TMI Blog2007 (6) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... at a temperature of 820 degree for 72 to 90 seconds depending upon the thickness and grade of material. The inspection report is reproduced above in the order. The CIT(A) has not considered the opinion of Standing Counsel of the Department by relying upon the Supreme Court decision in Smt. Amiya Bala Paul v. CIT [ 2003 (7) TMI 4 - SUPREME COURT] . This is only an opinion and has in any case is to be considered as an argument in holding whether there was a manufacture. These issues, material and submissions in any case are being discussed in the proceedings before us and there nothing much turns on that because in substance the CIT(A) has discussed everything stated in the opinion by way of a proposition. No principles of natural justice are violated by him in disposing the appeal. The ld. JM, therefore, held that as there is no basic change in the characteristics of the raw material and the finished products, the assesses cannot be said to be engaged in the manufacturing activities and held that the CIT(A) was not justified in allowing relief to the assessees. Third Member - Keeping in view the above meaning of the word manufacture as decided by the Hon'ble Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 605 - SUPREME COURT] and order of court of law must be read in its entirety for the purposes of ascertaining its true intent and purport. Reliance on the part judgment may do violence to the true intent and purport of the judgment. In my final analysis, I am inclined to agree with the views and observations made by ld. Vice President in his proposed order regarding factual aspects of various processes undertaken by the assessee and its effect which are well supported by treatise from various foreign and Indian books on the subject and especially supported by Research Institute known as ERDA which is the highest authority on the subject and approved by the CBDT for giving the technical opinion and ld. VP's analysis of various judicial pronouncements for ascertaining the test for manufacturing activity. From the evidences on record, I am of the opinion that the ld. VP has rightly held that the assessees were engaged in the manufacturing or producing an article or thing and he has rightly allowed the exemption u/s 80-IB of the Act. I agree with proposed orders of the learned Vice President. The matter should now be placed before the Regular Bench for disposal in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) has erred in stating at para: 27 (Para: 36 for ITA No. 3373) of the appeal order that the report of the Assessing Officer will be considered as and when necessary and in fact the learned CIT(A) did not consider the remand report and written submissions by the Assessing Officer. 3.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding at para 18 of the order that the activity of the assessee is manufacturing based on several decisions relied upon by the assessee, though, these decisions were distinguished in the remand report, which, the learned CIT(A) has not considered. 4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not considering the legal opinion submitted by the Assessing Officer regarding the applicability of the judgment of the Hon'ble Apex Court, erroneously holding that it is against the provisions of law, in violation of the basic principles of natural justice. 4.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the legal opinion taken by the Assessing Officer is against the provisions of law, thereby deny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worker could not hold it with bare hands, hence character or quality does not change by virtue of the same. 6.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief ignoring the fact that in the case of CIT v. Meenakshi Asphalts [2004] 266 ITR 626, the heat treatment is of manifold in terms of duration and absorption. 6.5 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief to the assessee by applying to the case of the assessee the decision of the Hon'ble Madras High Court in the case of CIT v. Tamilnadu Heat Treatment Fitting Services (P.) Ltd 238 ITR 529, ignoring and not distinguishing the decision of the same Hon'ble High Court in the case of CIT v. Meenakshi Asphalts [2004] 266 ITR 626, specifically brought to the notice of the learned CIT(A), squarely applicable to the case of the assessee. 7. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief in the background of contradictory observations and opinion and thus failed to make a speaking order. 7.1 On the facts and circumstances of the case and in law, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. Meenakshi Asphalts [2004] 266 ITR 626 were specifically brought to the notice of the learned CIT(A), the ratio of which was found applicable to the case of the assessee. 10. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief in the background of erroneous observations, at paras 12,38,39 and 40 (Paras 12,48, 49 and 50 for ITA No. 3373) of the appellate order, that the Assessing Officer has not disputed the manufacturing process carried on by the assessee and he has indirectly accepted the activity of the assessee as manufacturing, ignoring the correct fact that the Assessing Officer has held the activity of the assessee as a non-manufacturing activity for the purposes of section 80-IB of the Act. 11. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief in the background of informal consultation with the Assessing Officer who had passed the assessment order, the contents and nature of such informal consultation not brought on records and not made known to the revenue ignoring the fact that the Assessing Officer has disallowed the claim of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax angle. 14. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not making a speaking order and in not following the procedure in appeal by not stating all the points for determination and thus the decision thereon and the reason for the decision, as provided in section 250(6) of the Act. 14.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred at para 14 in not stating that the correct fact that a V-shape is cut by notching and that a hole is cut by holing. 