TMI Blog1996 (6) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,69,37,632. Subsequently the order under s. 154 was passed in which the income was reduced to Rs. 1,62,25,330. Thereafter notice under s. 143(2) was issued and an assessment under s. 143(3) was made on27th March, 1995, determining the taxable income at Rs. 2,10,37,505. 3. During the course of assessment proceedings, the AO required the assessee to explain as to why the deduction claimed under s. 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 AO, 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 dt. 5th Dec., 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 s. 80-I. The AO arrived at the conclusion that assessee is purely doing contract work and is not engaged in any manufacturing activity. Relying on the judgment of Hon ble Supreme Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the AO vide appellant s letter dt.5th Dec., 1994, addressed to the Dy. CIT. In this letter the assessee explained before the AO 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.France, for manufacture of water and treatment plant was also produced before the AO along with the said reply. The AO, however, departed from the recognition and proved eligibility of the industrial undertaking under s. 80-I accepted in the earlier years, as the AO was of the view that the ratio of the decision of the Hon ble Supreme Court in the case of N.C. Budhiraja Co. was applicable on the facts and circumstances of the present case. He submitted elaborate arguments to show that the judgment of Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in s. 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 synonyms. 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 s. 80-I. He also explained that s. 80-IA(8) uses the expression "goods". The expression "goods" has been defined in Art. 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 Art. 366 of the Constitution of India, entry 84 in the VII Sch. (Art. 246) List I of Union List, entry 54 in List II of the State List. He submitted that by inserting new entry 29A in Art. 366, the State Governments were empowered to levy sales-tax not in respect of the entire receipt from the works contract but only to the extent of transfer of property in the goods involved in the execution of contracts. He submitted that this is again very revealing amendment which will explain the argument advanced by the learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 content with the expression "article" or "thing" used in s. 80-I as compared to the singular mention of the word "article" used in ss. 80-I, 80J, 80HH and 80HHA. We will also have to take due notice of the expression "goods" used in s. 80-I(8) which was not considered by the Hon ble Supreme Court in its decision of N.C. Budharaja. (i) The learned counsel submitted that the appellant is not engaged in the business of civil construction but is engaged in the business of production/manufacture of effluent treatment plant. The nature of activities carried out by the assessee have been explained in the write up dt.8th May, 1996, furnished in the course of hearing apart from voluminous data submitted in the paper book. He submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r attention was drawn towards cl. 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 per cent 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 completed, against submitting bank guarantee. (k) The learned counsel submitted that in view of such agreement executed with the customer, it is impossible for anyone to contend that the activities of the appellant company are of a civil nature like dam, roads, etc. In fact, the work carried out by the assessee could be described rather more than the manufacture, considering the onerous condition and stipulations in a tailormade plant. He submitted that it cannot be forgotten that Degremont France is the world leader in sanitising the whole atmosphere, which is today vitiated. The learned counsel submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-seller of goods and not a manufacturer is not correct. He submitted that with great respect to the learned Departmental Representative 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 per cent retained by the customers for ensuring successful commissioning of the plant. There is absolutely no intention to effect sales of various equipments. It was only a method by which the appellant company was being paid from time to time step with the progressive performance of the agreement, so that the assessee could be paid pro tanto and at the same time client has got the security by way of equipment reaching the site. (m) The learned counsel further submitted that the assessee is procuring various components, equipments and spare parts from different suppliers, some of the parts are got manufactured accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 running of the plant after it is installed. He invited our attention towards a consolidated chart submitted at page 273 of the compilation which shows that such civil work was carried out by the assessee only in cases of six contracts out of about 28 contracts partly or wholly carried out in the year under consideration. The portion of income attributable to such civil work was Rs. 13,223 lakhs while the corresponding expenditure for such civil work was Rs. 14,144 lakhs. Thus, there was a loss in the civil work carried