TMI Blog2020 (5) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... dislodge these findings. We, therefore, see no merits in the grievances of the Assessing Officer. Assessee is engaged in manufacturing and production of an article and therefore, the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion, no illegality or infirmity is found in the order of CIT(A). Decided in favour of assessee. - ITA No. 2173, 2174 And 2175/Mum/2018 - - - Dated:- 27-5-2020 - PRAMOD KUMAR (VICE PRESIDENT) AND MADHUMITA ROY (JUDICIAL MEMBER) For the Appellant : J.D Mistri and Nitesh Joshi For the Respondent : Jacinta Zimik Vashai ORDER Per Pramod Kumar, VP: 1. By way of these appeals, the assessee appellant has challenged correction of learned CIT(A) s order five separate, but materially identical orders, all dated 03.01.2018, in the matter of assessment under section 143(3) r.w.s. 153A of the Income Tax Act 1961 for the assessment year 2010-11 to 2012-13. 2. Grievances raised by the appellant Assessing Officer, which are common in all these appeals, are as follows: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction u/s 80IC of the Act. The provision of section 80IC although lays down various conditions to be complied with by an undertaking to be eligible for deduction u/s 80IC(3) of the Act but the Revenue did not raise any objection in this regard except that the assessee is not engaged in manufacturing or production of an article. Learned D. R. even though vehemently relied on the order of the Assessing Officer but did not deny that the assessee has not failed to comply with other conditions as stipulated u/s 80IC of the Act for the purpose of being eligible for deduction 80IC of the Act. His main thrust of the argument was that the assessee was not engaged in manufacturing or production of an article. He was simply mixing the various chemicals and on that basis he was claiming as if he is engaged in manufacturing or production of an article. 5.1 On the other hand, the Learned counsel for the assessee vehemently relying on the order of the CIT(A) contended before us that the assessee is very much engaged in manufacturing/production of an article. He was carrying on the manufacturing operation. He has submitted various documents and evidences before the Assessing Officer as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended with other chemicals etc. so as to render them usable in various type of industries and applications. Mixing cannot be done without proper lab testing techniques and without studying the behavioral pattern of various blends over a period of time, which may range from one hour to 15 days. The blended mixtures properties change as some chemicals react over a period of time, while in some cases reactions are instant. It was further submitted that the testing is done at each stage by again reacting the finished products with other chemicals and substances, at various temperatures depending on the intended use of the finished product. Thus, it was expressed that the industry requires high expertise, specialization and knowledge of organic as well as inorganic chemistry. It was submitted that all the finished goods are totally distinct, as is evident from the price list and all the raw materials are also totally different. 5.2 The assessee has also pointed out that the assessee is paying VAT depending on the item products and VAT rates were different for different products and also for different raw materials. The VAT Department has passed orders for all the years, including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 were in liquid form. He pointed out that the items brought by him for manufacturing 100 gms of sweet gulab were as under: 1. Aldehyde C 11 Undecylic 0.1 2. Aldehyde C 8 0.02 3. Aldehyde C 9 0.05 4. Benzophenone 10 5. Cis-3-Hexanol 0.05 6. Cis-3-Hexanyl Acetate 0.08 7. Citral 0.5 8. Citronellol 15 9. Damascone Beta 0.04 10. Geraniol 12 11. Geranium Chinese 4 12. Linalool 0.8 13. Phenyl Ethyl Alcohol 47 14. Rose Crystals 10 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded over to Learned D. R. On the basis of the demonstration held before us, we noted that the product being produced by mixing the various chemicals is entirely different from the raw material. Its usage as well as the utility is different. It cannot be converted again in the same form of the raw material. It has resulted in the transformation of the object or the article which is entirely new and distinct having a different name, character and use. We noted that the provision of section 80IC was inserted in the statute by the Finance Act, 2003 with effect from 2004. Section 80IC nowhere defines the word manufacture or production of an article. We noted that the word manufacture or production of an article or thing has also been used u/s 80IA as well as u/s 10B of the Act. Section 10B defined the word manufacture for the purpose of the said section to include any (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, process was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word produce for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) Manufacture shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. 5.10 As per the said definition process is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defining the expression manufacture as under: manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 5.11 In Chowgule Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon ble Supreme Court, after considering the judgment of Hon ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to processing of ore within the meaning of Section 8(3)(b) and Rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h they remain in liquid form but it is not a case that all the ingredients which are being mixed are in liquid forms. The taste as well as the smell and the utility of the input and the output which we have seen during the course of demonstration in the court, are entirely different. In our opinion, in view of this clause and the decision of Hon'ble Supreme Court in the case of Chowgule Co. (supra), it cannot be held that the assessee is engaged in these units in manufacturing. 