14.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not making a speaking order whether slitting, shearing, V-notching and holing are all different types of cutting or not. 14.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not making a speaking order whether cutting is not manufacturing as held by the Hon'ble Apex Court. 14.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief without considering and distinguishing the judgment of the Hon'ble Apex Court in the case of CCE v. Bakelite Hylam Ltd. [1997] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of various kinds and types of transformers used in Power and Distribution Transformer manufacturing market, i.e., (i) Power transformer ranging from 5 MVA till 315 MVA; (ii) Distribution transformer ranging from 15 KVA till 5 MVA and (iii) Dry type transformer oil free transformer for distribution. The Core Lamination is made, by using the raw material known as Cold Rolled Grain Oriented Electrical Steel shortly known as C.R.G.O. This Grain Oriented Steel is universally used for manufacturing Transformer Core and Lamination. This core electrical steel is normally made and supplied in the form of coil. The process of making starts with selection of the coils with respective technical performance required by the design of the transformer. After selecting the right grade of the coil, the process starts. As per various processes of manufacturing of transformer core lamination is to shape CRGO into desired shapes, by a highly technical; precise and most demanding activity in the engineering and power industry.' 5. Before processing the raw material, testing is done to measure their core and watt loss to ensure to select the appropriate raw material with respect to the techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the customer along with tolerance power in thickness, width and length as per the requirement of customer. It was explained that the processing of CRGO Core Lamination appears to be a, simple engineering process to shape CRGO into desired shape, but it is in reality a highly technical precised activity. The assessee has adopted universally tested and approved procedure of processing and manufacturing transformer core lamination with the use of latest technology, finest machinery and quality control techniques. After these processes, a different commercial product is claimed to come into existence and identity of raw material ceased to exist. The result product known as CRGO Core Lamination against raw material known as CRGO Electrical Steel is separately identifiable and is having different name, function and use in power industry and also under the Excise laws for the purposes of levy of excise duty on the manufacture. The end-product known as CRGO Core Lamination is used as vital part of transformer manufacturing activities. 7. The Assessing Officer held that the assessee has not fulfilled the condition provided under section 80-IB(2)(iii) of the Act and the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence. From the 3 decisions of the Supreme Court, relied upon by the Assessing Officer; a ratio that can be culled out is that cutting could not give rise to a new commodity. It has also been opined by the Standing Counsel of the Income-tax Department, Gujarat, that the ratio laid down in these decisions are squarely applicable to the case of the assessee. In fact, the word 'lamination' used by the assessee itself is misleading. The assessee is not performing any activity of laminating any sheet. The CRGO roll is already laminated with silicon grains when the same is purchased by the assessee. The assessee only cuts it into sheets of specific dimensions. The assessee is not manufacturing any transformers. 10. The assessee also submitted a detailed representation before the CIT(A). On the basis of these representations, the Assessing Officer was asked to submit a combined report in the case of both the assessees, latest by 3-8-2004. It was specifically brought to the notice of the Assessing Officer that if any new thing is required, the same may be submitted separately. The Assessing Officer submitted his reports one on 24-8-2004 and other on 229-2004. 11. The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing iron loss and magnetizing current loss before and after the annealing process was given. This table was also submitted before the Assessing Officer. After going through this table, the CIT(A) was convinced of a definite reduction in iron loss and magnetizing current loss after the annealing process. The percentage reduction in iron loss at 1.5T is 14.5 - 19.5 and at 1.7T is 19.5 - 32.4. The percentage reduction in magnetizing current loss at 1.5T is 54 - 84.6 and at 1.7 per cent is 120 - 244. Some report was submitted by the then Assessing Officer that annealing process does not bring about any structural changes in the metal but he did not agree with that and said that 'In the assessment order itself, the Assessing Officer has given the finding that the annealing process performed by the assessee though decreases the iron loss of the core and relieves the laminations of plastic and elastic stresses and improves the conductivity and magnetic value of the transformer core, it cannot be said that simply because of this process, a new product comes into existence.' Based on the figures in the table of reduction of iron and magnetizing loss and the process of annealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CRGO coil is different marketable commodity and transformer core is different marketable commodity; that the CRGO coil looses its existence during the course of various processes; that even the iron loss and magnetizing loss is reduced during the annealing process; that the cutting with specific drawing, testing, annealing and assembling processes are involved in assessee's activities which are absent in marble cutting. 13. The ratio laid down in Supreme Court in the case of Gem India Mfg. Co., he observed could not be applied in the case of the assessee as there is sufficient material on record to show that transformer core is a new article or thing, which is the result of various processes of manufacturing. The transformer core is a different commercial commodity and known in the trade as such. The Central Excise department is charging excise duty only on account of different article. The Sales Tax department accepts the sales of the assessee in this name. There is qualitative change in the raw material due to annealing process as accepted by the Assessing Officer in para 5.14 of the assessment order. 