TaxTMI 
TaxTMI 
TaxTMI 
2005 (5) TMI 233
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....s for the first time only for the assessment year 1991-92 as it had no positive income in the first year. The Assessing Officer, after carefully considering the submissions made by the assessee in respect of the scope of its operations, and which find mention, along with his own arguments/reasoning, in his assessment orders for the relevant years, concluded that the assessee being engaged only in 'purification' of drinking water (for hygienic reasons), the industrial activity involved therein does not amount to 'manufacture' as contemplated under the Act, and as such, is not eligible for deduction under section 80-I of the Act. The CIT(A), before whom the matter travelled at the instance of the assessee, concurred with the findings of the Assessing Officer, again, after a detailed discussion vide his consolidated impugned order, citing case law, both to meet the arguments of the assessee, as well as to advance the Revenue's case, in the process. 3. The issue thus, as deciphered, is whether the industrial activity involved in the 'production' of demineralised water by the assessee-company amounts to manufacture within the meaning of the term as contempla....
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.... consumption, the same leading to a new and different commercial product would amount to manufacture as understood in law. He sought to draw support from various case laws, the chief among them being the recent decision of the Hon'ble Supreme Court in the case of Kores India Ltd. v. CCE 2004 TIOL-92-SC-CX under the Excise Law and of the Ahmedabad Bench of ITAT in the case of Asstt. CIT v. Hynoup Food & Oil Industries (P.) Ltd. [1999] 63 TTJ (Ahd.) 111 as also the fact that the Excise Authorities had, in the case of one of the franchisees (Bottlers of the Bisleri packaged water), held the process as one of excisable manufacture leading to 'manufacture' of excisable goods. And which ratio, therefore, it was pleaded, would apply squarely to the assessee's case. The matter, he added, even if considered to be doubtful, should weigh in the favour of the assessee in view of the liberal construction that the provisions of beneficial deduction should merit, keeping in view the larger purpose and the object they subserve, as also the settled position in law that in case of two equally reasonable views, the one in favour of the assessee ought to be adopted. 3.3 The learned D.....
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....ter of the end product, which together lead it to be recognized as such in the commercial circles. In the present case, however, we observe that the end product, i.e., packaged drinking water, is nothing but a purer, more hygienic form of drinking water than as available from the regular sources, in the main from the Municipal Corporation, also referred to as tap water in common parlance. Indeed, millions, in fact majority, of our population consume this tap water for their drinking needs, without the deleterious affects that the learned A.R. would have us believe would befall if so done. Nevertheless, the term 'manufacture', though not mathematically precise, is also not a term of art, so that we are obliged to consider the case law as well as the other arguments cited before us by the learned A.R. before deciding the matter. Further, it would be pertinent to state, as also argued before us by the learned D.R., that the case law in respect of cognate legislation cannot have an automatic application and is to be used/relied upon with circumspection, i.e., with due regard to the object and the intent of that legislation. The Excise Law, indeed, deals with products that arise....
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....lly involves consumption of a particular commodity in the process of manufacturing of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture and the result must be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent 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 whether commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Where there is....
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.... intermediate product in the manufacture of vegetable ghee (Vanaspati). As such, the Court sought to distinguish the earlier decision of the Hon'ble Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 wherein the Apex Court had, in the facts of that case, where the refined oil did not include the process of deodorizing, held the processes undertaken as not leading to manufacture. It was only after this process (deodorizing) that the product was rendered fit for human consumption, complying with the standards laid down in its respect, and with which the buying public identified. Again, the decision, rendered in the facts of its case where a new product, distinct in its name, character and use comes into being, would not, to our mind, advance the assessee's claim. 4.4 In the case of Hynoup Food & Oil Industries (P.) Ltd., wherein the process of refining of raw cotton seed oil into refined cotton seed oil was held to be a manufacturing activity, the decision was based on the factual understanding that the raw (unrefined) cotton seed oil is not at all eatable, and used, as well as sold, as washoil (being used primarily for the ma....
