TMI Blog2018 (4) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... diamonds brings into existence a new product which has totally different marketable commodity. From such Article, we gather that cutting and polishing diamonds have sparkle and definite desired shapes. Through this process thus a completely new commodity having a different market is brought into existence. In the result, question no.1 is answered in favour of the assessee. Though question no.2 is answered against the assessee, Tax Appeal is allowed in view of answer of the first question. Judgment of the Tribunal confirming the view of the revenue authorities is set aside. The assessee is held entitled to deduction under section 10B - R/Tax Appeal No. 862 of 2007, 863 of 2007 - - - Dated:- 9-4-2018 - Mr. Justice Akil Kureshi And Mr. Justice B.N. Karia For the Petitioner : Mr Bandish Soparkar For Mrs Swati Soparkar For the Respondent : Mr Nikunt Raval For Mrs Kalpanak Raval ORAL JUDGMENT MR.JUSTICE AKIL KURESHI 1. These appeals involve similar questions in similar background involving the same assessee. We may notice facts from Tax Appeal No.862/2007. 2. The assessee has challenged the judgment of the Income Tax Appellate Tribunal. Following questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) read with section 147 of the Act on 27.10.2004. He confirmed his belief that deduction under section 10B of the Act to a diamond polishing or cutting unit would be available only with effect from 1.4.2004 i.e. from the assessment year 2004 2005 and not earlier. However, he accepted the assessee's alternative contention and held that the assessee would be eligible for deduction under section 80HHC of the Act. 5. The assessee carried the matter in appeal and reiterated the same contentions. CIT(Appeals) under his order dated 23.2.2005 was unable to accept the assessee's stand that the amendment in section 10B was merely clarificatory in nature. Reference was made to the budget speech of the Finance Minister. It was held that the explanation has prospective effect only. The assessee carried the matter in further appeal before the Tribunal. The Tribunal placed heavy reliance on the decision of Supreme Court in case of Commissioner of Income tax v. Gem India Mfg. Co. reported in (2001) 249 ITR 307 to come to the conclusion that the activity of cutting and polishing diamonds does not amount to manufacture or production of article or thing. In the view of the Tribunal ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras High Court in case of Commissioner of Income tax, Chennai v. Pallava Granite Industries (I) (P) Ltd reported in (2014) 42 taxmann.com 102 (Madras) held that cutting and polishing of granite blocks amount to manufacture or production of article or thing. (2) Delhi High Court in case of Commissioner of Incometax V v. Ramsons Organics Ltd. reported in (2010) 189 Taxman 393 (Delhi) held that processing of stones, marbles, granites etc. amounts to manufacturing process for the purpose of section 10B of the Act. (3) Supreme Court in case of Income tax Officer v. Arihant Tiles and Marbles P. Ltd. reported in (2010) 320 ITR 79 (SC) held that sawing marble blocks into slabs and and tiles and polishing, amount to manufacture or production of article or thing. (4) Supreme Court in case of Commissioner of Incometax v. Sesa Goa Ltd reported in (2004) 271 ITR 331 held that extraction of iron ore amounts to manufacture or production of article or thing. 7. On the other hand, learned counsel Shri Nikunt Raval for the department opposed the appeal contending that the issue is squarely covered by the judgment of Supreme Court in case of Gem India Mfg. Co.(supra). The Tribunal corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modity. Detailed procedure has been set out in the paper book. The Tribunal ought to have examined the process as to whether such process would constitute manufacture under section 80 IB. That exercise has not been undertaken. The reliance on the judgment of this Court in the case of CIT v/s Gem India Mfg. Co. [2001] 249 ITR 307 may not be correct for the simple reason that in that case, the Revenue succeeded as Gem lndia Mfg. Co. was not able to demonstrate the process undertaken by it to convert raw diamonds into a superior commodity. Moreover, the High Court has also not gone into that aspect. The High Court should have remitted the case to the Tribunal to consider whether the process undertaken by the assessee constituted manufacture . Under the above circumstances, the impugned order of the High Court and the Tribunal are set aside and the matter is remitted to the Tribunal for de novo consideration in the light of what we have stated hereinabove. [Emphasis added] 11. Thus judgment in case of Gem India Mfg. Co.