TMI Blog2018 (7) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... rry with an intent to manufacture similar products and has requested the foreign company to make available the know-how to the Indian Company and after negotiations, the foreign company has agreed to make available the know how on the terms and conditions set out in the agreement. The agreement specifically states that the foreign company shall supply to the Indian company all materials such as know how of materials, such as process sheets, calculation sheets, standards and other information as is necessary to understand the utilisation of the said know how and to implement the same in the manufacture of the said product. The factual matrix clearly demonstrates that what has been done by the assessee is manufacture. In the assessee s case, the product which emerges after the process of manufacture is commercially a distinct commodity, can be of consumption as such containing a requisite amount of ingredients in the appropriate percentage, preserved in proper form as contained in the licence issued under the authorised enactments as well as the technical logo shared by the foreign company. - decided in favour of assessee Denying the claim under Section 43B - Held that:- ITAT p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the assessment under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as Act ]. In determining the income, the Assessing Officer disallowed the claim for deduction made by the assessee under Section 80IB of the Act, on the ground that the petitioner/appellant is not engaged in any manufacturing activity and instead, it was only doing trading of mushroom powders in capsules. The appeals filed before the Commissioner of Income-tax Appeals [CIT(A)], did not yield any results to the assessee and the order of the Assessing Officer was confirmed citing the same reasons. Thereafter, the assessee preferred appeals before the Tribunal and the Tribunal concurred with the views expressed by the Assessing Officer and CIT(A) and dismissed the appeals. 3. The assessee s case is that the Central Excise Department raised demands for the relevant years and the assessee had paid the central excise duty before the due date for filing of the returns and that the Central Excise demand was paid under protest, as the petitioner was contesting the valuation and showed it as assets in its accounts filed under the Income Tax Act. In the return of income, the said amount was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owder into a new article. Further, the Tribunal observed that once the capsule is removed, only the mushroom powder emerges out of it and filling the mushroom powder into gelatin capsules, no new and distinct or separate product comes into existence and even there is no change in the basic identity of the product and taste of the product. The ITAT referred to the dictionary meaning of the word manufacture or production as they were not defined under the Income Tax Act at that relevant point of time, since Section 2BA stood inserted by the Finance Act No. 2 of Act, 2009 with retrospective effect from 01. 04. 2000. To be noted, the assessment years which we are concerned are 2003-2004 and 2004-2005. Further, the Tribunal opined that the mushroom powder can be consumed in bulk form nakedly without being put into any enclosure or it can be consumed without putting into the gelatine capsules. Further, putting the mushroom powder into the capsule is for the purpose of smoothening its marketability, which is nothing but a process which does not amount to manufacture or production of a thing or article so as to fulfill the conditions stipulated for availing the benefit under Sec. 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt article, then it would amount to manufacturing activity. 9. In the instant case, the petitioner/assessee was dealing with Ayurvedic drug preparation. The Tribunal has rendered its finding that the mushroom powder can be consumed in bulk form nakedly without being put into any enclosures or by putting into the gelatine capsules. We find that there is no material, based on which, such finding was recorded by the Tribunal and to say the least, it is the personal opinion of the Tribunal. The Tribunal lost sight of a very important fact that the assessee has obtained licences from various statutory authorities namely licence in Form-25-D issued by the Government of Pondicherry, Food and Drug Administrative Department. This licence authorises the petitioner to manufacture/sale of Ayurvedic drugs including Siddha and Unani Drugs. The manufacturing process has to be supervised by the technical staff as in the licence and the names of the drugs are (a) Reishi Gano (RG), Capsule and (2) Ganocelium (GL), Capsule. Its packing size are 4,10,15,20,30,60,90 100. The licence contains various conditions. There is an annexure to licence, which states the list of Ayurvedic Proprietory Prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and Control of Pollution) Act, 1981 and Rules made thereunder for the purpose of operating their plot for manufacture of Ayurvedic drugs to the capacity of 5,00,000 capsules per day. 11. It is not in dispute that the manufacturing unit is located in an Industrial area. Though all these licences were obtained by the petitioner, none of the three authorities including the Tribunal, have made an attempt to examine from that angle as to whether the process done by the assessee would tantamount to manufacture, especially when the word manufacture was not defined under the Act at that relevant time. As pointed out earlier, the order passed by the Tribunal rejecting the claim under Section 80IB is based on its personal opinion and not borne out by any records. Recently, the Hon ble First Bench of this Court, in the case of M/s. Chettinad Builders P. Ltd. , Vs. The Deputy Commissioner of Income Tax in TCA. No. 261 of 2017, has considered a similar term, the word manufacture . The assessee therein was engaged in the preparation of ready mix concrete and it was pointed out that preparation of ready mix