out by the assessee. However, such civil work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of the provisions of ss. 80-I and 80J. (4) Jackson Engineers (P) Ltd. vs. ITO (1989) 31 ITD 79 ( Del ) 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 this process and there being a separate name in the market for what the assessee made, the assessee will have to be regarded as industrial undertaking qualifying for grant of deduction under s. 80-I. 5. ITO vs. Bandekar Engineers (1990) 33 ITD 680 (Bom) In this case the assessee, who obtained from others for designing, fabricating installation and supply of cyclone system claimed deduction under s. 80HH. The Bombay Tribunal relying upon the judgment of Hon ble Bombay High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 Tribunal, Ahmedabad Bench, in the case of Enviro Central Associates vs. Asstt. CIT ITA No. 1650/Ahd/90, dt.28th June, 1994. A copy of the said decision was also supplied by the learned counsel for the assessee in the course of hearing on8th May, 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. Budharaja. After considering all the aspects and the aforesaid judgment of the Hon ble Supreme Court, the Tribunal came to the conclusion that keeping in view the nature of work carried on by the assessee-firm, the assessee is entitled to grant of deduction under s. 80-I. The order passed by the CIT under s. 263 was quashed. (r) The learned counsel thereafter submitted that though the principle of res judicata do not apply to income-tax proceedings but the rule of consistency should be followed. In this case the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) 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 deduction under s. 80-I. 6. Shri B.K. Haldhar, the learned senior Departmental Representative with equal vehemence supported the orders of the Departmental authorities. He also made detailed arguments during the course of hearing which continued for three days. Thereafter he submitted a gist of the submissions made by him in writing vide written submissions dt.16th May, 1996. He also placed heavy reliance on the elaborate reasons given in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. Reliance is placed on the following case laws: (1)KeralaStateCashew Development Corpn. vs. CIT (1993) 113 CTR (Ker) 256 : (1993) 205 ITR 19 (Ker); (2) CWT vs. Kishorilal Agrawal (1993) 115 CTR (Pat) 445 : (1993) 203 ITR 975 (Pat); (3) HindNipponRural Industries (P) Ltd. vs. CIT (1993) 201 ITR 581 (Ker); (4) Dy. CIT vs. India Cine Agencies (1995) 54 ITD 257 (Mad). (v) Without prejudice to the above submissions it is submitted that to qualify for deduction under s. 80-I an industrial undertaking should be wholly for manufacture and production of article or thing. For the above preposition support is derived from the following case law : (1) CIT vs. S.P. Jaiswal Estates (P) Ltd. (1992) 196 ITR 179 (Cal) (2) Grewal Hotels (P) Ltd. vs. Dy. CIT (1995) 54 ITD 32 (Chd). It is submitted that by no stretch of imagination the assessee can be construed as an undertaking entirely engaged for production and manufacture of an article or thing. (vi) For getting deduction under s. 80-I, onus is clearly on the assessee to show that all conditions mentioned in section are fulfilled. In assessee s case this onus has not been discharged. Thus assessee is not entitled to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CWT vs. Gouri Shankar Bhar (1968) 68 ITR 345 (Cal); CIT vs. Penwalt India Ltd. (1991) 96 CTR (Bom) 20 : (1992) 196 ITR 813 (Bom); CIT vs. U.P. State Agro Industrial Corpn. Ltd. (1991) 93 CTR (All) 214 : (1991) 188 ITR 370 (All);JacksonEngrs. (P) Ltd. vs. ITO (1989) 31 ITD 79 (Del); ITO vs. Bandekar Engrs. (1940) 33 ITD 680 (Bom). It is submitted that the above case law 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 (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). 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 supported by following judicial decisions : (i) Travancore Electro-Chemical (P) Industries Ltd. vs. CIT (1995) 123 CTR (Ker) 187 : (1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93) 44 ITD 308 (Del); (3) Taylor Instruments Co. (I) Ltd. vs. CIT (1992) 105 CTR (Del5 : (1992) 198 ITR 1 (Del); (4) CWT vs. Smt. Asha Mittal (1994) 209 ITR 368 (Raj); (5) Travancore Electro Chemical Industries Ltd. vs. CIT; (6) CWT vs. V.O. Ramalingam. (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 s case; (ii) Builders Association s case. It is submitted that meaning given by the Hon ble Supreme Court with reference to s. 32A is decisive in deciding the issue of deduction under s. 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 Sch. II is to be seen to decide as to whether assessee is entitled to benefit under s. 80-I. If component parts which could be truly said to be article or thing are produced by the assessee, the assessee would be entitled to s. 80-I with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om); (iv) CIT vs.RaviRatna Exporters (1995) 126 CTR (Bom) 141 : (1995) 212 ITR 588 (Bom); (v) CIT vs. Sterling Foods (Goa) (1995) 127 CTR (Bom) 30 : (1995) 213 ITR 851 (Bom); (vi) CIT vs. Khadars International Const. Ltd. (1995) 213 ITR 869 (Ker); (vii) R.M. Enterprises vs. ITO (1992) 43 TTJ (Bom)(SB) 165 : (1993) 199 ITR 40 (ITAT)(SB). 