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TMI Blog2009 (5) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, erred in confirming the withdrawals of exemption under s. 10B made by the learned AO. The said exemption is required to be fully allowed." ITA No. 544/Jd/2007 "1. That the order under s. 250, dt. 29th March, 2007, passed by the learned CIT(A), Jodhpur, in the case of the assessee for the asst. yr. 2003-04, is bad in law and on facts. 2. That the learned CIT(A), Jodhpur, on the facts and in the circumstances of the case, erred in confirming the withdrawal of exemption under s. 10B made by the learned AO. The said exemption is required to be fully allowed." ITA No. 415/Jd/2008 "1. That the order under s. 250, dt. 14th March, 2008, passed by the learned CIT(A), Jodhpur, in the case of the assessee for the asst. yr. 2005-06, is bad in law and on facts. 2. That the learned CIT(A), Jodhpur, on the facts and in the circumstances of the case, erred in confirming the withdrawal of exemption under s. 10B made by the learned AO. The said exemption is required to be fully allowed." 2. Briefly the facts of the case, are that assessee is a 100 per cent export-oriented unit (EOU), registered with Noida Export Processing Zone (NEPZ), Noida for manufacturing/e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------- Iron goods 1,39,252 1,01,530 ------------------------------------------- Wooden goods 18,09,103 12,32,676 ------------------------------------------- Raw materials 5,31,276 4,04,618 ------------------------------------------- Packing materials 35,520 35,184 ------------------------------------------- Consumable 10,600 22,635 ------------------------------------------- It was further noticed that the assessee has made purchases of material as under: ------------------------------------------- Purchase against 17B Form Rs. 14,93,005 ------------------------------------------- Purchase of raw material Rs. 88,328 ---------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of the business and activities of the assessee are the same as in the asst. yr. 2000-01. Keeping all the facts, circumstances and also following the decision of the Hon'ble Tribunal referred to above the deduction claimed under s. 10B has been denied and assessment stood completed accordingly. 4. In the first appeal, the learned CIT(A) noted that the learned Authorised Representative fairly admitted that the similar issue also arose in the asst. yr. 2001-02, which was decided against the assessee by the Hon'ble Tribunal, Jodhpur Bench against which appeal has already been filed before the Hon'ble Rajasthan High Court, Jodhpur. He further observed that the facts of the present case and the issue in dispute relating to denial of deduction under s. 10B is fully covered by the decision of the Hon'ble Tribunal, Jodhpur Bench in this very case for the asst. yr. 2001-02 in ITA No. 633/Jd/2005, dt. 6th Oct., 2006. Accordingly, he held the, AO was justified in rejecting the claim of exemption under s. 10B. The findings of the AO accordingly, were sustained. 5. The grounds in appeal raised by the assessee in all the years before this Tribunal are identical. The findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the well considered opinion that the principle of res judicata is strictly not applicable if there are facts and circumstances or material to justify a different decision by the subsequent Bench of the Tribunal from the earlier decision of the Tribunal or there is relevant material before the Tribunal even in the case of the same assessee on the same issue which persuades the Tribunal to come to a different decision. (Source: Comprehensive Income-tax Commentary by Dr. Avdesh Ojha, Vol. 4 at p. 5852 Edn. 2001). He also drew attention towards the decision in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) at p. 124. He also submitted that Tribunal can consider a question which was not gone into in an earlier appeal as held in CIT vs. Mohanlal Ranchhoddas (1992) 108 CTR (Guj) 22 : (1993) 203 ITR 304, 327-28 (Guj). Where a particular question has not actually been gone into by the Tribunal in an earlier appeal decided by it, such question can be considered by the Tribunal in a subsequent appeal. In the facts of that case, it has been held while deciding the earlier appeal the Tribunal has not actually gone into the question of conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected years, the assessee did not raise any such contention. 6.5 Further that the Tribunal in its order in paras 13. 