14. As regards the decision of the Supreme Court in the case of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Supreme Court in the case of Aspinwall Co. Ltd. v. CIT [2001] 251 ITR 323, he noted that in the absence of a definition of the word manufacture it has to be given a meaning as is 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 material 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 raw materials used by the assessee, he said, is the CRGO coil whereas the products supplied by the assessee to the transformer manufacturers is called transformer core and that a new and different article is clearly emerged from the various processes carried out by the assessee. The existence of new and different article is found place in the sale invoices of the assessee. The existence of new and different article is accepted by the Central Excise department and by the Sales Tax department. The CRGO transformer core is definitely a new and different marketable article having different qualitative characteristic due to annealing and assemblin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained in the remand report as to how these certificates/documents could not form a basis to decide as to whether the activity of the assessee is manufacture/production or not. Further submission in the case was given by the Assessing Officer vide letter No. ACIT/VC/Report/2004-05 dated 22-9-2004. These reports were supplied by the CIT(A) to the assessee who in turn furnished their comments. However, the CIT(A) did not supply copy of the comments of the assessee to the Assessing Officer for counter comments. Vide his office letter dated 22-9-2004, the Assessing Officer specifically requested for an opportunity to appear personally before him to represent the case. However, the CIT(A) denied this right of being heard to the Assessing Officer, despite being requested specifically. The revenue has not been heard properly and access to the comments of the assessee was denied to the revenue, which is in violation of the principles of natural justice. The CIT(A) has thereby denied right of being heard to the Assessing Officer in violation of the provisions of section 250(2)(b) of the Act. He submitted that proper opportunity was not given by the CIT(A) to explain the matter in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, he submitted that the assessee did nothing and on cutting also the sheet remained the sheet, though after cutting it was of a smaller size of sheet as against the sheet in roll but that does not bring into existence any new commercially known different item. Annealing only restored the loss on cutting and did not add anything to call it a manufacture. He referred to the following decisions in support of his contention:- (i) CIT v. Poyilakada Fisheries (P.) Ltd. [2000] 241 ITR 195 (Ker.), (ii) Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC), (iii) CIT v. Gem India Mfg. Co. [2001] 249 ITR 307 (SC), (iv) Divisional Dy. CST v. Bherhaghat Mineral Industries [2000] 246 ITR 230 (SC), (v) Sacs Eagles Chicory [2002] 255 ITR 178 (SC), (vi) CIT v. Vijay Granites (P.) Ltd. [2004] 267 ITR 606 (Mad.), (vii) CIT v. Vijay Ship Breaking Corpn. [2003] 261 ITR 113 (Guj.), (viii) CCE v. Bakelite Hylam Ltd. [1997] 10 SCC 350, (ix) Shaw Scot Distilleries v. Asstt. CIT [2001] 76 ITD 89 (Cal.) (SB), (x) India Cine Agencies v. CIT [2003] 261 ITR 491 (Mad.), (xi) SR Tissues (P.) Ltd. 197 CTR (SC) 437, (xii) CIT v. Sri Meenakshi Asphalts [2004] 266 ITR 626 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing, holing, annealing which according to him improve the quality as discussed by the CIT(A) in paragraph 44 of his order. The learned counsel of the assessee has also given written submission and submitted that the word 'manufacturing' or 'production' have not been defined in the Income-tax Act. These words also appear in the sections 32A, 80HH, 80-I and 80J of the Act. However, the various Courts have laid down certain tests to determine as whether the activity amounts to manufacturing/production or not. In support of its argument, the assessee has relied upon the following decisions, which are reproduced above. The assessee has also submitted, vide its written submission, the facts findings of the judgments relied upon the revenue in comparison with the assessee's case and submitted that they are not decisive of the issue in assessee's case. He relied upon the following decisions: (i) Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC); (ii) Aspinwall Co. Ltd v. CIT [2001] 251 ITR 323 (SC); (iii) Ship Scrap Traders v. CIT [2001] 251 ITR 806 (Bom.), (iv) Arthur E. Newell, In re [1997] 223 ITR 776 (AAR), (v) Black s Law Dictionary 5th ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Russia, etc., with the requirement of the assessee in the purchase order. 3. After the selection of the relevant material, the roll is cut in various sizes and this process is called as slitting. The process of slitting is done on a slitting lines maintaining two loops system which ensures that the grains are not strained and stretched during the process. We have been shown four equipments/machines which are used for these processes, these are slitting line, coil winders, overhead cranes, epstien tester. A loop is stated to have been taken to minimise edge burr to prevent roughness on the edges. 