TMI Blog2019 (10) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... ity but is, instead, recognized as a distinct and new article that is emerged as a result of the process. We are of the view that no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in passing the impugned order. We would not like to disturb the order passed by the ITAT. - Decided against revenue. - R/TAX APPEAL NO. 460 of 2019 With R/TAX APPEAL NO. 461 of 2019 With R/TAX APPEAL NO. 462 of 2019 With R/TAX APPEAL NO. 463 of 2019 With R/TAX APPEAL NO. 464 of 2019 - - - Dated:- 16-9-2019 - MR J.B. PARDIWALA AND MR A.C. RAO, JJ. For The Appellant (s) : MR.VARUN K.PATEL (3802) For The Opponent (s) : RULE NOT RECD BACK(63) COMMON ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. As the substantial questions of law in all the captioned tax appeals are the same and the assessee is also the same, those were heard analogously and are being disposed of by this common judgment and order. 2. For the sake of convenience, the Tax Appeal No.460 of 2019 is treated as the lead matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the Assessing Officer and the same was further affirmed by the ITAT vide order passed in the ITA No.1144/Ahd/2008 dated 15th April, 2011. 5.4 The survey action under Section 133A(1)(b) of the Act was carried out on 25th March, 2010. In the course of the survey, it was noticed that the assessee was claiming deduction under Section 10B of the Act on the export of the CCGL (Copper Cladded Glass Epoxy Laminate) without undertaking any manufacturing process. It was noticed that the CCGL sheets were being exported, and after cutting them into smaller sheets, those were being repacked and exported. According to the Revenue, the same cannot be termed as any manufacturing process and, in such circumstances, the assessee is not liable to claim deduction under Section 10B of the Act. 5.5 In such circumstances, referred to above, the case was reopened under Section 147 of the Act by issue of notice under Section 148 of the Act dated 8th March, 2011. The assessment under Section 143(3) read with Section 147 was finalized on 14th December, 2011 at a total income of ₹ 82,63,600/- restricting the deduction under Section 10B of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed reliance on the following decisions; ( I) In the case of Deepkiran Foods (P.) Ltd. vs. ACIT , reported in (2014) 361 ITR 437 ; ( II) In the case of Hindustan Poles Corporation vs. Commissioner of C. Ex., Calcutta , reported in 2006 (196) E.L.T 400 ; ( III) In the case of Commissioner of Commercial Tax vs. A.R. Thermosets (Pvt.) Ltd ., reported in 2016 (339) E.L.T. 500 ; ( IV) In the case of Nishant Export vs. ACIT , reported in (2018) 401 ITR 401 ; ( V) In the case of Lucky Minerals (P.) Ltd. vs. Commissioner of Income Tax , reported in (2000) 245 ITR 830; ( VI) In the case of Aman Marble Industries Pvt. Ltd. vs. Collector of C. Ex. Jaipur , reported in 2003 (157) E.L.T 393 ; 7. In such circumstances, referred to above, Mr. Patel prays that there being merit in this appeal, the same be allowed and the substantial questions of law, formulated by this Court, may be answered in favour of the Revenue and against the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amount to manufacture or production for the purpose of Section 10B of the Act, then the assessee would be free to plead that he is not liable to pay excise duty etc. because the activity does not constitute manufacture. 11. Mr. Soparkar submits that, by process of manufacture, something is produced and brought into existence which is different from that, out of which, it is made, in the sense that the thing produced is, by itself, a commercial commodity capable of being sold or supplied. He would submit that manufacture is the end result of one or more process through which the original commodities are made to pass. The essence of manufacture is the change from one object to another for the purpose of making it marketable. According to Mr. Soparkar, the process through which the CCGL undergoes is a clear indicator that at the end of the process, a new and different commodity could be said to emerge. 12. In such circumstances, referred to above, Mr. Soparkar prays that there being no merit in the appeals preferred by the Revenue, those be dismissed. 13. Mr. Soparkar, in support of his submissions, has placed reliance on the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 taxman.com 366 ; the Supreme Court has held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing. ( XI) The Allahbad High Court, in the case of CIT vs. Shiv Oil Dal Mill, (2006) 281 ITR 221; 153 Taxman 27 ; has held that refining of oil amounts to manufacturing. ( XII) This High Court, in the case of CIT vs. Prabhudas Kishordas Tobacco Products (P.) Ltd. , (2006) 282 ITR 568; 154 taxman 404 (Guj.), took the view that even buying tendu lives and tobacco and thereafter making bid amounts to manufacturing. ( XIII) The Madras High Court, in the case of CIT vs. Premier Tobacco Packets (P.) Ltd ., (2006) 284 ITR 222 (Mad.); has held that Tobacco curing was held to be manufacturing. ( XIV) The Madras High Court, in the case of CIT vs. P. Damodaran , (2006) 282 ITR 466 ; has held that cable joining kit is manufacturing. ( XV) The Supreme Court, in the case of Vijay Ship Breacking Corpon. vs. CIT , (2009) 314 ITR 309;175 Taxman 77 ; has held that even ship breaking activity would entitle to deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on business of conversion of jumbo Rolls of photographic films into small flats and rolls in the desired sizes. The assessee claimed deductions under Section 32AB, 80HH and 80-I of the Act. The lower authorities disallowed the claim of the assessee on the ground that the activity undertaken by it was neither manufacture nor production. The High Court of Madras also held that in any event because of Item 10 of the Eleventh Schedule of the Act, no deduction was permissible. The Supreme Court has observed as under; 3. In Black's Law Dictionary, (5th Edition), the word manufacture' has been defined as, the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. 