to be as "manufacturing activity" and, therefore, the assessee is entitled to deduction available under section 80-IB of the Act and directed the Assessing Officer to allow the deduction as claimed by the assessee. 20. Shri Banwarilal, the learned D.R appearing on behalf of the revenue referred to Assessing Officer's detailed submissions. He contented that the assessee had filed a submission before the CIT(A), based upon which remand report was called for from the Assessing Officer. The remand report, based on arguments put forth by the assessee, was submitted by the Assessing Officer vide letter No. ACIT/VC/Remand Report/AL & NLJ/2004-05 dated 23rd August, 2004. In the said remand report, all decisions relied upon by the assessee were clearly distinguished, in spite of the fact that the assessee could not distinguish any of the decisions relied upon by the Assessing Officer. In the said submission, the assessee had also placed an opinion given in some other cases from Veermata Jijabai Te....
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....ven for minutes. 2. If what has been held by the CIT(A) is correct, then the transformer would fail after a very short time because when transformer is used, it generates lot of heat, which would totally alter the properties of CRGO sheets/laminations therein. However, it is not the case and a transformer works continuously for years together. 3. If annealing can improve the properties as held CIT(A), then why is the assessee purchasing CRGO coils with specific properties for specific transformers, which is tested on Franklin Tester? 4. The learned CIT(A) has held that the heat treatment improves various properties of CRGO sheets but failed to clarify as to whether this change in properties is decided on the difference between raw uncut CRGO coils and annealed CRGO sheets or between cut CRGO sheets and annealed CRGO sheets. In other words, even after his personal visit he has failed to bring on records the fact that the properties of CRGO sheet changes during cutting and that annealing reverts these properties to the original state. 5. Why annealing/heat treatment is done at the last and not in the beginning? 21. On merits, the learned DR reit....
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.... assessee. Comments of the assessee alleged to have not been given to Assessing Officer, is wrong. No copy of the Remand Report was given to the assessee therefore, no comments and consequently there is no question of opportunity to be given to Assessing Officer. On merits he submitted that CIT(A) has inspected the process in the factory along with the Assessing Officer and found that objection of Assessing Officer that employees were handling bare handed, the sheets which passed through 820cc temperature was wrong as the employees were wearing heat proof glause after it came through cooling room having 80-100cc temperature after 4 stages of cooling zone. No such objection was raised in the Report of 21-9-2004. The Bench has also inspected the process. Technical reports submitted by the assessee are not discussed nor relied upon, by CIT(A) even though they provide expert evaluation of things. In any case Assessing Officer cannot have any grievance over that. Standing Counsel's opinion is not a judgment, it can at best be an argument and that has been considered by the CIT(A) and therefore Assessing Officer cannot have an objection. 23. On merits the assessee's counsel re....
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....titute. 25. It is also submitted that assessees are engaged in the business of manufacturing of "Transformer Core" with effect from December, 1999 and in the past it claimed deduction under section 80-IB in respect of the income derived from manufacturing activity, and it having fulfilled the requisite conditions the deduction has been granted under section 80-IB of the Act as claimed by the assessee. Copies of assessment orders for assessment years 1994-95 and 1995-96 as an evidence of this are filed. 26. On 26th May, 2006 the Bench also visited the factory premises at H/1-2 & G-3 Mahatma Gandhi Udyog Nagar Indl. Estate, Dabel, Nani Daman - 396210 for inspection of the process applied by the assessees for making CRGO Core Lamination, in the presence of Addl. Commissioner of Income-tax Shri D.A. Sheldekar, Vapi Range, Vapi, Shri Keshav Prasad, the learned Counsel of the assessee, Shri Varkhedkar, Production Manager of the assessee-firm and Shri Mahendra Parekh. The reports were signed and also given to the parties. It is reproduced hereunder: "2. On entry of the factory of the assessee, we have been given copy of the purchase order from the customers giving reference....
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....s carried out to de-burr and relieve the stress and strains on the limbs/plates through a roller hearth annealing furnace. As per the mill's specification at a temperature of 820 degree for 72 to 90 seconds depending upon the thickness and grade of material. This process of annealing is stated restore and improve the magnetic and electrical properties of lamination. The equipment and machinery used for this purpose are Roller Hearth Furnace and Overhead cranes. This is exhibited in Annexure F. 8. After this process are carried out the lamination sheets are physically inspected and verified to ensure the length, width, thickness, mitering, holing, notching and physical appearances are verified and examined during this process and to certify and verify that the annealing process has restored or improved the magnetic and electrical properties of the lamination, a test is conducted by Franklin Power Tester and Epstein square tester. The other equipments for this purpose are Sokena iron loss tester, Vernier caliper, Micro-meter, Measuring scale. This process is shown in Annexure G. 9. After these processes are carried out core laminations are stacked as per the req....
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....samples are tested at 1.5 and 1.7 tesla. Watt loss is given by the respective parties in their design. As regards the particular value watts loss/different ratings of transformers mainly depends upon the line which is installed by the Electricity Board [11 KBV/22 KV/33 KV]. 15. To explain the process of V-Notching, a question was asked as to what the use of the waste of V-Notching and how the other angles being cut. The answer was from the V-notch angle, small transformer parts can be made which can be used in TV, Computers, Radio, Tubelight chocks etc. The other angles are being cut on shearing machine. 16. With regard to annealing process, a question was asked what is the change due to annealing. The answer is due to this process, burr on edges of raw material will be removed. 17. Regarding assembling the product, a question was asked whether the laminations assembled will be dismantled by the respective parties. The answer was 'no'. The respective parties remove the top yoke and put the copper coils on the three limbs and then put the top yoke." 27. From revenues side, the following comments are stated with regard to the inspection: ....
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....rial. The electrical properties of the material are well integrated into it, when companies like SAIL manufacture it. Thus, in order to bring the grain orientation to normalcy, which was disturbed while handling the material, heating is done by some process? Not all of them do heating or named as annealing. Annealing or Heating enables the material to revert to its original property, which was minutely disturbed while cutting. Heating or Annealing done by the assessee means passing the CRGO sheets through electric furnace for a few seconds. It is a scientifically established fact that unless and until heat is substantially absorbed; there can be no structural change. The annealing done by the assessee only regularizes the disturbed orientation of silicon grains on the surface of the material. The furnace of the assessee is such that it has a conveyor belt, which runs constantly. The CRGO sheet is put on the conveyor belt and in few seconds, the CRGO sheet comes out from the other end. Real annealing process is such that the metal should be heated at high temperature, and it is to be cooled very slowly. Only in such cases would characteristic change occur on the me....
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....because of the above processes. When these are put in the transformers, then only they can be termed as core laminations. The Instruments used for stacking process such as Vernier Caliper, Micro Meter and Measuring Scale are ordinary instruments which are used in all the workshops wherever any mechanical job work is done. No comments are considered necessary in respect of Paras 10, 11, 12 13, 14 and 15. In para-16, it is mentioned that what is the change due to annealing? It is mentioned that because of this process, burr on edges of raw material is removed. In para-17, it is mentioned that whether the laminations assembled are dismantled by the respective parties? The answer given was No. In this regard, it is mentioned that the assembled laminations whether suitable to the respective parties for end~ use or not would be decided by these parties only and in some cases the assembled laminations would be dismantled also. 28. We have heard the parties and considered the rival submissions. On preliminary objections we do not find any force in this contention of the revenue. The reports were made available to the Assessing Officer and he submitted the Remand Report....
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.... CIT(A) has discussed everything stated in the opinion by way of a proposition. No principles of natural justice are violated by him in disposing the appeal. 30. Revenue's contention that finding of the CIT(A) that the assessee had all along in the past claimed deduction under section 80-IB and that the same was granted to it was not correct as the case of the assessee was selected for scrutiny for the first time, for the year under consideration, wherein, the department realized that the activity of the assessee is not manufacturing/production and hence not eligible for benefits of deduction under section 80-IB of the Act. The returns of income of the assessee for the earlier years were processed either under section 143(1)(a) or 143(1), wherein, the Assessing Officer did not have any such powers and he could not even ascertain as to exactly what was the activity being done by the assessee. We however do not find any basis of this statement as the two orders quoted by us above are the orders of Assessing Officer under section 143(3) of the Act and not under section 143(1) as stated by the Assessing Officer. 31. The term 'manufacture' has not been defined in the A....
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....s 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 process is done as per the mill's specificatio....
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....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 department follows the Pyramid style of packing the laminations whi....
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....ter proof sheet. The raw material used by the assessee is called the CRGO coil whereas the product supplied by the assessee to the transformer manufacturers is called transformer core. Thus the CRGO material, which is in coil and sheet form, after process it is converted into Transformer core consisting of number of pieces stacked. Each CRGO lamination produced is specific to the customer's requirements and cannot be used by other customers. The CRGO coils/sheets loose their identity during the manufacturing process and a new and different article transformer lamination core comes into form. It is a different marketable article compared to the CRGO coils/sheets. The CRGO coils/sheets loose their character while cutting to particular shape and size and get structural and qualitative change after annealing process. After assembling process, it becomes the transformer lamination core, entirely a different article. 35. The process employed by the assessee brought about changes and has to be understood in the light of treatise of various authors. In Forging Hand Book by Thomas G. Byrer, editor, S.L. Semiatin, associate editor and Donald C. Vottmer, associate editor, brought out b....
