TMI Blog1985 (9) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was wrongly allowed. He issued notice to show cause why the investment allowance should not be withdrawn acting under section 263 of the Income-tax Act, 1961 ( the Act ). The assessee replied with reference to case law that the assessee s activity constituted manufacture. The assessee s arguments were found unaccountable inasmuch as the Commissioner found that electroplating was akin to galvanising and that galvanising was not treated as manufacture in the decision of the Calcutta High Court in CIT v. Hindusthan Metal Refining Works ( P.) Ltd. [1981] 128 ITR 472. Relying upon this decision, he directed the ITO to withdraw the investment allowance. The assessee is, therefore, in appeal against the said order. 3. The learned representative for the assessee took us over the accounts of the assessee and described its activities. He claimed that the assessee has used the machinery which was purchased at a cost of nearly ₹ 1.5 lakhs for electroplating various industrial and other items like parts for fan equipment, scooter, refrigerators and rickshaws besides electroplating safety pins, hair pins, nuts, bolts, screws and washers, etc. He also pointed out that the assessee pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to ignore the decision of the Calcutta High Court which is nearest to the assessee s facts. He also sought to justify the order of the Commissioner on the basis of another argument. He pointed out that the basic-material never belonged to the assessee. Its entire receipts are by way of service charges. He claimed that this distinction was noticed by the Bombay Tribunal in the case of ITO v. Ahura Shipping Engg. Co. (P.) Ltd. [1984] 8 ITD 435 wherein this Tribunal, according to him, excluded job works from the purview of investment allowance . In this connection, he referred to the following passage from the above decision : The short question that arises for consideration, therefore, is whether or not the assessee-company manufactures or produces articles or things, there being no suggestion that the assessee is engaged in the business of construction. This has to be examined on the facts of the case, viz., that the assessee is mainly engaged in carrying out large scale repairs to ships though the job undertaken include manufacture or fabrication of parts, components and other equipments necessary for undertaking large scale repairs. In other words, just because the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such distinction besides merely brushing aside those decisions. As for the argument that the assessee has to do manufacturing on its own account, he claimed that this argument besides not having been raised in the order of the Commissioner is also weak. The remark made by this Tribunal in the case relied upon by the learned departmental representative was in the context of a repairer. There is no doubt that the assessee should be in the business of manufacturing goods. If he is not in that business, there cannot be any further question as to the eligibility of investment allowance. He pointed out to a Special Bench decision of the Madras Tribunal in the case of Thiagaraja Industries v. ITO [1983] 3 SOT 505 wherein this issue was specially considered. He also referred to some decisions of this Tribunal where such allowances have been granted to persons who did not own the goods themselves. 6. We have carefully considered the records as well as the arguments. Both of us had occasion to consider what constitutes manufacture in the case of Durandel Foods ( P.) Ltd. v. ITO [1983] 6 ITD 207 (Hyd.) where we had observed as under : Fortunately, considerable guidance is available a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as for example, both a tanner and a shoemaker could be manufacturers though the material processed is one and the same. The Supreme Court also referred to the definition in Shorter Oxford English Dictionary laying stress on deployment of physical labour or mechanical power . [Emphasis supplied] (p. 211) As pointed out therein, though the principles as to what constitutes manufacture is now well settled, there could still be dispute for application of these principles. The assessee is engaged in a business. The sole activity constituting such business is electroplating services. It has installed expensive machinery and has skilled labour. The only dispute is whether the product which is electroplated by the assessee could be considered as commercially different from the one before electroplating. The assessee has electroplated various items of industrial and trade articles. It has electroplated spare parts for fan equipment, refrigerators, rickshaws, scooters, etc. No doubt, it has also electroplated items like safety pins, hair pins, etc. Electroplating is not mere polishing or giving shine. Technical opinion irrespective of its conclusion has clearly pointed out that it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial goods, such as scooter spare parts, electroplating is an essential process before they could be used as spare parts. He contended that these products cannot and are not sold in the form in which they were manufactured. The assessee had also produced a number of items which were electroplated by it and showed specimens before and after electroplating. We do find that the articles before electroplating could not, and to the best of our information, are