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 . Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that, which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. (See M/s. Saraswati Sugar Mills and others v. Haryana State Board and others (1992 (1) SCC 418). 6. The prevalent and generally accepted test to ascertain that there is manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between processing and manufacture', results 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounted to production and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996) 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 TTR 185 and CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P.) Ltd, [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word Production , albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort . From the wide definition of the word production , it has to follow that minin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construction of a dam or for that matter a bridge, a road and a building. (See Moti Laminates Pvt. Ltd. and Anr. v. Collector of Central Excise, Ahmedabad (1995 (3) SCC 23). 11. In Advanced Law Lexicon, 3rd Edn. by P. Ramanatha Aiyar, the expressions production' and manufacture' are described as under: 'Production' with its grammatical variations and cognate expressions; includes- ( i) packing, labeling, relabelling of containers. ( ii) re-packing from bulk packages to retail packages, and ( iii) the adoption of any other method to render the product marketable. Production' in relation to a feature film, includes any of the activities in respect of the making thereof. (Cine Workers and Cinema Theatre Workers (Regulations of Employment) Act (50 of 1981) S.2(i). The word production' may designate as well a thing produced as the operation of producing; (as) production of commodities or the production of a witness. Manufacture' includes any art, process o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, the raw material is first sent to the shearing department. The shearing machine is set for the desired size and the laminates are cut into the specified sizes as required by the customer. The laminates are, thereafter, checked for the oxidation effect. A thorough surface clearing is done to remove the oxidation. The Quality Control Department, thereafter, would verify the quality parameters like the thickness of the material, thickness of copper using Alco Meter etc.. At the end of the entire process, the final product is called as CCGL. 17. At this stage, we may also look into the findings recorded by the ITAT in its impugned order. The facts of the case ITAT, Ahmedabad vide combined order dated 25.06.2013 for A.Y.2004-05, 2005-06, 2006- 07, 2007-08 2008-09 discussed the issue of 'manufacture' at length and has restored the issue of sale of CCGL to the file AO to examine afresh the exact position of the Excise Department in respect of CCGL Export. The relevant portion of the ITAT order is reproduced under: We have heard both the sides. We have also perused the material place before us. According to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on which the excise was levied on the product exported has not been clarified. In fact, the assessee is required to clearly specify the specification of the CCGL sheets purchased. The specification such as size of the sheets surface of the sheets and thickness of the sheets are the subject matter of scrutiny. In this regard, an Inspection report can also be procured from a specialized person. The Inspection report which is not part at the matter book only mentioned that oxidation was done on the sheet. Meaning thereby the product in question has only passed the test of cleanliness As we have opined, the process of oxidization can only be held as processing and not manufacturing . an another argument has been raised that, a Central Excise Department has given a registration certificate to the assessee. It has also been mentioned that a certificate has been issued by Kandla Special Zone, Gandhinagar. In this regard, we have noted that there is no denial of fact that the assessee as a whole in a manufacturing unit because a deduction was claimed in respect of the items manufactured of ₹ 1,67,47,045/-. But the dispute is only in respect of those sale which have not undergone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. Collector of Central Excise, reported in 157 ELT 393 (SC), the question that arose for consideration was whether cutting of marble blocks into marble slabs amounted to manufacture for the purposes of Central Excise Act. At the outset, we may point out that in the present case, we are not only concerned with the word manufacture , but we are also concerned with the connotation of the word production in Section 80IA of the Income Tax Act, 1961, which, as stated herein-above, has a wider meaning as compared to the word manufacture . Further, when one refers to the word production , it means manufacture plus something in addition thereto. The word production was not under consideration before this Court in the case of Aman Marble Industries Pvt. Ltd. (supra). Be that as it may, in that case, it was held that cutting of marble blocks into slabs per se did not amount to manufacture . This conclusion was based on the observations made by this court in the case of Rajasthan State Electricity Board (supra). In our view, the judgment of this Court in Aman Marble Industries Pvt. Ltd. (supra) also has no application to the facts of the present case. One of the most important r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or thing. The High Court in that case, while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore did not amount to manufacture . However, it came to the conclusion that extraction of iron ore and the various processes would involve production within the meaning of Section 32A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product. The view expressed by the High Court that the activity in question constituted production has been affirmed by this Court in Sesa Goa's case saying that the High Court's opinion was unimpeachable. It was held by this Court that the word production is wider in ambit and it has a wider connotation than the word manufacture . It was held that while every manufacture can constitute production, every production did not amount to manufacture. 