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Madhu Jayanti International Ltd. and Tea Promoters (India) Pvt. Ltd Versus Deputy Commissioner of Income Tax, Circle-1

2012 (7) TMI 531 - ITAT KOLKATA

Denial of exemption claim u/s 10B - Revenue stated that exemption u/s. 10B applies to an assessee in which the undertaking begins to "manufacture" or "produce" articles or thing or computer software - assessee is 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea - Held that:- 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 packaging from different Auction Centres in India a .....

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Special Economic Zones Act, 2005, which is a Central Act passed by the Parliament in May, 2005, and which Act also governs the said industrial unit owned by Assessee Company herein, also defines the term 'manufacture' to include processes such as 'blending' - in CHOWGULE & CO. PVT. LTD. Versus UNION OF INDIA [1980 (11) TMI 61 - SUPREME COURT OF INDIA]the word used 'producing' in relation to the tea mixture, which was produced through the process of blending. - Though Section 10A did not con .....

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exemption available to 100% EOU u/s. 10B are very similar in nature and the wordings of the statutory provisions are similar in nature is correct - assessee was recognised as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea 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 se .....

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.) of 2007, ITA No.1189/Kol/2008 - Dated:- 20-7-2012 - G. E. Veerabhadrappa, G. D. Agrawal, Mahavir Singh, JJ. ORDER Per Bench : The Hon'ble President of Income-tax Appellate Tribunal, on a reference made by a Division Bench, has constituted this Special Bench by referring the following question for consideration and decision: "Whether, on the facts and in the circumstances of the case, the Assessees, who are in the business of blending & processing of tea and export thereof, can be .....

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see, 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 .....

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nt assessment year 2004-05, the assessee filed its return of income on 01.11.2004 along with the tax audit report in form no.3CA/3CD and in form no.3CEB. 3. The A.O. issued notices under sections 143(2) and 142(1) of the Act for framing assessment. The assessee claimed exemption under section 10B of the Act in respect of its 100% Export Oriented Undertaking (EOU) for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The assessee also claimed deduction under section 80HHC of .....

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he Act in respect of export of blending of tea, by giving following findings in para 2.3 of the impugned order. "2.3 Exemption u/s. 10B applies to an assessee; as already mentioned earlier, in which the undertaking begins to "manufacture" or "produce" articles or thing or computer software…… As against the contention of the Ld. A/R that time word 'manufacture' or 'production' has not been defined in the Act or this section, Explanation 4 at .....

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ompany engaged in the blending of tea. The word 'blend' has been defined in the Concise Oxford Dictionary (Tenth Edition) as "(1) Mix or combine something else, (ii,) form a harmonious combination or part of a whole, (iii) a mixture of different things or people." The Ld. A/R has sought to explain the activities of blending of tea as carried out by the appellant company. In short, it purchases various kinds of tea from action houses, mix or b1end this mechanically, in automatic .....

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he 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 ma .....

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Similarly, in another important case i.e. Ujagar Prints v. Union of India & hers [1989] 179 ITR 317, the Hon'ble Apex Court held that "'manufacture' Involves the change or series of changes brought about by the application of process that take the commodity where commercially it can no longer be regarded as the original commodity but is instead recognized as distinct, new article that has emerged as a result of the process." Applying this yardstick of manufacturing to t .....

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different brands of tea does not constitute 'manufacture' or 'production' of articles. In the case of Brooke Bond India Ltd. v. CIT [2004] 269 ITR 232 the Hon'ble Jurisdictional High Court, after dismissing the appeal, held that "dismissal of the special leave petition even on the merits in respect of the judgement of the different Bench of the Karnataka High Court did not amount to a declaration of law by the Supreme Court thereby making it operative under article 141 .....

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department against the judgement of the Karnataka High Court (Supra) with the following observation. "Delay condoned; the special leave petitions are 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 e .....

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on 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 discipline, the Supreme Court being the apex court of the country. But, this does not amount to saying that the order of the court, Tribunal or authority .....

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ejay Pvt. Ltd. and Brooke Bond India Ltd. will squarely apply in this case. Although these two decisions have been rendered with reference to admissibility the claim of deduction u/s. 32A, yet the basic issue decided is whether blending of tea constitutes "manufacturing" or "production". In both these decisions the jurisdictional High Court has ordered against the appellant company. Respectfully following the same, the arguments of the Ld. A/R are rejected and the decision of .....

