TMI Blog1998 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... holes are drilled in the hills containing granites in a pattern to facilitate extraction of big blocks more or less in a cubical form of about 1/2 tonne to one tonne each. The holes are filled with explosives and exploded so as to extract the blocks from the hills. The blocks are then thoroughly washed with water to see whether there is any crack in it. The washed blocks are lifted by crane to the platformed lorries and exported as such. The assessee does not polish or does not undertake any other processing on the blocks on the granite stones so extracted. It is only the importers in other countries who were polishing and cutting blocks to suit their requirements." The benefit of section 80J and section 80HH of the Income-tax Act was denied to the assessee by the Income-tax Officer and by the appellate authority. The Tribunal disagreeing with them, having allowed the assessee's appeal, the Revenue has sought this reference. The Tribunal has held that the assessee was producing things or articles, by extracting granite from the earth, and it was adding value to the original product by converting them into exportable size. Counsel for the Revenue submitted before us that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it also takes in all the by-products, intermediate products, and residual products which emerge in the course of manufacture of goods. It was also held that the expressions "manufacture" and "produce" are normally associated with movables--articles and goods, big and small--but they are never employed to denote construction activity of the nature involved in construction of a dam or a building. Counsel for the Revenue submitted that having regard to the language of section 801 and section 80HH, both of which referred to, inter alia, industrial undertakings engaged in the manufacture or production of articles, the activity of extracting blocks of granite cannot be regarded as manufacture or as production of any new article. Learned counsel for the assessee, on the other hand, supported the order of the Tribunal and submitted that the words "manufacture" and "production" are words of wider import and neither expression having been defined in the Act, the terms were required to be construed as in their natural meaning and when so construed, the activity of blasting rock formation for the purpose of extracting granite blocks, and thereafter, subjecting them to a process of cuttin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of human activity or effort. The court set out in some detail the process of extraction of crude mica and the process by which split mica was made. That portion reads as under : "Mica is found imbedded in the pegmatite vein in the form of what are known as 'books of mica'. These are crystals of mica and comprise the mineral in its crude form. They may vary in size from a few cubic inches to big blocks, measuring two to three hundred square inches in the place of the laminations and one foot or more across it. For preliminary treatment, the books are rifted into slabs, varying from eight to thirty mils in thickness and the worst flaws are then cut away. This work is usually done with sickles and the mica at this stage is described as sickle-dressed block, or, more shortly, as S. D. B. Of recent years, small dealers and some of the bigger producers are using knives for the initial cutting before passing the slabs to the sickle-dressing department ; it is claimed that this involves less waste. After sickle-dressing, the mica goes to the grading department, where the mica is graded according to size. Finally the mica passes to the sorting department, which is the most important st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery is a manufacturing process and the undertaking is an "industrial undertaking". The court referred to the definition of "manufacture" in Webster's Dictionary, wherein the term was defined as "anything made from raw materials by hand, by machinery, or by art, as clothes, iron utensils, shoes, machinery, etc. ; a manual occupation or trade ; to produce by labour especially new according to an organised plan and with division of labour and usually with machinery". The court observed that chips obtained from boulders is a product which is of value, and is used, and in that sense the chips are a new production as a result of a manufacturing process. The High Court of Karnataka in the case of CIT v. Mysore Minerals Ltd. [1994] 205 ITR 461 in a brief judgment, held that the activity of the assessee in extracting granite from a quarry and cutting the same into various sizes and polishing them amounts to manufacture or production of an article or thing. While holding so, the Karnataka High Court relied upon another decision of the same court in the case of Shankar Construction Co. v. CIT [1991] 189 ITR 463, which judgment was reversed by the apex court in its judgment in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain amount of dressing and polishing is involved to remove various natural flaws, such as colour variations, grain variations, joints, fissures, moles, patches, hairline cracks, etc. The benefit under sections 80J and 80HH of the Income-tax Act can be availed of only if the assessee is able to prove that it is engaged either in the manufacture or in the production of articles. Extraction of granite cannot be regarded as the result of any manufacturing activity. Manufacturing implies subjecting the raw material or other ingredients that go into the making of the final product to a series of processes as a result of which the input undergoes changes at different stages and ultimately emerges as a product with a distinct commercial identity of its own, and becoming capable of use for the purposes to which the inputs which went into the making of the product by themselves could not have been as effectively used. Blasting of a granite block which is found on a natural formation involves only a process of cutting, or removing part of a larger mass, and that activity of removing a part from the larger block or hill, though it involves skill, labour and effort and perhaps use of mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be regarded as amounting to production. Transporting the same cannot be regarded as production, Cutting a larger mass of granite with a view to obtain a block of granite which without any further process of any significance--the only thing done by the assessee herein being just washing the block and cutting rough edges--also cannot be regarded as a process of production. The fact that the block has a commercial value and is exported by itself cannot be the basis for holding that the block is an article which is the result of the production. The Supreme Court in the case of Pio Food Pachers [1980] 46 STC 63 while noticing that after removal of head and tail and being frozen the shrimps were exported to cater to the demand in the export market, did not hold that by reason of the fact that there is a demand for the product in the foreign markets, it has a commercial value, the frozen shrimps must be regarded as a new article. The test is not merely as to whether the thing in question has a market. It is also necessary to establish that the thing in question is an article which is the result of the production or manufacture. This is not to say that the activity of cutting the extra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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