16. In our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80IA of the Income Tax Act, 1961. 20. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognised by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961 20. The Supreme Court in Aspinwall Co. Ltd. vs. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product. 15. Submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 16. For the reasons stated above, we are of the opinion that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing step lap, the size and position of V-Notch will differ due to different sizes of plates. IV-PUNCHING AND HOLDING: The fourth step of the process is known as Punching and Holing of limbs and plates. As per customer's drawings and cutting instructions holes are punched on to the yoke plates. The yoke plates are kept under the holing power press machines to achieve the desired position of holes. The position of holes may even be off centre with respect to the longitudinal axis of the limb. During step lap, punching of holes varies according to different sizes of plates. These holes are utilized during bolting and assembling the core lamination. All Limbs/Plates or Laminations: After the above processes, physically all the limbs or plates are prepared, however every single and individual plate is yet to be further processed to restore or improve its quality characteristics. V-ANNEALING : The fifth and one of the most important step of the process is the annealing process. This process is undertaken to de-burr and relieve the stress and strains on the limbs / plates through a roller hearth annealing furnace, CRGO electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperienced, professional and trained personnels are employed to assemble the transformer core. The personnels practice utmost care during building the core and ensure that stacking factor, building, window height, air gapping and other technical aspects are within technical limitations / details. IX-TESTING OF ASSEMBLED CORE : After assembling and building the core, it is mandatory to test and certify the no load losses of the built core. EMCO no load tester measures and ensures that its technical results are within standard limits specified in customer's drawings. The technical staff and testing laboratory are fully equipped to detect and rectify any lapse in the built core. Certificates are prepared by quality department. X-PACKAGING AND FORWARDING : For packing the assembled cores, the whole core is horizontally laid down onto wooded skids then securely wrapped with jute cloth and plastic covers. The core is then strapped tightly to the skids/pallets with steel straps. For packing stacked core laminations, individual limbs/ laminations are packed separately with jute cloth and plastic wrappers, further they are strapped tightly onto wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought to my notice to take a different view in this regard. 10. Thus, the findings of facts, after appreciation of evidence on record, by the Tribunal are that CRGO coils even with a few processes, out of all the processes enumerated hereinabove, cannot be used in a transformer unless all the processes were completed. That after completion of all the processes, CRGO/CRNO coils get converted into transformer core which is the end product which can be used in manufacture of transformer. There is no dispute that due to various processes, the end product, which is an input for the purpose of manufacturing transformer, has a distinct name, shape and use. After the raw-material in the form of CRGO/CRNO Coils and/or sheets goes through all the aforesaid processes, the raw-material looses its identity and a new product comes into existence which is commercially distinct from raw-material on which the processes have been performed. The Tribunal has further referred to various opinions of different experts on the subject and recorded that such technical opinions should be considered on merits, and though not sacrosanct, either the same should be accepted or rejected o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the aforesaid tests to the facts found by the Tribunal, it is not possible to come to the conclusion that any legal infirmity exists in the impugned order of the Tribunal so as to give rise to substantial question of law. The Court is also of the opinion that in a case where the subject matter involves technical issue and opinion of technical experts in the field have been placed on record, unless and until such opinion of an expert is dislodged by placing on record a contrary opinion and giving an opportunity to the expert to deal with such contrary opinion, and thereafter examining the expert on the said issue, it would not be correct to discard such an opinion summarily. In fact, the Court and the Tribunal, or any other forum for that matter, would be wholly ill-equipped to deal with such technical opinion on merits and should refrain from undertaking such an exercise without following the aforesaid procedure. The Tribunal has in the circumstances rightly, while recording majority opinion, given due credence to the opinion of the technical experts of the field. 22. We have also looked into the six decisions relied upon on behalf of the Revenue. However, all ..... 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