TaxTMI 
TaxTMI 
TaxTMI 
1998 (9) TMI 105
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts in— 1. allowing deduction under s. 80-I of the Act on 25 per cent of the admissible amount: 2. allowing deduction under s. 80G; 3. reducing the disallowance under s. 37(2A) by Rs. 1,37,882 and; in 4. directing the AO to recompute the interest chargeable under s. 215 after excluding the disallowance confirmed under s. 80-I and 43B of the Act. 4. The assessee is an Indian company engaged in the production of drugs, tablets, injections, liquids, ophthalmic solutions, etc. It purchases its own raw materials for the said purpose and has claimed that the formulation of the various components of the finished products, tablets, injections, etc. is done by the assessee. Mixing of raw materials and the blending is done in accordance with the instructions and supervision of the assessee at its factory premises by its own technical staff. Thereafter the tablets and injections, etc. are prepared at their premises by Torrent Laboratories (P) Ltd. and Asoj Soft Capsules (P) Ltd. and after testing and investigation of the finished products, these are packed and packing activity is carried on by the assessee at its factory and godown. 5. For the first time the assessee claimed d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis of the list of machinery installed by the assessee and the earlier two processes were carried on by sister concern of the assessee allegedly under the supervision and control of the assessee. Accordingly the AO denied the claim of deduction under s. 80-I to the assessee. 8. On appeal, the learned CIT(A) partly accepted the plea of the assessee and held that the assessee has carried out the process of formulation throughout the year. However, the process of actual manufacture was carried out by it on a small scale for only a part of the year and the process of packing for almost 50 per cent of the year because the machineries purchased and installed by the assessee in the assessment year under consideration did not work for the entire year. Accordingly the CIT(A) directed the AO to allow relief under s. 80-I to the assessee of 25 per cent of the admissible amount during the assessment year under appeal. 9. The Revenue as well as the assessee both are aggrieved with the above decision of the CIT(A). The assessee has challenged the action of the CIT(A) on the ground that having held that the assessee is entitled to deduction under s. 80-I, there was absolutely no justificatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ulk drugs, processes are carried out and medicines prepared are immediately packed on being produced in order to retain its intensity and applicability for use before any climatic phenomena affects the usefulness of the medicines. After preparation of the medicines in small units packing is required to be carried out as required by Drugs and Cosmetics Act, 1940 and the various Government agencies monitoring the medicinal field which require various items to be mentioned on the packing of the medicine like Lot No. with specific indication of batch of medicine manufactured, maximum retail price, date of manufacture and expiry, details of important compositions of various drugs included in the medicine; whether the medicine can be sold on prescription only or it is a OTC medicine; any specific direction/side effects of the medicine and immediate steps required to be taken in case of side effects and reversal medication to be administered in such cases along with the direction for storage of the medicine. 12. The learned Departmental Representative strongly relied on the order of the AO and submitted that to decide the controversy in issue the following questions are required to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the raw material, being bulk drugs purchased by the assessee-company, retained their properties and identity and the final product only has perhaps a change of shape and it remained the same as the raw material which is the bulk drugs. The learned Departmental Representative referred to the case of drug Diclomax-50, which is being sold under the brand name of Diclofenic Sodium. It was submitted that both the bulk drug as well as the drug sold on the counter by a retail chemist are essentially the same. It was further submitted that the assessee-company does not own any machinery which is utilised in the so-called manufacturing process, but it only uses the machinery for making strips, tablets etc. Accordingly it was submitted that in view of the decision of the Supreme Court in the case of CIT vs. N.C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) the assessee cannot be said to be a manufacturer of any article or thing so as to be entitled to deduction under s. 80-I. It was submitted that the assessee's own machinery pertains to the packing of the drugs and this activity alone cannot be called a manufacturing process. Reliance was placed on the following....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut even that process is done under the technical staff of the assessee in accordance with the requirements laid down under the Drugs and Cosmetics Act, 1940. Accordingly it was submitted that the assessee is entitled to deduction under s. 80-I of the Act. Reliance was placed on the following decisions: (1) CIT vs. Anglo-French Drug Co. (Eastern) (1991) 95 CTR (Bom) 176 : (1991) 191 ITR 92 (Bom); (2) CIT vs. Neo Pharma (P) Ltd. (1982) 27 CTR (Bom) 223 : (1982) 137 ITR 879 (Bom); (3) Addl. CIT vs. A. Mukherjee & Co. (P) Ltd. (1978) 113 ITR 718 (Cal); (4) CIT vs. Rajmohan Cashews (P) Ltd. (1990) 185 ITR 472 (Ker); (5) Orient Longman Ltd. vs. CIT (1981) 130 ITR 477 (Del); (6) CIT vs. Penwalt India Ltd. (1991) 96 CTR (Bom) 20 : (1992) 196 ITR 813 (Bom); and (7) Addl. CIT vs. Chillies Export House Ltd. 1978 CTR (Mad) 230 : (1978) 115 ITR 73 (Mad). 14. As regards the submissions made by the learned Departmental Representative with reference to Dislomax-50 which is sold under the brand name Diclofenic Sodium and which is also shown as bulk drug in the stock, it was submitted that the conclusion drawn by the Departmental Representative is misconceived because Diclomax-50 tab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,313 was installed by the assessee in its rented premises on 25th Jan., 1986. It is also noticed that the assessee paid electricity expenses in respect of its factory amounting to Rs. 20,989 and has also used the spare parts of machinery valuing Rs. 30,657. The assessee has also employed requisite number of employees as prescribed under s. 80-I(2)(iv). It has also paid factory rent of Rs. 12,000 and these factors are quite apparent from the statement of accounts furnished along with the return and have not even been doubted by the Departmental authorities. Thus it is clear that the assessee has been getting its products manufactured earlier through associate concerns under its supervision and control but almost from the middle of the accounting year relevant to the assessment year under consideration the assessee also started a part of process No. 2 like making of tablets also in its own factory. Thus, it is seen that in the earlier part of the year the assessee was only carrying out the process of making formulation of bulk drugs by adding certain materials required to bind, granulate, etc. with a view to fix the time-limit for release of drugs at an appropriate time after it is c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onal rate of tax. Similar is the view of the Bombay High Court in the case of CIT vs. Anglo-French Drug Co. (Eastern) Ltd. wherein the High Court followed its earlier decision in the case of CIT vs. Neo Pharma (P) Ltd. Reliance of the Departmental Representative on the case of CIT vs. N.C. Budharaja & Co. rather supports the case of the assessee because in the said decision at p. 415 of 204 ITR the Hon'ble Supreme Court held that "The test 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 trade as a new and distinct commodity". Applying the above test to the facts of the case we have no hesitation in holding that the medicines/drugs manufactured/produced by the assessee in the form of blister strips of capsules, tablets or injections, etc. in different packing sold by retailers are distinct commodities from the bulk drugs which is subjected to the process of formulation by adding certain adhesive chemical compounds required for binding, granulating and also determining the time-limit for the release of the drugs at ....