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....s, treatment is used as an intermediate procedure for improving some properties (forge ability, machinability, etc.) or as a final option impart to metals and alloys the desired combination of mechanical, physical and chemical properties which can ensure the specified characteristics of products. As a general rule, major structures machines have more heat treated elements. Heating or cooling of a metal can change its structure, which causes variations in the mechanical, physical and chemical and affects the behaviour of the metal in processing and operation." 38. In the book "Elements of Mechanical Engineering by Mr. K.P. Roy, Mr. S.K. Hajra Choudhury, third edition (Asia Publishing House), under heading "Heat treatment", the learned authors has summarised that: "Heat treatment of metals may be defined as an operation or combination of different operations involving the heating and cooling of metals alloy in the solid state to produce certain desired qualities. Heat treatment, therefore, serve one or more of the following purposes: (1) Improve mechanical properties such as tensile strength, hard, ductility, shock resistance, etc. (2) Improve machinabil....
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.... type of heat treatment. This is the major reason why steels account for over 80 per cent of total metal production." 40. Steel Authority of India Limited (A Government of India Enterprises), Central Marketing Organisation, Branch Sales Office, 104-115, Swastik Chambers, Sion Trombay Road, Chembur, Mumbai-400 071 vide letter Ref. No. MBI/PET/2004: Division PET: Date 18-6-2004 stated: "Cold Rolled Non-Oriented (CRNO), the energy efficient steel, is an essential raw material, recognized the world over for manufacturing magnetic cores and components, electrical stamping & lamination. Used primarily in special rotating and static electrical equipments, the CRNO steel is characterized by low watt loss and high permeability. Rourkela Steel Plant (RSP), a unit of Steel Authority of India Limited (SAIL) took the lead and achieved the distinction of being the first in the country to start commercial production of CRNO. Equipped with the state of the art technology, Silicon Steel Mill, which has a capacity to produce 75.000 Tonnes of CRNO per annum, was set up with technical collaboration of M/s. ARMCO, USA, a pioneer in the field of electrical steels. Meeting i....
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....er but become stamping or lamination for use in transformers and motors. Thus, it is a new product. After carrying out various operations the coil/sheet left their characteristics and become lamination for transformers. The Chapter heading number of Central Excise is also different, for CRNO coil it is 7225.10 and after manufacturing E&I lamination it is 8312.00. The rate of sale tax is only 4 per cent on CRNO coil where as on lamination manufactured it is applicable at prescribed rate. Excise Duty is also applicable on transformers lamination at differential rate. Lamination manufacturing is a highly skill job and it falls under engineering manufacturing category. During manufacturing of transformers E&I lamination many significant visible and invisible changes occur in the material. These changes can be observed and measured by testing equipment and instrument which are as under: By performing manufacturing operation there are some significant invisible changes in the characteristics of the CRNO material. There is change in core loss, hardness, silicon percentage and permeability. 1. The thickness of the original CRNO sheets also changes in mic....
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....ools 1 Nos. 7. Electronic Weighing Scale & Manual Weighing Scale 1 No. 8. Deburring Machine 1 No. The concern is manufacturing various type E & I laminations of different sizes. To manufacture each type of laminations different dies & tools are used. For holes of different sizes, different holing tools are used. They use CRNO steel as the raw material, which they get in the form of coil in various weights. Each coil weighs approximately 2 M.T. to 5 M.T., having a width of approximately 1000 mm and thickness of 0.5 mm. The raw material is purchased from Steel Authority of India Limited. Some of the coils are also imported. All the manufacturing activities carried out on Power Presses and Shearing Machines are as under:- 1. They are unloading the coils with the help of overhead crane. 2. They are shearing the coils into sheets and then into patta, as per required size on shearing machines. After inspection and testing of raw material they are taking suitable material into production for making "E and I laminations". Blackish, rusty, thick and improper coating material are kept a side for rejection. 3. They are....
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....l. Raw material is transformed into finished goods giving rise to commercially new product, commercially new name, ready to use product without requiring to performing further process, marketable, saleable, and usable as a new product. Thus E & I laminations is a new article or thing in the commercial market. By entire manufacturing activity E & I laminations emerge which have distinctive name, character and use. A new commercial commodity E & I laminations comes into existence. The raw material and finished product are different commercial commodities. To manufacture the transformers of various capacities E & I laminations of different laminations are required as per the technical design. The transformers cannot be made without E & I laminations. Thus, E & I laminations are a basic item for milking all type of transformers. The raw material for the CRNO coils cannot be used in electrical transformers unless stamping, punching, holing and shearing is done with die and tools on power press in a particular size. Taking into considerations the above facts, as such, in our opinion, the concern M/s. Trans Lam Electricals is carrying on the activity of manufact....
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....ic stresses and improves the conductivity and magnetic value of the transformer core". Therefore the view of the Assessing Officer that 'it cannot be said that because of this process, a new product comes into existence' cannot have any force. In our opinion on reduction of iron and magnetizing loss after the annealing process, the quality and structure of the lamination strips, used in the transformer core are improved and increased. Various processing stages of the activity including the design and drawing involved, the annealing process, the assembling process, the test certificates and special packing in wooden pallet leave no doubt that the activity is a manufacturing activity. The CRGO coils/sheets loose their identity during these processes and a new and different article comes into form, which is called transformer lamination core. It is commercially known in different name in the market than CRGO coils/sheets. It is a different marketable article compared to the CRGO coils/sheets. The CRGO coils/sheets loose their character on cutting to particular shape and size and get structural and qualitative change after annealing process. After assembling process, it becomes....
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....ection 32A of the Income-tax Act. We have to take note of the fact that the process of heat treatment to crankshaft, etc. were absolutely essential for rendering it marketable. Automobile parts, as crankshafts, need to be subjected to heat treatment to increase the wear and tear resistance to remove the inordinate stress and increase tensible strength. The raw untreated crank shafts and the like can never be used in an automobile industry. Thus, in the crank shafts subjected to the process of that treatment, etc. a qualitative change is effected, to be fit for use in automobiles, although there is no physical change in them. In such statement of affairs, it cannot at all be stated that crank shafts, subject to heat treatment, etc. cannot at all change the status of new products of different quality for a different quality for a different purpose altogether. In this view of the matter, we are of the view that the activities of the assessee in relation to raw or untreated rank shafts being subjected to heat treatment etc. is definitely a "manufacturing activity" entitling it to claim "investment allowance" under section 32A of the Income-tax Act. We answer question Nos. 2 an....
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....ent total sales of Rs. 28.49 crores. The assessee claimed that it is eligible for 100 per cent deduction under section 80-IA as in the last year. In view of the fact that the said deduction has been allowed to the assessee in the preceding year, the assessee's claim is accepted." 47. The provisions for exemptions or relief should be considered liberally. As observed in the decision of the Gujarat High Court in the case of CIT v. Gujarat Aluminium Extrusions (P.) Ltd. [2003] 263 ITR 453 and also of the Bombay High Court in the case of Ship Scrap Traders v. CIT [2001] 251 ITR 806, the later being jurisdictional High Court for the assessee such liberal view should be applied in the case of the assessee. The Bombay High Court while considering the object of the enactment of sections 80HHA and 80-I, held that the said expression will have to be construed liberally in a broader commercial sense keeping its object in mind.... The expression "manufacture" has in ordinary acceptation a wide connotation. It means the making of articles, or material commercially different from the basic components, by physical labour or mechanical process. However, the word "manufacture" appears in the....
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....pplication of labour must be carried out to such an extent that the article suffers a species of transformation and a new and different article emerges." 49. Whether an article is converted into a different article depends on several criteria and one of the essential tests is whether in a commercial sense, the original article has ceased to exist and a new article has taken its place. It is, however, not necessary that the original article or material should have lost its identity completely; all that is important is whether, what has emerged as a result of the operations is a different commercial commodity, having its own name, identity, character or end-use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as, the quality and nature of the original article, the extent and magnitude of the operations earned out on, or in relation to it, and the commercial identity, character and use of the article produced. 50. In Black's Law Dictionary 5th edition, the word 'manufacture' has been defined as: "The process or operation of making goods of wares or any material produced by hand, by machinery or by....
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....fiable article having distinct name, function and use. The resultant product is also commercially distinct as understood in commercial parlance and has a separate market. Their function and use are also completely different and both products are not interchangeable." 55. The Supreme Court case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 has observed that: "The words 'manufacture' and 'production' have received extensive judicial attention both under this Act as well as the Central Excises Act and the various sales tax laws. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The meaning of the expression 'manufacture' was considered by court in Dy. CST, Board of Revenue (Taxes)v. Pio Food Packers [1980] 46 STC 63 (SC), among other decisions. In the said decision, the test evolved for determining whether manufacture can be said to have taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the....
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....red to the raw material CRGO coil/sheets and is known by its name and not known as CRGO coil/sheets. There is qualitative change in the raw material due to annealing process as accepted by the Assessing Officer in the assessment order. 58. In Lucky Minmat (P.) Ltd. [2000] 245 ITR 830 (SC): In his case also the assessee was engaged in the business of mining of limestone and marbles. In order to sell it, it has cut and sized the output from the mines. The High Court in this case CIT v. Lucky Mineral (P.) Ltd. [1997] 226 ITR 245 (Raj.) held that "manufacture" implies a change but every change is not "manufacture", although every change in the article is the result of treatment, labour and manipulation. To bring about change qualifying as manufacture something more is necessary and that something is transformation, i.e., a new and different article, having a distinct name, character or use, must emerge. Where the commodity retains a continuing substantial identity through the processing stage, it cannot be said that it has been manufactured. It was further held that cutting the boulders into slabs might have been with the aid of machinery, but the original commodity retains a contin....
