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DCIT, Circle-28, Kolkata Versus M/s. AP Exports

2015 (6) TMI 612 - GUJARAT HIGH COURT

Entitlement to Exemption u/s 10B - whether assessee is not a manufacturer? - Held that:- During the survey made on M/s. Arora Industries and M/s. Anil Industries certain invoices were raised on the assessee were impounded. The word semi-finished goods were not mentioned. It was explained in this regard that the word " unpacked and unlable condition" is mentioned and packing and labelling were also made by the assessee. This description means that the said garments were semi-finished. Therefore t .....

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iers could not export since they did not have any export order and therefore no question of claiming duty draw back by the suppliers and therefore they had to issue disclaimer certificates to the assessee. Therefore the suppliers did not supply any ready made garments. It was also clarified that the assessee is not doing all the processes on each and every piece of garment. For e.g. bar code labels were affixed on some of the garments, emblem graphics, stickers were affixed on some of the garmen .....

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on service of notice cannot make the assessee to loose exemption u/s 10B of the Act. In the circumstances and facts of the case we hold that the assessee is a manufacturer and entitled to exemption u/s 10B of the Act. - Decided in favour of assessee. - ITA No. 1038/Kol/2008 - Dated:- 30-4-2015 - Mahavir Singh, JM And B. P. Jain, AM,JJ. For the Appellant : Shri Nilay Baran Som, JCIT For the Respondent : Shri Miraj D Shah, Adv. ORDER Per Shri B P Jain,AM. This appeal of the Revenue arises out of t .....

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22,92,624/-respectively which were not put to use and no depreciation was claimed. 1. That the Ld. CIT(A)-XIV is mistaken in not considering the fact that from Item No.28(a)of the audit report submitted in Form No, 3CD it is found that the assessee purchased 513220 pcs of Garments, out of it 512280 pcs of garments were sold and 940 pcs. remained as closing stock. It is worthy to mention here that the datas in Item 28(a) No of the Form 3CD are given in case of a trading concern. 2. The Ld. CIT(A) .....

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urnished has been kept blank evidencing the fact that no article or thing was manufactured. 4. The Ld. CIT(A)-XIV is mistaken in Considering the fact that the assessee purchased unfinished goods and afterwards the unfinished goods were converted into finished goods for the reason that data given against Item No. 28(a) of Audit Report evidences that in course of Trading activity the assessee purchased & sold ready-made garments manufactured by others. 5. The Ld. CIT(A)-XIV is mistaken in rely .....

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ejbarua Tea Co. Vs. CIT (220 ITR 530) for that the assessee in this case manufactured Tea from tea leaves supplied by the assessee from garden while the assessee under appeal placed purchase order before the sister concern who supplied the finished goods which is established from the manufacturing Alc. submitted by the assessee before the sister concern. 7. The Ld. CIT(A)-XIV is mistaken in considering the fact that the partners of the firm got the garments manufactured in their respective propr .....

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tivities as no expenses were debited on account of wages, fuel. electricity. Cost of label purchase claimed only ₹ 1,29,402l- and salary claimed ₹ 72,500/- which are not enough for labeling more than 4 lakh pieces of garment. Salary is not also commensurate with so many works such as labeling, heat treatment, bar coding, putting on hangers and packing. Labelles purchased are also very small in numbers in comparison to no of garments exported. Hangers were imported and brought into In .....

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fully convinced that the goods purchased from the sister concerns as a whole were subjected to labeling, heat treatment, bar coding, putting hangers, packing etc. While the Ld. CIT(A)-XIV is not fully satisfied that the whole of the garments were not subjected to labeling, heat treatment, bar coding, putting on hangers and packing he is mistaken in considering the fact that the goods were produced are allowing the exemption u/s.1OB. 10. The Ld. CIT(A)-XIV erred in considering the fact that garm .....