not being sold and used for the purpose for which they are intended. If it were so, it naturally follows that electro- plating is a process which transforms the materials which were given to the assessee for electroplating into something which is commercially different. As noted earlier, electroplating is a more elaborate process and it has varied uses. The items which are electroplated by the assessee are such as that they are not sold prior to electroplating. It is in this context, we must hold that the settled principles should apply to the assessee s case in its favour. We have found that the decision of the Calcutta High Court relied upon by the learned Commissioner is easily distinguishable for the reasons stated herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the case of Durandel Foods ( P.) Ltd. (supra) considered even a packing process as constituting manufacture in the facts and circumstances of the case because the bulk product before packing was not commercially sold while the packing involved a complex process with the aid of machinery and labour. On the basis of our finding that electro-plating involved transformation of the product before electroplating into a commercially different one, we must hold that the assessee s claim on merits is justified and was, therefore, rightly allowed by the ITO. 8. We have yet to deal with another argument which was raised by the learned departmental representative during the hearing. No doubt, the Bombay Bench of this Tribunal in the case of Ahura Shipping Engg. Co. (P.) Ltd. (supra) had observed that job works may not qualify for treatment as manufacture. But that observation was made in the context of a repair works. In the case of repair, the question of manufacturing any new article does not arise. By the very nature of a business, it has to be a job work and job work alone. Hence, the question whether it was done on own account or on somebody else s account was not an issue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed. Against the column manufacturing or processing activity , it has been indicated that the assessee s activity is job works in electroplating . It has also been stated that the date of commencement of production is 1-11-1978 . We do find that both sales tax and central excise law would consider that a person owning the machinery and using the labour for manufacturing process would be considered as a manufacture. Section 2(f) of Central Excises and Salt Act, 1944, defines manufacture and manufacturer as under : (f) manufacture includes any process incidental or ancillary to the completion of a manufactured product ; and (i)in relation to tobacco includes the preparation of cigarettes, cigars, cheroots, biris, cigarette or pipe or hookah tobacco, chewing tobacco or snuff ; (ia)in relation to manufactured tobacco includes the labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer ; (ii)in relation to salt, includes collection, removal, preparation, steeping, evaporation, boiling or any one or more of these processes, the separation or purific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity and not the person who supplied the raw materials to the person who will be liable for the excise duty as a manufacturer. But as pointed out by the learned departmental representative, the definition under the Factories Act or other Acts cannot be automatically imported because what is required is that the popular and generally understood meaning of the word should be considered and not the special meaning given in a special statute. We are, however, citing the provisions of central excise law and the decisions thereunder to show that the concept of manufacturer under the Central Excise Act, primarily includes a person who employs hired labour in the production or manufacture of excisable goods and only on an extended meaning, a person who manufactures on his own account is sought to be included. In other words, a person on whose behalf manufacturing is done, may also be treated as a manufacturer by an extended meaning given to the word manufacturer under central excise law. The ordinary meaning of manufacturer refers to the person who does the actual manufacture whether he does It on his own account or on somebody else s account. We are of the view that the genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product than the thing in its original shape lam unable to agree with this conclusion. For instance, if nuts, bolts and hair pins were electroplated, they remain as they are and they go only by the name of nuts, bolts and hair pin. So also the ceiling fan bottom cup, 48 fan guard s outer rings, refrigeration handle, rickshaw parts, gas stove frames, kickstarter pedal, carriers grush guards bear their names before they are electroplated and they are being used as subsidiary parts in certain machines gadgets in which they are used. Take, for instance, kick pedal. If the pedal is made with iron or steel or if it is electroplated the use to which it is put is only as a pedal. It is a different thing to say that the pedal looks nice, lasts longer, etc., if it is electroplated. But to say that after a particular part in a gadget is being electroplated, it becomes a separate identifiable product and is quite different from its original existence or identity does not appear to me to be correct. Further, the opinion of the Andhra Pradesh Industrial Technical Consultancy Organisation Ltd. is filed to show that