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TMI Blog2012 (7) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... , exporting and dealing in various commodities, more particularly, tea, coffee, jute, pepper, chillies, cardamom, turmeric and similar other spices, etc. The assessee, as per the claim is a 100% export oriented undertaking within the meaning of section 10B of the Income-Tax Act, 1961 (in short 'the Act') and claimed exemption under section 10B of the Act. The assessee buys tea from auctions held in Tea Board recognized Auction centres at Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Thereafter, it is packed in consumer packets of 50,100,250,500 or 1000 gms. etc. or packed in the form of tea bags of 1.94 gms or 2 gms etc., as the case may be. During the relevant assessment year 2004-05, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, in automatic electrical operated blending drum and then prepares different packages of various sizes and weight according to customer's needs. In short, the input is tea and output is also of tea. The intervening process is known as "blending" or "mixing" mechanically and packaging the same according to specific commercial needs. In this case the out-put is hardly distinguishable from the input. No physical or chemical change takes place during the process of blending. In this case the definition of 'manufacturing" as given by the Hon'ble Apex Court in its signal decision in the case of collector of Central Excise v. Kutty Flush Door and Furniture Pvt. Ltd. (1988) 17 ECC 37) the Hon'ble Apex Court held that "manufacturing refers to production of articles for use from raw, semi-raw or prepared materials by giving these materials new forms, qualities, properties or combination whether by hand labour or machinery" It may be worthwhile to note that 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 was necessary and there must be transformation; a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed on merit". 'In this regard the Hon'ble Calcutta High Court while quoting the decision of the Hon'ble Apex Court in the case of Kunhayammed v. State of Kerala 245 ITR 360 observed as under: To sum up, our conclusions are: (iv) An order refusing special leave to appeal maybe a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within tile meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were also filed before the lower authorities during the relevant proceedings. The assessee company is also registered with the Central Excise authorities in terms of registration certificate no. AABCN 7502RXN001 dated 03.07.2003 issued by the Assistant Commissioner of Customs 100% EOU Customs House, Kolkata under the Central Excise Rules, 1944. This copy of registration certificate issued by the Central Excise authorities is filed in assessee's paper book at page 124, which was also filed before AO as well as before CIT(A). The assessee company entered into an agreement with Trot Private Ltd. having their registered office at 19/4A, Munshiganj Road, Tollygunge, Kolkata -700023 for carrying out, on contract basis, various manufacturing, processing, blending, packing including loading and unloading activities for and on behalf of the assessee company. This agreement was initially entered into on 15.05.1996 for 10 years and later revised on 15th May, 2006. The above-said Trot Pvt. Ltd. had provided their own premises with shop floor and warehouse etc. and in turn, the assessee company provided various machineries to the said company for carrying out operations set out hereinabov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arking of paper sacks, weighment, stacking and container stuffing etc. in relation to the tea purchased by it from various auction centers in India and also imported by it for export purposes. The ld. Counsel for the assessee stated that some export orders require the pre-packing inspection and analysis of the blended tea conforming to the specifications set out in the respective export orders. Such inspection and certification, in the instant case, was carried out by Cargo Inspectors & Superintendence Co. Pvt. Ltd., SGS International Certification Services S.A. etc. through their respective representatives. He stated that before packaging the blended tea, the above-stated agencies used to carry out inspection/ supervision by drawing samples so as to ensure that the packaged tea is free from foreign smell, impurities, free from being mouldi, musty or acidic and is also fit for human consumption and conforms to the specifications as to quality controls as set out in the respective export orders. 6. The ld. Counsel for the assessee explained the process involved in export of blended and processed tea by the assessee which involves various steps right from the purchase of tea in bulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sophisticated and automatic volumetric measurement systems in the tea bagging machines. The two major types of tea bags are single chamber and double chamber. The tea bags are then packed into a carton. The ld. Counsel also explained the process of packing in pouches. The pouches are produced in an FFS machine which fills and seals the tea in laminated pouches and the quantity required to be packed in each pouch is measured through electro-mechanical weighing system which is in-built in the machine itself. Some pouches are directly packed into CFC boxes and others are packed in cartons. These cartons are then ready for export. The ld. Counsel for the assessee explained the entire process of manufacturing and blending of different teas. 7. The ld. Counsel for the assessee drew our attention to assessee's paper book-IV at page 387 where percentage of value addition is given. The same reads as under: Details of Sales from 100% EOU during Financial Year 2003-04 (AY 2004-05) Rupee Value Percentage Non-consumer/ Commercial Packing- Bulk Tea 24,23,322.00 0.94% Value added- Consumer Packing of different varieties of products samples of which have been referred to in pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Flower 100% 11 Harris Lemon Grass Lemon Grass Cornflower, Lemon Grass, Orange Peel, Rose Petal 85% 12 Hemkop Ortte (Mixed Herbs) Passion Herb, Lavender Flowe, Lemon Grass, Peppermint 100% 13 Willys Ortte (Mixed Herbs) Passion Herb, Lavender Flowe, Lemon Grass, Peppermint 100% 14 Willys Tea Gamla Soder Passion Fruit Roast Cattle, Corn Flower, Lemon Grass 65% 15 Harris Fruity Orange Orange Apple, Rose Hip Shell, Hibiscus, Orange Peel, Saff Flower 100% 16 Jay Cinnamon Apple Cinnamom Apple Pomace, Cinnamom, Chicory Roots, Chamomile 100% 17 Jay Chamomile Ginseng Peach Peach Charnimile, Chicory Root Roaster, Peach Herb 100% 8. Thereafter, the ld. Counsel for the assessee took us to the provisions of section 10A of the Act, which deals with Special provisions in respect of newly established undertakings in free trade zone, etc. and section 10AA of the Act, which deals with special provisions in respect of newly established units in special economic zone and also to section 10B of the Act, which deals with special provisions in respect of newly established 100% export oriented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic flexibility to 100% EOU and allow them to dispose of their export rejects and by-products, the Finance Act, 1994 further allowed them to sell 25% of their product in the domestic market. In effect, such units were allowed to claim exemption for 5 years, even in respect of profits from the 25% domestic sales allowed to them. It was further clarified that the 100% EOU must export at least 75% of their turnover. Further, he clarified that with a view to rationalize the concession and to phase these out by the end of the assessment year 2009-10, the provisions of sections 10A & l0B were substituted by new provisions by the Finance Act, 2000. CBDT vide Circular No 794 dated 9. 8. 2000 (2000) 245 ITR (St) 21, 34-35 vide paragraph 15.3 explained that deduction under section l0B would be granted in respect of profits & gains derived by an undertaking, which 'manufactures or produces' articles or things or computer software, and derive profits & gains from the exports thereof. It was stated that the said deduction was available for a period of 10 consecutive years in a graded manner. The new provisions contained some additional conditions as under: i. the sale proceeds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifications and circulars issued by the concerned Ministry/Departments. In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, a Central Act for Special Economic Zones was found necessary in line with the international practice. With this end in view, the Special Economic Zones Act 2005 was passed by the Parliament in May, 2005 and was brought into effect w. e. f. 23.06.2005. He stated that the definition of Special Economic Zones Act, 2005, as given section 2(r) defines the expression 'manufacture' as under: "manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal. husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining". Ld. Counsel for the assessee stated that this definition was adopted by the legislature in section 10AA w.e.f. 10.02.2006, as adopted by Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy and SEZ definition of manufacture. He stated that the definition under SEZ Act the term 'manufacture' as defined vide section 2(r) of the SEZ Act is incorporated in section 10AA of the Act w.e.f. 10.02.2006 and according to Ld. Counsel, the same is held to be retrospective and clarificatory. According to Ld. Counsel, analyzing the section 10AA of the Act, which was introduced subsequent to the passing of SEZ Act, the provisions of newly inserted section 10AA defining the term 'manufacturing' laid out in specific and clear term that blending was a manufacturing activity and according to him this new clarificatory definition of manufacturing allows benefit even under section 10A and 10B of the Act. Ld. Counsel for the assessee also relied on the decision of Hon'ble Kerala High Court in the case of Tata Tea Ltd. (supra) and also on the decision of Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt. Ltd. (supra). Apart from these arguments he adopted the arguments made by Ld. Counsel Shri G. C. Srivastava in the case of Madhu Jayanti International Ltd. 11. On behalf of Rajrani Exports Pvt. Ltd., Ld. Counsel Shri Pawan Kumar Agarwal filed wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the term 'manufacture' was to be inferred on the basis of common parlance meaning. He stated that section 10A and 10B of the Act were further amended by the Finance Act, 2003 w.e.f. 01.04.2004 and the definition 'manufacture' was inserted as under: "Explanation - 4. For the purposes of this section, 'manufacture or produce' shall include the cutting and polishing of precious and semi precious stones." Ld. CIT DR heavily relied on the decision of Hon'ble Supreme Court in the case of CIT v. Tara Agencies 292 ITR 444 (SC) and referred to the para wherein it is held as under: "That the activity of the assessee did not amount to 'manufacture'. But even if it might amount to 'processing' the assessee was not entitled to the deduction u/s. 35B, since the term was not included in Sec. 35B(1A)." He further stated that there are three stages, viz., production, manufacturing and processing of tea as enumerated by Hon'ble Supreme Court in the case of Tara Agencies (supra). He stated that the tea is produced in the tea garden. This first stage is called production of tea. The second state is manufacture of tea. In this state, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the input & output will remain same i.e. tea even by using sophisticated machinery also and no new different and distinct commercially known article or thing brought into existence of new name, character or use. 14. The Ld. CIT, DR further argued that the decision of Hon'ble Calcutta High Court in the case of Brook Bond (supra) further gets support from the above referred case of Tara Agencies (supra) wherein it was held by Hon'ble Supreme Court that even after using the sophisticated machines, electrical packing, weighing etc., the activity of tea blending was held as process and not manufacture because for "manufacture" something more was required. Input was tea and output was also tea and accordingly no new, different and distinct commercially