TMI Blog1996 (6) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ,83,313 on30th December, 1992. The same was processed under section 143(1)(a) in which the income was determined at Rs. 1,69,37,632. Subsequently the order under section 154 was passed in which the income was reduced to Rs. 1,62,25,330. Thereafter notice under section 143(2) was issued and an assessment under section 143(3) was made on27th March, 1995determining the taxable income at Rs. 2,10,37,505. 3. During the course of assessment proceedings the Assessing Officer required the assessee to explain as to why the deduction claimed under section 80-I should not be disallowed since the company was not engaged in the manufacturing activities as it appears from the records. According to the Assessing Officer, the company was carrying on the business of engineering contractor for setting up of plant for treatment of effluent and water according to the customers requirements. The assessee submitted its reply dated 5-12-1994, inter alia, stating that the company is an engineering company engaged in the manufacturing and setting up of effluent and water treatment plant to the customers requirement and is eligible for grant of deduction under section 80-I. The Assessing Officer arrived a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negativing the company's claim for deduction under section 80-I for assessment year 1992-93 on the Assessing Officer's plea that "the company was not engaged in the manufacturing activity, as it appears from the record". He submitted that the assessee submitted a detailed reply in response to the show-cause notice issued by the Assessing Officer vide appellant's letter dated5th December, 1994addressed to the DCIT. In this letter the assessee explained before the Assessing Officer that the company is engaged in the manufacture of water/effluent treatment plant and therefore, it will have to be regarded as an "Industrial undertaking" engaged in the manufacture of water/effluent treatment plant, which is completely different from the business of construction. A detailed note on the activities carried out by the appellant-company was also submitted along with the said reply. Copies of letters granting approval by the Ministry of Industries in respect of foreign collaboration entered with M/s Degremont, S.A.Francefor manufacture of water and treatment plant was also produced before the Assessing Officer along with the said reply. The Assessing Officer, however, departed from the recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to tax holiday such as contained in section 15C of the old Income-tax Act, 1922, sections 80, 80J, 80HH and 80HHA, etc., all these sections talk of industrial undertaking manufacturing or producing "articles" whereas the new enacted sections, viz., sections 80-I and 80-IA for the first time, mentions industrial undertaking which manufactures or produces any article or thing. He submitted that it is noteworthy to find that the word "article" or "thing" mentioned in section 80-I is in singular. The learned counsel submitted that the Parliament generally does not indulge in tautology. In English language it is said that there are no synonymous. Therefore, the addition of an individual word "thing" cannot be lost sight of and it will require a specific consideration in order to determine the eligibility of the assessee for grant of deduction under section 80-I. He also explained that section 80-IA(8) uses the expression "goods". The expression "goods" has been defined in article 366 of the Constitution of India as including all materials, commodities and articles. He also invited our attention towards the new entry 29A, which is added in article 366 of the Constitution of India, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44AB with a view to highlight that the said section talks only of civil construction. Section 44BBB contains special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., as well as certain turn key power projects. Likewise he invited our attention to Explanation 2 to section 9(1)(vii) as well as the definition of foreign project given in section 80HBB. All these provisions were brought to our notice with a view to canvass that a clear-cut distinction between the civil construction work and the construction/assembly and/or installation of any plant and machinery has been made wherever the Legislature considered it necessary. He, further, submitted that the various Double Taxation Avoidance Agreements (DTAAs) make a clear-cut distinction between the works contract by way of predominantly civil construction on the one hand and assembly supply and installation of plant and machinery on the other. (h) The learned counsel submitted that one will, therefore, have to contend with the expression "article" or "thing" used in section 80-I as compared to the singular mention of the word "article" used in sections 80-I, 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual purpose, namely, effluent is disarmed while at the same time the plant yields produce like methane gas which acts as a fuel to the boiler and only excess methane, which should not be allowed to be let loose, as it is highly poisonous, is burnt out through a special device. The assessee has undertaken the obligation to supply such a plant which will adhere to the various stipulations and conditions mentioned in the agreement including guarantees, warranties, performance tests and commissioning. The learned counsel in this regard invited our attention to various clauses of the said agreement. Our particular attention was drawn towards clause 4 which provides that if the sellers (appellant-company) shall have succeeded in giving the performance test, the plant as herein set out for the said period of 15 days, the plant shall be deemed to have been successfully commissioned and the purchasers shall be bound to issue a certificate accordingly to the sellers. Thereafter the sellers shall be entitled to claim 10% of the agreed consideration, till then retained by the purchaser and the purchaser