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de letter bearing no. PGR: 650 (1995)/EOB/739/95 dated 26.12.1995 for establishment of a new industrial undertaking at Paharpur, Kolkata in the state of West Bengal for the manufacture and export of packet tea /tea bags / bulk tea, subject to the conditions imposed therein. Copy of the terms given by the Development Commissioner, FSEZ/FEPZ, Govt. of India, Ministry of Commerce vide letter dated 26.12.1995, filed before the AO, during assessment proceedings and even before CIT(A) and is now filed .....

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.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 .....

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packing materials, spares and finished goods are owned by the assessee company and stored at the warehouse facilities provided by the Trot Pvt. Ltd. and some raw materials are stored at other warehouses hired by assessee. 5. The ld. Counsel for the assessee, in view of the above facts, stated that in relation to its 100% EOU unit, the assessee company buys tea of different grades in bulk from various persons and particularly, from recognized auction centres in India and thereafter blend the same .....

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are analysed by tea experts including directors of the company as well as tea testers outsourced on specific requirements. According to the ld. Counsel, thereafter, 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. The ld. Counsel narrated one more fact that tea being an agricultural crop, is subject to variations in quality and taste from garden to garden because of soil .....

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of, which was filed before the lower authorities also and even now, which are filed at assessee's paper book at pages 127 and 128. He stated that during the relevant previous year 2003-04, relevant to assessment year 2004-05, Trot Pvt. Ltd., on contract basis, for carrying out various activities at its factory premises i.e., unloading, blending, filling in paper sacks, marking of paper sacks, weighment, stacking and container stuffing etc. in relation to the tea purchased by it from various .....

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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 .....

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rding to the Counsel, teas are tasted at testing rooms by assessee's expert tasters from samples of teas bought, which are of different qualities and grades, and thereafter blend sheets are prepared which indicates teas of different qualities/ grades which are to be blended by the contractors on behalf of the assessee to achieve the required standard of tea for export. According to him, tea purchased in various auction centres is passed through a series of automatic cleaning processes throug .....

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es blend-wise and they make the composite sample and seal with their markings. One such sample of tea from each blend was tasted on leaf, liquor, infusion and grades against buyer's specifications and also for submission to an independent laboratory for analysis. According to the Counsel, 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 pa .....

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tomatic 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 pou .....

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umer/ 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 pages 279 to 281 of Paper Book Volume-III 25,63,17,126.81 99.06% Total 25,87,40,448.81 100.00% The ld. Counsel for the assessee also drew our attention to pages 297 to 281 whereby complete chart of ingredients including value addition is provided in terms of quantity and value. In some of the cases, according to the ld. Counsel, there is .....

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rand Variety Flavours Liquid Granules (Herbs, Spices, Flowers, Fruits, etc) (1) (2) (3) (4) (5) (6) (7) 1 Nazirs Wake Me Up Black Berry Hibiscus, Apple Pomace, Black Berry Leaves, Liquorice Roots, Black Berry Juice, Vitamins, Guarana Seeds. Rose Hip. Orange Peel 100% 2 Jay Honey Lemon Ginseng Honey Siberian Ginseng Root, Lemon Verben, Licorie,Roasted Chicory roots, Giner roots, Orange Blossom, Dried Honey 92% 3 Harris Tropical Fruit Hibiscus, Apple, Corints, Pineapple Fruit, Papaya Pieces, Rose .....

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pple, Mint, Rose Hip Shell, Black Current 100% 8 Harris Royal Dessert Rasberry Apple, Rose Hip Shell, Hibiscus, Corints, Blackberry, Lemon Grass, Blue Mellow 100% 9 Harris Forest Fruit Forest Fruit Hibiscus, Elder berries, Apple, Mint, Rose Hip Shell, Black Current 100% 10 Harris Fruity Roman Orange Apple, Rose Hip Shell, Hibiscus, Orange Peel, Saff Flower 100% 11 Harris Lemon Grass Lemon Grass Cornflower, Lemon Grass, Orange Peel, Rose Petal 85% 12 Hemkop Ortte (Mixed Herbs) Passion Herb, Laven .....

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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 undertakings. Section 10B of the Act as inserted in the Statut .....