16, 17 and 20 heavily relied on its own decision in Arihant Tiles & Marbles (P) Ltd. vs. ITO (2006) 104 TTJ (Jd)(TM) 149, wherein the benefit of deduction under s. 80-IA of the Act was denied by holding that the activities of the assessee do not tantamount to manufacturing or production. However, this decision now stands fully reversed by the Hon'ble Rajasthan High Court in the case of Arihant Tiles & Marbles (P) Ltd. vs. ITO (2007) 211 CTR (Raj) 169 : (2007) 295 ITR 148 (Raj) by taking a diametrically opposite view and process of cutting and sawing or sizing or polishing of marble blocks into slabs and tiles which results in making raw marble usable was held to amount to manufacture for the purpose of deduction under ss. 80-IA and 80-IB of the Act. He also stressed that even the Hon'ble High Court has used the word process several times in its decision loosely although it meant various steps and the assessee also before the Tribunal in asst. yr. 2001-02 might have used the word process but not in a technical sense however loosely in place of the word "various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consistency, should not come in the way for deciding the issue de novo. 6.7 It was further contended that there are various later decisions that have come after the Tribunal order in asst. yr. 2001-02 including those of Supreme Court, affecting the very decision to be taken in the later years. Such recent decisions are in the cases of jumbo rolls to films amount to manufacturing and production as held in India Cine Agencies vs. CIT (2008) 220 CTR (SC) 223 : (2008) 15 DTR (SC) 121 : (2009) 308 ITR 98 (SC). Others are in CIT vs. Mahesh Chandra Sharma (2009) 221 CTR (P&H) 163 : (2009) 17 DTR (P&H) 42 : (2009) 308 ITR 222 (P&H), CIT vs. Groz Beckert Saboo Ltd. (2009) 222 CTR (P&H) 427 : (2009) 18 DTR (P&H) 174 : (2009) 308 ITR 397 (P&H) and P.R.P. Granites vs. Asstt. CIT & Anr. (2009) 221 CTR (Mad) 371 : (2009) 17 DTR (Mad) 234. He therefore, contended that this Hon'ble Bench can very well consider the entire issue afresh in the light of the later development of law, facts and aspects not considered earlier so that a substantial justice is rendered to the parties. 7. On the other hand the learned CIT -Departmental Representative, vehemently opposed the consideration of the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 10. In the subsequent hearings, counsel Shri Gargieya accompanied by Shri Raj Bodhra, chartered accountant produced books of account along with registers, bills, vouchers for expenses and contemporary records to support his claim that he is engaged in manufacturing of articles eligible for exemption under s. 10B of the Act. It was claimed that the assessee purchased raw material or unfinished articles/structures and various steps undertaken consist of: 1. Designing; 2. Sample making and testing; 3. Procurement of sales order from foreign customers; 4. Purchases of wood, glass, hardware etc.; 5. Treatment of raw material like wood for manufacturing of articles or outsourcing of structures through orders with specifications (i.e., procurement of unfinished articles); 6. Grinding, surface smoothening or sanding; 7. Engraving and embossing; 8. Chemical dipping and treatment (like nickel or copper plating); 9. Drying; 10. Assembling structures, parts, accessories, etc.; 11. Colouring and designing; 12. Polishing; 13. Bar coding and tagging; 14. Packing; 15. Fumigation; 16. Despatch. 10.1 Copies of various invoices showing purchases of consumables (wax, chemicals, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. ------------------------------------------------------------------ Particulars Date of document Page No. ------------------------------------------------------------------ Chart showing processes involved in 1848 manufacturing and production ------------------------------------------------------------------ Details of machinery purchased and 22-9-2003/27-9-2003/ 185-192 used by the unit in manufacturing 29-9-2003/12-10-2003/ and production (copies of some 12-9-2003/24-11-2003/ invoices) for surface smoothening, 21-3-2005 cutting, welding, nickle plating, packing ------------------------------------------------------------------ Proforma sales order from foreign buyer detailing items to be exported 13-5-2004 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 8-12-2004 203 ------------------------------------------------------------------ Consumable items ------------------------------------------------------------------ - Clock bill used in clock item (AP times) 24-1-2005 204 ------------------------------------------------------------------ - TPR powder for plating (Rahul Enterprises) 30-9-2004 206 ------------------------------------------------------------------ - MS wire, FeviKwik, GI Pipe, Fevicol for use in lamp/clock & fixing of parts (purshotam Kishore Kr. Khatri) 21-8-2004 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (DTP Point) etc. for packing 16-1-2005/8-12-2004 215-216 ------------------------------------------------------------------ Container/production report 4-2-2005 217-218 ------------------------------------------------------------------ Periodic statement/return filed with excise authorities November, 2003 225-226 ------------------------------------------------------------------ 12. On the legal aspect, Shri Gargeiya firstly submitted that nowhere in the Act, the definition of the words manufacture or production has been provided. He submitted that there are two sources to interpret the same firstly, the provision of law with which we are concerned i.e., s. 10B and the context we are presently seized and secondly, the judicial guideline based on the judicial pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years. The exemption provided under the new section is similar to the one provided to industrial undertakings operating in free trade zones. 