TMI Blog1995 (10) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... appelant's claim for relief under section 80J of the Act in respect of 'Iron ore sizing and washing plant'? (3) Whether, in the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant is not entitled to claim relief under section 80J of the Act in respect of 'Pilot plant' being part of 'Iron ore sizing and washing plant' ?" The assessee is a private limited company engaged in the mining and sale of iron ore. For the assessment year 1981-82, it claimed the benefit admissible to a new industrial undertaking under section 80J of the Income-tax Act, 1961, in respect of a new plant brought into use by it called the "Iron ore sizing and washing plant". Prior to the year under consideration, iron ore extract from the mines belonging to the assessee was screened in what was known as a "screening plant". This plant segregated iron ore on the basis of size. With better technology and the added need for greater sophistication in mining and other operations, the petitioner appears to have installed and commissioned into use the new mechanism mentioned above. The function of this plant, is to remove impurities from the ore by hydraulic washing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and washing the ore must in the very nature of things be deemed to be a process resulting in the production of a new commodity within the meaning of section 80J. He contended that even if the said process cannot be treated to be a manufacturing process, it must be deemed to be a process of production of a commercially saleable commodity different from the one which was earlier to the said process wholly unsaleable. The upgradation of the ore was, according to Mr. Sarangan, a material change brought about by the process to which the ore obtained from the mines was subjected and since the end result of the said process made a material difference in the marketability of the product, it must be considered to be an altogether different commodity than the one that passed through the plant set up by the petitioner. Value addition, contended the learned counsel, was an important test for determining whether a particular process to which a certain commodity or raw material has been subjected can be said to have produced a new and commercially distinct article. Judged from the angle of value addition and the marketability of the product, argued Mr. Sarangan, the process by which the impure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with reference to any particular industrial undertaking." As to what will amount to manufacture or production of an article within the comprehension of the provision reproduced above, has not been defined. Courts have, therefore, given to the said expressions a meaning that is understood in common parlance. Judicial pronouncements on the subject provide a fairly broad spectrum as to what would or would not amount to manufacture or production of a commodity, with a considerable amount of diversity in the views taken. We, however, consider it unnecessary to refer to all these judgments except a few, particular reliance whereupon was placed by learned counsel for the parties. In CIT v. Sri Venkateswara Hatcheries (P.) Ltd. [1988] 174 ITR 231, a Division Bench of the High Court of Andhra Pradesh held that the term "produce" was of a much wider amplitude than "manufacture", inasmuch as the former covered both animate and inanimate objects whereas the latter was confined only to production of inanimate objects and articles by some mechanical or manual process. The court held that chicks produced on a commercial scale by efforts of both men and machines was tantamount to production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Express (100 L Ed. 917 ; 110 ET 917) in support of the view that the manufacturing process would imply transformation of the material used into a new and different article having a distinct name and character : "Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary.... There must be transformation ; a new and different article must emerge, 'having a distinctive name, character or use'. And further : 'At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been "manufactured".' " The court then proceeded to formulate the following test for purposes of determining whether any manufacturing process has taken place in respect of any commodity : "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 commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings of fact recorded in the order of the revising authority were necessary for the purpose of saving the tea leaves from perishing, making them fit for transporting and marketing them. The process applied was minimal. Withering, crushing and roasting the tea leaves will be surely necessary for preserving them. The process of fermentation or final roasting with charcoal for obtaining suitable flavour or colour and also the process of grading them with sieves were all within the region of minimal process and, at no point of time, it crossed that limit and robbed the tea leaves, the agricultural produce, of their character of being and continuing as such substantially. In my opinion, therefore, the view expressed by the High Court is quite justified and sustainable in law." A similar question arose before a Division Bench of this court in Lipton India Ltd. v. State of Karnataka [1994] 95 STC 225. The question there was whether blending of tea could be said to be manufacture of a commercially different product from the tea leaves which were used for purposes of such blending. Relying upon the judgment of the Supreme Court, in the case referred to earlier, this court rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Food Packers' case [1980] 46 STC 63 (SC), the first question was answered by their Lordships in the negative holding that the blending of different qualities of ore possessing different chemical and physical compositions so as to produce ore of the contrac tual specifications could not be said to involve any manufacturing process since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. The following passage from the judgment clearly brings out the ratio of the decision (at page 130 of 47 STC) : " The test that is required to be applied is : does the processing of the original commodity bring into existence a commercially different and distinct commodity ? On an application of this test, it is clear that the blending of different qualities of ore possessing differing chemical and physical composition, so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e term "produced" would have a wider connotation than manufacture ; (c) All "manufacturing or production" activities involve some process or the other but all processes need not necessarily amount to production or manufacturing of an article. It is only when a change or series of changes take the commodity subjected to such processes to a point where it can no longer be regarded as the original commodity but is instead recognised as a new and a distinct article, that such a process may be said to have resulted in a "manufacture", or "production", of a new article. In other words, where there is no difference in the identity of the original commodity and the processed article, it is not possible to say, that a commodity has been manufactured ; (d) As to whether an article has been manufactured or produced will depend upon whether the same is commercially different from the commodity out of which the same has been produced. This would vary from case to case. Applying the above test to the facts of the instant case, it is apparent that the use of the iron ore "sizing and washing plant" installed by the assessee does not result in the production or manufacture of any commodity di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether what is subjected to a particular process can be said to be commercially different from the end product. It is only if the answer is in the affirmative, that it may be possible to say that the process has resulted in the production or manufacture of another article. It follows as a corollary that the very fact that a certain process has been carried out in respect of a particular commodity does not mean that the said process has resulted in the production or manufacture of a new article. As observed by their Lordships of the Supreme Court, in Chowgule and Co.'s case [1981] 47 STC 124, wherever a commodity undergoes a change as a result of some operation performed on it, or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. What is important is that the commodity has as a result of the operation experi enced some change. But it is only when the change or a series of changes that are experienced by the commodity takes the commodity to the point of being known commercially as a distinctly different commodity, that the process can be said to have resulted in manufacturing or production. The fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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