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this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development & Regulation) Act, 1951, and the rules made under that Act. And Explanation (iii) of the said section 10B of the Act defined the word 'manufacture' for the purposes of the said section to include, any - a. process, or b. assembling, or c. recording of programs on any disc, tape, perforated media or other information storage device He further explained the provision .....

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en inserted in the statute book with a view to provide further incentive for earning foreign exchange so as to secure that the income of a 100% Export Oriented Undertaking (EOU), shall be exempt from tax for a period of five consecutive assessment years falling within the block of eight assessment years. It was further explained that the exemption provided under the new section was similar to the one provided under section 10A of the Act to industrial undertakings operating under the Free Trade .....

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eir 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. C .....

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ional conditions as under: i. the sale proceeds of articles or things or computer software exported out of India, should be received in or brought into India within a period of 6 months from the end of the previous year or within such further period as the competent authority may allow - Sub-section (3); ii. The profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion, as the export turnover in .....

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vailable under other provisions of the Act during the period of 10 years - Sub-section (6); v. No deduction under the said section would be available for and after the assessment year 2010-2011 - Third proviso to Sub-section (1). 9. Ld. Counsel for the assessee clearly admitted that the expressions 'manufacture' and/or 'produce' have not been defined in the Act in exhaustive manner. For the purposes of section 10B of the said Act, an inclusive definition has been given in respect .....

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e for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export led growth. At the material time there were 11 functioning Economic Zones. The policy relating to Special Economic Zones was contained in the Foreign Trade Policy. Incentives and other facilities offered to other Zone Developer and Units were implemented through various notifications and circulars issued by the concerned Ministry/D .....

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n 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&qu .....

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es issued by the Ministry of Commerce and industry and valid in between 1997-2002 and again, in between 2002-2007, all along recognised the meaning of the expression 'manufacture' to include, inter alia, 'processing' of goods by hand or by machine. Finally, Ld. Counsel for the assessee stated that the above legal position clearly demonstrates that 'blending' is 'manufacturing' or 'processing' as per the provisions of sections 10A &10B of the Act. For t .....

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turing process of blending of tea, the assessee set up a new industrial undertaking under SEZ scheme of Govt. of India as envisaged in the export import policy (2002-2007) and its unit is set up in Falta Special Economic Zone at Falta, District South 24 Parganas, West Bengal. According to Ld. Counsel, his unit at Falta was granted permission by Govt. of India, Ministry of Commerce & Industry, under SEZ scheme to manufacture bulk tea/packet tea, vide letter no.11299 dated 21.03.2003. Ld. Coun .....

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lume 1, 2002 to 2007. He mainly relied on the definition of EXIM policy 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 .....

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les & 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 written submissions and also stated that he is adopting the arguments made by Ld. Counsel Shri G. C. Srivastava in the lead case of Madhu Jayanti International Ltd. 12. On behalf of intervener Tea Promoters (India) Pvt. Ltd., Ld. Coun .....

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r III of the Act deals with the provisions, which allows exemption and states that the total income does not form part of total income but they work independently in their own provisions of one section and one section do not apply to other section in Chapter III. He referred to explanation (4) to section 10A and explanation (1) to section 10AA of the Act. He also referred to the definition of clause (r) to section 2 of the Special Economic Zones Act, 2005 as adopted in explanation (1) to section .....

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arlier also the definition 'manufacture' were available in section 10A and 10B of the Act even before insertion of new sections 10A and 10B of the Act by the Finance Act, 2001 w.e.f. 01.04.2001. According to Ld. CIT DR, this definition of 'manufacture' was in force from 01.04.1989 to 31.03.2001 but when section 10A and 10B of the Act were amended by the Finance Act, 2001 w.e.f. 01.04.2001 there was no definition at all either in section 10A or section 10B of the Act. According to .....

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ction, '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 th .....

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nd stage is considered manufacturing of tea. The third stage is blending of different qualities of tea in order to smoothen for its marketability. This third stage is considered processing of tea. He stated that Hon'ble Calcutta High Court in the case of Brooke Bond India Ltd. v. CIT [2004] 269 ITR 232 (Cal) had followed the decision of jurisdictional High Court in the case of Apeejay Pvt. Ltd. (1994) 206 ITR 367 (Cal) which was directly on the issue of blending of tea. Hon'ble Calcutta .....