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....s is reduced during the annealing process; that the cutting with specific drawing, testing, annealing and assembling processes are involved in the activity are absent in marble cutting and, therefore, the ratio laid down in this decision of Lucky Minmat (P.) Ltd.'s case is not applicable in this case. 59. The case of Gem India Mfg. Co. was a case where the raw and uncut diamond was subjected to a process of cutting and polishing which yields the polished diamond which was held to be not a different article or thing. The ratio laid down in this decision cannot be applied in this case as there is sufficient material on record to show that transformer core is a new article or thing, which is the result of various processes of manufacturing. The transformer core is a different commercial commodity and known in the trade as such. As aforesaid the Central Excise department is charging excise duty only on account of different article; the Sales Tax department accepts the sales in this name. There is qualitative change in the raw material due to annealing process as accepted by the Assessing Officer in para 5.14 of the assessment order. 60. In Bherhaghat Mineral Industries, Crush....
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.... spirit from the distilleries as per agreement. This potable spirit was already manufactured and did not require any further manufacturing. Only some processing was required to produce IMFLs like brandy, whisky and rum etc. by adding certain percentage of water, colour, and essence. For safe marketing, required bottling. Generally manufacturing means consumption of one article for production of another. But, in the instant case, no article or thing was consumed for production of another. Alcohol remained alcohol. There was only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. This action at best could be said to be processing and not manufacturing. There should also be transformation of article or thing if manufacturing is involved for the same. But, in the instant case, no such transformation had taken place as alcohol remained alcohol both in the beginning and after processing also. In case of manufacturing also, article or thing should be distinct and separate. In the instant case, no new product had come as a by-product, which could be said to be distinct and separate from the original one and alcohol remained alcohol with ....
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....cs of the tissue paper are its texture, moisture absorption, feel, etc. In other words, the characteristics of table napkins, facial tissues and toilet rolls in "terms of texture, moisture absorption capacity, feel, etc. are the same as the tissue paper in the jumbo rolls. The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that they can be conveniently used as table napkins, facial tissues, toilet rolls, etc. However, the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet rolls, the table napkins and the facial tissues remain the same, namely, for household or sanitary use. The Tribunal was right in holding that the characteristics of the tissue paper in the jumbo roll are not different from the characteristics of the tissue paper, after slitting and cutting, in the table napkins, in the toilet rolls and in the facial tissues. No new product had emerged on winding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, there....
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....rposes. In the circumstances, value addition criteria as applied by the Commissioner is erroneous.- Decorative Laminates (India) (P) Ltd. v. CCE 1996 (86) ELT 186 (SC) relied on; Computer Graphics (P.) Ltd.'s case approved; Foils India Laminates (P.) Ltd. v. CCE 1999 (111) ELT 728 overruled. 67. In Sri Meenakshi Asphalts' case it held, that no new product emerged from the process employed by the assessee. What was bitumen continued to be bitumen, but with lesser quantity of oil and moisture. The purposes for which it could be used were only the purposes for which the use of bitumen was appropriate. Heating of the scrap bitumen in order to obtain solid bitumen, by causing the moisture and oil in the scrap bitumen to evaporate or separate, could not be compared to curing of coffee and the conversion of raw berry into coffee beans. The assessee was not entitled to special deductions under sections 80HHA and 80-I. 68. In Tamil Nadu State Transport Corpn. Ltd.'s case the Supreme Court held that from the decision of the High Court [CIT v. Madurai Pandian Engg. Corpn. Ltd [1999] 239 ITR 375 (Mad.)] to the effect (i) that for the purposes of the relief under section 80HH ....
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....lief under the section for the assessment year 1965-66 in respect of profits derived by it from such business. 70. In N.C. Budharaja & Co.'s case the Supreme Court held that the assessee was not entitled to the benefit provided under section 80HH, because the activity of construction of a dam could not be characterized as manufacture or production of an article or articles within the meaning of section 80HH(2)(i). 71. In Novapan India Ltd.'s case it was held that according to the process of manufacture given in the brochure on record, the appellant was carrying on "a unique process where the resin impregnation takes place in an integrated process and this melamine facing is a part of this process, and not what could be a simple gluing of a material subsequently". It is difficult to say from the said process that MFPBs are unveneered particle boards. The melamine facing gives it a smooth polished surface. It looks as if the particle board has been laminated. The true test of classification is understanding in commercial circles or in commercial parlance and not what, according to the appellant, the Encyclopedia Britannica says. Nobody in the trade circles or in the mar....
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....nly a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account." 73. It is true that the specific definition given for a specific statute cannot be blindly or mechanically applied while dealing with another statute, but the general meaning of a word cannot be ignored merely because that term is defined in a particular statute. We have not gone by a particular meaning of the term given in Excise Laws but taken the general meaning in understanding the term 'Manufacture'. 74. The decisions in the case of Telco and Computer Graphics (P.) Ltd.'s, case are of no help in view of a direct decision of the CEGAT, Special Bench, New Delhi. 75. The opinion of the Standing Counsel of the Income-tax Department, Gujarat on the point of law and facts involved in this case vide letter dated 5-5-2004 does not have legal bearing on the issue. There is no provision in the Act, which empower the Assessing Officer to refer the matter to the Standing Counsel to sought his express opinion or to give an opinion a legal exposition of law. How an Advocate by profession, can d....
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....same. Furthermore, merely because an assessee gets the work dope through contract-workers, in other words, enters into a contract with the workers and pays them on per piece basis, the relief cannot be denied. The test is whether the outside agency works directly under the supervision and control of the assessee, it being immaterial whether the processing is done by the workers employed by the assessee, at a place outside the premises of the assessee. It was a case of under sections 80HH and 80-I and the court held that the Tribunal rightly concluded that the activities carried on by the assessee amounted to manufacture of bidies, entitling the assessee to relief. 77. It may be true that employment of huge plant and machinery does not mean that the activity carried on by the assessee is manufacturing/production as such huge machineries are involved even in excavation of marble blocks and cutting and sizing the same, but it is not a manufacturing activity; that a Single machine used for cutting and polishing of diamonds costs about Rs. 1 crore, but still, cutting and polishing of diamonds is not a manufacturing/production activity of the purposes of Chapter VI-A of the Act. Howev....
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....) Cutting timber into sizes, logs, planks, rafters, etc. is not a manufacturing/production activity under the ST Laws, whereas, it is a manufacturing/production under the IT Act - Pyarelal Khushwant Rai v. State of Punjab [1974] 34 STC 341 and B.S. Bajaj & Sons v. CIT [1996] 135 CTR 491; (viii) Slitting paper rolls of bigger width into smaller width is not manufacturing/production either under ST Laws or under the IT Laws, whereas, it amounts to manufacturing/production under the Central Excise Laws - CST v. Paper Process Works [1996] 62 STC 322; (ix) Cutting of trees into firewood is not a manufacturing/production activity under the Income-tax Act, whereas, the same is a manufacturing/production activity under the ST Laws - Bachha Tewari v. Divisional Forest Officer [1963] 14 STC 1067 and B.S. Bajaj & Sons' case; (x) Excavation of Marble Blocks and cutting into stone of specified dimensions is manufacture/production for sales tax purposes, whereas, it is not manufacture/ production for the IT purposes - CTO v. Bhonrilal Jain [1994] 94 STC 118 and Lucky Minerals (P.) Ltd.'s case. Even under the Income-tax Act, an activity, which is manufacturing under one section, need not ....
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.... Alfa Industries Rs. 3,55,86,392 Facts and circumstances of both the cases are identical and similar. So, further discussion is made by referring to one assessee only i.e., M/s. National Lamination Industries. 3. The assessee is engaged in the activity of conversion of Cold Rolled Grain Oriented Electric Steel (named shortly 'CRGO') rolls/coils into CRGO Core Lamination sheets which are used in making 'transformers'. For such conversion the assessee applies following process on CRGO in its factory premises:- (a) Testing - wherein, material to be cut is tested. (b) Slitting - wherein, CRGO rolls/coils are cut to required width. (c) Shearing - wherein, it is cut to required length. (d) Notching - wherein, a V shape is cut on sheets. (e) Holing - wherein, a hole is cut on the sheets. (f) Annealing - wherein, the cut sheets are passed through electric furnace. (g) Deburring - wherein, burrs formed on the edges of sheets while cutting is removed. (h) Core - wherein, the cut....
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.... to be handled with care. 8. It was explained that after storage second stage requires testing of raw material which is stringent and exhaustive. For such testing the assessee maintains fully equipped laboratory with the latest measuring equipment and before issuing the coils for production, samples from each coil of specific width and length are cut as per the specification for testing of electrical steel. The test is carried out to confirm the iron loss at particular induction and such instrument is known as Epstein Tester. 9. Thereafter the material is sent for slitting to cut the coils to the required width as per programme from the planning department. 10. Thereafter the coils are slitted and it goes to Shearing section where required length of lamination are cut. 11. Thereafter Notching is done which is done on power press. 12. Thereafter holing is done which are made as per specification of customers. 13. Thereafter annealing is done. It was explained that it is a very important process. It is done on electrically operated Annealing Furnace and all the process individual laminations are annealed at 820°C temperature a....
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....ame width step of material also results in core building and overall increase in core loss. The company is maintaining international standard. It was thus claimed that the activities done by assessees are activities of manufacturing and production of an article or thing. 18. On the basis of above processes done on CRGO it is the claim of assessee that it is engaged in the activity of manufacturing and production of an article within the meaning of section 80-IB(2)(iii), which is one of the conditions to make entitled the assessee to claim deduction under section 80-IB. 19. The Assessing Officer did not allow such claim of the assessee on the ground that assessee is not engaged in the activities of manufacture and production of an article or thing. According to Assessing Officer the word "manufacture" implies a change, but every change in the article is result of treatment of labour and manipulation. In the instant case, the basic operations that are being done are cutting. The annealing process performed by the assessee though decreases the iron loss of the core and relieves the laminations of plastic and plastic stresses and improves the conductivity and magnetic....