agreed to pay the same within 10 days of such successful performance test and having been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -how. The learned counsel further submitted that assembling and other numerous operations involved in readying effluent treatment plant is certainly an activity which is covered by the expression manufacture or production of an article or thing. It is impossible for anybody to put up such a water effluent treatment plant with varied components without the technology and accumulated experience. (l) The learned counsel further submitted that the contention of the D.R. that the assessee has preferred the bills for the items for the supply of equipments and therefore, they are only re-seller of goods and not a manufacturer is not correct. He submitted that with great respect to the learned D.R. he has not understood the basic conditions contained in the agreement executed with Dyaneshwar by which assessee is under an obligation to not only design, manufacture and supply the various components of the effluent water treatment plant but the assessee is under an obligation to give successful performance test by running the said effluent treatment plant and only thereafter they are entitled to receive the balance amount of 10% retained by the customers for ensuring successful commissionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other similar civil construction work. The Hon'ble Supreme Court has pointed out that a dam, bridge, road or canal or other similar construction cannot be treated as an "article or thing manufactured or produced by the assessee". The ratio of the said judgment by no stretch of imagination can be applied to a case where the assessee is engaged in the business of carrying out a turn key project of designing, manufacture, selling and installing effluent water treatment plant. (o) The learned counsel further submitted that in carrying out the turn key project of commissioning of effluent water treatment plant, the assessee has to carry out a small work of the nature of civil construction, for laying down foundation, etc., for installation of the said plant. That is an insignificant part of the total contract. The work of laying the foundation of the plant carried out by the assessee in some cases is a necessary activity for ensuring successful commissioning of the said plant. He submitted that in various contracts such civil work is done by the customers themselves while in some cases civil work is carried out by the assessee on behalf of the customers for ensuring successful r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 Taxman 349 (All.) In this case it was, inter alia, held that though the activity of the assessee was one of assembly of component parts of a tractor, it was not a case where a tractor was imported in a knocked down condition and re-erected. Large number of parts were imported and they were first knit into 23 components, which, in turn, were fitted together to form a tractor. Therefore, the activity of the assessee amounted to manufacture or production of articles and it was entitled to benefit of the provisions of sections 80-I and 80J. (4)JacksonEngineers (P.) Ltd v. ITO [1989] 31 ITD 79 (Delhi) The assessee in this case was purchasing from different parties (i) engine ; (ii) alternators ; (iii) engine instrument panels ; (iv) Base plate ; (v) fuel tank ; (vi) control panels ; (vii) ball bearing ; (viii) measuring instrument and gauges ; (ix) Radiators, silencer and other components and converting them into several types of engines of different horse powers. It was held that what the assessee assembled and manufactured through its assembling was not the same name which was assigned to the parts. The engines made by the assessee was known as diesel generating set. With thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, a manufacturer of water treatment plants and ion exchange resins was a manufacturer of chemical machinery within the meaning of item 8A(9) of the First Schedule to the Industrial (Development and Regulation) Act, 1951. The learned counsel further invited our attention towards the Commentary of learned author Sampath Iyengar, 9th edition, page 4089 with a view to convince us that it is not necessary for the industrial undertaking to carry out all the processes itself. (q) The learned counsel submitted that the most important and direct decision on this point, which is squarely and directly applicable to the facts of the present case is a recent decision rendered by the ITAT, Ahmedabad Bench in the case of Enviro Central Associates v. Asstt. Commissioner [IT Appeal No. 1650 (Ahd.) of 1990 dated28-6-1994]. A copy of the said decision was also supplied by the learned counsel for the assessee in the course of hearing on8-5-1996. The facts of the said decision are stated to be absolutely similar and identical with the facts of the present case. The Ahmedabad Bench of the Tribunal also took into consideration the judgment of Hon'ble Supreme Court in the case of N.C. Budharaj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court can be extended to a case where the assessee is engaged in the business of carrying out a turn key project like the one carried out by the assessee in which he not only designed, manufactured, supplied and installed the aforesaid water treatment plant but also undertook to give the performance test for its successful running. (t) The learned counsel further invited our attention towards the judgment in CIT v. D.K. Kondke [1991] 192 ITR 128/57 Taxman 13 (Bom.) wherein it was held that production of cinematographic films is a manufacturing activity. (u) The learned counsel thereafter invited our attention towards the judgment of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd v. CIT [1992] 196 ITR 188/62 Taxman 480 in which it was held that a provision in a taxing statute granting incentive for promoting growth and development should be construed liberally. Since a provision for promoting economic growth has to be interpreted liberally, the restriction of