(supra) was explained in case of Heaven Diamonds (P) Ltd (supra) observing that the Revenue succeeded in the said case since the assessee was not able to demonst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that with a view to give fiscal support to the exporter of precious and semi precious stones, it is proposed to insert a new explanation 4 at the end so as to provide that for purposes of this section, the expression manufacture and produce shall include the cutting and polishing of precious and semi precious stones. There is nothing in the budget speech or memorandum explaining the relevant provisions of the Finance Bill to indicate that insertion of explanation 4 to section 10B was either an exercise of clarification or meant to be applied retrospectively. In fact, every indication is to the contrary. The Finance Minister made it clear that the provision is prospective and would apply to the period post 1.4.2004. The assessee would therefore, not be correct in basing reliance on the said provision or the budget speech of the Finance Minister explaining the reason for introduction of the provision. 13. Even if explanation 4 to section 10B was meant to be prospective, in absence of any such provision, the assessee succeeds in establishing that activity of cutting and polishing diamonds amounted to manufacture or production of article or thing, it would automaticall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in an oversimplification of both and tends to blur their interdependence. (See Ujagar Prints v. Union of India (1989 (3) SCC 488). 7. To put it differently, the test to determine whether a particular activity amounts to manufacture or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted. Etymologically the word manufacture properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India (1985 (3) SCC 314). 15. In case of Grasim Industries Limited v. Union of India reported in (2011) 10 Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to bring out the best in a diamond in terms of brilliance and purity, which results from the refraction and reflection of light. It is also necessary to preserve as much of the original weight as possible. Diamond has some special properties which are not common to other transparent minerals. These are a high refractive index, a high degree of clarity, colour dispersion, reflectivity and lustre, and an extremely high degree of hardness. Lustre is the characteristic of reflecting light from the surface. In the diamond, this is unique. Besides reflecting light from its surface, some of the light is partly absorbed before reflection. Most transparent minerals are not very reflective, but diamond is exceptional, its surface reflects 17 per cent of the light falling on it, in comparison to glass which reflects only 5 per cent. A diamond is cut and polished to give maximum brilliance which in turn depends on the light reflected back to the viewer [life] and the flashes of colour [fire] when light is split into the colours of the spectrum. But maximum fire is not consistent with maximum life, and the diamond cutter s job is to achieve a fine balance between the two. The diamond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and placed on the 3D model, which is then used to find an optimal way to cut the stone. Maximizing value The process of maximizing the value of finished diamonds, from a rough diamond into a polished gemstone, is both an art and a science. The choice of cut is influenced by many factors. Market factors include the exponential increase in value of diamonds as weight increases, referred to as Weight retention, and the popularity of certain shapes amongst consumers. Physical factors include the original shape of the rough stone, and location of the inclusions and flaws to be eliminated. Weight retention The weight retention analysis studies the diamond rough to find the best combination of finished stones as it relates to per carat value. For instance, a 2.20 carat (440 mg) octahedron may produce (i) either two half carat (l00 mg) diamonds whose combined value may be higher than that of (ii) a 0.80 carat (I60 mg) diamond + 0.30 carat (60 mg) diamond that could be cut from the same rough diamond. The round brilliant cut and square brilliant cuts are preferred when the crystal is an octahedron as often two stones may be cut from one such crystal. Oddly shaped crystals, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cleaving or sawing Cleaving is the separation of a piece of diamond rough into separate pieces, to be finished as separate gems. Sawing is the use of a diamond saw or laser to cut the diamond rough into separate pieces. Bruting Bruting is the process whereby two diamonds are set onto spinning axles turning in opposite directions, which are then set to grind against each other to shape each diamond into a round shape. This can also be known as girdling. Polishing Polishing is the name given to process whereby the facets are cut onto the diamond and final polishing is performed. The process takes the steps blocking, faceting, also called brillianteering , and Polishing. Final inspection The final stage involves thoroughly cleaning the diamond in acids, and examining the diamond to see whether it meets the quality standards of the manufacturer. Cutting process It is possible only because the hardness of diamond varies widely according to the direction in which one is trying to cut or grind. A simplified round brilliant cut process includes the following stages: Sawing the rough stone. Table setting where one facet is created. The table facet is then u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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