concrete resulted in transformation of stone, chips, sand, cement, fly ash and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the word manufacture and any activity which makes a product marketable and usable to the consumer would be covered by the word production . In support of such contentions, reliance was placed on the decision of the Hon ble Supreme Court in the case of Income Tax Officer Vs . Arihant Tiles and Marbles P . Ltd . , [( 2010) 320 ITR 79 (SC)] wherein the Hon ble Supreme Court held that the word production is wider in ambit and has a wider connotation that the word manufacture . Reliance was also placed on the decision of the Hon ble Supreme Court in the case of Vadilal Chemicals Ltd . , Vs . State of Andhra Pradesh Ors . reported in [(2005) 6 SCC 292 ] . The assessee sought to distinguish the decision of the Gujarat High Court in State of Gujarat Vs . Kosan Gas Company reported in [(1992) 87 STC 236] . While answering the question, the Hon ble Supreme Court pointed out that on a reading of the aforesaid provisions of the Act, it becomes clear that after reading these provisions that an assessee whose process amounts either to manufacture or production , i. e. , one of these two and not both would become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge before the Division Bench of this Court in TCA. No. 730 of 2015 [Commissioner of Income Tax Vs. M/s. DXN Herbal Manufacturing Industries Pvt. Ltd. ,] and the Division Bench by judgement dated 07. 9. 2015, dismissed the appeal filed by the Revenue. The operative portion of the order reads as follows : 6 . The Revenue filed a further appeal to the Tribunal raising a specific ground in ground No . 2 to the effect that if the assessee had not claimed the expenditure in its books of accounts, but had shown the same only as advance receivable in the balance sheet, the deduction could not have been allowed . The grievance of the Revenue is that without considering the said ground of attack, the Tribunal dismissed the appeal of the Revenue . 7 . As rightly pointed out by the Tribunal in paragraph 5 of its order, the assessee has actually paid the said amount as excise duty in the relevant previous year for enabling them to move the goods out of their factory . This payment was made pursuant to an order passed by this Court . The fact that the assessee has taken up the matter on appeal to the Supreme Court on their litigation with the Department of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit for the month of November 2005, to the Superintendent of Central Excise, Range II-B was produced. Further the Assessing Officer states that the return shows that it classified the goods under CETSH No. 3004. 90. 11, on which excise duty was paid along with necessary description of receipts and consumption of principle inputs and finished products were cleared and waste and scrap arising during process were not cleared, but destroyed. 17. The above factual finding which has been recorded in the Assessment Order and termed to be a admitted fact is sufficient to hold that the petitioner was engaged in the manufacturing process and there is also proof to show that payment of excise duty was made by the assessee and consequently, the finding of the Tribunal has to be held unsustainable. 18. We may note that even as per statement given by the employee of the petitioner to the officials of the Department when they inspected the unit, the process involved in the production activity was described. The same has been quoted in paragraph No. 6 of the order passed by the Tribunal, which would clearly show that the bulk powders are filled in the power hopper and the empty gelatine caps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to manufacture. It was pointed out that the word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new good by a process which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products, which emerge in the course of manufacture of goods. In the absence of definition for the word article as is not defined in the Act or the Rules, it must be understood in its normal connotation in the sense in which it is understood in the commercial world. 20. The assessee specifically contended before the Tribunal that the bulk powder cannot be consumed directly as it may lead to inaccurate intake and the dose may be influenced by many factors such as size of spoon, density of the powder, humidity, degree of setting fluffiness due to agitation and processing pattern. Hence, administration of drug in capsule form is required. The assessee also demonstrated the various advantages of putting the drug in capsule form and thus submitted, the preparation of capsule is very important activity of the manufacturing process. 21. The Department stated that the assessee was import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Division Bench of this Court in Commissioner of Incometax Vs . Madurai Pandian Engg . Corpn . Ltd . , reported in [(1999) 239 ITR 375 (Madras)] . The question was whether the business of tyre retreading done by the assessee amounts to production of a new article and whether the assessee was entitled to relief under Sections 80J and 80HH of the Act. 24. This Court held that the common thread which runs in all the decisions is that only when a new distinct commodity commercially accepted as such, comes into existence as a result of processing, that a commodity can be said to have been manufactured and in the said context, retreading of tyres did not result in the production of an articles for the purpose of Section 80HH of the Act. The said decision is clearly distinguishable on facts. In the assessee s case, the product which emerges after the process of manufacture is commercially a distinct commodity, can be of consumption as such containing a requisite amount of ingredients in the appropriate percentage, preserved in proper form as contained in the licence issued under the authorised enactments as well as the technical logo shared by the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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