it too has to be construed so as to advance the objective of the provision and not to frustrate it. (v) The learned counsel thus strongly urged that the assessee should be held to be eligible for grant of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or production of any article or thing". Thus in view of the ratio laid down by the Hon'ble Supreme Court in N.C. Budharaja Co.'s case on section 32A, the assessee is not entitled to deduction under section 80-I. (iv) There is a distinction between business undertaking and industrial undertaking. The assessee may qualify as a business undertaking but it is not industrial undertaking. Reliance is placed on the following case laws : (1)KeralaStateCashew Development Corpn. v. CIT [1994] 205 ITR 19 (Ker.) (2) CWT v. Kishorilal Agrawal [1993] 203 ITR 975 (Pat.) (3) HindNipponRural Industries (P.) Ltd (No. 1) v. CIT [1993] 201 ITR 581 (Kar.) (4) Dy. CIT v. India Cine Agencies [1995] 54 ITD 257 (Mad.). (v) Without prejudice to the above submissions it is submitted that to qualify for deduction under section 80-I in industrial undertaking should be wholly for manufacture and production of article or thing. For the above proposition support is derived from the following case laws : (1) CIT v. S.P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR I79 (Cal.) (2) Grewal Hotels (P.) Ltd. v. Dy. CIT [1995] 54 ITD 32 (Chd.) It is submitted that by no stretch of imagination the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brication was done by the assessee under its direct control and supervision or it was done by independent contractor. It is also to be seen as to whether assessee had a contract for supply of goods and services with the parties for whom plants were constructed or the plant as a whole was to be supplied by the assessee. (xii) It has been submitted by the assessee that assembling of plant would lead to manufacture where components are not manufactured by the assessee. Reliance has been placed on Tata Locomotives Engg. Co. Ltd.'s case, Penwalt India Ltd.'s case, U.P. State Agro Industrial Corpn. (No. 1)'s case, Jackson Engineers (P.) Ltd.'s case and Bandekar Engineers' case. It is submitted that the above case laws are distinguishable as the issue as to whether construction of plant would amount to manufacture or production of article or thing has not been considered in the above cases with reference to the Hon'ble Supreme Court decision in N.C. Budharaja Co.'s case. It is also submitted that there are many more distinctive features between the facts in the above cases and facts obtained in the assessee's case. That in the assessee's case this will not amount to manufacture is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 80-I. Reliance is placed on the following case laws : 1. Mahender Kumar Agarwal v. ITO [1986] 19 ITD 474 (Delhi) 2. R. P. Exports v. ITO [1993] 44 ITD 308 (Delhi) 3. Taylor Instrument Co. (India) Ltd v. CIT [1992] 198 ITR 1/64 Taxman 129 (Delhi) 4. CWT v. Smt. Asha Mittal [1994] 209 ITR 368 (Raj.) 5. Travancore Electro-Chemical Industries Ltd. (No. 2)'s case 6. V.O. Ramalingam's case. (xv) it has been submitted by the assessee that manufacture should be understood in its wider view. It is submitted that the issue has been dealt with by the Hon'ble Supreme Court in great details in the following :-- (i) N.C.Budharaja Co.'s case (ii) Builders Association ofIndia's case. It is submitted that meaning given by the Hon'ble Supreme Court with reference to section 32A is decisive in deciding the issue of deduction under section 80-I. (xvi) It has been submitted by the assessee that per se all work contract will not be non-manufacture. It is submitted that it is not only manufacturing or production that is to be seen but manufacture and production of article or thing together with Schedule II is to be seen to decide as to whether assessee is enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case laws may also be considered : (i) Appeejay (P.) Ltd. v. CIT [1994] 206 ITR 367/77 Taxman 208 (Cal.) (ii) CIT v. Madgul Udyog [1994] 208 ITR 541 (Cal.) (iii) Fariyas Hotels (P.) Ltd. v. CIT [1995] 211 ITR 390/79 Taxman 415 (Bom.) (iv) CIT v.RaviRatna Exporters [1995] 212 ITR 588 (Bom.) (v) CIT v. Sterling Foods (Goa) [1995] 213 ITR 851/79 Taxman 381 (Bom.) (vi) CIT v. Khaders International Constructions Ltd. [1995] 213 ITR 869 (Ker.) (vii) R.M. Enterprises v. First ITO [1993] 199 ITR 40 (Bom.-Trib.) (SB). 7. The learned counsel in the synopsis of submissions filed along with his letter dated20th May, 1996has made various submissions to counter to certain factual points made by the learned Sr. D.R. during the course of hearing. Such gist of submissions submitted on behalf of the assessee in writing along with letter dated20th May, 1996are reproduced hereunder : (a) Designing is only an integral part of the production/manufacture of an article/thing, in this case. (b) There is no warrant for saying that, ex-hypothesis an engineering contract rules out production/manufacture of an article/thing. We have to look into the facts of the case and decide. (c) To sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n merely 'to produce some change in a substance', however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in permanent ediction of words and phrases, Vol. 20 from an American Judgment. The passage reads thus : 'Manufacture' implies a change, but every change is not 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." This statement has become locus classicus. (k) The Supreme Court in the case of Patnaik Co. held that contract for the construction of bus bodies on chassis supplied by the State of Orissa as a whole was contract for sale of goods and, therefore, the appellant were liable to sales-tax on the amounts received from the State of Orissa for the construction of bus bodies. Copies of the aforesaid decision were separately supplied at the time of hearing. In this decision particular note is taken by the Supreme Court, when it approve of the decision of the Allahabad High Court in the case of CST v. Haji