7. The learned counsel in the synopsis of submissions filed along with his letter dt.20th May, 1996, has made various submissions to counter certain factual points made by the learned senior Departmental Representative during the course of hearing. Such gist of submissions submitted on behalf of the assessee in writing along with letter dt.20th May, 1996, are 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 say that an article/thing should be produced under the roof of a factory and sold across the counter is to be blind to the dynamics of present day industrial act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent edition 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. vs. State of Orissa XVI STC 364 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 approved of the decision of the Allahabad High Court in the case of Haji Abdul Majid. Observations on page 379 are as follows: "In CST vs. Haji Abdul Majid, the Allahabad High Court arrived at the conclusion that in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embled diesel engines after purchasing different parts from different parties at the situe of the customers was an industrial undertaking entitling to the relief under s. 80-I of the Act so also the decision of the Bombay Bench of the Tribunal in the case of ITO vs. Bandekar Engg. and Special Bench Tribunal decision in Kapri International. (r) In the case of CIT vs. 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 machinery and guarantee after sale service for a stipulated period. Out of so many activities except for one activity, namely, getting the machinery manufactured through Turner H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 CIT vs. Pressure Piling Co. (P) Ltd.. Attention is invited to page 428 of ITR para E,F,G and H and page 429, paras 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 construction work proper. In fact, the whole refrain of the Supreme Court decision is civil construction of the nature involved in construction of a dam/bridge/road or a building. (x) In the case of Builders Association of India, the Supreme Court, again, reiterated that sub-cl. (iii) of cl. (b) of sub-s. (2) of s. 32A did not comprehend within its ambit the construction of a dam, bridge, road, canal and other similar construction. It is, therefore, submitted with great deference that it cannot be gainsaid that the appellant-company is engaged in the manufacture or production of the effluent treatment plants. In Budharaja and other allied cases the Supreme Court was conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Representative 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. The collaboration agreements in question also talk ubiquitously about manufacture of plants. The only issue sought to be examined by the Department bears upon as to whether the appellant s industrial undertaking could be said to have engaged in the business of manufacture/production of an article or a thing not mentioned in Sch. XI. (ee) The activities the appellant is engaged in will answer the distinction of manufacture or production of an article or thing not mentioned in s. 80-I. (ff) Voluminous information will be found in the paper book as also a write up is furnished in the course of the hearing. (gg) The observation of the apex Court in the case of Budharaja was with reference to construction of civil work in the nature of dam, road and the like and in that context alone it observed that the expression manufacture or produce are normally associated with the movables - articles and goods, big and small; they are never employed to denote an activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court decision in the case of Bajaj Tempo. In this case, the Supreme Court was interpreting the provisions of s. 15C of 1922 Act, which has found a new Avtar in s. 80-I. In Budharaja s case, the Supreme Court has not taken an exception to this wholesome principle except pointing out that while interpreting exemption provisions liberally one should not do so as to cause violence to the language of the statute; this observation was in the context of a dam being considered as an article in the context of s. 80HH. (kk) Again, the principle of justice is that the Department should not depart from the earlier decision where such departure would result in injustice to the assessee [Shah s case], Thus, the Department is bound to treat the accounts of a continuous business in a consistent manner. In this case, no material facts have appeared on the horizon to justify departure on the spacious plea that Budharaja has altered the basic fundamentals. The words like prism do not automatically reflect their meaning, represent language of the dynamic and ever changing society, they are the skin of the time. (ll) The appellant is undoubtedly engaged in the business of manufacture and product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 appellant, a circumstance wholly neutral to the issue on hand. Plant (oo) The learned Departmental Representative also pointed out that the dam was a plant and, therefore, industrial undertaking is unqualified under s. 80-I on the touchstone of Budharaja decision. With respect, the question is not as to whether dam is a plant, here the real question is whether the plant supplied by the appellant, on the facts and in the circumstances of the case, could be equated with the civil construction simpliciter like dams, buildings, roads and the like. Civil construction here has a very minor role to play and that too for founding and the setting up of an installation of plant for which foundation is provided. Moreover, in the instant case, there are many examples where the appellant company was not called upon to execute any civil work. The dominant activity is to supply the effluent treatment plant. Again, definition of plant as given in s. 43(3) is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cited by the learned representatives of the parties. 