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TMI Blog2019 (9) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... d by this Court on 6-2-2019 and the parties were heard finally by consent. Rule. The petition is being disposed of finally. 3. The petitioner-association is registered under the Societies Registration Act, 1860. The members of the petitioner-association are registered Tendu contractors having separate registrations under the Maharashtra Forest Produce (Regulation of Trade) Act, 1969 (for short, "the Regulation of Trade Act") and the Maharashtra Forest Produce (Regulation of Trade in Tendu Leaves) Rules, 1969. The Tendu leaf is a "forest produce" within the meaning of the Indian Forest Act, 1927 and it is grown naturally in the forest areas. The Tendu leaves are used for manufacture of bidi. 4. Section 3 of the Regulation of Trade Act empowers the State Government to divide every area into such number of units as it may deem fit in respect of each forest produce. Section 4 thereof empowers the State Government to appoint agents in different units for the purpose of purchase and trade in forest produce on its behalf. It also empowers the State Government to prescribe procedure for appointment of agents and terms and conditions for such appointment. The State Government adopts proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisite moisture, sorting out and screening of leaves, bundling it, keeping in the godown, preserving quality and colour of leaves, avoiding breaking and brittleness to maintain softness. 6. After introduction of the provision of Section 206C under the Income Tax Act, the Department of Revenue, Central Board of Director Taxes, communicated its decision in writing on 23-1-1989 to the Maharashtra Tendu Leaves Merchants' Association that the question of collection of tax at source at the time of sale of Tendu leaves was examined and the operation of drying and sprinkling of water, etc., on the Tendu leaves purchased by the traders is held to constitute 'processing'. It was the decision that the traders of Tendu leaves conducting the process would not fall within the ambit of Section 206 of the said Act and, therefore, no tax could be collected at source from the purchases made by the traders. 7. The aforesaid decision was changed by the Government of India, Ministry of Finance, Department of Revenue, on 10-1-1996, communicating that the operations carried out by the Tendu leaves' traders do not change the nature and character of the leaves and those are performed only to maintain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne per cent (vii) Minerals, being coal or lignite or iron ore One per cent Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collector from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003." "(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner-association collect the tax at source from the manufacturers of bidi, at the time of sale of the processed Tendu leaves, as per sub-section (1) of Section 206C of the said Act. 11. Though the provision of sub-section (1A) of Section 206C of the Income Tax Act opens with the non obstante clause to override the provision of sub-section (1), it is couched in the negative language using the expression "... no collection of tax...", means to prohibit collection of tax at source in cases where the goods specified in column (2) of the Table below sub-section (1) are sold to be utilized for the purposes of manufacturing, processing or producing the articles or things and not for trading purposes. Till 10-1-1996, i.e. the impugned action, no tax was collected at source under sub-section (1) of Section 206C of the said Act by the Forest Department of the State Government from the members of the petitioner-association at the time of sale of unprocessed Tendu leaves under the impression that the exemption under sub-section (1A) therein is available. 12. The provision of sub-section (1A) of Section 206C of the Income Tax Act, at the outset, rules out the availability of exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is necessary in order to characterize an operation as processing is that the commodity must, as a result of operation, experience a change, which does not necessarily bring into existence a different product like bidi. The nature and extent of change is not material. From the said decision, a distinction is pointed out between manufacture and processing to urge that it is not necessary that the processing of commodity or goods should result in bringing into some different product so as to qualify for grant of exemption under sub-section (1A) of Section 206C of the Income Tax Act. 16. Now we proceed to deal with the contentions advanced. The first contention being that the Tendu leaves purchased from the Forest Department of the State of Maharashtra are processed so that it can be utilized for manufacture of bidi, it is covered by the word 'processing' employed under sub-section (1A) of Section 206C of the Income Tax Act. Shri Kaptan does not dispute that the identical process carried on the Tendu leaves was considered in decisions of several High Courts deciding the question as to whether the exemption under Section 206C of the said Act can be made available and those decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 4 of the Regulation of Trade Act for the purposes of purchase of and trade in the forest produce. The business of trading of Tendu leaves by the members of the petitioner-association is controlled and regulated by the Regulation of Trade Act and the Rules framed thereunder. The members of the petitioner-association thus enjoy the statutory status as the purchasers and traders in the forest produce, namely, Tendu leaves from the Forest Department of the State Government. The purchasers and traders of Tendu leaves stand excluded from the exemption under sub-section (1A) of Section 206C of the Income Tax Act. 19. It is urged that several decisions of the High Court cited above on the question of exemption under Section 206C of the Income Tax Act follow the decision of the Apex Court in the case of Chowgule & Co. Pvt. Ltd., cited supra. According to him, the ratio of this decision of the Apex Court has been misconstrued. He submits that the decision of the Apex Court in fact operates in favour of the petitioner, holding that what is necessary in order to characterize an operation as 'processing' is that the commodity must, as a result of the operation, experience some change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning and dressing the ore; (iv) conveying of the ore from the mine site to the riverside; (v) transport of the ore from the riverside to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stockpiles according to its physical and chemical composition; and (vii) blending of the ore from different stockpiles with a view to producing ore of the required specifications and loading it into the ship by means of the mechanized ore handling plant. 23. In Para 4 of the said decision, the Apex Court primarily considered two questions - (i) whether the blending of ore whilst loading it in the ship by means of the mechanical ore handling plant constituted manufacture or processing of ore for sale within the meaning of Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Rules framed thereunder, and (ii) whether the process of mining, conveying the mined ore from the mining site to the riverside, carrying it by barges to the Marmagoa harbour and then blending and loading it into the ship through the mechanical ore handling plant constituted one integrated process of mining and manufacture or processing of ore for sale, so that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, they would also be goods used in processing of ore for sale. 25. In Chowgule & Co. Pvt. Ltd.'s case, the observations that the processing must result in some change which does not necessarily bring into existence a different produce, like bidi, relied upon by Shri Kaptan are made in the background that the Court was considering the eligibility criteria for lower rate of sales tax under Section 8(3)(b) of the Central Sales Tax Act, interpreting the expression "processing of goods for sale", which means making a commodity marketable by experiencing some change, as is distinguished from the process of manufacturing, which actually brings into existence a commercially different and distinct commodity by different name. In our view, such observations of the Apex Court would be of no help to the petitioner on the question of process of manufacturing. 26. We would also like to deal with the language employed under sub-section (1A) of Section 206C of the Income Tax Act in the light of the intention of the Legislature in granting such exemption. Once the availability of exemption, where the goods are processed for the purposes of trading or selling to the manufacturer or producer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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