Abdul Majid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 80-I of the Act -- Ion Exchange (I) Ltd.'s case [SLP (Civil No. 8034]. (q) ITAT, Delhi Bench in the case of Jackson Engineers (P.) Ltd which assembled diesel engines after purchasing different parts from different parties at the site of the customers was an industrial undertaking entitling to the relief under section 80-I of the Act so also the decision of the Bombay Bench of the Tribunal in the case of Bandekar Engineers and Special Bench Tribunal decision in Kapri International (P.) Ltd.'s case. (r) In the case of Penwalt India Ltd. before the Bombay High Court, following para on page 817 is very instructive : "Coming to the facts of the instant case, we find from the facts found by the Tribunal that the assessee's manufacturing activity consisted of (i) canvassing of orders, (ii) preparing of designs and drawings on the basis of orders, (iii) placing orders for manufacture of machinery with Turner Hoare, (iv) to see that the manufacturing process is carried on by Turner Hoare under the direct supervision of the assessee-company, (v) to have a check on the quality control and last but not the least, to be responsible for the proper functioning of the machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated with movable articles and goods, big and small, but they are never employed to denote construction activity of the industry involved in construction of a dam or building [see page 424 : Paragraphs E and F where reference is made to the cases of N.U.C (P.) Ltd. and CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696/[1982] 11 Taxman 154 (Bom.)--relating to pure civil construction only]. (v) It is also interesting to note the following observations of the Supreme Court at page 434, para E in the context of section 32A : "We are, therefore, of the opinion, that sub-clause (iii) of clause (b) of sub-section (2) of section 32A does not comprehend within its ambit 'construction of a dam, a bridge, a building, a road, a canal and other similar constructions'." (w) Similar observation was made by the Supreme Court in the subject decisions while upstaging the decision of the Bombay High Court in the case of Pressure Piling Co. (India) (P.) Ltd. Attention is invited to page 428, paragraphs E, F, G and H and page 429, paragraphs A, B and C. It is significant to note that only here the Supreme Court has used the expression "work contract" and that too in the context of civil co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of N.C. Budharaja Co. has not disturbed the conclusion reached by the various High Courts about the existence of an industrial undertaking in the various cases that came up for consideration of the Supreme Court along with the case of N.C.Budharaja Co. (bb) Any undertaking which satisfied the provisions of section 80-I(2) is, in fact, an industrial undertaking. The registration of industrial undertaking under the Industrial Development and Regulation Act or any other enactment is not germane to the issue. (cc) One should not think that there is any mystique about the expression industrial undertaking. (dd) Last but not the least, it is common ground between the appellant and the department that the appellant set up the industrial undertaking for the manufacture of Effluent Treatment Plant (notwithstanding the eloquence of D.R. on the issue) as is vouchsafed in the Memorandum of Association and Objects Clause of Memorandum of Association, Government approval to the technical and financial collaboration as per their letters (at pages 30 and 31 of the papers book). The collaboration agreements in question also talks ubiquitously about manufacture of plants. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven case. In this case more so as Budharaja decision has focussed sharply on exclusive civil construction. It is true that the judgment of the Supreme Court is binding on all High Courts and Tribunals ; it is only the principle laid down in the judgment and not every word appearing therein that becomes the law of the land -- CIT v. Smt. Minal Rameshchandra [1987] 167 ITR 507, 529/30 Taxman 282 (Guj.). (ii) Interpretation must keep pace with changing concepts and values and should undergo adjustment to meet the requirement of the developing economy and the fast changing social conditions. (jj) Provisions for dcduction/exemption or relief should be construed liberally and in favour of the assessee and it should be so construed as to effectuate the object of the Legislature and not to defeat it. It is a well-settled legal proposition, which is recently revitalised by the Supreme Court decision in the case of Bajaj Tempo Ltd at p. 193. In this case, the Supreme Court was interpreting the provisions of section 15C of 1922 Act, which has found a new Avtar in section 80-I. In N.C. Budharaja Co.'s case, the Supreme Court has not taken an exception to this wholesome principle except p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise on tobacco and other goods manufactured or produced inIndia). The terms 'goods' is also defined in clause 12 of Article 366 of the Constitution as noticed earlier. It is well-settled that the definition of goods in the sale of Goods Act is applicable while interpreting the expression 'goods' in the context of Excise Law. The definition of goods is contained in Clause 7 of section 2 of the Sale of Goods Act. 