4. The next process, which we saw was shearing process, which is at 45 degree or 90 degree as per the requirement of the customer. Where also strict tolerances are maintained and a unique three-point location method ensures accuracy in dimension in terms of angle and length. There also four equipments and machinery were being used viz., Tredal Shears machines, Coils winder, Measuring scale, Overhead cranes. These are given in Annexure A and Annexure B. 5. The third process, which was shown to us is V-Notching that is cutting the sheet in various sizes and position of V-Notch pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d joints in order to facilitate the passage of the magnetic/electrical flux and to avoid hot spots and reduce no load losses, no load current and low noise level and during building the core and ensure that stacking factor, building factor, window height, air gapping and other technical aspects are within technical limitations/details. The machinery used for this purpose are Overhead cranes, Vernier caliper Micro-meter, Measuring scale. This core assembling process is shown in Annexure I. 11. After assembling the building core the built core again tested and certified for no load loss to ensure the technical results are within the limits as specified by the customer. The machinery used for this purpose are EMCO no load tester and Overhead cranes. This process is shown in Annexure N. 12. The cores are to be assembled for packing. In a horizontally laid down onto wooded skids then securely wrapped with jute cloth and plastic covers. This is to ensure and prevent any damages or disturbances to the material during transportation. This is called Pyramid style of packing the limitations which is advantageous during core assembly. The equipment and machinery used are Overhead cranes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersigned was present in the factory premises as per the directions of the Honorary Bench to make arrangements for the necessary inspection and as a protocol. No comments are considered necessary on paras 2, 3, 4, 5 and 6. In para-7, it is observed that the annealing process is carried out to de-burr and relieve the stress and strains on the limps/plates through a roller hearth annealing furnace. It is further mentioned that this process of annealing is stated restore and improve the magnetic and electrical properties of lamination. In this regard, reference is invited to report submitted by the undersigned vide letter dated 27-5-2006 in which relevant comments under the head 'annealing' are offered which are reproduced below for the sake of convenience: (h) Annealing - In the appellate order, the learned CIT(A) has held the activity of the assessee as a manufacturing activity on the ground that property of material changes after annealing. In fact, change in property is incidental to cutting. CRGO sheet is an highly impact sensitive material. The same is evident from the observation of the learned CIT(A) made at para 14, wherein, he has stated that property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation, making it unfit. Though the learned CIT(A) has personally visited the factory of the assessee and even though he had got the annealed CRGO sheets tested, the learned CIT(A) failed to examine the following: 3. Whether there is any substantial difference in parameter of raw uncut CRGO sheet and cut-annealed CRGO sheet. 4. Whether the parameters that were observed in the CRGO sheet after annealing was the requirement of the customers of the assessee, i.e., whether the assessee receives orders from its clients with such specification. The picture would have become more dear if the learned CIT(A) had compared the parameters of the cut and annealed CRGO sheet with the original CRGO material in coil form purchased by it (before cutting). After this process which is termed as a manufacturing, there is no change in the physical form of the CRGO sheets nor there any chemical change. If the assessee could make characteristics changes to the CRGO sheet on its own, then, there was no need to use particular specified CRGO sheet for its activities, as submitted by the assessee while explaining its process. For the sake of brevity, the relevant portion of the submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings he has recorded was in the presence of the Assessing Officer at the time of their joint visit. The Assessing Officer was present at the time of visit and remained with the CIT(A), from the beginning to the end. No independent evidences were collected by the CIT(A) and no fresh evidence was taken by him. We noted that as per the mill's specification at a temperature of 820 degree for 72 to 90 seconds depending upon the thickness and grade of material. The inspection report is reproduced above in the order. 29. As regards certificate and report filed by the assessee, CIT(A) in the order of Alfa Lamination specifically states that he has not taken any cognizance thereof, hence question of cross examining them does not arise. Revenues contention that during the course of appellate proceedings, legal opinion taken from the High Court Standing Counsel of the Income-tax Department, Gujarat by elaborate discussion and reasoning running into more than 50 pages, it was opined that the ratio of all the decisions relied upon by the Assessing Officer were applicable to the case of the assessee and that in the light of those decisions and several other decisions quoted by him, suo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lts in a new and different article then it would amount to a manufacturing activity. We have ourselves visited the factory and were explained various stages of making the laminations. These processes are: I. Slitting: Slitting process a high precision computerized constitutes the first important manufacturing activity and fundamental in order to obtain the final product. The quality and accuracy of the process, largely determines the quality of the final product. The slitting is done on the slitting lines (machines) maintaining 'two loops' system which ensures that the grains are not strained or stretched during the process. The loop before and after slitting also ensure the paralleblity of the slits and minimum edge camber to prevent roughness on the edges. All the slitting blades are made of fully hardened and ground alloy steel to ensure sharpness and durability particularly to remove camber (waviness), is taken to keep the edge burr under control, within the specific tolerances. II. Shearing: The second stage of the process is Shearing at 45 or 90 as required by the customers. Strict tolerances are maintained and a unique three point location method to ensure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by experienced and skilled quality executives. To certify and verify that the annealing