known article or thing brought into existence of new name, character or use. Hence, blending of tea was held by Hon'ble Apex Court as process and not manufacture. Hence, the present assessee does not entitled to get any benefit from the decision of the Karnataka High court supra. Further the view of Calcutta High Court has also been fortified from the Supreme Court's decision in the case of Tara Agencies (supra) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons and particularly, from recognized auction centres in India and thereafter blend the same in appropriate proportions in accordance with the technical advice received from experts, package the same in specialized paper bags with screen printed specifications, as advised in the respective export orders and thereafter export such packaged tea on CIF basis to countries overseas. The export order is supported by Letters of Credit (L/C), as received by the assessee company from the overseas buyers for export of tea, which contains specifications of tea to be exported. Such specifications are analysed by tea experts including directors of the company as well as tea testers outsourced on specific requirements. The samples of different grades and brands of tea available in tea auctions are analyzed and identified, having regard to the particular specification set out in the export order one more fact that tea being an agricultural crop, is subject to variations in quality and different in taste from garden to garden because of soil, altitude, climate, harvesting and processing etc. Each garden has its own subtle shade, flavour, colour, brightness, strength and aroma. The assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach blend was tasted on leaf, liquor, infusion and grades against buyer's specifications and also for submission to an independent laboratory for analysis. Then, they analyses the total ash, acid insoluble ash, water soluble ash, water extract, crude fibre and alkalinity of the tea, moisture and submit their report. In the case of bulk order, the tea is packed in packs of 20 kgs. or more and dispatched for export. The blended tea is also filled into paper sacks and these paper sacks are made of craft paper and have a metalized polyester inner ply. For tea bags, the hoppers with blended tea are connected to the tea bagging machines. The filter paper rolls, wire for staples, thread and tags for tea bags are loaded on the machines which automatically manufacture the tea bags. The quantity of tea that has to go in each bag is measured using sophisticated and automatic volumetric measurement systems in the tea bagging machines. The two major types of tea bags are single chamber and double chamber. The tea bags are then packed into a carton. The assessee also explained the process of packing in pouches. The pouches are produced in an FFS machine which fills and seals the tea in lamin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced through the process of blending; Further, in CIT v. N.C. Budharaja and Co. [1993] 204 ITR 412 (SC), Hon'ble Supreme Court further observed that the word "production is much wider' than the word manufacture'. It was said (page 423): "The word "production" has a wide connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture.... 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." 18. In Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would, experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, 'such operation would amount to processing of the commodity. The nature and extent of the change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical. force 'or' pressure without addition or admixture of any other material and yet the 'operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta v. Commissioner of Commercial Taxes (16 STC 935 (Cal)). What is necessary in order to characterise an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assesses for the purpose of producing the tea mixture could be said to have been 'processed' after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assessees from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that the different brands of tea purchased by the assessees could not be regarded as 'processed' within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay high Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question, the Hon'ble Supreme Court after considering the judgment of the Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed as follows: (i) When different brands of tea were mixed by the assessee as in Nilgirl Ceylon Tea Supplying Co.'s case [1959] 10 STC 500 (Bom) for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavour than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to different conclusion and these observations were relied upon by the assessee, since, in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the tea manufactured in gardens and produced by the assessee, viz., package tea, it was held by the Hon'ble Calcutta High Court that package tea is produced out of tea already manufactured in the garden. The process by which tea is packed after manufacture and comes into the category of package tea will be deemed to have been considered by the Legislature to amount, by itself, to a production or manufacture, which makes the article excisable to duty. While considering the expression "manufacture", it was held that package tea is the manufactured 'goods, as the articles themselves prepared are the result of the process of manufactured, and the net result of the process of manufacture, is the production of articles in some form, which is envisaged as goods to be subjected to excise duty. In the case of G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal), while considering the claim of the assessee for treating it as an "industrial company" within the meaning of section 2(7) (c) of the Finance Act, 1978, for allowing the benefit of concessional rate of tax, it was held by the Hon'ble Calcutta High Court following the principles laid down by Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a produced in an industrial unit is a manufactured product, the contributing inputs being garden teas of various colour and flavour and the packing materials. It may also be noted that against the said judgment delivered by Hon'ble Karnataka High Court, a Special Leave Petition was filed by the Revenue before Hon'ble Supreme Court; but the same was dismissed by the Apex Court with the observations "the Special Leave Petitions are dismissed on merits", as reported in [1998] 111 STC (statute). 