9.4 As defined in the Expln. (i) below sub-s. (7) of the newly inserted s. 10B of the IT Act, hundred per cent EOU, is an undertaking which has been approved as such by the Board appointed in this behalf by Central Government in exercise of the power conferred by s. 14 of the Industries (Development and Regulation) Act, 1951, and the rules made under the Act." Therefore, the interpretation of the provision has to be liberal and in consonance with the very objective without going into much technicalities. For this, he also referred to the title of the provision which makes it clear that it is a special provision in respect of a 100 per cent EOU. 13.1 The Hon'ble Rajasthan High Court recently in the case of Arihant Tiles & Marbles (P) Ltd. vs. ITO at p. 152 (decision paper book 6617) has held that the expression used in any statute has to be interpreted in the light of its own context and object. Recently the Hon'ble apex Court in the case of CIT vs. B. Suresh held that the basic requirement of s. 80HHC is earning in foreign exchange a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of this policy also includes "agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining". On this aspect he also cited the decision of Vadilal Chemicals Ltd. vs. State of Andhra Pradesh, copy placed at paper book 38. 13.5 He then submitted that the context must be kept in mind while interpreting and for this purpose he cited a very recent decision in P.R.P. Granites vs. Asstt. CIT for asst. yr. 2003-04, which is a guiding case law on the subject. The observations of the Court as regards the EXIM Policy, are worth noting and reproduced hereunder: "It is the fact that as per the EXIM Policy, 2002-07 the Board of Approval has been constituted and EOU status has been granted to the assessee's unit. Hence, the CBDT and the Asstt. CIT have no jurisdiction to deny the benefit granted to the assessee by way of interpreting the word 'manufacture'. The main object of EOU scheme is to promote, earn valuable foreign exchange for the country. The assessee unit is entitled to utilise all the facilities granted under the EOU scheme as per the provisions of the EXIM Policy, 2002-07. But, the CBDT and the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to antique articles fit for export and that ultimate product is altogether different then it was originally purchased inasmuch as what comes out is a wooden handicraft item of artistic value-The ultimate product no more remains mere furniture-Tribunal has further observed that Government Department and agencies have also held the assessee as a manufacturer-Regarding purchases made against Sales-tax Form No. 17B, Tribunal has observed that there is no requirement in the rules and form that the goods so purchased shall have to be exported as such without carrying out any changes therein-Regarding use of machinery, Tribunal has observed that machine work is confined to seasoning of wood, thickness, plaining and cutting which is nothing but a preparatory stage before the handwork is commenced-Tribunal has also observed that required number of workers engaged in manufacturing activities was more than 20 throughout the year including the Karigars paid on piece rate basis-In view of these observations and all consideration the fact that incentive provisions are to be interpreted liberally, Tribunal has held all the conditions specified in s. 10BA are fulfilled in this case and the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence the test laid therein may be applied on the facts of the present case. 13.10 He submitted that the recent judicial thinking in this regard is very liberal. Moreover, the word 'new' is not there. In India Cine Agencies vs. CIT (decision paper book 58-65). the Court recently held the conversion of jumbo rolls of photographic films into small flats and roles in the desired sizes, as manufacture or production. He also cited CIT vs. Mahesh Chandra Sharma (decision paper book 79-81). CIT vs. Groz Beckert Saboo Ltd. (decision paper book 82-86) and jumbo rolls to films (2009) 308 ITR 20 landmark (decision paper book 67-70), wherein the assembly of wheels and manufacturing of needles, was held manufacturing or production. Even the packing activities have been covered. 