9. The sole ground on which the AO refused to grant deduction under s. 80-I to the assessee is that the assessee-company is engaged in the contract work and, therefore, it is not entitled to deduction under s. 80-I as held by the Hon ble Supreme Court in the case of N.C. Budharaja. The execution of the turnkey project of supplying the effluent water treatment plant by the assessee to its customers cannot be treated as an activity of manufacturing or producing an article or thing which is a condition precedent for grant of deduction under s. 80-I. The AO has not disputed the eligibility of the assessee-company for grant of deduction under s. 80-I on any other ground and it has not been alleged in the assessment order that the various other conditions required to be fulfilled for grant of deduction under s. 80-I have not been satisfied in the case of the assessee. The CIT(A) has confirmed the order of the AO by holding that the assessee is not entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the learned senior Departmental Representative has brought to our notice any other material to show that the cases were reopened for the earlier two years because of non-fulfilment of any other condition prescribed in s. 80-I. We will, therefore, restrict and confine our discussions to the only real question arising in the said appeal as to whether the appellant manufactures or produces any article or thing as required under s. 80-I(2) and as to whether the judgment of the Hon ble Supreme Court in the case of N.C. Budharaja is applicable on the facts and circumstances of the present case. 11. The deduction under s. 80-I is available to assessee whose gross total income includes any profits and gains derived from an industrial undertaking, which fulfils all the conditions laid down in that behalf in s. 80-I(2). Sec. 80-I(2), inter alia, requires that such an industrial undertaking should manufacture or produce any article or thing, not being any article or thing specified in the list in the Eleventh Schedule to the IT Act, 1961. We will, therefore, examine as to whether the activities carried on by the assessee comes within the ambit of expression manufactures or produce any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of manufacture and/or marketing of water conditioning chemicals. 6. To carry on the business of designing and building of systems for dealing with water and waste treatment in all their aspects and undertake contracts for the same either alone or jointly with collaborators or to act as consulting engineers or technical and management experts. 7. To arrange for training of staff in the matters and for the purposes of the above mentioned business through training courses held inIndiaor abroad." 14. The company entered into a technical collaboration agreement with M/s Degremont, a French company (hereinafter referred to as DF) for acquiring technical know-how in connection with the engineering, design, construction, erection, operation and maintenance of waste water systems inIndia. This agreement was subject to obtaining of the final consent and approval by the relevant Indian Government authorities. The said agreement contains various clauses relating to the following aspects: . Pages of the paper book 1. Scope of the transfer of know-how 3 2. Supply of documentation 5 3. Training technical assistance 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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) 1/5 payment three years from the date of payment of the first instalment. (e) 1/5 payment four years from the date of payment of the first instalment. The duration of the said agreement was a period of 8 years as from the date of payment of the first instalment. One Shri Mohan Gupta originally submitted an application for technical collaboration with DF for the manufacture of water and waste treatment plant of advanced technology for industrial and municipal application. The Department of Industrial Development, Ministry of Industry, Government of India vide letter dt.9th Jan., 1986, accorded approval to the terms of collaboration subject to various conditions specified in that letter. The same Department vide a subsequent letter dt.25th Feb., 1987, took notice of the fact that a new co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Cal/kg after treating 720 m3 effluents per day effluents of composition as per Annexure I attached herewith emanating from the distillery of the purchasers reducing 90 per cent biological oxygen demand (BOD) and reducing 65 percent Chemical oxygen demand (COD) and to erect and commission the said plant within a period of twelve months computed from the date of the execution hereof, i.e., contract signature or release of advance whichever is later but difference should not be more than 15 days. (B) Out of the agreed total price of Rs. 1,85,00,000 Rs. 1,50,00,000 (Rupees One crore and fifty lacs only) represents the price of plant and machinery as per Annexure 2 designing of engineering drawings and it includes excise duty and sales-tax