'Goods' mean every kind of movable property other than actionable claims and money ; and includes stocks and shares growing crops, grass and thing attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. (nn) Evolution of effluent treatment plant on site does not answer the above description of goods. Excise duty is not leviable on design, engineering, supply, fabrication, assembly, erection and start up the plant coming on the site. This is a well-settled position in law ; in no way it militates against appellant's undertaking being said to be engaged in the business of manufacture or production of article or a thing on the facts and in the circumstances of the case. At worst the Excise Law is fractured by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or produced over here amounts to a civil work of the nature of dams, buildings, roads and the likes. Answer is emphatic -- no. Reference is again invited to the write-up dated 8th May furnished in the course of hearing detailing what involves in supply and setting up of tailor made effluent treatment plant, could it ever be compared to a civil work in the nature of dam, building, road, etc. Plants always maintain their identify without irretrievably submerging their identity in the civil work which is in the nature of foundation on which emerges effluent treatment plant which could be dismantled, shifted and re-erected anywhere also unlike the dams, roads, etc. The learned counsel thus strongly urged that the assessee's contention deserves total acceptance. 8. We have carefully considered the submissions made by the learned representatives of the parties and have also gone through the written submissions submitted by both of them. We have also gone through the orders of the departmental authorities and several documents submitted in the compilation to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments which were cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-I was never doubted or disputed by the learned departmental authorities in their respective orders. It is well-settled law that when a statutory authority makes an order passed on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh facts or reasons which would require de novo investigations of the facts and which were not at all disputed or doubted by the authority, who passed the impugned orders in question. Such a view is clearly fortified by the judgment of Hon'ble Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851. Furthermore in the present case, the assessee-company was held to be entitled to grant of deduction under section 80-I in assessment years 1990-91 and 1991-92 after total satisfaction as to the assessee's eligibility for grant of such deduction. The assessments for assessment years 1990-91 and 1991-92 have been re-opened in view of the subsequent judgment of the Hon'ble Supreme Court in the case of N.C. Budharaja Co. Neither the departmental authorities nor the learned Sr. D.R. has brought to our notice any other material to show that the cases were re-opened fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry on any business relating to the design, development, production, manufacture and preparation of and research for the purposes of any forms of such apparatus, machinery, instruments, devices, fittings, connections and of any things and materials whatsoever which may be usefully or conveniently combined with the manufacturing, operation, maintenance or dealing with the business of cleaning and treatment in any manner of water and liquid waste. 3. To carry on the business of design, manufacture, engineering, construction, supply and erection, of installations and the commissioning, operation and maintenance and after-sales services for potable water, industrial and domestic waste water, process water, desalination and all other allied special application. 4. To carry on the business of development and establishment of suitable manufacturing facilities for the manufacture of specialised equipment, apparatus, machinery, instruments, devices, fittings, connections and of any things and materials capable of being used for the purpose of the above-mentioned business. 5. To carry on the business of manufacture and/or marketing of water conditioning chemicals. 6. To carry on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Registration of Industrial property rights and ownership 21 4. Infringements 22 5. Sub-licensing and sub-contracting 23 6. On Going contracts 23 7. Term and termination 23 8. Miscellaneous 23 Pages of the Paper book Annexure I -- List of Patents 26 Annexure II -- List of Designs 27 Annexure III -- List of Trademarks 28 Clause 6 of the Technical Collaboration Agreement which gives the details of financial agreement is reproduced hereunder : "Original Technical data payment 6.1.1 In consideration of the know-how the following lump sum subject to deduction of taxes if any will be paid by DI to DF ; F.F. two million (2,000,000) (covering general information without specification). 6.1.2. Terms and conditions of payment 6.1.2.1. The lump sum will be paid to DF according to the following terms : (a) 1/5 payment on the date when (i) the Agreement has come in force and (ii) the Agreement has been filed with the Reserve Bank ofIndiaand (iii) technical documentation has been received by DI ; (b) 1/5 payment one year from the date of payment of the first instalment. (c) 1/5 payment two years from the date of payment of the first instalment. (d) 1/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been referred to as the 'seller'. The preamble of the said agreement, inter alia, indicates the requirement of the purchaser : "Whereas the Purchasers decided to instal a Plant for the recovery of Methane gas from out of the effluent emanating from the Distillery already established by the Purchasers at Dhyaneshwarnagar, Post Bhede Sakhar Karkhana, Taluka Newasa, District Ahmednagar." Clauses (a) and (b) of the said agreement are as under : "(a) In consideration of an amount of Rs. 1,85,00,000 (Rupees one crore and Eighty five lacs only) agreed to be paid by the Purchasers to the Sellers in the manner set out in clause C hereunder, the Sellers agree to design, manufacture, procure, supply, erect and commission a plant for recovery of Methane Gas in volume 22000 square meters/day (cubic meters) calorific value of 5500 K. Cal/k.g. after treating 720 cubic metres effluents per day effluents of composition as per Annexure I attached herewith emanating from the distillery of the Purchasers reducing 90% Biological Oxygen Demand (B.O.D.) and reducing 65% of Chemical Oxygen Demand (C.O.D.) and to erect and commission the said plant within a period of twelve months computed fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agree