13.11 He further cited the case of Vijay Ship Breaking Corpn. vs. CIT (2008) 219 CTR (SC) 639 : (2008) 14 DTR (SC) 74 where ship-breaking activity results in production, approving Ship Scrap Traders & Ors. vs. CIT (2001) 168 CTR (Bom) 489 : (2001) 251 ITR 806 (Bom). He also cited ITO vs. Ram sons Organics Ltd. (2008) 119 TTJ (Del) 193 : (2008) 14 DTR (Del)(Trib) 129, Pal & Pal Electromechanical (P) Ltd. vs. CIT (2009) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; - - - of raw material ----------------------------------------------------------------------- 3. Purchases - - 48,265 7,09,022 1,756 against Form D ----------------------------------------------------------------------- 4. Purcha- 25,89,500.84 1,85,82,597 1,85,62,780 2,15,99,514 1,72,14,518 ses of ST exempted ----------------------------------------------------------------------- 5. Purchases - - - 561 1,56,000 under Form C ------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer Arihant Tiles & Marbles (P) Ltd. vs. ITO and P.R.P. Granites vs. Asstt. CIT & Anr. The unit was approved as 100 per cent EOU by the competent authority only on 27th March, 2000 as per the certificate. According to the stipulations placed in such approval, the appellant has to work in a bonded warehouse and carry out the activities which amount to manufacturing as per the EXIM Policy in force. It is not out of place to mention here that the said approval is still in force and no invention (sic) had ever been made by these authorities even on frequent inspection made by them for each and every lot before exporting them. 15.1 He also referred to the certification by the customs and central excise authorities to show that the periodical inspection is being carried out by the customs and central excise authorities. 16. He further submitted that s. 10B is an incentive provision, meant for the promotion of export of handicraft/handmade items. It has been held that an incentive provision has to be construed liberally. Kindly refer Bajaj Tempo Ltd. Vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). The present case also helps achieving the avowed object. Once the underlying p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee in all the years under consideration, not (sic) to be dismissed. 20. We have heard the parties with reference to material on record and precedents cited at the Bar. The finding of fact reached by the assessing authority that the assessee simply carried out trading of manufactured items purchased from local traders is found perverse on facts. The finding that no manufacturing has been undertaken by the assessee on its own and only job charges paid for the work done by other manufacturers is also not correct. The examination of books of account with reference to purchases, sales and other expenses vouchers along with contemporary record reveal that the appellant purchased not only the raw material but also purchased semi-finished goods and articles of like description as that of exported goods on which it carried out machine work in case of wooden articles such as smoothening and shaping the structures. The surfaces and the edges of wooden items and then engraving, embossing, fixing metallic parts and accessories and thereafter polishing and painting thereof has also been done. The assessee has also fixed artistic parts thereon to give it a commercial look making i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 (Mad) made the following observation with respect to manufacturing activity: "The word 'manufacture' has not been defined in the IT Act. In the absence of a definition, the word 'manufacture' has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." 20.5 Hon'ble Madras High Court in CIT vs. Jamal Photo Industries (I) (P) Ltd. (2006) 205 CTR (Mad) 427 : (2006) 285 ITR 209 (Mad) observed as under: "The expression 'manufacture' involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original article or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a totally different commodity has been produced having its own name, identity character and end use. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of processing it is not necessary to produce a commercially different article." 20.10 In Advance Law Lexicon, 3rd Edn., by P. Ramanatha Aiyar, the expressions "production" and "manufacture" are described as under: "'Production' with its grammatical variations and cognate expressions; includes- (i) packing, labeling, relabelling of containers (impugned order) repacking from bulk packages to retail packages, and (iii) the adoption of any other method to render the product marketable. 'Production' in relation to a feature film, includes any of the activities in respect of the making thereof. [Cine Workers and Cinema Theatre Workers (Regulation of Employment] Act, (50 of 1981) s. 2(1). The word 'production' may designate as well a thing produced as the operation of producing (as) production of commodities or the production of a witness. 'Manufacture' includes any art process or manner of producing, preparing or making an article and also any article prepared or produced by manufacture Patents and Designs Act, (2 of 1911) s. 2(10). 'Manufacture' includes any process- (i) incidental or ancillary to the completion of a manufactured product; and (impugned order) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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