TMI Blog2013 (9) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... a Small Scale Industrial Unit u/s 80IB or not. 3. The facts relating to the cases are stated in brief. Both the assessees are engaged in the business of extraction of granite boulders from hills and producing granite aggregates of different sizes by crushing them through mechanical process. M/s Poabs Rock Products (P) Ltd claimed deduction u/s 80IB of the Act in both the years under consideration. Deduction u/s 80IB(3)(ii) is allowed to a small scale industrial undertaking for certain number of years, if it begins to manufacture or produce articles or things or to operate its cold storage plant (not specified in sub-section (4) or sub-section (5)) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2002. The said claim was rejected by the AO in assessment year 2008-09 on the grounds that; (a) the activity carried on by the assessee would not fall under the definition of Manufacture as given u/s 2(29BA), which was inserted by the Finance Act 2009 w.e.f. 1.4.2009. and (b) the assessee has failed to produce SSI certificate valid for the FY 2007-08 relevant to the assessment year 2008-09. For this purpose, the AO dre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd in assessment years 2006-07 2007-08 in ITA Nos. 574 575/Coch/2010 that the activities carried on by the said assessee is Manufacturing activity eligible for deduction u/s 80IB of the Act. The Tribunal had also expressed the view that the definition of Manufacture inserted in sec. 2(29BA) by Finance Act, 2009 w.e.f. 1.4.2009 shall not apply to assessment years 2006-07 and 2007-08. Accordingly, the Ld CIT(A), by following the Tribunal's decision (referred supra) held that the activity carried on by M/s Poabs Rock Products (P) Ltd amount to manufacture for assessment year 2008-09. However, he upheld the rejection of deduction u/s 80IB on the ground that the assessee could not file valid SSI certificate and hence it cannot be regarded as a Small Scale Undertaking for the purposes of section 80IB of the Act, which was one of the conditions for allowing deduction u/s 80IB of the Act. 6. Both the assessees had filed appeals before Ld CIT(A) for the assessment year 2009-10. Since the definition of the word manufacture was introduced in sec. 2(29BA) w.e.f. 1.4.2009, the Ld CIT(A) examined the activities carried on both the assessees in terms of the definition of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 80IB in the hands of M/s Poab Rock products (P) Ltd in both the years under consideration and also the claim of additional depreciation in the hands of M/s Poab Granite products (P) Ltd in assessment year 2009-10. Aggrieved, both the assessees have filed these three appeals challenging the orders passed by Ld CIT(A). 7. The Ld Counsel for the assessee submitted that the activities carried on by the assessee has been held to be manufacture by the Hon'ble Tribunal in the earlier years. Hence, the tax authorities are not justified in holding that the very same activity cannot be considered as manufacturing activity , in terms of definition of the word manufacture inserted in sec. 2(29BA) of the Act. Referring to the definition given in that section, the Ld Counsel submitted that the meaning of the word manufacture , already explained by the Courts have only been codified in the definition. Ld Counsel submitted that the assessee is manufacturing granite aggregates of different sizes, viz., 1- , 1 , , and also sand and dust. These aggregates have different name in common parlance viz., metals . The sand manufactured by the assessee is equivalent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report. He submitted that the tax authorities are not correct in disregarding the above said documents and also in insisting upon a SSI certificate for the years under consideration, which is not required under the Act. 8. On the contrary, the Ld D.R submitted that the word Manufacture was not defined in the Act in earlier years, when the Tribunal rendered its decision in the assessee's own case for earlier years. Now the word manufacture has been defined in sec. 2(29BA) of the Act. The said section was inserted by Finance Act, 2009 w.e.f. 1.4.2009. The Ld CIT(A) has pointed out that the activities carried on by the assessee do not fall under the said definition and hence he has denied deduction u/s 80IB of the Act and also the additional depreciation u/s 32(1)(iia) of the Act. The Ld CIT(A) has also pointed out that all the case law relied upon by the assessee have been rendered prior to the insertion of the definition of the word Manufacture in the Act. In addition to the above, the assessee M/s Poabs Rock products (P) Ltd has failed to furnish the SSI certificate relevant for the two years under consideration and for that reason also, the Ld CIT(A) was justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble Rajasthan High Court in the case of Arihant Tiles Marbles (P.) Ltd. (supra). The assessee therein was engaged in activity of sawing of marble block into slabs and tiles and marketing them in indigenous as well as foreign markets. It claimed deduction u/s 80IA as an industrial undertaking which manufactures or produces articles or things. The High Court was asked to consider following questions:- (1) Whether the expression production used under section80IA/80IB of the Income tax Act, 1961 in which both expressions manufacture and production have been used whether