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....7 dated 28-7-1987, agreed with the assessee's arguments and held that the treated water as 'manufactured' by the assessee did not fall under the Tariff heading 22.01, and therefore, was non-excisable. Among the reasons cited in the said Circular, it states that: (a) Section 2(f) of Central Excise and Salt Act, defining 'manufacture' has no specific provision in respect of this commodity unlike in some other cases, so that the product would continue to be non-excisable even under the new Tariff; (b) The Explanatory Note to HSN which reads as "natural water, even if filtered, sterilized, purified or softened, is excluded (Heading 22.01)", and thus, removes the assessee's end product from the purview of Excise (Heading 22.01 covers "natural or artificial mineral water and aerated waters, not containing added sugar or other sweetening matters, not flavoured ice") nor is it covered under Chapter 22.02 which include 'sweetened or flavoured mineral water'; and (c) That if such products are to be considered as excisable, tap water for domestic use supplied by the Municipal Corporation could also get covered since 'waters' are specifically menti....
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....articular desired end product specification. And therefore, this fact, by itself can be of no assistance in assessee's case, the only reasonable inference that one might draw therefrom is that mineral water as produced by the said company is an excisable product. That apart, the same cannot be said in respect of the assessee's case, and not only for the reason that the learned A.R. confirms so, but also that the report of the consultant food technologist dated 16-2-2004, filed by the assessee in support of its claim, clarifies that all such mineral salts (carbonates/bicarbonate/ sulphate, etc. of sodium, calcium, magnesium, etc.) which work up to 500 ppm or more in the raw water are reduced to 500 ppm in the treated water. Further, in the sample test report of the physical/chemical/microbiological characteristics, which forms Annexure-1 of the said report, we find that there is a reduction in the content of all such minerals from that found in raw water so that there is a removal of the minerals to that extent through the process of demineralization, rather than their addition. As such, reference to the case of M/s. Silver Springs Pvt. Ltd. does not in any manner help the a....
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.... emanates. The said argument was also made by the assessee before the lower authorities too, who refused the same by, once again placing reliance on the decision of the Apex Court in the case of N.C. Budharaja & Co. in which the Court has said that the principle of adoption of a liberal interpretation which advances the purpose and object of beneficiant provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment as it was neither reasonable or permissible for the Court to rewrite the section or substitute words of its own for the actual words employed by the Legislature in the name of giving effect to the supposed underlying object, which after all, has to be covered only on the basis of reasonable interpretation of the language employed. We are in full agreement with the Assessing Officer as well as the first Appellate authority in this matter. In fact, the argument of the assessee, if given effect to, by, as prayed, construing the word 'manufacture' so as to include within its purview activity which would not otherwise qualify for the same, would be to negate the entire case law on the subject and the meaning of the ....
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....the Act. Being essentially a natural or biological process, it could, by application of the mechanical method could only be better regulated. (v) CIT v. Relish Foods [1999] 237 ITR 595 (SC) - It was held that a peeling and freezing of shrimps did not lead to distinct commodity so as to entitle the assessee the special deduction under section 80HH of the Act, after applying its own decision and in the Sales tax cases i.e., Sterling Food v. State of Karnataka [1986] 63 STC 239 (SC). 9.1 It would be profitable to understand the decision of the Apex Court in the case of Kores India Ltd., which was based on the terra firma of the factual findings of the case. By way of elucidating the concept of manufacture, it extracts the fundamentals from its previous decisions, and lists them therein, as: "13. The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the proce....
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....r is subject it is rendered free of impurities, minerals (present either free or in the form of their salts), and micro organisms, and thus, made more hygienic and suitable for human consumption, yet, despite this transformation, it remains only drinking water, i.e., what it was at the raw-material stage. There can be no doubt that its name, character and use is only of drinking water, and no more, and the buying public, as well as those who deal in it, regard it as such. In fact that is its USP, i.e., on the basis on which its sold and marketed - as a pure, and thus safe, water for human consumption. The water 'consumed' in the process, i.e., tap water, is also drinking water which satisfies the drinking needs of a large majority of our people, as indeed it has for the past many decades. As such, it is difficult to see how a new product has come into existence. It may be that the treated water as produced is a better or superior form of drinking water. But that would not alter the ratio afore-stated; we have, for that matter, a range of qualities for each product being sold in the market. But this would not make them, for that reason, to be recognized as separate (generic)....