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....ties of the material after the process of annealing to show that electrical property of raw material was materially different than the finished product and reliance was placed on following decisions:- 1. Aspinwall & Co. Ltd. v. CIT [2001] 251 ITR 323 (SC). 2. CIT v. Krishna Copper & Steel Rolling Mills [1992] 193 ITR 281 (SC). 3. Ship Scrap Traders v. CIT [2001] 251 ITR 806 (Bom.). 4. CIT v. Sesa Goa Ltd. [2004] 266 ITR 126 (Bom.). 5. Singh Engg. Works (P) Ltd. v. CIT [1979] 119 ITR 891 (All.). 6. CIT v. Tata Locomotive & Engg. Co. Ltd. [1968] 68 ITR 325 (Bom.). 7. CIT v. Oswal Woollen Mills Ltd. (No. 1) [2002] 257 ITR 737 (Punj. & Har.). 8. CIT v. E.I. Forge Ltd. [2001] 247 ITR 488 (Mad.). 9. Tamil Nadu Heat Treatment & Fetting Services (P) Ltd.'s case. 10. IAC v. Varistha Udyog Ltd. [1990] 34 ITD 10 (Delhi). 11. Nandan Textiles (P) Ltd. v. Asstt. CIT [1997] 60 ITD 382 (Mum.). 20. It was explained that the provisions of section 80-IB are in the nature of incentive provisions for encouragement of overall development of industries in the country and law providing such ince....
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....ven then it was held that it was a manufacturing activity. (vi) The Assessing Officer himself has indirectly accepted that the activity of assessee is manufacturing activity. Reliance in this regard is placed on the following observations of Assessing Officer:- "It was seen that majority of the activities performed by the assessee was cutting activity, barring the annealing activity." And also on the following observations:- "On going through the submission with respect to the activity of the assessee, it is seen that majority of the activity performed by the assessee is that of cutting in the form of slitting, shearing, V-notching and holing. The activities that are different from cutting are annealing and core assembling." "It is hence clear that "manufacture" implies a change, but every change is not "manufacture" although every change in the article is the result of treatment of labour and manipulation. In the instant case, the basic operations that are being done are cutting. The annealing process performed by the assessee though decreases the iron loss of the core and relieves the laminations of plastic and elastic stresses and imp....
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....various case laws relied upon by Assessing Officer he has held that the same were not applicable to the case of the assessee as under:- (a) Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC). - Ld. CIT(A) observed that the decision being given on marble blocks cannot be applied. He observed that the CRGO is definitely a marketable article which even is accepted as a different item by Central Excise Department and Sales-tax Department, is marketable commodity. Thus the case of Lucky Mimnat (P) Ltd. cannot be considered to be applicable to the case of assessee. (b) CIT v. Gem India Mfg. Co. [2001] 249 ITR 307 (SC) - Relying on the same argument as given for CIT v. Lucky Mineral (P.) Ltd. [1997] 226 ITR 245 (Raj.) he has held that this case is also not applicable. (c) CIT v. Relish Foods [1999] 237 ITR 59 (SC) - which is a case of processed or frozen shrimps and prawns was also held inapplicable due to the change of name of finished article in the case of assessee which was accepted even by Central Excise Department and Sales-tax Department. Similar is the position with the case of CIT v. George Maijo [2001] 250 ITR 440 (Mad). (d) CIT v. Sri Meen....
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.... Oswal Woollen Mills Ltd. (No. 1)'s case 6. EI Forge Ltd.'s case 7. Varistha Udyog Ltd.'s case 8. Nandan Textiles (P.) Ltd.'s case On the basis of above discussion, he finally concluded as under:- "74. After carefully considering the facts of the case and the ratio laid down by various courts in the decisions relied upon by the Assessing Officer as well as by the ld. Counsel as discussed in paragraph 28 to paragraph 73 above, I am of the considered opinion that the appellant firm was engaged in the manufacturing of transformer core, a distinct and commercially different article. The activity of the appellant firm is, therefore, held to be as manufacturing activity. The appellant is entitled to the deduction available under section 80-IB of the Act. The finding given by the Assessing Officer on this issue is rejected and he is directed to allow the deduction to appellant under section 80-IB of the Act." The revenue is aggrieved with such decision of CIT(A) hence in appeal. 26. Various contentions of both parties on this issue are recorded in the order proposed by Hon'ble Vice President and these are m....
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....or thing. There is no dispute to the extent that the article or thing claimed to be manufactured and produced by the assessee is not an article or thing specified in list in the Eleventh Schedule. Now, therefore, the question in the present appeals is limited only to examine, is that whether assessee is manufacturing or producing an article or thing within the meaning of section 80-IB(2)(iii). 27. Before proceeding further it is necessary to consider the first arguments of the assessee that as it deployed huge machinery and it has been granted with licences under various Acts in itself are indicative of the fact that assessee is manufacturing and producing eligible article or thing to make it entitled for deduction under section 80-IB. 28. Ld. CIT(A) has rejected the contention of the assessee that grant of licences under various Acts is not decisive factor to hold that whether assessee is involved in activity of manufacturing or producing an article or thing so is the case with the contention that the huge machinery is deployed by the assessee in the process and this contention of assessee is liable to be rejected in the light of decision of Hon'ble Jurisdict....
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....ot to say that the polished diamond is a new article or thing which is the result of manufacture or production. In CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 153 CTR (SC) 105 : [1999] 3 SCC 632, the Supreme Court, in context of sections 80HH, 80HHA, 80-I and 80J, held that the business of the assessee who was having poultry farms and running a hatchery where eggs were hatched on a large scale by adopting latest scientific and technological methods 1vas not an industrial undertaking nor was it engaged in the business of producing 'articles or things' and, therefore, the assessee was not entitled to deductions under the said provisions." In the light of above observations of Their Lordships of jurisdictional High Court it will be difficult to accept the proposition that merely because assessee has been recognized as industrial undertaking in the licences granted under various Acts and it employs latest scientific and technological methods on a large scale cannot in itself be decisive factor to hold that the assessee is manufacturing or producing an article or thing and it has to be examined on merits that whether the activity of the assessee is actually an activ....
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....nt of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place.' The word "production" or "produce" when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." 31. In the case of Aspinwall & Co. Ltd. - it has been observed as under:- "8. 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 meaning the production of articles fo....
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.... moisture absorption capacity, feel, etc. are the same as the tissue paper in the jumbo rolls. The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that they can be conveniently used as table napkins, facial tissues, toilet rolls, etc. However, the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet rolls, the table napkins and the facial tissues remain the same, namely, for household or sanitary use. The predominant test in such a case is whether the characteristics of the tissue paper in the jumbo roll enumerated above is different from the characteristics of the tissue paper in the form of table napkin, toilet roll and facial tissue. In the present case, the Tribunal was right in holding that the characteristics of the tissue paper in the jumbo roll are not different from the characteristics of the tissue paper, after slitting and cutting, in the table napkins, in the toilet rolls and in the facial tissues. 11. In the case of Brakes India Ltd. v. Supdt. Of Central Excise [1997] 10 SCC 717, this ....
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....to be bottles. It cannot be said that but for the process of printing, the bottles will serve no purposes or are of no commercial use." 17. Applying the above tests to the facts of the present case, we hold that mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing. That, just because the raw material and the finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw material automatically constituted manufacture. In the present case, merely because tissue paper in the jumbo roll of the size exceeding 36 cms. fell in one Entry and the toilet roll of a width not exceeding 36 cms. fell in a different Entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture. The above tests would also apply to cutting and slitting of jumbo rolls of aluminium foils (which item is the subject-matter of some of the civil appeals herein)." 33. In the case of Gem India Mfg. Co. it is held that cutting and polishing of raw-....
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....rdas Tobacco Products (P.) Ltd. - it has been held that the tests to ascertain whether an activity amounts to manufacture or production of an article or thing as laid down and reiterated by various decisions of the Apex Court and this High Court, broadly, are that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end-product after the raw material undergoes the process of manufacture and the final product does not retain the identity of raw material after it has undergone the process of manufacturing. It will be relevant to reproduce the following observations of Their Lordships of Hon'ble High Court:- "7. 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 decisions of the Apex Court and this High Court. Broadly, the requirement is that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end-product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw mate....
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.... manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." The Supreme Court has followed the central idea in the above passage in a large number of cases for, e.g., Devi Dass Gopal Krishna v. State of Punjab [1967] 20 STC 430 (SC), CST v. Dr. Sukh Deo [1969] 23 STC 385 (SC), CST v. Jagannath Cotton Co. [1995] 99 STC 83 (SC), Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC), Pio Food Packers' case, and N.C. Buddharaja & Co.'s case. In the light of above mentioned position of law, I have to examine the merits of the case of assessee. 36. On merits it is the main contention of the revenue that assessee did nothing and on cutting also the sheet remains the sheet, though after cutting it was a smaller size of sheet as against the sheet in roll but that does not bring into existence any commercially known different item. Annealing only restore the loss on cutting and did not add anything to call it a manufacture and for such contention reliance has been placed ....
