TMI Blog2007 (2) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemical Co. Ltd. [ 2004 (11) TMI 88 - ALLAHABAD HIGH COURT] has held that since the term 'rectified spirit' is not mentioned in the 1st item of Eleventh Schedule beer, wine and other alcoholic spirits the same cannot be equated therewith and assessee engaged in production of rectified spirit is entitled for deduction of investment allowance for investment in plant and machinery. From the above, it is apparent that in Hon'ble High Court's view 'rectified spirit' is quite different from Whisky, Brandy, Rum etc. being Indian made foreign liquor which are all potable. In the present case the assessee after obtaining rectified spirit which is not potable and other materials processed them to obtain IMFL. The raw material including rectified spirit are not fit for consumption by human beings but the end-product IMFL is potable and is so recognised in the trade. It is abundantly clear that the assessee is entitled to relief u/s 80-IB being a small scale industry engaged in production of IMFL from rectified spirit. The end-product IMFL is quite distinct and is a commercially different article than the major input rectified spirit, which is not fit for huma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated on two grounds:- (i) That the undertaking was not new and was only an expansion of the existing unit and hence not entitled to relief under section 80-IB; (ii) That the activity does not constitute "manufacture" and hence the undertaking is not eligible for the said relief. However, while passing the order under section 263, the Commissioner accepted the position that the undertaking was new and held that the assessee had produced evidence to establish the undertaking is new and hence the said objection will not survive. With regard to the second objection, he concluded that the activity carried on by the assessee does not constitute "manufacture" insofar as there is no manufacture of an article different from the input. In view of the Commissioner, the raw material used by the assessee for the manufacture as well as the finished product was alcohol and hence there is no manufacturing activity involved, entitling the assessee to relief under section 80-IB. In arriving at the above conclusion the Commissioner of Income-tax relied heavily on a decision of the Special Bench of the Income-tax Appellate Tribunal in the case of Shaw Scott Distilleries (P.) Lid v. Asstt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) no plant or machinery used in the old Unit have been brought or installed in the new Unit. (iii) The activity constitutes 'manufacture': (a) The activity is covered by a license which specifically mentions that it is 'manufacture'; (b) The input is 'rectified spirit' which undergoes various processes to achieve the final output viz., 'IMFL'; (c) 'Rectified Spirit' which is the input is not potable, while 'IMFL' is potable. Thus, this output is a product totally different from input and is commercially identifiable as a separate product. (d) The decision in the case of Shaw Scott Distilleries v. Asstt. CIT 255 ITR 15 (AT) proceeded on different footing and the said decision would not apply in the instant case. (e) The Supreme Court as well as the Income-tax Appellate Tribunal has recognized the distinction between the 'rectified spirit' which is not potable and potable spirit viz. 'IMFL'." The ld. Counsel of the assessee further placed reliance upon the following case laws: Bihar Distillery v. Union of India AIR 1997 SC 1208; ITO v. A. Joseph Louis [1990] 33 ITO 485 (Mad.); CIT v. Jamal Photo Industries [2006] (12)(1) IT Law-380; CIT v. Mount Shivalik Brewer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. Upon a careful reading of the above, in our opinion, in this case for claiming relief under the aforesaid section the assessee has to satisfy two broad conditions:- (i) Firstly, the assessee has to produce evidence to establish that it is a new undertaking as envisaged under the Act; and (ii) Secondly, that it manufactures or produces any article or thing not being any article or thing. 9. As regards the issue whether it is a new unit or not, we find that under section 263 for assessment year 2001-02 the learned Commissioner of Income-tax, vide order dated 2-3-2006, had decided the issue in favour of the assessee holding as under:- "As concerns the first point whether the new unit in respect of which deduction has been claimed under section 80-IB was result of any expansion of the existing unit is concerned, I have already stated that the assessee has produced evidence of additional license for capacity addition in course of this proceeding. It thus satisfies the condition under the said section that the new undertaking has not been formed by splitting up or reconstruction of the existing business. The order of the Assessing Officer is thus not erroneous to this exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r safe marketing requires bottling. It is on the basis of this fact that the Tribunal came to the conclusion that there was no manufacturing process involved. In other words, the assessee in that case started from potable spirit. In the assessee's case the input is rectified spirit, which is not potable liquor. Both Tribunal and the Supreme Court have categorically held that rectified spirit is not potable liquor. In the case of Bihar Distilleries v. Union of India AIR 1997 SC 1208, the Supreme Court has highlighted the difference between Rectified Spirit which is non-potable and IMFL which is potable. The Supreme Court has also noticed that Indian Made Foreign Liquor (IMFL) is manufactured using rectified spirit/ethyl alcohol as raw material. The Supreme Court has also noticed that, while non-potable spirit falls within the Union List under the 7th Schedule to the Constitution of India, potable liquor falls within the purview of the State. Thus, the distinction between rectified spirit as non-potable and IMFL as potable liquor has been noticed and highlighted by the Supreme Court. The Supreme Court referred with approval to its earlier decision in Synthetics Chemicals Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacturer can be said to take place'." 17. Adverting to the facts to the present case the assessee after obtaining rectified spirit which is not potable and other materials processed them to obtain IMFL. The raw material including rectified spirit are not fit for consumption by human beings but the end-product IMFL is potable and is so recognised in the trade. 18. Here, it will also be worthwhile to refer to the following I expositions from the Hon'ble Apex Court and Hon'ble Jurisdictional High Court:- (i) The Hon'ble Supreme Court in the matter of Kores India Ltd v. CCE 2004 (174) ELT 7 held that the cutting of jumbo rolls of typewriter/telex paper into smaller rolls amounts to manufacture since distinct identifiable article having distinct name, function and use has arisen. (ii) The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acco converts them into tobacco which is a commercially different commodity. Conversion of the Virginia Flue-cured Tobacco into tobacco would be a manufacturing activity." 19. We also note that in section 80HH, with respect to which the Shaw Scott decision itself was delivered no mention of Eleventh Schedule is there, while in section 80-IB mention of Eleventh. Schedule is there. The Act itself envisages that manufacture or production are involved to bring about items referred in Eleventh Schedule and so small scale industries engaged in manufacture or production of those articles are eligible for relief under section 80- IB by the reverse inference. 20. We may also mention that amongst other conditions for claiming deduction, under section 80-IB(2) in clause (iii) has been stated as under:- "'It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule or, operates one or more cold storage plant or plants, in any part of India.' The word 'produce' that amounts to processing of goods. In fact, the word 'manufacture' or 'produce' in this section shall have to be read independently and separately, otherwise on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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