TMI Blog2008 (6) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... h the word 'manufacture' takes in bringing into existence new goods by a process which mayor may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. The Hon'ble Supreme Court in the case of Idandas v. Anant Ramchandra Phadke [ 1981 (11) TMI 185 - SUPREME COURT] , has laid down three tests as to what constitutes manufacture. They are - (i) a certain commodity should have been produced; (ii) the process of production must involve either labour or machinery; and (iii) the end product should have a distinct character, name and used. The complete pasteurize steps, are purification, boiling and standardization . It does not go beyond the stages of 'processing' and by this processing it has become little more 'clean' and 'more fit' for consumption. But the milk in its raw stage was also fit for consumption. Assessee do processing. But all processing does not amount to production of an article or thing. If the assessee markets curd, ghee or other products after processing, that amounts to 'manufacture or production of an article or thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1986-87 and 21.10.1988 for the assessment year 1987-88, treating the assessee's process of pasteurization of milk as amounting to process of manufacture/production, for the purpose of claiming deduction under Sections 80-I and 80HHA of the Act. Subsequently, the learned CIT, on perusal of the record, formed the opinion that the order passed by the AO for both the years as erroneous and prejudicial to the interest of the revenue. A notice was issued to the assessee, seeding why the deduction under Sections 80-I and 80HHA of the Act should not be withdrawn for both the years. Assessee briefly contended that assessee firm is an industrial undertaking engaged in the production and sale of pasteurized milk and milk products; registered under Factories Act, 1948, as it carries on manufacturing process. Assessee firm is also registered as a Small Scale Industrial Unit and employs sizable machinery and manpower. It was contended that the activities of the assessee firm has been accepted as manufacture/production for the assessment year 1985-86 and the proposal to withdraw the benefit of investment allowance for the assessment years 1980-81 and 1981-82, contemplated under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CIT v. S S M Finishing Centre reported in 155 ITR 791 (Mad), wherein the Hon'ble High Court held that the cloth remained the same both at the time of purchase by the assessee and after carrying out various operations by the assessee on the said cloth. This was a case, wherein the assessee purchased cloth manufactured by others and then bleached dyed and centered the same. Assessee's claim for higher development rebate on the machinery used in its business under Section 33(1)(b)(B)(i) read with Section 32 of the Fifth Schedule to the Income-tax Act, 1961, was negatived by the ITO and the first appellate authority Tribunal reversed the orders of both the authorities. On a reference, the Hon'ble High Court reversed the decision of the Tribunal and held that the assessee could not be said to be engaged in the business of manufacture or production of textiles within the meaning of item 32 of the Fifth Schedule and hence the Hon'ble High Court held that the assessee was not eligible for higher development rebate. The CIT also distinguished the decisions relied upon by the assessee, in the case of CIT v. M R Gopal reported in 58 ITR 598 (Mad) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, standardized pasteurized milk is something special. It is different from raw milk. It is skimmed, the fat contents are made low or in some cases no fat at all. Learned Counsel brought our attention to Paper Book Page 33. which is the code for pasteurization of milk, prescribing techniques used in the manufacture and the methods of sampling and test for pasteurized milk. In fact, the standardized pasteurized milk has a value addition compared to raw milk. It is a different saleable marketable commodity. What is sold in the market is entirely different from the raw milk that purchased from the market, though the name milk continues. Learned Counsel brought our attention to Paper Book (Noll) Page 14, the decision of the Hon'ble Madras High Court in the case of Employees Co-op. Milk Supply Society v. Regional Director, ESI Corporation reported in 20 ILD 37 (Mad), wherein the Hon'ble High Court held stores of milk amounts to manufacturing process under the ESI Act. Definitely, assessee falls within the category of industrial undertaking, established in a rural area. Assessee's factory is situated in rural area. Learned Counsel brought our attention to the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the decision of this Court, given on 9th May, 1980, in Civil Appeal No. 2398 of 1978, Dy. Commissioner of Sales Tax v. Pio Food Packers, that the test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. This Court, speaking through one of us (Pathak J) pointed out: 'Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be 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 manufacture can be said to take place . The test that is required to be applied is: does the processing of the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142 ITR 654 (Mad) is also distinguishable on facts. This was a case where the assessee was engaged in the business of rough castings and supplying the same to the manufacturers of pump-sets, tractors, etc., after machining and polishing them in its factory. The Court held that manufacture would mean anything made from raw materials by hand, by machinery, or by art, as cloths, iron utensils, shoes, machinery, etc. The Court held that labour is employed and something is converted into something else, a product which is of value and is used, and in that sense the chips are a new production as a result of a manufacturing process. But in the instant case of the assessee, learned DR submitted, this decision is not applicable as the end product remains the same. 13. Replying to the above, learned Counsel for the assessee submitted, assessee do pasteurization and by this process, it ensures