5.13 Further, in CIT Vs N.C. Budharaja Co. (1993) 204 ITR 412 (SC), Hon ble Supreme Court further observed that the word production is much wider than the word manufacture . It was said (page 423): The word production has a wide connotation than the word manufacture . While every manufacture can be characterized as production, every production need not amount to manufacture The word production or produce 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. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been processed after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as processed within the meaning of the proviso to clause (a) of Section 8, because there was not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as processing of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute processing of the ore. Now un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Ceylon Tea Supplying Co. s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is processing . (iii) The question is not whether there is any manual application of energy or there is application of mecha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in nature. Hon ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies (292 ITR 444 (SC) relied upon by the Sr. Standing Counsel for the revenue, wherein Hon ble Supreme Court clearly held that blending of tea does not amount to manufacture or production of an article or thing, but is only processing. Hon ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee s unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee s 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee s case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant s entitlement for exemption. 5.20 Hon ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of uniform and consistent quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- 32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce Industry (Department of Commerce) the expressions flavour tea , green tea instant tea , packet tea quick brewing black tea , tea and test bag have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions manufacturer , Buyer , Packet Tea , Tea Bag ,- Green Tea , Quick Brewing Black Tea , Instant Tea and Made Tea have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression manufacture as under: manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Prevention of Food Adulteration Act, 1953 read with Prevention of Food Adulteration Rules, 1955. The Tea (Marketing) Control Order, 2003, The Tea (Distribution Export) Control Order, 2005 as well as the Rules and Regulations framed by the Tea Board and also Calcutta Tea Traders Association from time to time as discussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term `manufacture under the common parlance, and it includes processing, blending, packaging etc. In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon ble Apex Court accepted that manufacture/production includes processing also. 5.26 We have also gone through the decision of Hon ble Supreme Court in the case of ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79(sc). In this case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words manufacture or production in section 80-IA of the Income-tax Act, 1961? In this case, Hon ble Supreme Court, after discussing the definition of manufacture given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80- IA(2)(iii) and after going through various decisions, held as under: 22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, no illegality or infirmity is found in the order of CIT(A). 5. Dealing with exactly the same grounds of appeal in the case of sister concern Khushbu Industries, and vide order on ITA Nos. 2164 to 2169/Mumbai/2018, a coordinate bench has dismissed identically worded appeal and added as follows: 5. Learned Departmental Representative, however, urges us not to follow the aforesaid order. He submits that even though the aforesaid order is confirmed by Hon ble jurisdictional High Court, Their Lordships have confirmed the order on technical grounds and not on merits. He also submits that what has been termed as production is just mixing up of products and repacking the same. In support of this contention, he relies upon the statement given by an employee during the course of search proceedings. None of these submissions, however, impress us. Even though the order of the coordinate bench is confirmed by Hon ble High Court on technical ground, that does not mean, or even imply, that the binding nature of the decision, on merits, is affected. The decision of the coordinate bench binds us nevertheless. In any case, we have carefully perused the order of the coordinate bench and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite clearly, ordinarily the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression ordinarily has been used in the said rule itself. This rule was inserted as a result of directions of Hon ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that We, therefore, direct the President of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown . Hon ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly , and also observed that arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020 . It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure . The term force majeure has been defined in Black s Law Dictionary, as an event or effect that can be neither anticipated nor controlled When such is the position, and it is officially so notified by ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