that the said plant shall be deemed to be ready for commissioning on a turn-key basis after the requisite civil work shall have been carried out till its finishing stage, fabrication and supply of the required equipment shall have been completed and duly installed at the site after all steel parts shall have been given three coats of redoxide paint and after the required epoxy lining shall have been coated with adequate thickness to all parts exposed or likely to be exposed to corrosion. The sellers agree that the giving of performance trial within the period stipulated above is one of the essential conditions of this contract and the sellers agree that in the event of the sellers committing delay in completing the erection plant and giving performance trial beyond the said stipulated date, the sellers shall render himself liable for 0.5% of the contract price per week of delay but subject to the provision that the reduction in the contract price in this manner shall not extend to more than 10% of the contract price. The Plant shall be deemed to have been ready for commissioning when the sellers undertake to commence operation of the plant for the purpose of giving satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Plant. -- Identification of Degremont's proprietary equipment required in the plant. -- Finalisation of the specifications of other equipment, to be fabricated as per Degremont's design or to be brought from the Standard manufacturer. -- Procure and supply the equipment at site. -- Assemble, Fabricate, erect and install the equipment at site, complete with interconnecting Pipelines and electricals. -- Provide the Automation, i.e., Programmable Logical Controller (PLC) etc. -- Test run the complete assembled plant and rectify the short comings. -- Charge the Plant with Raw Effluent, Seed Sludge for commissioning. -- Meet the performance guarantee for which the plant is designed. Typically, the performance guarantees can be a combination of the following : -- By-product production (i.e., Biogas-- a source of energy, Biomanure, etc.). -- Discharge Norms of Central/State Pollution Control Boards/MINAS. -- Quality of the effluent to meet the requirement of the process where it is to be recycled. 19. The learned Sr. D.R. argued that the assessee-company does not own any factory premises or manufacturing facility. They are not registered with any authority as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty but is recognised in the trade as a new and distinct commodity. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or 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. TheHon'ble Courtthen examined the meaning of the word 'articles' used in section 80HH. It was observed that the word 'articies' is preceded by the words 'it has begun or begins to manufacture or produce'. The Hon'ble Court further observed that can we say that the word 'articles' in the said clause comprehend and takes within its ambit a dam, a bridge, a building, a road, a canal and so on ? We find it difficult to say so. Would any person who has constructed a dam say that he has manufactured an article or that he has produced an article ? Obviously not. If a dam is an article, so would be a bridge, a road, an underground canal and a multistoried building. To say that all of them fall within the meaning of the word 'article' is to overstrain the language beyond its normal and ordinary meaning. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter theHon'ble Courtconsidered the question relating to grant of investment allowance in respect of section 32A. The learned Sr. D.R. wanted us to more carefully go through the findings given by the Court in relation to interpretation of section 32A. At page 430 theHon'ble Courthas summarised the question relating to investment allowance considered by their Lordships as under : "The question before us is whether the assessee is entitled to investment allowance on the actual cost of the machinery and plant installed for the purpose of its business pertaining to construction of dams and canals." The relevant words in section 32A are "Construction, Manufacture or production of any article or thing". At page 432 theHon'ble Courtobserved as under : "The meaning of the word "construction" as well as the word "thing" must be determined having regard to the context in which the said word occur, viz., machinery or plant installed in an industrial undertaking for production of any article or thing ; the word 'construction' in the sub-clause is thus akin to manufacture or production ; similarly, the expression 'thing' is used as interchangeable with the expression article." [Empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and context of the provision, it would not be right to isolate the word 'thing', ascertain its meaning with reference to law lexicons and attach to it a meaning which it was never intended to bear. A statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and -- as in this case -- to the legislative history of the provision." The judgment of N.C. Budharaja Co.'s case was affirmed once again in the case of Builders Association of India. At pages 884 and 885, the Hon'ble Supreme Court observed as under : "We are, therefore, of the opinion that sub-clause (iii) of clause (b) of sub-section (2) of section 32A does not comprehand within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar constructions." [Emphasis supplied] The observations made by the Hon'ble Supreme Court that section 32A(2) does not comprehend within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar constructions in the above referred two judgments clearly indicate that the findings given by the Hon'ble Supreme Court clearly restricts its application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finiteness of meaning to the words used by the Legislature. The same cannot be said of a judgment which deals only with the particular fact situation on hand. It will be too much to ascribe and read precise meaning to words in a precedent which the