process has restored or improved the magnetic and electrical properties of the lamination, a test is conducted. The Franklin power supply unit measures the surface insulation of the lamination and the Epstein tester iron loss tester measures the core/iron loss in the lamination. The quality and technical staff ensures that the lamination is as per its technical details. Certificates are prepared and issued by quality department as per the results. VII. Core stacking: The core laminations are stacked as per customer's specifications. The laminations are stacked in such a fashion that minimum manhandling is occurred while assembling/packaging or transporting the core. Due to the large sizes of core laminations of power transformers, they stacked and directly sent to packaging department for packaging and forwarding. VIII. Core assembly: The transformer laminations for distribution transformers are assembled and built to form an assembled transformer core. Drawings, specifications and details are provided by the customers. The supporting utilities to build the core lamination are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has been accepted by the Assessing Officer in his order. Thus, there is a qualitative change also. 33. The two products namely CRGO Coil/Sheet and Core Lamination are not only separately classified in the respective commercial market but also in other legislations like Excise, Central and State Sales Tax and Factory Act, etc. and given separate treatment according to their utility. For example, in Excise, CRGO Coil/Sheet has been classified under the head 'Flat Roll Product' of other alloy steel under Chapter 7225 as 7225/11 00 - Grain Oriented whereas Core Lamination has been classified under the head 'Electrical/Electronic Machinery and Equipment' under the Chapter 85 of Excise Law as item No. 8504 9010 - parts of Transformers . The said facts are confirmed by the sales bill issued by the assessee as stated by the CIT(A). The fact that it is a new and different article is thus accepted by the Central Excise Department, as excise duty @ 16 per cent is charged. Its existence as a different article is also accepted by the Sales Tax Department as assessment orders were passed by giving benefit of tax-free sales to the assessee. It is therefore clear that a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lloy steels. 36. Mr. S.K. Hajra Choudhury in his book Materials Science and Processes in SI Units (Indian Book Distributing Co., Calcutta 9), 1987 edition, under the heading Heat Treatment summarised that: Heat treatment of metals may be defined as an operation or a combination of operations involving the heating and cooling of metals or alloys in the solid state to produce certain desired properties. As a result, heat treatment plays a vital part in tike manufacturing process of machine parts and tools. Only by heat treatment it is possible to otter the structure and consequently, the mechanical properties of metals required for normal operation of modern machinery and tools. As wett, many shaping, forming and joining processes involve heating and cooling the metal and, thus, 'accidental' heat treatment may result. All heat treatment processes may be considered to consist of three main parts: (1) The heating of the metal to the predetermined temperature; (2) The soaking of the metal at that temperature until the structure becomes uniform throughout the section; (3) The cooling of the metal at some predetermined rate to cause the formation of desirable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n both. Flame hardening is an exception to the above remarks. 39. In the book Practical Heat Treating' by Howard E. Bayer (American Society for Metals, Metals Park, OH 44073) (1984 edition), in Chapter 1, under the heading What is Heat Treatment, Classification and Commercial Importance , the learned author has summarised that: The generally accepted definition for heat treating metals and metal alloys is heating and cooling a solid metal or alloy in a way so as to obtain specific conditions and/or properties . Heating for the purpose of hot working (as in forging operations) is excluded from this definition, likewise, the of heat treatment that are sometimes used for products such as glass or plastics are also excluded from coverage by this definition. Commercial importance. It would be difficult to imagine what life would be like if the properties of metals could not be altered a variety of ways through at use of heat treatment. Without the benefits derived from heat treating, the auto industry, airplane/aerospace industries, and countless everyday hardware items would be non-existent. Indeed, a sharp edge steel razor made would not be available. Almost all me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansformers cores/motor stamping and E I lamination. It has no use in as its condition. It has to undergo various manufacturing steps, i.e., shearing, punching, stamping, holing, 'V' - notching etc. These are the common manufacturing steps adopted by manufacturers of transformers lamination all over the world and there activity is recognized as a manufacturing activity. We have observed your manufacturing activities of E I lamination and also have observed an activity of other manufacturer's who are manufacturing transformers lamination and stamping. Our opinion is that the activity of manufacturing these products is almost same all over in India and outside the country. As per our opinion you are not doing simple cutting of CRNO steel coil but are producing new item, which is known as E I lamination and which is used in making transformers. Keeping an eye on the desired electrical/magnetic properties, the design of the transformers are made. Out of these design the design for E I lamination is made, accordingly different tooling are made for manufacturing of different E I lamination. Hence with emphasis it can be told that manufacturing of E I lamination is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the transformers. 