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....ourt are as under:- "29. It is the contention of the Central Excise Department that industrial laminates and glass epoxy laminates cannot be considered as electrical insulators because these sheets are required to be cut in the requisite shape and holes may have to be punched in them before they could be fitted as insulators. However, mere cutting or punching holes does not amount to manufacture. These sheets have insulating properties and are used as electrical insulators. They cannot be taken out of the category of electrical insulators only because they have to be cut to the requisite shape or a few holes may be required to be punched in them in order that they may fit into the electrical instrument/appliances in question." As against the above decision, reliance on behalf of assessee has been placed on the decision of CEGAT Special Bench in the case of Jhonson Electric Co. In the said case assessee was manufacturing electric power distribution transformers. It imported Cold Rolled Grain Oriented Electrical Grade Steel Silicon Sheets in coil form. The relevant facts as stated in paragraph 2 of the said decision are as under:- "2. The appellants manufacture e....
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....that no duty can be levied as the assessee was not engaged in the activity of manufacturing as process of cutting adopted by it will not be manufacture. On consideration of these arguments, it was held that electrical stamping itself falls under specific entry, i.e., Item 28A were liable for Excise duty irrespective of the fact that whether assessee was involved in the activity of manufacture or not. It is clear from the following observations of the Special Bench:- "13. We also note that since these are electrical stamps and there is specific Tariff Entry in regard to such goods, the Question whether it would amount to manufacture under section 2(f) would not strictly arise. The specific Entry would indicate that the item is excisable whether it is as a result of a manufacturing process or not. The appellants have admittedly used these cut strips as cave or electrical stampings for the transformers. The cutting into specific designs confirms our view that these are only electrical stampings falling under Tariff Item 28A." Ultimately the final decision as given in paragraph 19 is as under:- "19. Hence, on a careful consideration of all the facts, we are of the ....
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.... decide that whether the activity of cutting, punching & holing was an activity of manufacture was not a question before the Hon'ble Supreme Court. Under section 3 of the Central Excise Act duty is levied on all excisable goods mentioned in the Schedule provided they are produced or manufactured. Therefore, where goods specified in the Schedule are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the assessee on whom duty is to be levied. Consequently it is open to an assessee to prove that even though the goods in which he was carrying on business, were excisable as they are mentioned in the schedule, they could not be subjected to duty as they were not goods either because they were not manufactured or having been produced or manufactured, they were not marketed or capable of being marketed. This position of law is clear from following observations of Hon'ble Supreme Court in the case of Moti Laminates (P.) Ltd. v. CCE 1995 (76) ELT 241: "15. In the case of Mati Laminates (P.) Ltd. v. CCE 1995 (76) ELT 241, this Court held that section 3 of the Act levies duty on all excisable goods ment....
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....o be cleaved if the marking is along with parallel to its planes and sawn, i.e., cut in case the marking is perpendicular or against the planes. The process of sawing is now done with the latest machinery with laser. Thereafter the diamond is sent to bruting department where the diamond gets its final shape and this process is also to be done with utmost care so that the diamond does not break or its natural skin is not removed or there is minimum weight loss. It is done to give final shape to the rough diamond to achieve the optimum effect on the stone is the main objective of the bruter. The final task of faceting is done once the bruted stone is passed to the polishing department and the method of giving the stone its final look is called polishing. Even a small mistake done by the artisan can make the diamond look less valuable than what it might have been. Thereafter the diamond goes to the grading department. Thus keeping in view these processes, diamond manufacturing was claimed to be a very skilful process and despite all these processes being involved in preparing finished diamond from raw diamond Hon'ble Supreme Court in the case of Gem India Mfg. Co. have held that r....
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....r in the jambo roll is different from the characteristics of the tissue paper in the form of table napkin toilet roll and facial tissue and it is held that the Tribunal was right in holding that the characteristics of the tissue paper in the jambo roll were not different from the characteristics of tissue paper after slitting and cutting in the table napkin, in the toilet roll facial tissue. According to the test of character or use, if a transformation takes place which make the product for a character and use of its own which it did not bear earlier, then only the process will be a process of manufacture. The relevant observations have already been reproduced in paragraph 32 of this order and the some extracts are reproduced again for ready reference:- "The predominant test in such a case is whether the characteristics of the tissue paper in the jumbo roll enumerated above is different from the characteristics of the tissue paper in the form of table napkin, toilet roll and facial tissue. It will not be safe solely to go by a test as to whether the commodity after the change takes in a new name, though in stated circumstances, it may be useful to resort to it. T....
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....e's own case for the assessment year 1983-84 and the decision in (1990) 33 ITD 485 (Mad.). We have also perused the case laws relied on by both the parties which have already been mentioned in the foregoing paragraphs. We may state here the fact which is not in dispute is that the assessee purchases potable spirit from Rampur Distilleries as per the agreement. This potable spirit is already manufactured and does not require any further manufacturing. Only some processing is required to produce IMFLs like brandy, whisky and rum, etc. by adding certain percentage of water, colour, essence and for safe marketing requires bottling. Generally manufacturing means consumption of one article for production of another. But in the instant case no article or thing is consumed for production of another. Alcohol remains alcohol. There is only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. This action at best can be said to be processing and not manufacturing. There should also be transformation of article or thing if manufacturing is involved for the same. But in the instant case no such transformation has taken place as alcohol remai....
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....rd "article" in section 80HH(2) cannot include, a dam, a bridge, a building, a road, a canal or so on." In my opinion the above decision is also applicable to the present as basic characteristics and feature of CRGO coils were not changed by the process done by the assessee. There was no considerable or substantial change in the inherent properties of CRGO steel which was manufactured by its suppliers to the assessee. Unless there is a considerable and substantial change, the activity of the assessee cannot be said to be a manufacturing activity within the meaning of section 80-IB. 44. The CRGO sheets retain their identity even after they had undergone various processes. Thus it cannot be said that so-called lamination sheets were new and distinct articles in which CRGO sheets were consumed as in the case of Prabhudas Kishordas Tobacco Products (P.) Ltd. Their Lordships of Hon'ble Jurisdictional High Court have observed that final product should not retain its identity after it has undergone the process or process of manufacture. The relevant portion of their observations has already been reproduced in paragraph No. 34. The extract from relevant portion are reproduced for....
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....h is specified in relation to any goods in the section or Chapter Notes of Schedule 1 to the Central Excise Tariff Act, 1985 as amounting to manufacture. And the word "manufacture" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account." The contention of ld. DR is that if any activity is not held to be an activity of manufacture under Excise Law, the same in no circumstances can be held to be an activity of manufacture and production of an article or thing under Income-tax Act Law for the reasons that the definition under Central Excise Act is vast and inclusive. There is a force in such contention of ld. DR that if an activity which has not been considered an activity of manufacture and production of an article or thing as per definition under section 2(1) of the Central Excise Act, 1944, the same cannot be held as an activity of manufacture or production while construing the provisions of Income-tax Act which does not define the word "manufacture". According to the decision of Hon'ble Supre....
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....oncern. In the said literature for CRGO sheets under head FURTHER PROCESSING HINTS following details are given:- "Grain oriented electrical steel sheet is used for the building of magnetic cores. It must be recognized that the best magnetic properties exist only in the rolling direction. When the magnetization is outside the rolling direction the core loss will increase substantially e.g. at 90° to the rolling direction more than triple and at 60° more than quadruple. Therefore, it is absolutely necessary to constrain the magnetization in the whole magnetic circuit as exactly as possible in the rolling direction to ensure optimal performance. Stress Mechanical stresses exert a significant effect on the magnetic properties of grain oriented electrical steel. Such stresses can be introduced into the strip in many ways: - by external forces (external stresses) - by plastic deformation (internal stresses) External stresses may arise if the laminations in a magnetic core are pressed into a wavy or curved shape by excessive or uneven compression. Internal stresses are generated along the cut edges during each slitting....
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.... or distortion of the cores. It is further recommended to control the soaking temperature by thermo-couples which should be located at the hottest and the coolest position of the annealed material. To avoid quenching effects during unloading, the cores should remain in the furnace until a temperature of about 200°C to 300°C is reached. The material to be annealed must be free from grease, oil and other organic substances to prevent any recarburisation." From the above process as described, the annealing which is done by assessee is short-term annealing cycle which is for the duration between 1 to 2 minutes. The main purpose of such type of annealing is done to reduce the stresses and as it can be seen from the above literature that it does not bring any structural change except removing stresses. Thus the argument of assessee that it improves electrical and magnetic properties of CRGO coils/sheets is beyond reality. The comparative figures are the figures of CRGO lamination sheets before annealing and after annealing and what is changed after annealing is only restoration to some extent of the original electrical and magnetic properties of CRGO sheets. The annealing is d....
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....itling it to claim "investment allowance" under section 32A of the Income-tax Act. We answer question Nos. 2 and 3 accordingly." Thus it was found as a fact by Hon'ble High Court that process of heat treatment to crankshaft, was absolutely essential for rendering it marketable whereas in the present case annealing was not absolutely essential for rendering the transformer core as marketable as it has been specifically pointed out that in other cases for preparing transformer core, annealing has not been done at all. Thus annealing in the present case is not a process absolutely essential and the same is done only to restore original electrical and magnetic properties. (b) A nil Steel Traders' case. The said case is of annealing and stripping of steel rods and annealing steel rods as per customers orders. The process adopted therein is different from the process adopted in the case of assessee which is only a short-term annealing cycle which does not bring structural changes as were brought into structure of steel rods in the case of Anil Steel Traders and thus this decision is also not applicable. Moreover, the above case has been decided only on the basis....