the manufacturing process includes ornamenting . However, the definition of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles or things are manufactured or produced for the purpose of sale and not for some job work. In the instant case, the assessee was mainly engaged in carrying out repairs to ships, though the job undertaken included manufacture or fabrication of parts, components and other equipment necessary for undertaking such repairs. Merely because the assessee had to, for and in the course of undertaking repairs of ships, fabricate and manufacture certain items, it could not be held that the assessee manufactured or produced articles or things. On the basis of first principle, therefore, the assessee could not be said to manufacture or produce any article or thing. [Emphasis supplied] (p. 436) In my understanding of the abovesaid order, it lays down a principle that if a person manufactures or produces articles or things in execution of his job work, then he should not be taken to be a manufacturer or producer of the said articles or things. At paragraph No. 7 of my learned brother s order, the decision of the Bombay Tribunal referred to above was sought to be distinguished. I am not able to make out how it was successfully distinguished. Without saying that it went against the Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture involved some transformation or change in the material as a result of application of art or mechanical manipulation. He referred to the decision of the Supreme Court in the case of Dy. CST v. Pio Food Packers [1980] 46 STC 63. According to this authority, the test that was required to be applied was whether the processing of the original commodity brings into existence a commercially different and distinct article ; if it does, it is a process of manufacture, otherwise it does not amount to manufacture. The Commissioner then observed that there were numerous decisions in favour of and against the contention of the assessee- company that the process carried on by it amounted to manufacture. He, however, considered the decision of the Calcutta High Court in Hindusthan Metal Refining Works (P.) Ltd. s case (supra ) as most relevant to the present case. According to this decision of the Calcutta High Court, galvanising was not a process of manufacture and did not result in the manufacture of new goods. The Commissioner remarked that galvanising involved the process of coating iron or steel with zinc to protect the material from rust, that electroplating also involved th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, concluded that electroplating was a process which transformed the materials into certain articles which were commercially different and, hence, the assessee was engaged in the manufacture of articles as contemplated by the Supreme Court in Idandas v. Anant Ramchandra Phadke AIR 1982 SC 127 and as held by the Tribunal in Durandel Foods (P.) Ltd. s case (supra). In support of his conclusion, he also relied upon the authorities in Radha Dyeing Printing Mills case (supra), Hiralal Jeetmal s ( supra), Dr. P. Vittal Bhat s case (supra) and Nishit Synthetics (P.) Ltd. s case (supra ). Referring to the decision of the Madras High Court in Perfect Liners case (supra) and M.R. Gopal s case (supra), he remarked that the word manufacture should be understood in a wide sense and so where labour and machinery were used for converting one product into a commercially different one, there was manufacture . 4.2 Another argument of the learned departmental representative before the Bench was that since the assessee-company was engaged in job works, it did not qualify for being treated as manufacturer. In this behalf, he relied upon the decision of the Tribunal in the case of Ahura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising did not involve manufacture or production of any article. He was of the view that the process of galvanising was not different from electroplating and, as such, the aforesaid decision applied to the present case. He further observed that the nuts, bolts and hair pins, refrigeration handles, rickshaw parts, gas stove frames and other articles remained the same even after electroplating and, as such, it could not be said that new and commercially different and distinct articles would come into existence after electroplating so as to accept the proposition that electroplating was a manufacturing process. He referred to the decision of the Madras High Court in the case of Buhari Sons (P.) Ltd. (supra) and observed that the definitions of various expressions under the Factories Act or the Central Excise Act would not be applicable where the issue involved was whether an assessee was an industrial company or not. The learned Judicial Member was further of the view that the assessee-company was engaged only in job works in electroplating for others, that it did not manufacture and sell its own products and, as such, it was not entitled to investment allowance. According to him, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and production have not been defined anywhere in the Act. So, for solving the problem, we have to seek the aid of other authorities. 