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TMI Blog2008 (6) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... cers Union Ltd reported in 56 ITD 80 (Mad). The Bench further noted that a contrary view had been taken by the Mumbai Bench of the Tribunal in the case of Adarsh Dugdhalaya Pvt. Ltd. reported in 80 CTR 48 (Mum), wherein the Tribunal held that the process of pasteurization of milk amounts to process of manufacture/production for claiming deduction under Section 32A of the Act. This view was followed by the Pune Bench of the Tribunal in the case of Satara Sahakari Dudh Purvatha Sangh Ltd., vide its order dated 07.06.1990. In view of the above difference of opinion, the matter was referred to the Special Bench. 2. The Special Bench was constituted by the Hon'ble President for disposal of the impugned appeals before us. The question referred to the Special Bench is as under: Whether on the facts of the case and in law, the process of pasteurization of milk amounts to process of manufacture/production for the purpose of claiming deduction under Sections 80-I and 80HHA? 3. In this case the original assessment was completed by the Assessing Officer vide order dated 19.10.1988 for the assessment year 1986-87 and 21.10.1988 for the assessment year 1987-88, treating the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal product, used as raw material. Assessee's contention that pasteurization of milk, which implies certain process that enhances the durability of the milk and consequently, amounts to manufacture/production of a new article or thing, was rejected by the learned CIT. Pasteurization process is heating up to certain temperature and cooling it down, but the end product remains the same - milk. It does not change its form or character. To come to the above conclusion, CIT received support from the decision of the Hon'ble Supreme Court in the case of Jayant Oil Mills (supra), wherein the Hon'ble Supreme Court held that the distinction between vegetable oil in liquid form and hydrogenated oil when it is hardened with melting point higher than 41°C, does not amount to manufacturing. He held that the test for determining whether the process is a manufacturing process, is to find out whether it brings a complete transformation of old components so as to produce a commercially distinct or different entity or commodity. CIT also got support from the decision of the Hon'ble Madras High Court in the case of CIT v. S S M Finishing Centre reported in 155 ITR 791 (Mad), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, where it is heated to 45°C. Then it goes to filtration stage. After filtration, it goes to clarifier, which is centrifugal machinery, whereby different fine solid impurities are separated. Thereafter, the milk enters hermetic cream separator. At this stage, there is standardization of fat contents. The fat contents of milk in raw stage vary. Standardization of fat contents involves adjustment of fat content of milk by adding cream or skimmed milk, so as to obtain appropriate specified constant fat content. After standardization of fat and SNF, milk enters regenerative preheating section, where it is heated to 70.5°C. Thereafter, to increase the shelf life of standardized pasteurized milk, it is cooled to 1°C/2°C by using glycol chiller. After this, it goes to sterilized insulated storage tank. 7. Technically, pasteurization of milk is an import process. Before pasteurization, the milk was a dangerous source of infection in many cases. It is well known that diseases such as tuber colossus and typhus were spread by milk before such pasteurization. 8. In short, learned Counsel submitted, standardized pasteurized milk is something special. It is different from raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xample, he submitted, milk plus bacteria = X; but milk minus bacteria = Y. In the case of the assessee, the raw material is X and it remains X. Assessee's contention would have been acceptable if the product has been turned into Y, The plea of the learned Counsel that it is cleaned and standardized by adding skimmed milk etc., learned DR submitted, does not further assessee's case What is added to milk is milk only. This adding of further milk, skimmed or not, cannot be treated as a manufacturing process. He brought our attention to the decision of the Hon'ble Calcutta High Court in the case of G A Renderian Ltd. v. CIT reported in 145 ITR 387 (Cal), relied upon by the learned Counsel. Particularly, he brought our attention to Para 10 of the said order, which reads as under: The point which arises for consideration under the first question is as to whether blending of ore in the course of loading it into the ship through the mechanical ore handling plant constituted manufacture or processing of ore. Now it is well-settled as a result of several decisions of this Court, the latest being the decision of this Court, given on 9th May, 1980, in Civil Appeal No. 2398 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and what was sold by the assessee was not the same thing as was originally purchased and (here was no contrary material to the above finding before the Hon'ble Allahabad High Court. Hence, learned DR submitted, this decision relied upon by the learned Counsel cannot be applied. 11. Learned DR again submitted, the decision in the case of Premier Tobacco Packers P. Ltd. (supra) is also distinguishable. That was a case wherein the assessee, after thrashing and re-drying, the process which was called Virginia flue-cured tobacco (VFT) in commercial parlance, converted it into lamina and NR stems etc. The end product was used in the manufacture of cigarettes and the raw materials, viz VFT could not be used directly to the manufacture of cigarettes; whereas in the instant case of the assessee, even the so called raw material is good for human consumption. Hence, learned DR submitted, this decision, on facts, is distinguishable. 