TMI Blog2009 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... f last 10(ten) years. In the application filed before us it has been stated that the applicant intends starting a 100% ancillary unit to one tractor manufacturing industry in the state of Himachal Pradesh during the financial year 2008-09 with initial investment of Rs.40 lakhs in the Plant and Machinery and the said investment will gradually go up to Rs.1 (one) crore. The applicant avers that the proposed business establishment will be covered as small-scale industrial unit in the status of a proprietary concern. The applicant's primary job, as stated, will be to provide milling, tooling and grinding of the surface of the raw castings of Rear Cover Differential Housing which are important parts of tractors. These raw castings are to be provided by the Principal and they will be, as stated, processed by the applicant within the specified parameters given by the Principal. The processing is reportedly to be done through requisite technology such as Special Purpose Machines (SPM), special Jigs, Jags and tools. The applicant avers that pursuant to processing, a new product/article called 'Machined casting' is manufactured and these 'machined castings' fit compatibly into tractor part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able him (the applicant) to avail the deduction under section 80-IC(2) of the Act. The Revenue submits that what constitutes a manufacturing activity has been explained by the Supreme Court in the case of Union of India vs. Delhi Cloth and General Mills (1977) ELT (J) 199 wherein it has been observed that the manufacturing process necessarily postulates some change in the shape of new articles or things with a distinct name, character or use. It has been emphasized that in the instant case no new article or thing has been manufactured and it can thus be said that the applicant has not done any manufacturing to enable it to merit the requisite deduction under section 80-IC(2) of the Act. 5. The representative for the Revenue has further argued that the applicant has received the raw castings from the Principal and has immediately sent back these raw castings to the principal after making some cosmetic changes. The process adopted by the applicant cannot be termed as manufacturing process as no new product has come into being. The decision in the case of Perfect Liners (supra), as relied upon by the applicant, is not applicable to the facts of the case. Reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been emphasized that the applicant merits allowance of deduction under the aforesaid section of the Act in respect of proposed activities. 8. Before the point at issue i.e. whether the refining process of the raw castings constitutes 'manufacturing' or not is taken up, it will be quite apposite to reproduce section 80-IC of the Act which is in following terms:- "Special provisions in respect of certain undertakings or enterprises in certain special category states - 80-IC- (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section(a) (2), (a) there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise- (a) which has begun or begins to manufacture or produce any article or thing(a), not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ; (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation : The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5)] to] xxx xxx xxx (7)] (8) For the purposes of this section, - (i) "Industrial Area" means such areas, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (ii) to (x) xxx xxx xxx 9. Tracing the legislative history we find that the Finance Act, 2003 has inserted the above section with effect from 1.4.2004 in order to give effect to the new packages of fiscal and non-fiscal concessions announced by the Union Government for special category of states such as Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. Consequent to this, deductions under section 10C and 80-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akings or enterprises which manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule and which commence operation in any Export Processing Zone, or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate, or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with rules prescribed in this regard. Similar deduction shall be available to thrust sector industries, as specified in the Fourteenth Schedule. 49.3 The amount of deduction in the case of undertakings or enterprises in the States of Sikkim, and the North-Eastern States shall be one hundred per cent of the profits of the undertaking for ten assessment years. The amount of deduction in case of undertakings or enterprises in the States of Uttaranchal, Himachal Pradesh shall be one hundred per cent of the profits of the undertaking for five assessment years, and thereafter twenty-five per cent (thirty per cent for companies) for the next five assessment years. 49.4 The section also provides that no deduction shall be allowed to any undertaking or enterprise under this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, all Judicial pronouncements establish that the end product, after undergoing some sort of processing, should be a commercially different product, having different name, character and use. At this juncture, the following observations of Justice R.S. Pathak, in the case of Deputy CST vs. PIO Food Packers (1980) 46 STC 63, 65 can be usefully recalled:- "There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but inste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.R. 222(Mad)] (ii) "The expression manufacture involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original article or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a different commodity has been produced having its own name, identity character or end use." [ C.I.T. vs. Jamal Photo Industries (I) Pvt. Ltd. 285 I.T.R. 209 (Mad)] In other words, the essence of manufacturing is that what is made shall be a different thing from that out of which it is made despite the original material not losing its identity completely. 12. Applying the above tests, if the present case is analyzed, it emerges that the applicant's is a proposed undertaking i.e. business establishment which will be processing or refining the raw castings provided by the Principal. It further emerges that the mechanical process to be applied to raw castings would bring into existence commercially new goods called 'machined castings' which fits compatibly into a tractor. The raw castings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Liners (supra) concluded as under:- "The word "manufacture" has to be understood in a wide sense. After the rough casting was polished, the product was a new product which was utilized as a component in internal combustion engines as essential parts………." In the instant case also, the new product 'machined casting' has been utilized as an essential part of a tractor. Further, it may be appropriate here to refer to a decision of Allahabad High Court in the case of CIT vs. UP State of Agro Corporation 188 ITR 370 wherein the activity of assembling imported component parts into a tractor has been held to be manufacturing or producing an article for the purpose of section 80-J of I.T. Act. It was observed at P.375 in the above Judgment as under:- "The activity in the instant case is, no doubt, one of assembling, but it is not a case where a tractor was imported in a knocked down condition and re-erected. A large number of parts were imported and they were first knit into 23 components, which, in turn, were fitted together to result in a tractor." 15. In the light of the fore-going discussion we are of the view that the applicant, in the given set of facts, would be eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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