10. (i) Black s Law Dictionary defines manufacture as follows : The process or operation of making goods or any material produced by hand, by machinery or by other agency ; ... The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine. (ii) According to Webster s Dictionary, manufacture means : (a) to make or fashion by hand or machinery, (b) to work into useful form, (c) to produce in a mechanical way, (d) to produce goods by hand or by industrial art or processes, etc. (iii) The expression production is defined by the aforesaid dictionaries as (a) an act or process of producing, and (b) any tangible result of industrial, artistic or literary labour. (iv) According to the decision of the Supreme Court in Idandas s case (supra) there are three tests for determining whether a particular process amounts to manufacture . They are : (a) a certain commodity should have been produced, (b) the process of prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is different from its components. . . (p. 325) 11. Let us now examine, in the light of the aforesaid authorities, whether electroplating falls within the definition of manufacture or production of articles. Before determining that issue, we may first understand the process of electroplating. As explained by the counsel for the assessee, this process comprises the following stages : Degreasing - Removal of oils, grease and other surface contamination to make it suitable for pickeling involving alka-line chemicals. Pickeling - Process for chemical treatment where various metals are treated with different acidic solutions to remove metallic salts (example : iron is treated to remove rust). Polishing - A mechanical process also called buffing by which the metal is made soft at the surface to attain a better final finish. Cleaning - Process to remove oils left during polishing. Electro-degreasing - Process for removing oils and grease left in cleaning by using current. Under-coating - Electro-depositation of a metal cheaper than the one being finally deposited for better conductivity for the final plating process. Electroplating - Electro-deposition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Madras High Court in Perfect Liner s case (supra), the polishing of rough castings and supplying them for use as component parts in internal combustion engines amounts to manufacture of such components. (e)In the case of Hiralal Jeetmal (supra), the Madhya Pradesh High Court held that a person who was engaged in the business of printing and dyeing textiles purchased by him and of sale and supply of the printed and dyed material was a manufacturer . 13.2 I may also refer to the following decisions of the Tribunal in support of the view I have taken : (a)In ITO v. Elite Sea Foods [1983] 3 ITD 348 (Coch.), it was held that the assessee was entitled to get investment allowance on plate freezer used for freezing shrimps purchased and processed before export. (b)In Andhra Pradesh State Seeds Development Corpn. v. ITO [1983] 5 ITD 624 (Hyd.), the assessee purchased seeds from agriculturists and processed them by cleaning, grading, preserving and treating them through scientific conditions. The Tribunal held that the process amounted to manufacture or production for claiming weighted deduction under section 35C of the Act. (c)In the case of Durandel Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee. According to this definition, manufacturing process , inter alia, includes any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adopting any article or substance with a view to its use, sale, transport, delivery or disposal, etc. When even ornamenting can be considered to be manufacturing process, there is no good reason to give a different treatment to electroplating. The argument of the learned representative of the department that the definition of manufacturing process as given in the Factories Act, should not be taken into consideration while deciding the present case is not acceptable. This definition may not be conclusively decisive of the point at issue, but there is no bar in seeking guidance from the same. 15. We may examine the case from another angle. What is the rule of construction of statute the object of which is to encourage industrialisation According to the decision of the Punjab High Court in Webbing Belting Factory (P.) Ltd. v. CIT [1961] 43 ITR 234 at p. 238, a provision which is intended to encourage the setting up of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel works for buildings and bridges to nuts, bolts, strip, sheet, wire and tube etc. [Emphasis supplied] As against this, electroplating , according to the aforesaid technical opinion report, means deposition of one metal on another by electrolytic action on passing a current through a cell for decoration, or for protection from corrosion, etc., metal is taken from the anode and deposited on the cathode, through a solution containing the metal as an ion . [Emphasis supplied] It may not be out of place to mention here that, according to Encyclopedia of Chemical Technology, [Vol. 8 by Raymond E. Kirk and Donald F. Othmer, new and important qualities in decoration, surface protection and engineering performance are attainable for many electroplated articles and electro-deposition frequently offers the only method of manufacturing or producing the desired surface finish. The beneficial results of electroplating may include improved appearance, improved resistance to corrosion, tarnish, chemical attack, and wear, improved frictional and non-galling behaviour, and increased hardness. Thus, whereas galvanising is used for applying coatings of zinc on other metals to protect it from c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