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....ies of CRGO sheets, i.e., the properties consisting in CRGO sheets before the process of cutting, slitting, shearing, notching, holing etc. The changes which have been given in chart are the changes occurred to CRGO sheets after cutting, slitting, shearing, notching, holing etc. when compared them with the annealed sheets. That chart also does not help the assessee because by the process of annealing which is done for a period between 1 to 2 minutes, nothing could be added to the original properties of the CRGO sheets and annealing is done only to rectify the defects occurred due to the process of cutting, slitting, shearing, notching, holing etc. 51. It may also be pointed out that annealing of CRGO sheets done by assessee is not an essential process to render them as marketable even as per norms given in the opinions furnished by assessee of Steel Authority of India Ltd. and Veer Mata Jijabai Technological Institute (VJTI). These opinions have been reproduced in paragraphs 40 & 41 of the order of Hon'ble Vice President. For ready reference the following portion from the report of Steel Authority of India Ltd. is reproduced below to show that annealing has not been describe....
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....turing activity of laminations, scrap is also generated." Thus it is a clear fact that for preparing transformer core from CRGO coil annealing is not an essential activity to render it as a marketable product as was in the case of Tamil Nadu Heat Treatment & Fetting Services (P.) Ltd. following which decision this Tribunal in the case of Anil Steel Traders has held that annealing is an activity of manufacturing and that case also is distinguishable on the ground that in that case annealing was an essential process to be done to make those products as marketable and in the present case it has been shown that it is not an essential process. 52. It is also the contention of revenue that after cutting also sheet remained sheet though after cutting it was a smaller size of sheet as against sheet in roll but that does not bring into existence any commercially known different item. As against this argument of revenue it has been held by ld. CIT(A) that a new product emerged from the process done by assessee on CRGO coil which is known as transformer core and also that "transformer core" has been classified as a different entity from CRGO coil under Excise Law. 53. It has already ....
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....inding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, therefore, there was no manufacture on first principles." Thus Their Lordships of Hon'ble Supreme Court have held that irrespective of definition given under Central Excise Act, the process of winding, cutting/slitting of jambo rolls of tissue paper/aluminium into smaller size does not amount to manufacture. In my opinion this decision will have full application to the facts of the present case as by adopting similar process there is no change in the basic character of CRGO coil/sheets when after process even if it is called as "Lamination core". 54. Similarly classification of transformer core under different tariff head does not make it a different product being manufactured by the assessee which is an essential condition to make assessee entitled for deduction under section 80-IB. It has been clearly laid down by Hon'ble Supreme Court in the case of Brakes India Ltd., the relevant observations have already been reproduced wherein it has been held that the 'character or use' test has been given due importance by pron....
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.... (i) These opinions have not been given in the case of assessee but are given in the case of Trans Lam Electricals. (ii) The product described in these opinions is not the same product as is being dealt with by the assessee. In the opinions the raw material which has been dealt with is CRNO whereas in the case of assessee it is CRGO. CRNO represent "Cold Rolled Non-Oriented Steel" whereas the product being dealt by assessee is Cold Rolled Grain Oriented Steel. This difference has also been brought out in the literature of products being manufactured by THYSSENKRUPP ELECTRICAL STEEL. (iii) The opinion of SAIL is signed by Shri S.P. Dash who is described as Chief (M)/PET. It is not known that what qualification he possesses to state the activities done on CRNO Steel to be the activities of manufacture. Similar is the position with the opinion given in the case of Veer Mata Jijabai Technological Institute (VJTI), which is signed by Dr. B.K. Lande the Head Electrical Engineering Department and Shri H.B. Chaudhari, Lecturer, Electrical Engg. Department. 56. Moreover, the issue at hand cannot be decided on the basis of these opinions because the issue has t....
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....id down in the decisions mentioned earlier. The Tribunal was, therefore, entitled to have a fresh look at the matter based on the line of thinking disclosed by these decisions. That was what was done by the Tribunal in the instant case. We are not, therefore, inclined to accept the contention that the assessment in the earlier years operates as res judicata or that it precludes the assessee from raising the plea as done in the instant case. We overrule the contention. In the circumstances, we do not find any reason to refer the questions raised to this Court under section 256(2) of the Income-tax Act, 1961. These petitions are, therefore, dismissed." 2. Director of Income-tax (Exemption) v. Dharam Pratisthanam [1999] 155 CTR (Delhi) 385. "Perused the contents of paragraph 7 of the petition. Ld. Counsel for the petitioner submits that an identical issue is arising for decision in several other matters. Though in the case at hand the issue was not pursued further by filing a reference relevant to the assessment year 1985-86, yet the right of the petitioner to move this Court for the next year of assessment, i.e., 1986-87, is not taken away inasmuch as every year'....
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.... assessment and the opinion of the AAC made in connection with the previous assessment year was not relevant." 4. CIT v. Avery India Ltd [2002] 255 ITR 485 (Cal.) "We need not go into the authorities for two very simple propositions of law, although some authorities will be considered hereafter. The first proposition is that a decision taken in regard to an earlier assessment year does not operate as res judicata for a subsequent assessment year. Thus the Tribunal's decision has to be judged on its merits as to the correct application of the law for the assessment year 1976-77 itself, whatever might have been the decision of the Commissioner of Income-tax (Appeals) for the assessment year 1975-76." 5. Dwaraka Prasad Sheokaran Das v. CIT [1953] 24 ITR 410 (All.) "In the assessment proceedings, the Income-tax Officer, after hearing the evidence on specified points, assesses the total income of the assessee and all that is necessary for him to find out is what items can be treated as income of the assessee. It is not at all necessary for him to give a finding that there has been concealment of the particulars of his income or that the assessee h....
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....rinciple which seems to have influenced Mr. Justice Molesworth in this and some of the earlier cases, viz., that the provisions of the 24th section, because they establish an exception to the general rule, are to be construed strictly against those who invoke their benefit. That principle is opposed to the rule expressed by Lord Ellenborough in Warington v. Furbor (8, East 242), and followed and confirmed in Hobson v. Neale (17, Beav 185). Lord Ellenborough's words are - "I think that when the subject is to be charged with a duty, the cases in which it is to attach ought to be fairly marked out, and we should give a liberal construction to words of exception confining the operation of the duty." It is only, however, in the event of their being a real difficulty to ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction need arise." 17. To the same effect is the view expressed by Sir Raymond Evershed in Routledge v. McKay [1954 (1) A.E.R. 855]. The ld. Master of Rolls observed: "on the authorities, that exemption, as I understand, should be liberally interpreted." 18. We are, however, of the opinion th....
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.... been held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubtful ambiguity, benefit of it must go to the State and the reason for the same is that each such exception/exemption increases the tax burden on other member of the community correspondingly. 62. It has already been pointed out that language of section 80-IB(2)(iii) is clear and there is no ambiguity and unless assessee establishes clearly that he is involved in the activity of manufacturing and production of an article or thing as envisaged in that section, assessee cannot be held to be entitled to get deduction under section 80-IB. Because as per above decision Hon'ble Supreme Court a person invoking an exception or exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and even in a case of ambiguity the benefit must go to the State. However, there is no question of liberal interpretation to be given in favour of assessee. The decision in the case of Gujarat Aluminium Extrusions (P.) Ltd. is not applicable as in the sai....
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....sset. Once it is established that the expenditure was incurred for the purpose of scientific research and the conditions incorporated in section 35 of the Act are fulfilled, in our opinion, the revenue cannot expect the assessee to start using the asset immediately. In a given case the assessee might have to go on incurring expenditure for several years before putting the asset to actual use. If the interpretation advanced by standing counsel for the revenue is accepted, we are afraid, the assessee would not be in a position to avail of the deduction under section 35 of the Act to the extent to which the Legislature intends to give to the assessee." Thus reliance on the above decision by the assessee is misplaced as the provisions of section 35 were found not to be ambiguous as there was no requirement therein for user of the asset for the purpose of scientific research and development whereas in the present case as a condition precedent the assessee requires to be a manufacturer or producer or an article or thing. 63. Ship Scrap Traders' case. This decision cannot also be applied for the reason that on similar activities Hon'ble Gujarat High Court in the cas....
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....ere on a plain reading of the statutory provision, it is of the opinion that one and only one interpretation is reasonably possible and that is against the assessee, it cannot give an erroneous interpretation in favour of the assessee by taking resort to the principle of beneficial interpretation. .... .... 8. Another submission of learned counsel for the assessee was that section 80G being intended to give relief in respect of donations for charitable purposes, it should be construed liberally so as to give benefit to the assessee. We appreciate the sentiments of learned counsel. Left to us, we might have considered this submission. But that is not so. It is for the Legislature to decide how much relief to give in respect of which donations, when and under what circumstances. Where the law is clear and unambiguous, we cannot act contrary to it with a view to giving benefit to an assessee who has donated for a charitable purpose. In view of the above, we answer the question referred to us in the negative and in favour of the revenue." (ii) CIT v. Boots Co. (I) Ltd. [1995] 214 ITR 175 (Bom.). "Equally misplaced and misconceived is the sub....
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....355 (Bom.)]. Moreover, as held by this Court in CIT v. Boots Co. (I) Ltd. [1995] 214 ITR 175, the doubt as to the true meaning should be real, and not conjectural or fanciful. It is not for the courts to invent fancied ambiguities and stretch or pervert the language of the enactment in favour of the taxpayer. In the instant case, it is clear from the foregoing discussion that the principle of beneficial interpretation has no application. The contention of learned counsel based on principle of beneficial interpretation is also therefore rejected." (iv) CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker.). "So long as the language employed in the statutory provision and more so in the fiscal statute is clear, the court should interpret that on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and semantic view alone should be taken. If these principles are borne in mind, then the only interpretation which could be placed on the sub-section is, the one which has been put by the Supreme Court and there is no scope to interpret the sub-section in a different manner." (v....