destruction of all pathogenic micro organisms. By heating to a particular temperature and even cooling again, assessee achieves this process. Pasteurization consists of the following process: (a) Balance tank (b) Feed pump (c) Flow controller (d) Regenerative preheating Section 1 (e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the impugned orders, the decisions cited and the question placed before us for our opinion. In the case of CIT v. Sesa Goa Ltd. reported in 271 ITR 331 (SC) (supra), the Hon'ble Supreme Court held that extraction and processing of iron ore amounts to manufacture or production of an article or thing. The Hon'ble Supreme Court held: 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 . Here the question is whether by this process a new goods has been come into existence, if this is the test laid down, then definitely the pasteurization of milk does not amounts to manufacture or production for the purpose of deduction under Sections 80-1 and 80HHA of the Act. The stand of the revenue is that the goods, even after standardization and pasteurization, remain the same. To avail the benefit, the goods should be different from the raw material used by the assessee for making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by the assessee does amount to processing. As we have noted hereinabove vide Para 13, the milk passes through various stages of processing . Defective raw milk is eliminated, odour and smell test is carried out. The raw milk is passing through fine duplex filters, again to remove the impurities. At next stage, pre-determined quantity of cow milk is blended with buffalo milk and pumped to a flow controller, maintaining constant flow through the pasteurizer. It is heated at 45 C and then it goes to filtration stage. Then the milk enters hermetic cream separator, at which stage the standardization of the fat content is done, i.e. a process of adjustment of fat content of milk by adding cream or skimmed milk so as to obtain appropriate specified constant fat content. The milk is again heated to 70.5 C and then it is cooled using glycol chiller to 1 C/2 C. In spite of all the process, the name milk continues and it is treated as such in the market, though the natural ratio of component changed, it is used for the same purpose as it would have been used in its original stage itself. Mere value adding is not sufficient to treat it as a separate commodity. Such process, we have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y undertaken. It is standardized, pasteurized and in the market yet treatment given to standardized pasteurized milk is same as of raw milk. It is true it had added commercial value. The term production has wider meaning as compared to the term manufacture , yet each and every processing does not amount to production . If that be so, the word production has no difference from processing . Nobody has a cave that the meaning of processing and production is the same. 21. Sections 80-I and 80HHA uses the words engaged in manufacture or produce.... The activity of pasteurization of milk involves a number of processing. Assessee pasteurizes and standardizes the milk. According to the assessee, the pasteurised milk has an independent ISI code. It is a different product than the raw milk, which amounts to manufacture of new product. In the case of Adarsh Dugclhalaya FM. Ltd. (supra), Tribunal held that the assessee produced a commercial commodity. Tribunal held that end product of the assessee is an article essentially different from the raw material used and the assessee is entitled to the benefit of investment allowance. The word manufacture has various shades of meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary parlance would mean a person who makes, fabricates or brings into existence a product or an article by physical labour or power. The other shade of meaning, which is the narrower meaning, implies transforming raw materials into a commercial commodity or a finished product which has an entity by itself, but this does not necessarily mean that the materials with which the commodity is so manufactured must lose their identity. Thus, both the words 'manufacture and 'produce' apply to the bringing into existence of something which is different from its components...(p. 325) 22. In the case of ACIT v. New Nandi Seeds Corporation reported in 99 ITD 702 (Ahd), the Tribunal held that Bajra seed produced by the assessee is a different article or thing than the raw Bajra, fit for human consumption for all intent and purpose, since after giving treatment with poisonous chemicals it becomes unfit for consumption. This is because the poisonous elements removed. The milk in the normal course does not contain any poisonous elements that harm healthy normal human. 23. The question before us is the milk that assessee acquired from the market, which was usable even at that stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cream Separator with Standardizing Equipments: Hermetic separator is used for standardization of fat contents in milk and for separation of milk. The fat contents of the incoming milk varies. Standardization of fat contents involves adjustment of fat contents of milk by addition of cream or skimmed milk as appropriate to obtain a specified fat content. During separation in a paring disc separator, preheated milk is introduced in to the separator bowl from above through the stationary axial inlet tube. The heavier solid particles settle outwards and are deposited j in the sediment space. Cream moves towards the axis of rotation and passes through the channels to the cream paring chamber. The skimmed milk leaves discs stack at the outer edge and passes between the top disc and the bowl hood to the skimmed milk paring chamber. Standardization of the fat content of milk: Direct standardization starts with separation of preheated whole milk in to skimmed milk and cream with consent fat contents. A regulated amount of cream is then remixed with the skim milk in a in-line system immediately alter the separator in order to obtain standardized milk of a required fat content. Powder D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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