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ble as in the case of Brook Bond Ltd. before Hon'ble Calcutta High Court. Therefore, Hon'ble Calcutta High Court was justified in holding that the processing of tea is not manufacture or produce in the facts available on their records. He argued that the contention of assessee that since sophisticated mechanical process and electro mechanical process weigher were used in the case of Madhu Jayanty International Ltd., therefore, this case is covered by decision of Karnataka High Court supr .....

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nder: "It is further contended that the packing of tea is done manually and also by machines. Electrical packing and weighing is also carried out." In view of the above, he argued that the plea of the A/R regarding sophisticated mechanical process would not be of any help to prove his case because 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 .....

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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 Agenc .....

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on of Hon'ble Supreme Court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149 wherein Hon'ble Supreme Court held as under: "It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention. It is equally settled law that if the language is plain and unambiguous, one can only look fairly at the language used and i .....

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ention should be paid to what has been said as also to what has not been said. He stated that the wording of section 10A, 10B & 10AA of the Act are simple, clear and unambiguous and so the benefit of exemption has been extended by the legislature only to those assessees whose activities are either manufacture or production and therefore, the benefit cannot be extended to the processor as no word process has been inserted in sections 10A and 10B of the Act following the above ratio laid down .....

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hereafter 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 export .....

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ting and processing etc. Each garden has its own subtle shade, flavour, colour, brightness, strength and aroma. The assessee company also imports tea from overseas to meet the quality specifications of overseas buyers. It is also a fact that the blending of different varieties of tea is made container-wise and details of such blending are recorded in the 'blend sheets'. It is also a fact that assessee during previous year 2003-04, relevant to assessment year 2004-05, entered into contrac .....

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bulk packaging from different Auction Centres in India and overseas to the physical stuffing of the packaged teas in containers for shipment. From the documents and facts filed before us it is clear that teas are purchased mainly from six tea auction centres in India at Kolkata, Siliguri, Guwahati, Cochin, Conoor and Coimbatore and also imported tea from various overseas countries including, inter alia, Argentina, China, Kenya, Sri Lanka etc. We find that teas are tasted at testing rooms by asse .....

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etals, particles from the packaging materials, jute strings, etc. Teas of different qualities/grades as selected are fed into the blending drum on the basis of blend sheets prepared by the experts and then the contractor, in the present case, Trot Pvt. Ltd. gets the teas blended in the automatic electrically operated blending drums. After completion of each blend, representatives of the inspection agencies draw samples blend-wise and they make the composite sample and seal with their markings. O .....

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d 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 .....

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for export. The assessee explained the entire process of manufacturing and blending of different teas. 17. We further find facts that Assessee Company has established a new industrial Undertaking (100% EOU) for the manufacture of packet tea/tea bulk tea in the Falta Special Economic Zone, and it holds a green card issued by the Development Commissioner, Ministry of Commerce, Government of India, Kolkata. Assessee Company's said 100 Export Oriented Undertaking (EOU) is also registered with C .....

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al unit owned by Assessee Company herein, also defines the term 'manufacture' to include processes such as 'blending'. In Chowgule & Co. Prt.. Ltd. v. Union of India [1981] 1 SCC 653 Hon'ble Supreme Court, after considering the judgment of Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v. State at Bombay [1959] 10 STC 500 (Bom), clearly observed that when different brands of tea are mixed for the purpose of producing a tea mixture of a different kind an .....

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anual application of energy. Hon'ble Apex Court used the word 'producing' in relation to the tea mixture, which was produced 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 manu .....

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e 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 action, process or effort, a product; a product of human activity or effort". From the wide definition of the word 'pro .....

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nnot be lost sight of. The intention in employing the word "produced" obviously was to introduce an element of volition and effort involving the employment of some process for bringing into existence some goods; 19. In Chowgule & Co (P) Ltd v. Union of India [1981] 1 SCC 653 AIR 1981 SC 014 Hon'ble Supreme Court were concerned with the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted 'manufacture& .....

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tation of the word "processing" in Section 8(3)(b)and Rule 13. This word has not been defined in the Act and it must therefore be interpreted according to its plain natural meaning. Webster's Dictionary gives the following meaning of the word 'process": "to subject to some special process or treatment, to subject .(especially raw material) to a process of manufacture, development of preparation for the market etc.; to convert into marketable form as livestock by slaug .....

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ase 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 wit .....

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ons are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical .and physical composition of each ki .....