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....uous, be applied as they stand...." Artificial and unduly latitudinarian rules of construction, which with their general tendency to "give the taxpayer the breaks", are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an "impertinent intrusion into the sacred rights of private property" and it is now increasingly regarded as a potent fiscal tool of State policy to strike the required balance required in the context of the felt needs of the times between the citizens' claim to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain special services and purposes on the other. These words of Thomas M. Cooley in 'Law of Taxation', Volume 2, are worth mentioning: "Artificial rules of construction have probably found more favour with courts than they have ever deserved. Their application in legal controversies has often times been pushed to an extreme which has defeated the plain and manifest purpose in enacting the laws. Penal laws have sometimes had all their meaning construed away and in remedial laws, remedies have been found whic....
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....ii) Annealing as done by assessee is not an absolutely necessary process as without annealing also the cut and punched sheets can be utilized in transformer as is clear from the opinions furnished by the assessee from SAIL/Veer Mata Jijabai Technological Institute. Following cases which have been relied upon by the assessee in support of its contention that annealing tentamounts to manufacture are distinguishable on the ground that in those cases, annealing was found to be an absolutely essential process to make the craneshafts etc. as distinct marketable product: (i) Tamil Nadu Heat Treatment & Fetting Services (P.) Ltd.'s case. (ii) Anil Steel Traders' case. In the case of assessee annealing done on CRGO sheets is short-term annealing which does not bring any change in the basic electrical and magnetic properties of the CRGO sheets. It only rectify to some extent the iron loss and current loss of CRGO sheets which occur to CRGO sheets during the process of testing, slitting, shearing, notching, holing etc. (iv) The requirement that whether an activity amounts to activity or production of an article or thing is that the raw material must....
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....not be granted to assessee even according to the principle of liberal construction, as assessee does not fulfil the necessary condition of manufacture and production of an article or thing as laid down in section 80-IB(2)(iii). As according to the decision of Hon'ble Supreme Court in the case of Novopan India Ltd., the person who is invoking an exception or exemption must establish clearly that he is covered by the said provision and in case of doubt or ambiguity the benefit must go to the State. Language of section 80-IB(2)(iii) is clear and unambiguous, therefore assessee has to fulfil the condition of manufacturing or production of an article or thing. Deduction cannot be granted to the assessee on the basis of liberal construction unless assessee satisfies the condition laid down in section 80-IB(2)(iii). Reference can be made to following decisions:- (1) Novopan India Ltd.'s case (2) New Sharrock Spg. & Mfg. Co. Ltd.'s case (3) Boots Co. (I) Ltd.'s case (4) Oudh Sagar Mills Ltd.'s case (5) CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker.) (6) CAIT v. Plantation Corpn. of Kerala Ltd. [2....
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....ct, 1961?" 3. The facts giving rise to the above controversy are that the assessees before me in their returns of income for the assessment years under consideration claimed exemption under section 80-IB of the Act on the ground that these were engaged in the activity of "manufacture" of transformer core in the specified areas where such exemption was available. 4. Before the Assessing Officer, it was submitted by the assessees that basic raw material for the manufacture of transformer core was Cold Rolled Grain Oriented/Cold Rolled Non-grain Oriented (CRGO/CRNO) Coils. CRGO coils/sheets were imported, the CRNO sheets were purchased locally. It was explained before the Assessing Officer that assessee's customers are transformer manufacturing concerns, supplying their own design and technical specifications and the assessees, as per their specific requirements manufactured transformer core. It was explained that in the manufacturing of transformer core, a series of processes were involved. When the transformer core is manufactured, the raw material loses its identity and a different identifiable and marketable commodity having different characteristics comes into existence....
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....ing, V-notching and holing was in the nature of cutting activity. However, the Assessing Officer admitted that annealing activity and core assembling activity was different activity than cutting. He further observed that annealing processes performed by the two concerns namely M/s. National Lamination Industries and M/s. Alfa Lamination Industries, though decreases the iron loss of the core and relieves, lamination of plastic and elastic stresses, improves the conductivity and magnetic value of the transformer core, yet it cannot be said that in this process a new product came into existence. He observed that as the exemption under section 80-IB was available to the assessees who were engaged in the activity of manufacture and the assessees were not engaged in the activity of manufacture, the exemption under section 80-IB of the Act was not available to them. 6. Aggrieved, by the orders of the Assessing Officers, all the assessees carried the issue in appeal before the ld. CIT (Appeals) who considered various submissions made by the Assessing Officers as well as the assessees. He perused various documents filed before the Assessing Officers as well as the experts opinion filed b....
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....r were not applicable in these cases of the assessees as in those cases the raw material had not lost its identity even after various processes and no new product had come into existence. But in the case of the assessees the raw material had lost its identity and after various processes a new product having different name had come into existence. (6) The assessees were engaged in the manufacture of transformer core which was a distinct and commercially different article. Several cases are given in his order supporting the proposition that the activities of the assessees were manufacturing activity and the assessees were entitled to deduction under section 80-IB of the Act. 6.1 Being aggrieved, the revenue carried the matter in appeal before the ITAT. A preliminary objection was raised by the ld. DR to the effect that CIT(A) has not allowed opportunity of further submissions/hearing to the department in spite of a specific request. However, this objection was ruled out by the Bench and there is no difference between the ld. Members on this issue. In the course of hearing before the Bench, the ld. DR heavily relied on the statement of facts filed before the Tribunal. He s....
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.... important factors is to see the extent of change that has been effected in the original material. While every change in an article is the result of treatment, labour and manipulation, every change is not manufacture. Something more is necessary and the application of labour must be carried out to such an extent that the articles suffer the species of transformation and a new and different article emerges. It was argued that Hon'ble Supreme Court in the case of COCO Fibres has held that by processes of manufacture something is produced and brought into existence which is different from that which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or become transformed into basic or essential product. It was pleaded that Hon'ble Supreme Court in the case of Kores India Ltd. has held that manufacture is a transformation of 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 po....
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....n the case of Gujarat Aluminium Extrusion (P.) Ltd. and also Hon'ble Bombay High Court decision in the case of Ship Scrap Traders. Hon'ble Bombay High Court while considering the object of enactment of sections 80HHA and 80-I held that the said expression will have to be considered liberally in a broader commercial sense having its object in mind. 9. Reliance was also placed on the experts' opinion of SAIL, VJTI and ERDA as well as literature on various processes including annealing which supported the case of the assessees that they were engaged in the manufacture of transformer core. It was also argued that all the case laws relied on by the revenue were misplaced as the facts of the assessees were completely different from the facts of the cases relied on by the revenue. 10. Rival submissions were considered by the Bench. The Bench also perused various documents and literature filed before it. The Bench also took note of the experts' opinion filed by the assessees. The Bench also visited the plant of M/s. National Lamination Industries to have a proper appreciation of actual processing involved in making the transformer core. Thereafter a note on various pr....
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....y establishes that the assessees were engaged in the manufacture of transformer core. (4) Ld. Vice President also referred to various cases relied on by the revenue and observed that ratio laid down in these cases was not applicable to the cases of the present assessees as the facts in those cases were entirely different than the facts of the assessee's cases. In the cases of the assessees the raw materiallose its identity and a new distinct marketable item emerges whereas in the cases relied on by the revenue no new and distinct commodity had come into existence even after processing. (5) The raw material used by the assessees was called CRGO/CRNO - coil whereas the product supplied by the assessees to the transformer manufacturers was called transformer core. The end-product called transformer core was new and different marketable article having different quality, characteristics due to various processes. CRGO/CRNO coil loses its existence during the course of various processes. The two products namely CRGO coils and Core Lamination are not only separately classified in the respective commercial market, but also in other legislation like Central Excise, Central ....
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....ed to the decision of Hon'ble Supreme Court in the case of Brakes India Ltd. by quoting that it will not be safe solely to go by a test as to whether the commodity after the change takes a new name, though in stated circumstances it may be useful to resort to it. This may prove to be deceptive something for it will suit the manufacturer to retain the same name to the end-product also. The "character" and "use" test has been given due importance by pronouncement of the Supreme Court. When adopting a particular process if a transformation takes place which makes the product for use of its own which it did not bear earlier then the process would amount to "manufacture". He also referred to the decision of Hon'ble Supreme Court in the case of N.C. Budhiraja & Co., Ashpinwall & Co. Ltd.'s case, S.R. Tissues (P.) Ltd.'s case, Prabhudas Kishordas Tobacco Products (P.) Ltd.'s case and Delhi Cloth & General Mills Co. Ltd.'s case. He held that slitting, shearing, notching, holing and deburring, core assembling and packing cannot be held to be the activities of manufacture or production of an article or thing. For taking such view the ld. Judicial Member has relied on ....
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....it may be useful to resort to it.... While adopting a particular process if a transformation takes place which makes the product for a character and use of its own which it did not bear earlier then the process would amount to manufacture." Relying on the above observations, ld. J.M. held that no transformation took place in the case of the assessees. CRGO sheets retained their characteristics even after the activities of cutting, slitting, shearing and v-notching etc. The above ratio laid down by the Hon'ble Supreme Court was fully applicable in the case of the assessees and, therefore, the assessees could not be said to be engaged in the manufacture of transformer core. 16. Ld. JM also relied on the decision of the ITAT Calcutta (SB) in the case of Shaw Scot Distrilleries particularly the following observations:- "Generally manufacture means consumption of one article for production of another but in the instant case, no article or thing is consumed for production of another. Alcohol remains alcohol. There is only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. This again at best can be said to be processi....