they have been used as synonyms with each other or the word production has a wider meaning than manufacture so as to include within its purview, an activity, which may not amount to manufacture but may still amount to production? (2) Whether if the question No.1 is to be decided in positive whether the cutting and polishing of marble stone into marble slabs and tiles which has been held by the Supreme Court not amounting to manufacture can still be considered production for the purpose of section 80IA/80IB? 12.1 With regard to the first question, the Hon'ble Rajasthan Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering whether the activity of cutting granite blocks into slabs and sizes and polishing them falls within the purview of s. 32A of IT Act, 1961 so as to allow the machinery used for such activity eligible for investment allowance and whether it also becomes eligible to deduction under s. 80-I which is available to 'industrial undertaking engaged in manufacturing or production of goods'. The Karnataka High Court opined as under: Sec. 32A refers to investment allowance on plant and machinery. Plant and machinery should be used in manufacture or process of any article or thing and it should be of an industrial undertaking. There are a number of conditions mentioned in the section. In order to find out whether a particular activity is a manufacturing activity or not it has to be observed that there should be an action or process of making an article by application of physical or mechanical labour and the product must be commercially a new or different article. Manufacturing results in alteration or change in the nature of the goods which are subjected to process. Granite blocks are converted into slabs and cut into sizes and thereafter polished. It is not the same commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of particulars in Form No. 3CD provided under the rules which include furnishing information about the nature of business carried on by the assessee in Part B of the Annexure to be appended to the statement of particulars in which the 'marble and granite' has been classified under the manufacturing industry sector. Thus, for the purpose of income-tax, under the rules, marble and granite industry has been considered to be manufacturing industry. Under the rules governing the compulsory audit in respect of various businesses also, marble and granite industry has been included in the sector of manufacturing industry. This goes to show that so far as the authorities under the income-tax entrusted with the task of its implementation are concerned and the framers of the rules have considered the cutting of marble and granite blocks into slabs and polishing them for bringing them to the stage of usability as an activity of industrial undertaking engaged in manufacture and production of articles or things. Rules framed under the Act are statutory and became part of statute. Thus under the scheme of IT Act and rules framed thereunder for the purpose of said Act, cutting and po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction, as the case may be. Apparently, the earlier decision of the Supreme Court in Chowgule Co. (P) Ltd. v. Union of India Ors. (supra) in which the activity of mining was held to result in production of goods, and the later judgment of Supreme Court in CIT v. Sesa Goa Ltd. (supra) with the equal strength of Judges constituting the Bench had taken different views by examining the issue directly and in the process of affirming the aforementioned judgment of Karnataka High Court in Mysore Mineral's case (supra), wherein, the activity of converting marble block, which is not usable as such, into slabs and polishing them and making it marketable commodity was held to be manufacturing activity Thus, legislative intent emanating from IT Act and rules framed there under and the judgment of the Karnataka High Court as affirmed by Supreme Court makes it clear that for the purpose of ss. 80-IA and 80-IB, process of cutting and sawing or sizing or polishing of marble blocks into slabs and tiles which results in making raw marble usable amounts to manufacture. Apart from that winning of marble block from mines itself amounts to production. 23. It will not be out of pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result, we hold that the decision of Supreme Court affirming the decision of Karnataka High Court in Mysore Minerals Ltd's case (supra), upholding cutting of granite/marble block into usable slabs or tiles is a manufacturing activity, governs the facts of present case, as directly arose and considered under the provisions of Income tax Act, with which we are concerned, hence, appeals deserve to be allowed.' 13. The revenue challenged the decision rendered by Hon'ble Rajasthan High Court in the above cited case by filing appeal before Hon'ble Supreme Court. The Hon'ble Apex Court considered the issue of manufacture vis- -vis the activity of converting marble block, which is not usable as such, into slabs and polishing them and making it marketable commodity. The Hon'ble Apex Court held that those activities constitute manufacture or production activity. It is pertinent to note that the Hon'ble Supreme Court also considered the definition of the word Manufacture inserted in sec. 2(29BA) of the Act also in this case. The relevant observations made by Hon'ble Supreme Court in the said case as ITO v. Airhant Tiles Marbles (P.) Ltd. [2010] 320 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r article or thing with a different chemical composition or integral structure; 80-IA(2)-(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India. 