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TMI Blog2013 (9) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption u/s.10A of the Act on the ground that the blending of tea does not amount to manufacture or producing any article for the purpose of claiming exemption. The relevant grounds in AY 2004-05 in ITA No.2089/Kol/2007 reads as under:- "1. That the Ld. C.I.T.(A) erred in having confirmed the disallowance of exemption claimed u/s. 10A of Rs.2,37,70,404/- on the alleged ground that the assessee was blending different types of tea but not manufacturing or producing any articles for the purpose claiming exemption u/s.10A, in spite of the fact that the activities of the appellant company amount to production of goods and are eligible for the exemption u/s.10A. 2. That the Ld. CIT(A) further erred in law in arriving at the conclusion that tea blending does not fall within the meaning of manufacture/produce, whereas it is an admitted position as per several judicial pronouncements that blending of tea is a kind of production. 3. That the Ld. CIT(A) further erred in holding that the assessee' was not covered under the SEZ Act, without properly interpreting the provisions of the said Act and hence his action in denying exemption u/s.10A is bad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lending becomes an important part of tea marketing. If blending becomes an integral part of manufacturing process, the activity falls within the purview of section 10A of the I.T. Act, 1961. But, if a trader, who after blending the teas of various varieties sells it in saleable packets, such blending being a process for the purpose of marketing only, does not amount to manufacture or production of tea. In such event, since blending of tea does not bring into existence a new manufactured or produced commodity which is so essential to avail benefit under section 10A of the I.T. Act, 1961, the exemption would not be available to the assessee. 4.22 It is true that blending of tea of different qualities by their purchaser brings in some qualitative change and a particular brand of tea carrying uniformity in its appearance, taste and chemical contents rules the market as a blend or mixture of tea. So far as making of tea from green tea leaves is concerned, it may amount to manufacture or production of tea. The existing commodity i.e., the green tea leaves, which after undergoing the process applied to it by the manufacturer, undergoes such change that it becomes a new commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression 'manufacture' or 'producing' any article or thing under section 10A of the I.T. Act, 1961 does not include any processing of goods, which does not bring out new or commercially distinct commodity. Therefore, blending of different tea by the assessee company which has purchased the readymade tea from different parties amounts to processing of the tea but fall short of manufacturing or producing the tea. Thus, the assessee company, merely by blending tea, has not manufactured or produced any article or thing within the meaning of section 10A of the I.T. Act, 1961. In view of the aforementioned discussions, the assessee is disallowed from claiming exemption under section 10A of the I.T. Act, 1961 amounting to Rs.2,37,70,404.09. The total income of the assessee is recomputed accordingly." Aggrieved, assessee preferred appeal before CIT(A). 5. CIT(A) also discussed the facts as under:- "The assessee has taken three grounds in the appeal but the sole issue is the disallowance of exemption claimed of Rs.2,37,70,404/- u/s. 10A of the Act. The assessee is a Private Ltd Co. having its registered office in Kolkata. During the relevant period, the Company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious chemicals, moisture and standards matching. If it is found that the final product has the characteristics that are in conformity to the buyer standard and after further clearing the various tests, these are weighted in electro mechanical system and packed in inner liner and the mouth is sealed with heater and then put in a jute bag or in paper sacks after which it is sealed or made into Tea Bags." 6. CIT(A) confirmed the disallowance of exemption by observing as under:- "I have gone through the assessment order and the written submission filed by the A.R. In this case though the Ld. AR tried to distinguish the fact of the decisions cited by the Ld. AO in her assessment order but he could not cite any decision which has a direct bearing with the fact of the instant case. Since under the I.T. Act, the term blending has not been defined but, the Ld. AO, with the help of various court decisions, established that blending process cannot be termed either as manufacturing or producing of any articles. Contrary to her findings, the decisions cited by the Ld. AR are not even remotely related to the definition. The SEZ Act, 2005 does not applicable for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, 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 available to units in the SEZ u/s. 10A of the Act and units in the free trade zone provided u/s. 10A 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 Court also considered the judgment in the decision of Supreme Court in Tara Agencies. Supra relied on by the Ld. CIT, DR, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article but is only processing. We find that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU, it would defeat the very object of section 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red back to the Division Bench, with direction to decide those appeals in the light of principle laid down herein, so far as the claim for relief u/s. 10A or 10B of the Act in accordance with law." 8. We find from the above that assessee is engaged in the business of purchase of different varieties of bulk tea from tea gardens / auction house / market and blend the same and exported. The assessee has also set up a new industrial undertaking for the purpose of manufacturing blending of tea under Special Economic Zone (SEZ for short) scheme of the Government of India in terms of Export-Import Policy of 2002 to 2007. This unit is set up in Falta SEZ at Falta, District South 24-Parganas in the State of West Bengal. This unit was granted permission by Govt. of India, Ministry of Commerce and Industry, SEZ Scheme for the manufacture of bulk tea / packet tea vide letter of Permission No. 11299 dated 21-03-2003, whereby "All the facilities and privileges admissible and subject to the provisions of the SEZ Scheme as envisaged in Export Import Policy /Handbook of Produces (Vol I), 2002-2007".This is also certified by Development Commissioner, Falta SEZ as on 27-05-2005. We find that AO in A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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