41. Veermata Jijabai Technological Institute (VJTI) [Central Technological Institute, Maharashtra State], Matunga, Mumbai - 400 019 also opined: The above mentioned party has approached this department to give technical opinion on their manufacturing activity, we the undersigned subsequent to the factory visit have found that the factory is engaged in following. The visit was arranged on 18th March, 2004 on the request of the party. The factory Address of M/s. Trans Lam Electricals, is Unit No. B/6, 7 and 11, Span Industrial Complex Dadra Silvassa Road Village Daora, U.T. of Dadra and NH. During the course of our visit, we found that the concern is engaged in the manufacturing of: Electrical Laminations known as E I Laminations which described as Type-43, Type-15, Type-3, Type-31, Type-23, Type-12, Type-17, Type-8, Type-16 E I laminations. The sizes and dimensions of each type of E I laminations are as per customer design. The concern has installed at the location of the factory, the machines as mentioned below. They have power connection of 25 HP and 14 workers are employed. The details of machines which are installed at the location of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the laminations to remove burrs. 8. They provide rust klick on laminations to prevent rusting. 9. Then, they are packing the finished product in wooden box cover with pole-thin paper for dispatch. They are bundling bigger size laminations before packing. 10. Die and punching tools are maintained up-to-date by using surface grinding machines regularly. By performing manufacturing operations as above, there are some significant invisible changes in the characteristics of the material. There is change in core losses and permeability. Due to proper laminations stacking footer...... the original sheet also chances by a very small amount due to the process. During the manufacturing activity of laminations, scrap is also generated. All this manufacturing activities are carried out by skilled workers. Manufacturing of laminations is a highly skilled job. Lamination manufacturing activities are generally similar all over the world. Without good quality material skills and knowledge it would not be possible to meet the end user's requirements. CRNO material comes in various grades having grade wise guaranteed specific core losses. Steel mill that manufactures the coil p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut strips was with a view to manufacture electrical stampings. When the manufacture is for particular utility, namely, lamination for transformers, the manufacturing activity would be established. It is the effect of the operations that is mattering for deciding the issue. There is a substantial and basic change in the product. In view of the processes of cutting and the design involved. The steel sheets or strips, which are subject to cutting would no longer be sheets but become stampings or laminations for use in the transformer. Thus, it is a new product compared with a steel sheet or laminated sheets. After cutting to particular shapes, the strips left their character of strips, plane and simple and became laminations or stampings. The strips that have been formed, shaped and worked upon would never be strips again to be used as such. Thus, cutting of the strips amounts to manufacture. 43. The annealing process has been explained during the course of appellate and assessment proceedings. We have also inspected the process. From the records as shown in the table iron loss and magnetizing current loss before and after the annealing process was given it is evident that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the decision of the aforesaid Madras High Court held as under: 11. We have carefully considered the rival submissions in light of the material placed before us. We do not find much substance in the arguments of the learned DR that the assessee did not carry any activity of manufacturing particularly in view of the decision of the Hon'ble Madras High Court in which, considering the same activities, it was held by the Madras High Court that the assessee carried on the activity of manufacturing. Madras High Court has turned down the plea of the revenue that since there was no physical change in the article to which heat treatment was given, the activity of annealing was not an activity of manufacturing. Hon'ble Madras High Court after discussion made in respect of process carried on as heat treatment, which include annealing, and also various case-laws have observed as under: In the backdrop and setting of the principles, as enunciated by the Supreme Court and various High Courts as relatable to the activity of manufacture or processing of goods and in the light of the various literature and books of foreign authors, relatable to the qualitative change, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the activity carried on by the assessee is covered by the aforementioned decision of the Madras High Court in the case of CIT v. Tamil Nadu Heat Treatment Fetting Services (P.) Ltd. We therefore direct the Assessing Officer to allow deduction under section 80-IA to the assessee by considering the activity carried on by the assessee as an activity of manufacturing. Thus ground is allowed for all three years. 45. The Assessing Officer in the case of Alfa Transcore Industries, for assessment year 1994-95 in an order under section 143(3) of the Act has accepted the claim of the assessee and held as under:- The assessee-firm is new. During the year the firm set-up one Unit at Daman for manufacturing of Elect. Transformers Lamination. During the year the turnover was Rs. 28.49 crores on which G.P. had been shown at 24.18 per cent. The assessee has claimed that it is eligible for 100 per cent deduction because the assessee has set-up new unit at Daman and provisions of section 80-IA are applicable. After verification, the same is allowed 46. Similarly for assessment year 1995-96 in their case, again, the Assessing Officer, in an assessment order under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt under section 80-IB of the Act for a period of five year. It was held by the Court in this case that the expression manufacture has in ordinary acceptation a wide connotation. It means the making of articles, or material commercially different from the basic components, by physical labour or mechanical process. The activity will therefore be certainly a manufacturing activity because the article of the appellant is commercially different from the basic raw material. 