9. The authorities below rejected the contention of the assessee(s) that its activities of polishing slabs and making of tiles from marble blocks constituted manufacture or production under s. 80-IA of the IT Act. There was difference of opinion in this connection between the Members of the Tribunal. However, by the impugned judgment, the High Court has accepted the contention of the assessee(s) holding that in the present case, polished slabs and tiles stood manufactured/produced from the marble blocks and, consequently, each of the assessee was entitled to the benefit of deduction under s. 80-IA. Hence, these civil appeals have been filed by the Department. 10. Incidentally, it may be noted that some of the assessees before us are also job workers duly registered under the provisions of the Excise Act/Rules framed there under. It may also be clarified that in these case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-IA of the IT Act, 1961. 12. There is one more judgment of which Shri Bhattacharya, learned Addl. Solicitor General, appearing on behalf of the Department, has placed reliance. That is the judgment of this Court in Rajasthan State Electricity Board v. Associated Industries Anr. AIR 2000 SC 2382. In that case, the only question that arose for consideration was whether pumping out water from the mines came within the meaning of the word manufacture, production, processing or repair of goods so as to claim exemption from duty under notifications issued under s. 3(3) of the Rajasthan Electricity Duty Act, 1962. In that case, the first respondent was a registered public limited company, engaged in excavating stones from collieries and thereafter cutting and polishing them into slabs. The Rajasthan State Government levied excise duty under the provisions of the Act. A notification dt. 23rd March, 1962 was issued by the State under s. 3(3) of the Act granting exemption from tax on the energy consumed by a consumer in any industry in the manufacture, production, processing or repair of goods and by or in respect of any mine as defined in the Indian Mines Act, 1923. This notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich, as stated hereinabove, 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 (P) 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 (P) Ltd. (supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture. 15. In the present case, we have extracted in detail the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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 (supra) 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. 17. In our view, applying the tests laid down by this Court in Sesa Goa's case (supra) and applying it to the activities undertaken by the respondents herein (reproduced herein-above), it is clear that the said activities would come within the meaning of the word production . 18. One more aspect needs to be highlighted. By the said judgment, this Court affirmed the decision of the Karnataka High Court in the case of CIT v. Mysore Minerals Ltd. (2001) 166 CTR (Kar) 142 : (2001) 250 ITR 725 (Kar). 19. In the case of CIT v. N.C. Budharaja Co. Anr. (1993) 114 CTR (SC) 420 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of iron ore and the various processes would not constitute 'manufacture', but constitute production . It is seen that it has been consistently held that the word production is wider in its scope as compared to the word manufacture . It was held by Hon'ble Supreme Court in the case of Arihant Tiles Marbles (P.) Ltd. (supra) that the word production , when used in juxtaposition with the word manufacture , takes in bringing into existence new goods by a process which may or may not amount to manufacture. The word production takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. 14. The question whether the activity of crushing the boulders into stone concrete would amount to manufacture or not came to the consideration of Hon'ble Himachal Pradesh High Court in the case of D.J. Stone Crusher v. CIT [IT Appeal Nos. 6 7 of 2007, dated 16-12-2009]. The relevant discussions made by Hon'ble Himachal Pradesh High Court and the decision taken by it are extracted below:- '4. According to Shri Vishal Mohan, the boulders are collected from a mining site. Thereafter, they are se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wns and lobsters are the result of subjecting raw shrimps, prawns and lobsters to a certain degree of processing but even so they continue to possess their original character and identity as shrimps, prawns and lobsters, notwithstanding the removal of heads and tails, peeling, deveining and cleaning which are necessary for making them fit for the table. Equally it makes no difference in character or identity when shrimps, prawns and lobsters are frozen for the purpose of preservation and transfer to other places including far-off countries in the world. There can therefore be no doubt that processed or frozen shrimps, prawns and lobsters are not a new and distinct commodity but they retain the same character and identity as the original shrimps, prawns and lobsters. 