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one and what process is utilised for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the Mechanical ore handling plant undergo any change in their physical and chemical composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions. 20. In paragr .....

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ions made by the Hon'ble Supreme Court in this respective are quoted and set out herein below for ready reference: "7. The Revenue however relied on the decision of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v. State of Bombay (10 STC 500 (Born HC). The assessee in this case were registered dealers in tea under the Bombay Sales Tax Act, 1953 and they purchased in bulk diverse brands of tea and without the appl1at,on of any mechanical or chemical process blended these bran .....

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), 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 de .....

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i Tea Company case (10 STC 500 (Bom HC) and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tee Company case (10 STC 500 (Born HC)) as laying down the correct law. When different brands of tea were mixed by the assesses in Nilgiri Tea Company case (10 STC 500 (Born HC)) 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 .....

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rce in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the Assessee, since in the present case the blending was done by application of mechanical force, but we do not think that is the correct test to be applied for the purpose of determining where there is 'processing'. The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for .....

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pment" used in the processing of ore for sale……." In deciding the said 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 di .....

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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, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes 'processing'. (iii) The questi .....

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upra), holding, inter alia, that where any commodity is subject to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity within the meaning of the Central Sales Tax Act, 1956. Hon'ble Supreme Court, in the said judgment, did not consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering the judgment of the Bombay High .....

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ixture. 22. In Stroud's Judicial Dictionary (4th Edition - 1971), the word 'Blended' has been defined to mean 'mixed' so as to be 'inseparable and indistinguishable' [Re: Kilgoran Hotels Ltd. & Samek. 65 D.L.R (2d) 534). In the New Shorter Oxford English Dictionary [1993], the word 'blend' has been defined to mean 'a mixture formed by blending various sorts of grades (of spirits, tea, tobacco, wool etc.)' so as to produce a certain, quality; produc .....

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acture 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, .....

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India that 'blending of tea' amounts to processing and as such the assessee was an 'industrial company' in terms of section 2(7) (c/) of the Finance Act 1978. Hon'ble Calcutta High Court in Renderian's case observed that, as there is no specific or separate definition of the expression 'processing' or the expression 'manufacturing', although both the expressions appear in section 2(7)(c) of the Finance Act, 1978, the Tribunal was in error in observing that .....

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. 24. In Aspinwall & Co. Ltd. v. CIT. (251) ITR 323 (SC), Hon'ble Supreme Court were dealing with the case of an assessee, who after plucking or receiving the raw coffee berries, made them undergo several processes to give them the shape of coffee beans. The court held that since the word 'manufacture is not defined it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the 'production' of article or food from raw or prepared mater .....

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and colour are blended in defined proportions, and is filled and sealed in packed cartons, it is this packet of blended tea, which is the final product, and which is marketed and exported. The said process of blending & packaging leads to "value addition" to the original garden teas. The Court observed that it was quite permissible to take it as a possible view that the packaged blended tea produced in an industrial unit is a manufactured product, the contributing inputs being gar .....

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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 .....

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ng the garden teas of various colour and flavour as well as the packing materials. Further, special leave petition filed by the revenue before the Hon'ble Supreme Court against the aforesaid judgment delivered by the Hon'ble Karnataka High Court was dismissed by the apex court with the observations "The special leave petitions are dismissed on merits" as reported in [1998] 111 STC (St.) Hon'ble Calcutta High Court held and, observed at page 240 of the reports (269 ITR) as u .....

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367 (Cal) being binding, it must be held that the assessee company in that case was not entitled to deduction for investment allowance under section 32A of the Act; c. Moreover, the facts available in the case decided by the Division Bench of the Karnataka High Court were different, particularly the fact ,of user of sophisticated mechanical process and electromechanical weighers are not available in the present case of Brooke Bond India Ltd.: d. The assessee cannot be held to be a manufacturer .....

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within the meaning of 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 .....

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ommodity 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 the view of the Tribunal, held that the assessee Appeejay Pvt. Ltd. did not manufacture or produce any article or thing to be entitled to relief under section 80J of the Act. 27. In the case of G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal), while considering the claim of .....

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#39;ble Calcutta High Court in Renderian's case observed that, as there is no specific or separate definition of the expression 'processing' or the expression 'manufacturing', although both the expressions appear in section 2(7)(c) of the Finance Act, 1978, the Tribunal was in error in observing that the end result is tea, having a particular blend, and no commercially new or different article is produced by this process; In Mysore Mineral Ltd. v. CIT [1999] 239 ITR 775 (SC), .....