48. In Arthur E. Newell's case, Authority for Advance Ruling held that: The expression 'manufacture' involves the concept of changes effected to a basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. Judicial decisions on the meaning of the expression 'manufacture', starting with the leading case of Union of India v. Delhi Cloth General Mills Co. Ltd. AIR 1963 SC 791 and South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922, are legion and it is unnecessary to refer to them in detail. Broadly speaking, the essence of manufacture lies in the change or modification of some material into an acceptable form to satisfy some want, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the thing or product is manufactured may necessarily loose its identity or may become transformed into the basic or essential products. 52. The Supreme Court case of Saraswati Sugar Mills held that: Manufacturing is a transformation of an article which is commercially different from the one which is constructed. See para 12 of Kores India Ltd.'s case:- 'Manufacture' is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that in manufacture something is brought into existence, which is different from 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. 53. The Supreme Court case of Empire Industries Ltd. observed that: To put differently, the test to determine whether a particular activity amounts to 'manufacture' or not is: Does new and different goods emerge having distinctive name, use and character. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court case of J.G. Glass Industries Ltd. held: if by process a different commercial commodity causes into existence the identity of the original commodity ceases to exist and commodity when in existence will serve no purpose but for the said purpose, then it is manufacturing. 57. We shall now deal with the cases facts relied upon the revenue in comparison with the assessee's cases. In Poyilakada Fisheries (P) Ltd., the Kerala High Court held that the assessee engaged in the processing and export of shrimps was not entitled to the benefit of sections 80HH and 80-I of the Income-tax Act, 1961. In the case of Supreme Court in CIT v. Relish Foods [1999] 237 ITR 59, it is held that the processed or frozen shrimps and prawns are commercially regarded as the same commodity as raw shrimps and prawn; that when raw shrimps and prawns are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing they do not cease to be shrimps and prawns and become other distinct commodities; that there is no essential difference between raw shrimps and prawns and processed or frozen shrimps and prawns and that in common parlance they remain known as shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery, but the original commodity retains a continuing substantial identity through the processing stage, carried on by the assessee company . This finding is applied by the CIT(A) to the case of the assessee and he held that the activity of the assessee was definitely be the manufacturing activity. One set of lamination core is having five separate bases called outer limb plates-two, one middle limb plate and yoke plates-two as per the specific drawing and various such sets are required for the transformer in which, every set is of different size. The assembled transformer core looks like five pyramids made up of outer limb, middle limb and yoke. It is covered in a water proof sheet. The raw materials used is called the CRGO coil whereas the products supplied to the transformer manufacturers is called transformer core. This name is found place in the sale invoices of the appellant. The name is accepted by the Central Excise department and the Sales Tax department by granting benefit of tax-free sales have been given. In our opinion the CIT(A) is right in holding that the CRGO transformer core is definitely a new and different marketable article having different qualitative chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial deductions under sections 80HH, 80-I and 80J of the Income-tax Act, 1961. 62. In Vijay Ship Breaking Corpn's case Gujarat High Court held that ship breaking activity was not an activity of manufacture or production of any article or thing for the purposes of availing of the benefit of deductions under sections 80HH and 80-I. This decision is contrary to the jurisdictional High Court of Bombay in Ship Scrap Traders' case and therefore may not be any help to the revenue. 63. Bakelite Hylam Ltd.'s case: in this case the sheets are required to be cut anc punched in required size and shape before being used as insulators, it was claimed that the goods cannot be classified under heading 85.46 as insulators. The Supreme Court held that these sheets have electrical insulating properties and can be used as insulators. Mere cutting and punching of these sheets, already having electrical properties, cannot be considered as manufacture of electrical insulators. The ratio of the above decision does not apply in the assessee's case as the issue before the Supreme Court was on classification of the goods, i.e., whether the above industrial laminated sheets and Glass Epox ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity produced had also remainea alcohol. Therefore, it would be said that no commodity was consumed in the manufacture of another in the instant case. Therefore, there was no essential difference between the potable spirit and the bottled IMFLs. The dealer and the consumer both regard it as alcohol. The only difference was that in potable spirit some water and essences were added and bottled, up nicely to make it presentable for marketing. Therefore the above discussion clearly showed that the bottled IMFLs and potable spirit must be held to possess the same character, identity as the original before its bottling. Hence, the activities of the assessee did not involved any manufacturing but only processing and, therefore, it was not entitled to the benefit of section 80HH. 65. In India Cine Agencies' case, it was held that the assessee was only trading in photographic colour paper as a wholesaler and slit the already manufactured and produced photographic paper into required sizes to suit the requirements of its customers and in easily marketable sizes. In the process of slitting bigger rolls into marketable smaller rolls or sizes neither manufacture nor production was involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw material automatically constituted manufacture. Merely because tissue paper in the jumbo roll of the size exceeding 36 cms. fell in one Entry and the toilet roll of a width not exceeding 36 cms. fell in a different Entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture. The above tests would also apply to cutting and slitting of jumbo rolls of aluminium foils.