judges who wrote them may not have had in mind at all. Equally, it is not possible to impute an intent to render a decision on a point which was not before them and which they never intended to deal with ; even though such an inference may seem to flow logically from the ratio decidendi of the case." The Hon'ble Gujarat High Court also explained as to how the judgment of the superior Courts should be understood while deciding whether it constitutes a binding precedent. It was observed by the Hon'ble Gujarat High Court as under : "The ratio or principle laid down by the Supreme Court is binding on the High Courts but each and every word stated by the Court while deciding a case does not become the law of the land. The observations made by the Supreme Court in G. Venkataswami Naidu v. CIT [1959] 35 ITR 594 and Janki Ram Bahady Ram v. CIT [1965] 57 ITR 21, that normally purchase of land represents investment of money in land, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court in the case of N.C. Budharaja Co. heavily relied upon by the revenue authorities and by the learned Sr. D.R. before us, therefore, do not in any manner support the revenue's contention. 22. The learned D.R. further strongly contended that the assessee is neither registered with any authority as an industrial undertaking nor it has paid any excise duty during the relevant previous year and therefore, it cannot be treated that the assessee is engaged in the business of manufacturing or producing articles or things. The D.R. also contended that the assessee has paid sales-tax only on the value of components which were supplied to various contracting parties. Assessee was thus doing a work of trading of components and supplying of service for assembling the components to construct the requisite plant. Such plant constructed by the assessee cannot be considered an article or thing and it is aggregate of various articles or things. He further submitted that the expression 'construction' is absent in section 80-I as distinguished from the wider expression used in section 32A. The assessee's undertaking can be treated only as a business undertaking and cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated as per Degramont design or to be brought from the standard manufacturers. After ascertaining the specific requirements of the various equipments, they procure and supply the equipment at site. It will also be worthwhile to state that at every stage of identifying the requirement of various components, equipments and spare parts, the assessee has to apply their technical know-how so as to ensure that they are successfully built, erect and commission the ETP. Various equipments, spare parts and components are required to be got manufactured from various other manufacturers according to the requirements and in accordance with the technical know-how acquired by the appellant-company from DF. The plant is thus assembled with the constant application of the technical know-how at the premises of the customers. The assessee has to also made the performance guarantee for which the plant is designed. The activities of the assessee reach to the concluding stage only when the successful performance of the ETP is given to the client to their entire satisfaction in accordance with the contract executed with them. These are briefly the activities which are required to be carried out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive for investment in certain desired sectors and promote industrialisation in developing countries which has adopted the policy of liberalisation. There is a rapid growth of industries in various parts of our country. The growth of industries also causes grave problems on account of pollution of water, air and environment. It is, therefore, simultaneously necessary to ensure that adequate measures of safety by way of pollution control and environment protection should be made. The Government, therefore, made various laws relating to pollution control and environment protection. The Central and State Pollution Control authorities have prescribed various parameters which are required to be achieved by the industrial units. The setting up of ETP is, therefore, not only a legal necessity but it is a core and infrastructural requirement for ensuring a healthy and balanced growth of industries so as to ensure environment protection and pollution control. The importance of installation of such ETP in all industries creating hazardous pollution has been well recognised not only by the legislative measures but by the Hon'ble Supreme Court, who, in the recent past have rendered several imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, equipments, purchased or got manufactured according to the tailor made requirement from the different suppliers. The activities carried out by the assessee are, therefore, clearly covered within the definition of manufacture of an article or thing. Such expressions 'article' or 'thing' have been used as heading in Schedules IX and XI of the Income-tax Act, 1961 which gives the list of priority industries and non-priority industries. The plant and machinery required for the industries listed in those schedules are made eligibility for, different types of concessions, deductions provided in various provisions of Income-tax Act, 1961. Such expression as 'things' or 'articles' are inter-changeable so far as it relates to interpretation of the incentive provisions like 80-I is concerned. The contention of the learned Sr. D.R. that the assessee is constructing a plant which does not amount to manufacture is also not tenable in view of the findings given by the Hon'ble Supreme Court in the case of N.C. Budharaja Co. wherein they have, inter alia, observed that the expression 'construction' used in section 32A is akin to 'manufacture' or 'produce'. 