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In CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 (SC) - (judgment delivered on 17. 11.2004, that is to say, long after the judgment of the Hon'ble Calcutta High Court in Brooke Bond India's case delivered on 20.2.2004 and reported in 269 ITR 232), Hon'ble Supreme Court again considered the wider connotation of the word 'production' as compared to the meaning of the word 'manufacture in the context of section 2A(2)(b)(iii) of the Income Tax Act, 1961. The apex court held follow .....

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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) .....

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, 1961. 30. We find that the Hon'ble Kerala High Court considered exactly the same issue in the case of Girnar Industries v. CIT [2011] 338 ITR 277 (Ker.). In that case, the assessee, an industrial unit located in a special economic zone, was engaged in blending and repacking of tea for export. For the assessment year2004-05, it claimed deduction under Section 10A of the Income-tax Act, 1961. The Assessing Officer held that 'blending' did not answer the description of manufacture or .....

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ribunal confirmed the disallowance on the ground that blending and export of tea by the assessee qualifies for benefit only after incorporation of the definition clause of 'manufacture' from the 2005 Act in Section 10AA of the Act. On appeal, Held "that the provisions of Section 10A and Section 10AA later introduced serve the very same purpose of granting exemption on the profits earned by industrial units in the free trade zone/special economic zone. Though Section 10A did not cont .....

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zone. The exemption clause had to be considered with reference to the object with which it was enacted. In the EXIM policy 'manufacture' was given a very wide definition to take in even processing involving conversion of something to another with distinct 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 th .....

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re, 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 assessment year 2004-05." That the ratio o .....

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& Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for the AYs 1996-97 onwards, which was granted upto the AY 2000-01. However, for the AYs 2001-02 and 2002-03, 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. Hon'ble High Court noted that the department's stand is that manufacture or production .....

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0AA of the Act and the exemption available to 100% EOU u/s. 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon'ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies, (supra) relied on by the Sr. Standing Counsel for the revenue, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article, but is on .....

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ndustrial 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 a .....

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ike blending. The contention of counsel for the assessee is that the purpose of removal of the definition of "manufacture" from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent. export oriented unit even after the amendment is retained in the said section, which defines it as an undertaking which has been app .....

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acking of tea for export and is not manufacturing or producing any other article or thing. Still it is recognised as a 100 per cent. export oriented unit by the concerned authority within the meaning of that term contained in the definition clause of section 10B of the Income-tax Act and the Department has no case that the assessee's unit engaged in export of tea bags and tea packets is not a 100 per cent. export oriented unit. So much so, in our view, if exemption is denied on the ground th .....

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ort exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies' case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent. export oriented units covered by sections 10, 10AA and 10B of the Income-tax Act. Therefore, following the judgment of this court abovereferred to we hold that the assessee is entitled .....

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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 eve .....

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ure" 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 husbandiy, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining" In Exim Policy, the expression "manufacture" is defined, .....

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, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim Policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoure .....

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en separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions "manufacturer", "Buyer", "Packet Tea", "Tea Bag", "Green Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 o .....

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hing 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 .....

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Trot Pvt. Ltd. The manufacturing operations are carried in its said factory situated at I 9/4A, Munshiganj Road (under Falta Export Processing Zone), Kolkata. We find from facts of the case that the details of turnover of the assessee shows Bulk Tea (0.94%), Packet Tea and Tea Bags (99.06%), as per different descriptions, brand names and varieties, as listed APB. Assessee Company is duly registered as a 100% EOU by the Government of India, Ministry of Industry, Department of Industrial Policy a .....

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Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India. 34. The subject for consideration under sections 10A and/ or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ & SEZ areas in accordance with the Exim Policy decl .....

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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 20 .....

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ture' 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 available to units in the SEZ u/s. 10A of the Act and units in the free trade zone provided u/s. 10AA of the Act and the exemption available to 100% EOU u/s. 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature is correct. We find that Hon'ble Kerala High Cour .....

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Department had no case that the assessee's unit engaged in export of tea bags and tea 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 sections 10B of the Act. 36. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs a .....

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he SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term 'manufacture' under the common parlance, and it includes processin .....

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