as prevailing on date of purchase committee meeting. Necessary concessional sales-tax declaration forms will have to be supplied by the purchaser. This price is exclusive of works contract tax as applicable. This price hereinafter referred to as Part I, and Rs. 35,00,000 (Rupees Thirty five lacs only) represents the price of designing and engineering for providing civil facilities, carrying out civil work, site fabrication, painting, installing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf liable for 0.5 per cent 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 per cent 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 satisfactory performance tests and the satisfactory performance shall be deemed to have been established by the sellers, if, within 3 months of the commencement of operation the sellers shall have attained the contracted parameters of performance as set out hereinabove and continue to attain the same for a continuous period of 15 complete days of 25 hours each." The extracts from cl. 4 giving details about the commissioning of the plant, inter alia, contains clause relating to avoiding of any sub-contract for any work to other parties. The said extracts as appearing at page 19 of the agreement are reproduced hereunder: "The sellers agree that the sellers shall not be entitled to assign the benefit of this contract to any third party. However, nothing herein contained, shall prevent the sellers from awarding any sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 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 senior Departmental Representative argued that the assessee-company does not own any factory premises or manufacturing facility. They are not registered with any authority as an industrial undertaking. The company is not paying any excise duty. It has paid sales-tax only on the value of components which are supplied to various contracting parties. The assessee is, therefore, engaged only in the work of trading/sale of components and supply of services for assembling the components to construct the requisite plant. They are not engaged in the activity of manufacturing or producing of any article or thing. The assessee is carrying out a works contract. The construction of such a plant at the site of the customer cannot be regarded as manufacture or production of an article or thing in view of the findings given by the Hon ble Supreme Court in the case of N.C. Budharaja in relation of interpretation of s. 32A which has a wider scope than the expression used in s. 80-I. 20. It will, therefore, be necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has produce an article? Obviously not. If a dam is an article, so would be a bridge, a road, an underground canal and a multistoreyed 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 Hon ble Supreme Court then further observed that it is true that a dam is composed of several articles such as stone, concrete, cement, plant and other manufactured articles. But to say that the end product, the dam, is an article is to be unfaithful to the normal connotation of the word. The dam is constructed; it is not manufactured or produced. At page 426 of ITR the Hon ble Supreme Court considered the meaning and scope of the conditions prescribed in s. 84 of the Act. The concerned assessees were engaged in the business of laying foundation for building and other structures by a specialised patented method known as pressure piling. The Hon'ble Supreme Court considered the question as to whether such assessees were engaged in the manufacture or production of articles within the meaning of s. 84(1). TheHon ble Courtat pp. 428 and 429 of ITR gave the following findings in relation to the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." At p. 434 theHon ble Courtgave the following findings with regard to s. 32A : "We are, therefore, of the opinion that sub-cl. (iii) of cl. (b) of sub-s. (2) of s. 32A does not comprehend within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar construction." It is apparent from a plain reading of the said judgment of the Hon ble Supreme Court that the various findings given by theHon ble Courtrelated solely and exclusively to concerns engaged in the business of constructing dams and other civil works. The Hon ble Supreme Court has repeatedly clarified that the word article or things used in these sections cannot take within its ambit a dam, a bridge, a road, a canal and other similar construction. The Hon ble Supreme Court also held that the work of laying foundation for such dam, bridge or building also cannot be treated as an activity of manufacturing or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon ble Supreme Court clearly restricts its application in the cases of such civil construction work only and would not cover within its ambit construction or manufacture of plant at the site of the customer s factories. It is well settled law that the judgment in each case has to be seen in the light of the facts of that case. A decision has to be understood in the context of the facts in which the decision is rendered. Such a view is fortified by the judgment of Hon ble Supreme Court in the case of Deen Dayal Ors. vs.UnionofIndiaAIR 1983 SC 1155. The findings given by the Hon ble Supreme Court in the aforesaid judgment at p. 1156 are reproduced hereunder : "Any case, even a locus classicus, is an authority for what it decides. It is permissible to