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....g the order under sections 143(3) and 143(1) in earlier cases when the claim of the assessees were allowed, the ld. JM observed that it was settled law that the principle of res judicata or the estoppel was not applicable to the Income-tax proceedings. In support, the ld. JM has also placed reliance on certain cases mentioned in paragraph 58 of his proposed order. 19. He also observed that the deduction under section 80-IB cannot be allowed on the basis of liberal interpretation. Relying on the decision of Hon'ble Supreme Court in the case of Novapan India Ltd., in the case of New Sharrock Spg. & Mfg. Co. Ltd., in the case of Boots Co. (I) Ltd., in the case of Oudh Sagar Mills Ltd. and some other cases, ld. JM observed that as there is no ambiguity in the provisions of the Act, the principles of liberal interpretation in favour of the assessee cannot be applied. He, therefore, held that the assessees do not fulfil the necessary condition of manufacture or production and, therefore, no exemption under section 80-IB was available to them. 20. On account of above difference, the matter has come up before me as a Third Member. The ld. CIT (DR) of the revenue as well as the ld....
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....o ensure permeability such as stacking factor, assembly factory, window height and air gap during the process and kept in their optimum threshold. By explicit a priory engineering-cum-manufacturing process based on analysis of final core geometry. The main and very important function of transformer core lamination is to carry the magnetic flux linked in a transformer winding. In transformer energy is transferred from one electrical circuit to another through magnetic field. The transformer core made of lamination provide magnetic circuit for the flow of magnetic flux mutually linking the electrical circuit. 4. The transformer occupies prominent position in the power system being a vital link between the generating station and point of utilization. Since it regulates, restricts and controls power supply from point of generation to point of utilization and the said vital function is carried out by transformer mainly because of transformer core lamination and that is why "transformer core" in power distribution industry is known as heart of transformer. 5. The Cold Rolled Grain Oriented Electrical Steel (CRGO) are iron silicon alloyed, which provides low iron loss an....
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....from the above decision and came to the conclusion that the activity of the assessees were akin to the cutting or punching holes. Shri Prasad argued that though in his proposed order, the ld. JM has put emphasis on the above portion of the decision by underlining them he has not highlighted the subsequent observation of the Hon'ble Court. He argued that ld. JM has completely overlooked significance of the word "mere" used by the court in its order, Hon'ble Court had held that "mere cutting or punching holes" does not amount to manufacture. In this case, the issue was as to whether industrial laminates and glass epoxy laminates could be construed as electrical insulator. Hon'ble Supreme Court noted that electrical sheets were already having insulating property and were used as insulator. Thus before the process and after the process the basic characteristic of insulation was present and no new product came into existence. Regarding cutting and punching holes the Hon'ble Supreme Court observed that only because they had to be cut to the requisite shape or a few holes may be required to be punched in them in order that they may be fit into electrical equipments, thi....
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....ing of the ld. VP has not been controverted or adversely commented by the ld. JM. Therefore, reliance on this case by ld. JM was not of much use. That apart, the finding of Hon'ble Supreme Court was based on the facts of that case. While deciding the issue the Hon'ble Supreme Court had made the following observations before coming to the above conclusion:- "The Tribunal took the view that it did because in common parlance and commercial raw diamonds are not the same thing as polished and cut diamond. The two are different entities in the commercial world. Though the chemical composition remains the same the physical characteristics of shape and class etc., are substantially different. It would appear that no material had been placed on the record before the Tribunal upon which it could have reached the conclusion that, either in common or in commercial parlance raw diamonds were not the same thing as polished and cut diamond and that they were different identities in the commercial world." 27. The above observation of the Hon'ble Supreme Court makes it abundantly clear that even in common parlance the raw diamond and polished diamonds were the same. There wa....
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....ate the use of the tissue paper. It was not a part of manufacturing process." But in the case of the assessees the cutting of CRGO coils was one of the processes of manufacturing along with various comprehensive processes. The use of the raw material and use of the transformer core was completely different. The CRGO sheets can never be used in the transformer. The end-product was altogether different in the name, shape, use, characteristics and marketability. Thus reliance on this case by the ld. JM was also misplaced. 29. Ld. JM has also heavily relied on the decision of Special Bench of the Tribunal in the case of Shaw Scot Distrilleries. In this case, the assessee used to purchase potable spirit from outside. For making Indian made foreign liquor it mixed certain percentage of water, colour and essence. The assessee claimed the above activities to be in the name of manufacturing activity. However, the Special Bench denied the claim of the assessee. While doing so the Bench observed as under:- "Generally manufacturing means consumption of one article for production of another. But in the instant case no article or thing is consumed for production of another. Alc....
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....ic. Thus this case supports the assessee and not the revenue. 32. Regarding principle of res judicata it was argued that there was no dispute about the legal proposition. But once the assessment orders in the earlier years were made by the Assessing Officer and the Assessing Officers have accepted the claims that the assessees were engaged in the manufacturing activities, in the year under consideration nothing fresh has come to the knowledge of the Assessing Officer, principle of judicial consistency should be followed. 33. Regarding liberal interpretation, it was argued that it was not the case of interpretation of the statutes. There was no dispute about the language of the statutes which provide that the assessees engaged in the manufacturing activities alone could claim exemption under section 80-IB of the Act. But the dispute was as to whether various activities performed by the assessee would amount to manufacture or not. The factual position of various processes involved in the manufacture of transformer core, has already been placed before the Assessing Officer, CIT(A) and the ITAT. The actual activities involved in the manufacture of transformer core clearly establi....
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....hand Daga v. Rameswaribai [2005] 4 SCC 772 at page 777. Hon'ble Supreme Court in the case of P.S. Sathappan v. Andhra Bank Ltd. [2004] 11 SCC 672 observed that judgment of the court must be read as a whole and the ratio therefrom is required to be culled out from reading the same in its entirety and not only part of it. Similar view was taken by the Hon'ble Supreme Court in the case of N.K. Rajgarhia v. Mahavir Plantation Ltd. [2006] 1 SCC 502 where the court observed that an order of the court of law in particular the consent order must be read in its entirety for the purpose of understanding its true intent and purposes. He stated that if the judgment relied on by the assessees are seen as a whole there was no doubt that the assessees were engaged in the manufacturing activities. He also argued that the opinion of the expert was also before the ld. JM and he should have given his opinion on the merits of the opinion rather than ignoring it as of no value. He supported the order of the ld. VP in its entirety. 37. Shri K.C. Patel, ld. Counsel stated that the Bench has visited the plant of one of the assessees and had prepared a note for making the proper assessment of th....
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....tions of the Hon'ble Courts referred to by the ld. Brothers, broadly indicates that the expression "manufacture" involves the concept of changes effected to a basic raw material resulting in the emergence or a transformation into, of new commercial commodity. By process of manufacture something is produced and brought into the existence which is different from that out of which it is made in the sense that the produce is by itself a commercial commodity, capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may be transformed into basic or essential product. Manufacture is a transformation of an article which is commercially different from the one which is converted. In manufacture something is brought into existence which is different from that which originally existed. In other orders the test to determine whether a particular activity amounts to manufacture of thing is: Does new and different goods emerge having distinctive name, use and characteristic? The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and ....
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....ating various processes involved in making of the transformer core. The raw material for making such transformer core was CRGO/CRNO sheets. The sheets are purchased in Jumbo coils or sheets. These sheets are first tested to find out whether transformer core made from such sheets could conform all the requirements and technical specifications of the customers or not. Various transformer manufacturing concerns provide their own design and technical specifications according to which the core has to be made. As the CRGO/CRNO sheets are purchased in Jumbo roll forms this has to be first cut in different sizes as per requirements of the customers. This process is called slitting. Slitted roll has to be further cut in the trape-zodical shape by employing hydraulically operating guillotine machines. After guillotine operation, the piercing operation takes place in which the holes are punched. During these processes of slitting, cutting and piecing of lamination the cut edges gets some burrs. These burrs are removed by passing the lamination through deburring operation. The presence of burrs impairs, increases the losses. During the course of these processes, the mechanical stresses are dev....
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....d by them was not sacrosanct yet once the same was filed, the same should be accepted or rejected on merits. I have also perused the opinion given by them in the forms of question and answer also. In their opinion they have confirmed that various activities performed by the assessees for making the transformer core was manufacturing activity. Nothing has been brought to my notice to take a different view in this regard. 46. I further notice that the ld. JM has observed that the activity of making transformer core cannot be treated as manufacturing activity as no new product has come into existence and there was no substantial change in the characteristic of the product even after various processes have taken place. For this proposition he has relied on certain observation of the courts in different cases, which are referred by him in paragraphs 38-44 of his proposed order. 47. Ld. JM has observed in the proposed order that cutting and punching holes could not amount to manufacturing activities and as the assessees were engaged only in this type of activity they cannot be said to be engaged in manufacturing, producing an article or thing. In order to support this proposition t....
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....ced. In this case, the Hon'ble Supreme Court observed that cutting of Jumbo rolls into smaller sizes was not an activity of manufacturing. Hon'ble Supreme Court has observed that when the assessee purchased tissue papers in Jumbo rolls the same could not be used either as napkin paper, toilet paper or facial paper. In order to facilitate the use of the tissue paper the Jumbo rolls were cut into small pieces and required sizes. The resultant product was napkin, toilet tissues and facial tissues. The court observed that the texture, feel and moisture absorption capacity was the same when the tissue paper was in Jumbo roll and after cutting when it was being used as napkin, toilet or facial tissues. It was under these circumstances that the Hon'ble Court held that the tissue paper in Jumbo roll remained the same and there was no change in the basic paper. All the characteristics of tissue paper in Jumbo roll continued to be the same in the cut tissue paper. Admittedly in such a situation it cannot be said that a napkin, toilet paper facial tissues has been manufactured out of Jumbo rolls of tissue paper. But in these cases there are various documents as well as evidences t....