25 Hon'ble Calcutta High Court in Brooke Bond India Ltd.'s case [2004] 269 ITR 232 (Cal) were dealing with the assessee's claim for investment allowance under section 32A of the said Act in respect of new machinery purchased and put to use during the previous year relevant to the assessment year 1984-85. The contention of the said assessee was that it was not merely a blender of tea, but it produced a new and distinct type of tea having a predetermined quality in terms of taste, liquor and aroma and hygienically packed through mechanical contrivances, which it marketed in packets under different names. The assessee had inter alia placed reliance on the decision of the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80J(4)(iii) of the Act. The tax authorities had rejected, the aforesaid contention of the assessee. Hon'ble Calcutta High Court held at page 379 of the reports that the words manufacture' and 'production' applied in a case which brings into existence something different from its components. The court noted that in the case of the assessee company, Appeejay Pvt. Ltd., the input of the assessee's business was tea, and its output in the form of end products sold by it, was also tea. Their Lordships also noted at page 380 of the reports that the word manufacture' implied a change, but every change in an article, with the result of treatment, labour and manipulation, was not 'manufacture'. Something more was necessary and there must be transformation and a new and different article must emerge having a distinct name, character or use. The essence of a manufacturing process was the conversion of raw material into an entirely new commodity or new thing or a new product, which is of a different chemical composition or whose integral structure was different from the raw materials. In that view of the matter, Hon'ble Calcutta High Court affirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raja & Co. [1993] 204 ITR 412, 423 (SC) that extraction and processing of iron ore amounted to 'production' within the meaning of section 32A(2)(b)(iii) of the said Act. At page 334 of the reports, the Hon'ble Supreme Court inter alia observed as under: "It is, therefore, not necessary, as has been sought to be contended by the learned Counsel for the Revenue, that the mined ores must be commercially new product...." 29. In CIT v. Jansons & Co. [2006] 283 ITR 181 (All), their lordships of the Hon'ble Allahabad High Court applied the wider meaning of the word 'production' as compared to the word 'manufacture' in the context of section 35B of the said Act, as laid down by the Hon'ble Supreme Court in Chrestian Mica Industries Ltd. v. State of Bihar (supra), CIT v. N. C. Buddharaja & Co. (supra) and in CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 (SC). The Hon'ble Allahabad High Court was dealing with the case of an assessee, who was engaged in the business of exporting brass wares purchased from karigars and karkhanedars. The activity of soldering, welding, engraving, polishing, coloring and lacquering of such brass wares before their export, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct name, character and use. Since the purpose of exemption under Section 10A was to give effect to the EXIM Policy of the Government, the definition of 'manufacture' contained in the EXIM Policy was applicable for the purpose of the provision. 'Manufacture' as defined under the EXIM Policy had a wide and liberal meaning covering tea blending as well and so much so, blending and packing of tea qualifies for exemption under section 10A. Besides this, the assessee-industry in the special economic zone engaged in the same process of blending and packing of tea was specifically brought under the exemption clause through incorporation of Section 2(r) of the 2005 Act, in the provisions of Section 10AA of the Act. Therefore, the later amendment was only clarificatory and the definition of 'manufacture' contained in Section 2(r) of the 2005 Act, incorporated in Section 10AA of the Act with effect from February 10, 2006, which was essentially the same as the definition contained in the EXIM Policy, applies to Section 10A also. Therefore, blending of tea was a manufacturing activity which entitles the assessee for exemption under Section 10A of the act for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee's 100% EOU, it would defeat the very object of section 10B of the Act. Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was entitled to exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under: The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word "manufacture" which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of "manufacture" contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of counsel for the assessee is that the purpose of remova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to exemption on the profit derived by its 100 per cent. export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant's entitlement for exemption." 32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. l0.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. [2010] 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act 2000, the definition of 'manufacture' which included 'processing' contained in section 10B of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the assessee that the scheme of income tax exemption availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessees who are in the business of blending and processing of tea in respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that there is blending of tea and consequently the assessee is eligible for exemption u/s. 10B of the Act as prayed for. Their appeal for the AY 2004-05 is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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