extend the ratio of a decision to cases involving identical situations, factual and legal, but care must be taken to see that this is not done mechanically, that is, without a close examination of the rationale of the decision which is cited as a precedent. Human mind, trained even in the strict discipline of law, is not averse to taking easy course of relying on decisions which have become famous and applying their ratio to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), that normally purchase of land represents investment of money in land, cannot be raised to the level of presumption of fact or that of law and its scope cannot be widened so as to be applied universally in all cases. In the context of a developing economy and fast changing socio-economic conditions of people, even the words occurring in a statute are required to be interpreted differently." The Hon ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1993) 198 ITR 297 (SC) observed as under: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision." It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uished from the wider expression used in s. 32A. The assessee s undertaking can be treated only as a business undertaking and cannot be treated as an industrial undertaking. The assessee is engaged in a works contract and is not doing the activity of manufacturing or producing articles or things. On a careful consideration of the entire relevant material and after going through all the judgments cited by the learned Departmental Representative, we are clearly of the opinion that all such contention raised on behalf of the Revenue cannot be accepted. The Supreme Court has nowhere laid down in the case of N.C. Budharaja Co. that the said decision will apply to all types of works contract. Its application is clearly restricted to works contract for constructing a civil work such as a dam, building, road, canal, etc. The legislature itself has drawn a specific distinction between the civil construction and other types of works contract like mining contracts or engineering contracts as is evident from the various decisions, sections contained in the provisions of IT Act as have been referred to hereinbefore while discussing the arguments submitted by the assessee. The appellant compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee for the execution of the turnkey project carried out by the assessee in relation to supply and successful working of the ETP so that their customers can achieve the desired goal of pollution control and environment protection. All these activities are integral, incidental and ancillary activities which are necessary for manufacture, supply and commissioning of the plant. 23. The contention of the Revenue authorities and the learned Senior Departmental Representative that, since the plant is embedded and installed in the earth, it become an immovable property and therefore, it cannot be said that the assessee has manufactured or produced an article or thing within the meaning of s. 80-I(2), is also not valid and acceptable. The items of plant and machinery are apparently different articles or things than the immovable properties such as a building, a dam, road or other similar civil construction work. The ETP supplied by the assessee to its customers can be dismantled, shifted, removed and can be resold after such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 important judgments in which a higher priority has been given to the necessity of pollution control and environment protection. The provisions contained in the IT Act and the relevant rules also provide grant of 100 per cent depreciation on various kinds of pollution plants and equipments. This clearly shows that the plants like the ETP prepared by the appellant company is one of the priority items which are necessarily required to be installed by all major industries. It will, therefore, be necessary to keep in mind the aforesaid objects with which the provisions of s. 80-I were introduced. The meaning of the expression manufacture explained in the judgment of the Hon ble Supreme Court in the case of N.C. Budharaja at p. 423 of 204 ITR is that the test evolved for determining whether manufacture can be said to have taken place is, whether the commodity which is subject 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. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of N.C. Budharaja wherein they have, inter alia, observed that the expression construction used in s. 32A is akin to manufacture or produce . 24. Let us now examine the contention of the learned Senior Departmental Representative that since the assessee is preparing bills for supplying of various components and equipments and receiving payments according of those sale invoices, the assessee should be held to be a seller of the equipments and components and apart from that the appellant has rendered services as contractors for assembling of the various components and equipments which cannot be treated as manufacturing or production activity. The learned Departmental Representative submitted that the work of assembling carried out by the assessee cannot be treated as a manufacturing activity. Such submissions made on behalf of the Revenue are clearly contrary of the various contracts executed by the appellant company with its various customers. It is evident from a perusal of the contract executed with Dyaneswar that the assessee had undertaken to design, engineer, manufacture, supply, install and commission the ETP and also undertook to give performance test. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 infrastructure industries are installed or embedded in the earth and by that process such items of plant and machinery would not by themselves be treated as immovable property. The plants which are embedded and installed in earth can be regarded as immovable property only for the limited purpose of stamp duty laws or the Registration Law, if such items of plant and machinery are transferred along with the building. However, for the purposes of grant of various deductions such as depreciation, investment allowance or deductions under ss. 80HH and 80-I, it can by no stretch of imagination be treated as immovable property such as dam, building, roads or other similar civil construction work. It will also be worthwhile to make a useful reference to the various decisions cited by the learned representatives of the assessee such as the cases reported in (1968) 68 ITR 325 (Bom), (1991) 188 ITR 720 (sic) (SLP dismissed by Supreme Court) (1993) 203 ITR 3 (St), 31 ITD 79 and 33 ITD 680 and 8 ITD 820. In all these cases the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of such turnkey projects. That also has no relevant bearing for determining as to whether the assessee is entitled to grant of deduction under s. 80-I. It may also be relevant to go through the language of s. 80-I(2)(i) and (iii) which specifies one of the conditions for grant of deduction under the said section. It only requires that the assessee should manufacture or produce any article or thing. It does not further say that such articles or things which are manufactured or produced by the assessee should be sold and should not be used for the execution of works contract. If the gross total income of the assessee includes any profits and gains derived from industrial undertaking, it will be eligible for grant of deduction under s. 80-I on the fulfilment of various conditions prescribed in sub-s. (2). In the present case the dominant activity carried on by the assessee is preparation of the ETP by applying its technical know-how rights from the stage of drawings and designing till the commissioning of the plant as a whole. The learned senior Departmental Representative had submitted that the activity of designing and drawing are pre-production activities and the activities of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Senior Departmental Representative that only those industrial units who derive their total income from such industrial undertaking alone are entitled for grant of deduction under s. 80-I while the part of the activities carried out by the assessee cannot be treated as manufacturing or production activity is also not sustainable. The entire activities carried on by the assessee are activities which are necessarily required or which are incidental or ancillary for the purposes of manufacturing of the ETP. The learned Senior Departmental Representative had also argued that the assessee has carried out civil works in several contracts executed with various customers. The execution of civil works by the assessee are definitely hit by the judgment of the Hon ble Supreme Court in the case of N.C. Budharaja. Let us examine this contention of the learned Senior Departmental Representative. The total consideration in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 completion of the manufacturing and commissioning of the ETP. We have already indicated hereinbefore that the various activities carried out by the assessee is an indivisible work and the entire activities carried out by the assessee will be covered by the expression manufacture or production of an article or thing which is known in the commercial circle as a ETP and it is necessarily required for pollution control and environment protection. This contention of the learned Senior Departmental Representative also does not in any manner help the Revenue. 27. The various findings given by us in the earlier paras are fully fortified by the decision of the Tribunal, Ahmedabad Bench in the case of Enviro Central Associates. The facts of the said decision rendered by the Ahmedabad Bench of the Tribunal are almost identical and similar to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, a manufacturer of weighbridges, liable to pay excise duty thereof; 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 chargeable to duty". 29. We are not concerned with the leviability or non-leviability of the excise duty on the manufacture/supply of ETP by the assessee to its customers as its chargeability on the end product will depend on the relevant provisions contained in the excise law but the aforesaid judgment clearly supports the view that the various activities carried on by the assessee amount to manufacture of production of a new commercial article or thing, namely, the effluent treatment plant, as the final end product having a distinct name, character and use. 30. In view of the foregoing discussions, we are of the clear opinion that as a result of various activities and processes, such as designing; drawing; engineering activities; acquiring of various components, equipments, spare parts whether by way of purchase or getting the same manufactured by various s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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