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...., thus, of the opinion, under the given facts and circumstances and the law in the matter, that the transformation wrought on the normal drinking water, definitely with the purpose to make it purer, yet, does not satisfy the test of sufficient difference in name, character and use so as to qualify the antecedent processes as amounting to manufacture; the sophisticated machinery, labour, or other skills and knowledge that may have been deployed for the purpose, notwithstanding, as value addition, for which there could be several other contributing factors also, by itself, is not conclusive of the matter. 11.1 The only other ground in assessee's appeals (Ground No. 1 in ITA No. 2290/Ahd/1997) relates to the disallowance of advertisement expenditure amounting to Rs. 22,31,700. The assessee had, during the year under consideration, expended Rs. 35,61,628 on advertisement and publicity to promote its product/brand name, of which Rs. 22,31,700 pertained to the advertisement of the product 'MAAZA', which was neither manufactured nor marketed by it either during the relevant year or in the past. Upon inquiry, it was explained that the assessee had given possessing rights in re....
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.... this special expenditure; it having no direct or indirect business interest in the production and marketing of the 'MAAZA' soft drink which business was solely managed and run by its subsidiary, so that by incurrence of the said expenditure it did not serve any of its business purposes; and maintaining of brands, or the share value of the subsidiary companies, by any score, could not constitute its business. In respect of its argument of maintenance of the brand value, in its capacity as its owner, it was held that, though a capital asset, expenditure on preservation of which would definitely qualify as a revenue expenditure, the same could not be held as deductible in view of the fact that it did not constitute a business asset in its hands. The learned CIT(A) thus rejected the assessee's claim. Hence this appeal. 11.3 Before us the learned A.R. reiterated the assessee's contention before the lower authorities stating that promoting its brand name as well as preserving its brand value and warding off - of competition was solely for business considerations, citing the case of R.C. Jain v. CIT [1973] 91 ITR 557 (Delhi) in its favour. The learned D.R., elaborating t....
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....ready under way. That the expenditure was also able to pay short term dividends by affecting the reversal in the declining sales of its subsidiary and its bottlers, or rather, even effect an increase therein, is of no significance; the benefit arising to a third party not diluting or taking away the character or purpose of an expenditure. Rather, in the facts of the case, this benefit is not incidental, but only a natural corollary, as it is only with the increase in sales, or at best an arrest in its decline, that the brand value could be maintained or enhanced. 11.4.2 We are fortified in our finding by the fact that the assessee itself states that the incurrence of this expenditure would have 'crippled the resources' of M/s. Golden Agro Products Limited, its subsidiary, and the other franchisees and therefore, it had thought fit, as a strategic purpose, not to burden this special expenditure on advertisement, as doing so, apart from loosing on the tax benefit, to which we do not assign much significance (being reversible), would depress the profitability of the subsidiary, and thus the value of the related business which was under contemplation for sale, and for which it....
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....#39;s appeal: 13.1 The only effective ground of the Departmental appeal relates to the deletion of an addition of Rs. 2,94,813 affected by the Assessing Officer on account of alleged unaccounted purchase of bottles during the previous year relevant to the assessment year 1992-93. The facts of the case are that the Assessing Officer observed an excess consumption of 1,05,079 bottles with reference to their purchase. The same were explained to be on account of free replacement by the supplier in lieu of the broken bottles. However, this contention was not accepted by the Assessing Officer on the ground that the assessee could not furnish any details or records in respect of the broken bottles as kept by it for the purpose, as well as the fact that he observed that the assessee had, in fact, deducted a sum of Rs. 1,37,240 on account of damaged bottles from the account of the supplier, so that the question of free replacement by the latter did not arise. Before the learned CIT(A), however, the assessee contended that along with its written submissions to the Assessing Officer, it had furnished the confirmation from the supplier for the free replacement complete with the dates and chal....