TMI Blog2008 (2) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case, twisting and texturising of POY, amounts to manufacturing or production of an article or thing distinct from the commodity involved in the manufacture and, therefore, entitled for deduction under Section 80IA of the Income Tax Act? B. Whether the Tribunal is correct in holding that the view taken by the A.O. in earlier years cannot be changed in subsequent years and thereby importing the maxim of res judicata in income-tax proceedings?" 2. A few facts may be noted. The relevant assessment year is assessment year 1996-97. The Assessing Officer passed an order of assessment disallowing claim under Section 80HH and 80-I and 80-IA on the ground that the activity of processing is not an industrial activity. An Appeal was preferred by the assessee before the Commissioner of Income Tax (Appeal), who by order dated 16 th February, 2000 was pleased to dismiss the Appeal. The assessee aggrieved preferred an Appeal before the ITAT which was numbered as ITA No.1324/MUU/2000. By order dated 11 th July, 2000 the learned Tribunal held that texturing and twisting of yarn amounts to manufacture and consequently allowed the Appeal. The questions now frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and are wound at a speed of about 2500 to 400 mts./min on a suitable package. POY is already having all the characteristics of Yarn. POY is filament yarn of manufactured fibres that has not been drawn all the way immediately after fibre formation. The drawing (draw stretching) is completed as part of the draw texturising process. This is a less costly way of processing these yarns than full drawing followed by texturing. The term textured yarn is explained as term used broadly to describe filament yarn that has been treated to change its hand, increase bulk and/or increase stretch Synonym; Crimped yarn. It is also a generic term for filament or spun yarns that have been given notably greater apparent volume than conventional yarns of similar fibre or filament count and linear density (ASTM). ASTM categorizes textured yarn as one type of bulk yarn, the others being bulky yarn and crimped yarn. ASTM further subdivides textured yarns into High-Bulk Yarn, loopy Yarn and Stretch Yarn. The specific processes used to texture yarns include Air Jet Texturing, False Twisting, Gear Crimping, Knit Deknit and the Stuffer Box Method. 6. It is submitted that it is quite evident that POY is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it has to be given a meaning as understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity. The contention urged by the Revenue that the assessee was doing a manufacturing process in that case was rejected by holding that "the process is a manufacturing process when it bring 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." 9. "Manufacturing" activity was also explained in Deputy Commissioner of Sales Tax (Law) Board of Revenue(Taxes) vs. M/s. Pio Food Packers, [1980] Supp. S.C.C. 174; [1980] 46 STC 63, 65 (SC). The Court no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture within the meaning of Section 2(f) of the Central Excise Act. The Court noted that in Banswara Syntex Ltd. 1996 (88 E.L.T. 645 (S.C.). the Court had held that the doubling or multi folding of yarn does not result in the emergence of a new commodity. The Court proceeded to observe that the process of twisting and doubling of cellulosic filament yarn does not result in a new commodity. 13. Counsel for the Appellant had, however, strenuously argued that considering the judgment in Commissioner of Income-tax vs. Tara Agencies, (2007) 292 ITR 444, the issue of manufacture or production has been reconsidered and in that context the earlier view taken will have to give way to the view as explained in Tara Agencies (2007) 292 ITR 444, The issue before the Supreme Court was whether blending of tea results in bringing into existence a new commodity and, therefore, amounts to manufacture or production. The Court noted that the word "manufacture" has not been defined under the Income Tax Act, but had been defined in Section 2(f) of the Central Excise Act, 1944. The Court also referred to the dictionary meanings of the word "manufacture" in Black's Law Dictionary an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (Bom). where this Court took a view that silk cloth, printed, bleached or dyed cannot be said to have been manufactured. In D.C. Shah vs. Union of India [2006] 283 ITR 486 (Raj) the issue was whether blending of ore amounts to manufacture. Considering the various judgments the Rajasthan High Court held that applying the test as to whether the processing of the original commodity brings into existence a commercially different and distinct commodity held. That test has not been satisfied. In Commissioner of Income Tax vs. Premier General Traders (P) Ltd., [2002] 242 ITR 654 this Court on the facts there held that the process undertaken by the Assessee cannot be regarded as processing of manufacture of articles or things. In Indian Hotels Co. Ltd. Ors. vs. C.I.T. [2000] 245 ITR 538 (S.C.) the assessee sought the benefit of investment allowance under Section 32A of the I.T. Act contending that the assessee was an industrial company engaged in manufacturing activity as it was running a flight kitchen engaged in the production of food packages. The Court held that the activity does not amount to manufacture or production as the raw material is at the most processed so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain minimum coherence between fibres, without a yarn having a significant tensile strength cannot be made. This coherence is dependent on the frictional forces brought into play by the lateral pressures between fibres arising from the application of tensile stress along the yarn axis. With the introduction of continuous filament yarns, however, the role twist must be reconsidered. In continuous filament yarns, twist is not necessary for the achievement of statutory resistance to abrasion, fatigue, or other types of damage associated with stresses other than a simple tensile stress, and typified by the breakage of individual filaments, leading ultimately to total breakdown of the structure. High twist produces a 'hard' yarn, which is highly resistant to damage of this kind. The role of twist in continuous filament yarn is, thus, to produce a coherent structure that cannot readily be disintegrated by lateral stresses. From the engineering standpoint, the interesting thing about this structural function of twist is that, in contract to most structure-building techniques, it produces its effect without significantly increasing the flexural rigidity or residence to bending of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of processing these yarns than full drawing followed by texturing." "Textured Yarn" is explained amongst other as under:- "A term used broadly to describe filament yarn that has been treated to change its hand, increase bulk, and/or increase stretch." In the Textile Institute, Textile Terms Definitions, Ninth Edition, regarding "textured yarn" explained as under:- "A continuous-filament yarn that has been processed to introduce durable crimps, coils, loops or other fine distortions along the lengths of the filaments." 26. It is not necessary to refer to other material already on record. 27. From the material considered it would be clear that POY has different physical and chemical properties and when POY chips undergoes the process of texturising and/or twisting, the yarn i.e. twisted and/or texturised or both results in a product having different physical and chemical properties. In other words the process applied to POY either for the purpose of texturising or twisting constituted manufacture as the article produced is recognised in the trade as distinct commodity pursuant to the process it undergoes and which amounts to manufacture. Under the Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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