12. Learned DR submitted, the decision of the Hon'ble Madras. High Court, relied upon by the learned Counsel, in the case of CIT v. Perfect Liners reported in 142 ITR 654 (Mad) is also distinguishable on facts. This was a case where the assessee was engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out a number of operations on the raw wool purchased and as a result of these activities, the raw wool purchased by the assessee has been converted into uniformly blended wool, ready for sale in the market and the quality and character of the raw wool purchased by the assessee has undergone a change as a result of these activities and hence this activity amounts to processing. 14. Learned Counsel submitted, the question is whether the assessee sold the raw material without any processing. Learned Counsel further submitted, in the case of Shree Mulchand Co. Ltd. (supra), jurisdictional High Court held the purchase of raw wool, cleaning and drying if makes a new product; definitely assessee's activities also converts the raw milk into a marketable product and the market treats this milk as different from the raw milk purchased by the assessee. Learned Counsel submitted, the section is a beneficial one and it should be interpreted liberally; and if two views are possible, the ones beneficial to the assessee should be followed. 15. We heard the rival submissions, gone through the impugned orders, the decisions cited and the question placed before us for our opinion. In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test that is required to be applied is: does the processing of the original commodity bring into existence a commercial different and distinct commodity?". Vide Para 16 of its order, their Lordships again considered the meaning of the word 'processing", particularly in the light of the decision of the Hon'ble Supreme Court in the case of Indian Copper Corporation Ltd. v. CCT reported in 16 STC 259 (SC) After discussing the issue, vide Para 17, the Hon'ble High Court set aside the order of the Tribunal and held that "processing" is operation on or treatment of the commodity with a view to develop or prepare the same for market and if the market treats the raw material as something different from the original one, it amounts to processing. 17. In this case the assessee was carrying the business of purchasing tea of different qualities in auction, blending the same by mixing one type of tea with another and sell the tea so blended in packs. The Hon'ble High Court held that it amounts to processing. If this amounts to processing, stages of changes done by the assessee does amount to processing. As we have noted hereinabove vide Para 13, the milk passes through various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Sesa Goa Ltd . reported in 271 ITR 331 (SC) supra, the issue was not standardization and pasteurization in that case. Extraction and processing of ore was treated as "production" and it was so specifically treated as such under Section 33(1)(b)(B) read with Item No. 3 of Fifth Schedule to the Act. 20. In the case of M B Chemicals v. DCIT reported in 76 ITD 1 (Pune) (TM), the Tribunal held that the "candy sugar" is a commercially different commodity from sugar because it has also different uses and serves different purposes from ordinary sugar. Coming to the instant case of the assessee, the "use" and "purpose" of raw milk and pasteurized milk is not different. Merely the commodity has undergone some changes, it cannot be treated as two different commodities. In the case of M.B. Chemicals (supra), Tribunal noted that if an article becomes a different commercial article by undergoing a process, there is manufacture. In the instant case of the assessee, as we have already noted, the milk has undergone changes in odour and contents through different stages of activity undertaken. It is standardized, pasteurized and in the market yet treatment given to standardized pasteurized m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) to work into useful form, (c) to produce in a mechanical way, (d) to produce goods by hand or by industrial art or processes, etc.". The Hon'ble Supreme Court held, approving the Dictionary meaning, "manufacture" means "work up materials into forms suitable for use". The word "material" does not necessarily mean the original raw material, for a finished article may have to go through several manufacturing processes before it is fit and made ready for the market. What is itself a manufactured commodity may constitute a "material' for working it up into a different product. In the case of CIT v. Tata Locomotive & Engg. Co. Ltd reported in 68 ITR 325 (Bom), the jurisdictional High Court held that the word "manufacture" has wider and narrower connotation. The Hon'ble High Court held as under: The word 'manufacture' has a wider and also a narrower connotation. In the wider sense it simply means to make, or fabricate or bring into existence an article or a product either by physical labour or by power, and the word 'manufacturer' in ordinary parlance would mean a person who makes, fabricates or brings into existence a product or an article by physical la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the first section in the pasteurizer, the preheating section. Here it is regeneratively heated to 45°C with pasteurized milk, which is cooled at the same time. (e) Duplex Filters. After preheating milk enters duplex filtration equipment for filtration. The filtration is carried out at 45°C as the filtration efficiency at this temperature is more. (f) Clarifier: After filtration, milk still contains some impurities which are very fine in nature which cannot be removed by mere filtration. In a centrifugal milk clarifier, the milk is introduced to the separation channels at the outer edge of the disc stack, flows radially inwards through the channels towards axis of the rotation and leaves through an axial outlet. On the way through the channels the impurities are separated and thrown back along the lower sides of the discs to the periphery of the separator bowl. There they are collected in sediment space. As the milk passes along the full radial width of discs, the time of passage also allows very small particles to become separated. (g) Hermetic Cream Separator with Standardizing Equipments: Hermetic separator is used for standardization of fat contents in milk and f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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