24. Let us now examine the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were used in the execution of the Turn Key project by which the ETP was supplied, installed and commissioned in the customers factory. The contention of the learned Sr. D.R. that the assembling of various parts, equipments and components by which the assessee prepared the ETP at the site cannot amount to manufacture or production of article or thing is also not sustainable. We have already indicated hereinbefore that the end product which has been supplied by the assessee is ETP, which is a distinct and different thing or article than the components and spare parts purchased by the assessee which were assembled by the constant use of Degremont technology for manufacturing an ETP at the site of the customers factory premises. Such plant would not become an immovable property merely because the assessee undertook the work of laying down the foundation for installation of the ETP. The plant so supplied by the assessee after carrying out a series of activities is a movable article or thing, as it can be dismantled and it can be shifted to any other place. All mega plants in heavy and infrastructural industries are installed or embedded in the earth and by that process such items of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the Excise Laws. The Excise Laws gives the definition of excisable goods. If the end product manufactured by the assessee, namely, the ETP is liable to excise duty in accordance with the provisions of Excise Laws, it is for the excise authorities to determine the duty on the end product in question manufactured by the assessee. That cannot in any manner affect the assessee's claim for grant of deduction under section 80-I. Similarly, the contention of the learned Sr. D.R. that the assessee has paid sales-tax only on the value of the components indicates that the assessee sold only the parts, components and equipments to the clients and rendered the technical services for assembly of the plant and machinery in question is not valid. The provisions of Sales-tax Laws clearly provides that the sales-tax in the case of engineering works contract can be charged only in respect of the value of goods used in the execution of such Turn Key Projects. That also has no relevant bearing for determining as to whether the assessee is entitled to grant of deduction under section 80-I. It may also be relevant to go through the language of section 801(2)(iii) which specifies one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject to quality control and supervision of the assessee. In fact the ETP had to be prepared according to the specific requirement of their customers. The entire work had to be carried out according to the tailor made requirement, which necessarily require constant application of the technical know-how, the accumulated experience of the assessee which it had acquired from DF. Such activities carried on by the assessee cannot be treated as a mere sale of the spare parts or mere rendering of services for assembling of the different parts. The most relevant test is as to what is the end product which was obtained as a result of series of such activities carried on by the assessee. The end result was that an ETP was manufactured, supplied and installed by the assessee in accordance with the technical know-how acquired by it from their foreign collaborators M/s DF. The ultimate product was the ETP supplied by the assessee to the customers. Such a contract was an indivisible contract as the assessee was under an obligation to supply a complete integrated ETP and was also under an obligation to ensure its successful performance. 26. In view of these facts, the contention of the Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the judgment of the Hon'ble Supreme Court in the case of N.C. Budharaja Co. The Hon'ble Supreme Court while considering the question relating to eligibility under section 84 observed that if the construction of a dam, a bridge or a building as a whole does not amount to manufacture or production of an article, it is difficult to see how its laying of foundation or laying foundation for such dam, bridge or building can be characterised as manufacture or production of articles. The process of laying foundation is an integral part of the construction of dam, bridge or building. Each such structure requires the foundation. The foundation so laid down by the assessee ultimately becomes an integral part of the dam, bridge or building, as the case may be. In the present case, the end-product and the ultimate product is the ETP. The foundation laid down by the assessee as per its technical know-how and technology will ultimately become an integral part of the ETP. Therefore, the civil work done by the assessee for laying down of foundation for installation of ETP will become an integral part of the ETP and therefore the same will also be treated as an activity which is necessary for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ancillary to the completion of a manufactured product. Hence any process by which an object becomes new commercial goods, having a distinctive name, character or use would be manufacture. The appellant claimed that assembling of weighbridges by it out of imported load cells, platforms manufactured by other persons, and indicator systems manufactured by it and on which it had paid excise duty, did not amount to manufacture, that therefore, the weighbridges were not chargeable to excise duty under the Central Excises and Salt Act, 1944, and that, in any case since the indicator systems manufactured by it had already suffered taxation, the end-product could not be charged : Held, (i) that as a result of the work of the appellant, a new product known in the market, and falling under the tariff item 'weighbridges' came into being. The appellant was, therefore, a manufacturer of weighbridges, liable to pay excise duty thereon ; and (ii) that a part of a manufactured product may be goods as known in the excise laws and may be dutiable. But if the end-product is a separate product which came into being as a result of the endeavour of the appellant, the end-product was also chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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