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acture the .......to the proprietorship concern and in that case the assessee firm should have deduct tax which the assessee firm did not deduct and for this reason it can not be said that the assessee got manufactured the garments from proprietory concern on the behalf of the firm. 11. The Ld. CIT(A)-XIV erred in considering the fact that the assessee firm performed se end activities at least on a portion of goods. But the expenses claimed in the manufacture account filed by the assessee does n .....

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the assessee firm has ironed 4 lakh of garments and also no other work was done after purchase of garments & the claims of the assessee that some work has been done after the purchase of garments to make them exportable is not established from the expenses claimed by the assessee in the manufacturing account. " 3. The main question which arises from 12 grounds of appeal raised by the revenue is that the assessee is not a manufacturer and therefore exemption u/s 10B of the Act cannot be .....

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rn and in course of hearing, it is found that the assessee firm has been approved as 100% export oriented unit by the Development Commissioner, Falta Special Economic Zone, for production of 4,00,000 pieces of girls Night Suit two piences Boys Night Suit. T Shirts Pant and Track Suit per year(Annexture-1).Now,on examination of Audit Report submitted by the assessee alongwith the return of income, it is found that the assessee purchased Knitting Machine at the cost of Rs,48,89,287/- and Sewing Ma .....

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m No, 3CD it is found that the assessee purchased 513220 pcs of garments, out of it 512280 pcs of garments were sold and 940 pes. remained as closing stock. It is worthy to mention here that the datas in Item 28 (a) No. Of the Form 3CD are given in case of a trading concern, Datas at Item N028(b) of 3CD form are. furnished in case of a anufacturing concern. At Item No.28(b) A of the Form No. 3CD the description of Raw Material is given where in it is stated that the assessee purchased during the .....

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d Products/ by products are furnished has been kept blank which means that the assessee firm did not manufacture any Article or things, As the assessee claimed deduction u/s.10B. in course of hearing, the assessee was asked to file the Manufacturing Alc. Along with the short description of manufacturing procedure and the same were filed. The Manufacturing A/c. is annexed (Annexure-3) with the order. On examination of the above Alc. it is found that cost of raw materials i.e., cost of 683.92 kgs. .....

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rt description of manufacturing process is re-produced below : "AP.Exports purchased Semi-finished Garments from local markets. Then it perform various manufacturing function according to para 9.30 of EXIM Policy 2002-07(copy enclosed) like Finishing, Labelling, hanger & PIP Bags packing of each finished and manufactured piece of garment. Then according to buyer/customers requirements these manufactured garments are packed in specified quantity eg; Doz/pieces in cartons and finally expo .....

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From Item No.28(a) of audit report it IS crystal clear that in course of trading activity the assessee purchased & sold ready-made . garments manufactured by others. The assessee also tned to establish that they have labelled & packed the garments and that labelling and packing are also manufacturing activities as per Para 9.30 of EXIM policy 2002-07. But from the details of expenditure filed with the manufacturing account, it is found that iabelling of the garments was done from "E .....

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not utilise raw material and also from the Schedule of Fixed Asset it is found that the assessee did not utilise the machineries for production. Therefore. it is a fact that the assessee did not manufacture or produce any Article or things. The assessee was given approval by the Development Commissioner not for labelling of garments but for manufacturing of garments. As such the assessee did not manufacture garments as per approval of Development Commissioner, Falta Special Economic Zone. On th .....

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pages 9, 10 and 11 of his order. 5. The ld. DR relied upon the order of AO and the remand report of the AO where as the Authorised Representative relied upon the submissions made before the ld. CIT(A) and AO and the reply to the remand report by the AO and have relied upon the decisions of various courts of law and the definition of "manufacture" as mentioned in the order of ld. CIT(A). 6. We have heard the rival contentions and perused the facts of the case. The undisputed facts in t .....