8. This judgment was followed by the apex Court in CIT v. Relish Foods (1999) 152 CTR (SC) 500: (1999) 237 ITR 59 (SC) wherein the same definition was applied to the provisions of the IT Act. 9. The question whether stone crushing activity is a manufacturing process was considered by a Division Bench of this Court in Civil Writ Petn. No. 605 of 1998 decided on 26th March, 1999 titled Panth Stone Crusher v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court held as follows : The fact that the chicory powder is used for consumption in combination with coffee powder does not make the chicory powder any different insofar as its identity is concerned, as chicory. Chicory powder is chicory in powder form and nothing else. Mere change in the form of the same commodity does not necessarily involve change of identity. The pineapple fruit when plucked from the tree and even after it is cut into pineapple slices retains the same identity as pineapple. Chicory powder and chicory root have the common identity of being chicory. The change in the form to powder in the case of chicory and to slices in the case of pineapple does not result in a change of identity. 11. It would be pertinent to mention here that this decision of the Madras High Court was upheld by the apex Court in Sacs Eagles Chicory v. CIT (2002) 175 CTR (SC) 201 : (2002) 255 ITR 178 (SC). 12. In Indian Hotels Co. Ltd. Ors. v. ITO Ors. (2000) 162 CTR (SC) 310 : (2000) 245 ITR 538 (SC), the apex Court again dealt with the question as to what is the meaning to be given to the word 'manufacture'. The apex Court held that the processing of raw food items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 result 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. 15. Shri Vishal Mohan, learned counsel for the assessee has placed reliance on the judgment of the apex Court in Lucky Minmat (P) Ltd. v. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC) wherein the apex Court has held as follows : The conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities are explained in a detailed manner as under:- 1. Digging holes using jack hammers and air compressors and blasting for producing boulders. 2. Breaking of boulders using mechanical rock breakers to produce rubbles. 3. Loading the rubbles to the tipper lorries using excavator loader. 4. Feeding the rubbles from the tipper lorries to the primary crushers for producing soiling. 5. The soiling produced at the primary crushers are fed to the different secondary crushers through conveyor belts to produce granite aggregate of different sizes viz., 1 , 1 , , , sand and dust. 6. The above products are fed into the vibrating screens through conveyor belts for segregation and the segregated different granite aggregates are collected in different bunkers. 7. The products stored at the bunkers are loaded to the trucks for sending to customers. It is also stated that the assessee is producing sand also out of granite boulders and the quality of sand produced by them through mechanical process is equal to the quality of natural sand. It was further submitted that all the activities have been carried by using various types of machines in various stages. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready noticed that the tax authorities have examined the meaning of the word manufacture in terms of newly inserted definition of the said word in sec. 2(29BA) of the Act. The tax authorities have accepted the fact that the granite aggregates produced by the assessees herein have got different name and they are used for different purposes vis- -vis the rock boulders. But they have held that the character of rock boulders and metals remain the same. It appears that the tax authorities have understood the meaning of character as chemical composition or integral structure, since the chemical composition or integral structure of rock boulders and metals would remain the same. However, the test of chemical composition or integral structure has to be applied under clause (b) of the definition given in sec. 2(29BA) of the Act. We are examining the activities of the assessees herein under clause (a) of sec. 2(29BA). The Ld CIT(A) has observed that, under clause (a), there shall be change of all the three aspects viz., name, character and use. We agree with the said observations of Ld CIT(A). However, we are unable to agree with his view that there is no change in the character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Small Scale Industrial Undertaking is defined under sec. 80IB(14)(g) of the Act as under:- 'Small scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small scale undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951).' We notice that an identical issue was considered by Hon'ble Delhi High Court in the case of Praveen Soni v. CIT [2011] 333 ITR 324, wherein it was held by the High Court, after considering sec. 11B of the Industries (Development and Regulation) Act, 1951, that the registration under Industrial Development Regulation Act is not a condition for treating an assessee as small scale undertaking. For the sake of convenience, we extract below the Head notes of the said case as reported in ITR. Deduction under s. 80-IB-Small-scale industrial undertaking-Absence of registration under the provisions of IDR Act, 1951-As per cl. (g) of sub-s. (14) of s. 80-IB, small-scale industrial undertaking means an industrial undertaking which is regarded as small-scale industrial undertaking under s. 11B of the IDR Act, 1951 -As per s. 11B, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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