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e manufactured under supervision of assessee firm. On receipt of the semi-finished garments, the assessee firm has fixed on stitches various stickers including heat/pressure stickers which are posted to improve the look and design of the garments. The semi-finished garments are then ironed and packed in poly poplin bags along with hanger putting them in export worthy saleable conditions. Silica gel is used to safeguard these garments from moth or odour. The said garments are then bar coded and t .....

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olutely make out a new thing because it is well settled that one cannot make a thing or create a matter by hand but it is transformation of matter into something else is a question of degree. The ld. Counsel for the assessee gave many definitions of manufacture and some of them are reproduced hereunder :- "Manufacture" would be to work up materials into forms for use, making of articles or materials by physical labour or mechanical power and making of goods by hand or by machinery ofte .....

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ating or adopting any article or substance cue with a view to use, salt, transport delivery or disposal Employees Provident Funds Act, 1952, Sec.2(10)." 6.1. It was also stated that the term "Manufacture" has been defined in clause 9.32 of Rules and Regulations relating to EOU framed by Government of India 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, .....

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Excise Act, 19044 and also notification of Central Excise in this respect. It was also argued that the expression "manufacture" has been defined in the Central Excise Act which is a charging Act for imposing duty on goods manufactured and that of the legislature as defined the expression "manufacture". 6.3. The ld. Counsel relied upon the decision of various courts of law. The decisions relied upon by the ld. Counsel of the assesse are reproduced as under for the sake of conv .....

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ufacturing factory of its own, tea was manufactured in asister concern under its supervision and after the tea was made, the assessee company got the tea bag for further sale. It was held that the assessee manufactured tea. 3. CIT, Gujarat Vs. Ajay Printer - 58 ITR 811 , Printing of Balance Sheets, Profit & Loss Accounts, Dividend Warrants, Pamphlets, Share Certificates etc. is a business which consists wholly manufacture of goods. 4. 119 ITR 145, Kolkata High Court - a manufacturer may hire .....

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t derived from such activity of processing raw cashew and exporting the same. 6. Allahabad High Court, CrT Vs. Talwar Khullar Pvt. LtC!. the assessee company got manufactured various articles of brass wire from Artisan under its supervision andcontrol I he assessee gave the pattern and design of the articles to be manufactured by the Artisan who purchased the raw materials, manufactured the articles according to the different models supplied by the assessee. The articles in raw form were examine .....

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ad neither used the machines during the relevant financial year nor consumed the raw material. It was explained that the assessee firm was buying semi-finished garments and then various manufacturing function according para 930- Exim Policies 2006-07 like finishing, labelling hanger P/P bags, packing, ,ironing etc were made. It is also an undisputed fact that the assessee garment unit was approved by the Development Commissioner, Falta Special Zone and if the assesee did not manufacture any garm .....

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y the present unit is also an approved EOU. 6.5. As regards knitting machine it has not been used by the assessee. It was explained that the assessee was buying semi finished garments thereafter it was carrying various process. There was no use of knitting machine for the relevant financial year and non-use of machine cannot be a reason for not allowing rebate or exemption u/s 10B of the Act. As regards the defect in Form No.3CD and col.28(a) (b) of Form 3CD it was stated that " inadvertent .....

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ntioned that during the survey made on M/s. Arora Industries and M/s. Anil Industries certain invoices were raised on the assessee were impounded. The word semi-finished goods were not mentioned. It was explained in this regard that the word " unpacked and unlable condition" is mentioned and packing and labelling were also made by the assessee. This description means that the said garments were semi-finished. Therefore there is no discrepancy in the said invoices. No garment can be sol .....

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therefore no question of claiming duty draw back by the suppliers and therefore they had to issue disclaimer certificates to the assessee. Therefore the suppliers did not supply any ready made garments. It was also clarified that the assessee is not doing all the processes on each and every piece of garment. For e.g. bar code labels were affixed on some of the garments, emblem graphics, stickers were affixed on some of the garments. Accordingly heat treated emblem was given on some of the garme .....

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