- Shyam Oil Cake Ltd. v. CCE 2004 (174) ELT 145 (SC) and J.G. Glass Industries Ltd.'s case applied. There is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues, etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales-tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Thus, value addition without any change in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is article . The word is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation - the sense in which it is understood in the commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word article is preceded by the words manufactures or produces . Retread means tread again; to replace the worn tread of the outer cover of a rubber tyre with a new tread. There is no manufacture or production of a new article in the treading of a tyre. It may be a commodity in the market. But the only thing is that a worn out tyre becomes usable. The definition of manufacture in Explanation (iii) to section 10A of the Act cannot be imported for the purposes of section 80-I. An assessee who retreads tyres is not entitled to special deduction under section 80-I. 69. In Hindusthan Metal Refining Works (P.) Ltd.'s case Galvaniza60n is an act or process of galvanizing or coating by which iron or steel is coated with zinc to protect it from rust. The process of gal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it. As observed by a Constitution Bench of this Court in Hansraj Gordhandas v. H.H. Dave [1978 (2) ELT (J 350) (SC): 1969 (2) SCR 253] that such a Notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption. 72. Definition of Manufacturing under Central Excise Act reads: 2.Definitions.- In this Act, unless there is anything repugnant in the subject o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end-product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw material should go in as inputs in the process of manufacture and the result must be manufacture of other goods. The article produced must be regarded by the trade as a new and distinct article having an identity of its own, an independent market after the commodity is subjected to the process of manufacture. The nature and extent of the process would vary from case to case and in a given case, there may be only one stage of processing, while in another case, there may be several stages of processing, and perhaps, a different kind of process at every stage. That with every process the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, can it be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final produce does not retain identity of raw material after it has undergone the process of manufacture. It was a case Bidi manufacturing and the court applying the well-establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are cited. (i) Crushing of stone is not a manufacturing/production activity under the Sales Tax Laws, whereas, the same is a manufacturing activity under the Income-tax Act- (Best Chem Lime Stone Industries (P.) Ltd. - [DBIT Reference No. 116181, dated 8-12-1992] and State of Maharashtra v. Mahalaxmi Stone [Civil Appeal No. 9157 of 1995 (SC)]; (ii) Twisting Texturising of yarn is not a manufacturing/production activity under the Sales Tax Laws, whereas, it amounts to manufacturing/production under the Income-tax Act; (iii) Repacking of medicines is a manufacturing/production activity under the Central Excise Laws, whereas, it is not a manufacturing/production activity under the Income-tax Act, as well as under the Sales Tax Laws; (iv) Preparation of 'Garam Masala' by grinding and mixing of varieties of condiments in a specific manner to give a specific taste and flavour amounts to manufacturing/production under the Income-tax Laws as well as under the Central Excise Laws, whereas, it is not a manufacturing/production under Sales Tax Laws - Sales-tax Commissioner v. Dhameja Home Industries 54 STC 217; (v) Re-drawing of wire is not a manufacturing/production activity ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assessments in the group cases, the literature and treatise of various foreign and Indian authors, the reports of SAIL and Veermata Institute, the treatment given in Excise and Sales Tax proceedings, and various case laws relied upon by the Counsel of either side and other submissions, we are of the opinion that making of CRGO Core lamination from CRGO Steel is a manufacturing activity. These are specially made for use in electric transformers in a prescribed and required way and assembled in a pyramidal form to be used only in transformers. The assessee would therefore rightly held to be entitled to deduction under section 80-IB of the Act. The order of the CIT(A) is accordingly upheld. 81. In the result, the appeals of the revenue are dismissed. Per I.P. Bansal, Judicial Member.- 1st Nov., 2006 I have carefully gone through the order proposed by Hon'ble Vice President. I have also discussed the issue with him but I am unable to persuade myself to agree with the order vide which it has been held that assessees in the present cases are entitled to claim deduction under section 80-IB. I, therefore, proceed to express my view on the subject-matter. 2. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is for this reason that the transformers are being made from CRGO core lamination sheet instead of Mild Steel because if the same is prepared from Mild Steel the size of transformer will be very large. 5. It was explained that various machines are required for the process of manufacture such as grinding machines, shearing machines, slitting line, power presses for holing and notching, Decoilers, annealing furnace, laboratory equipment like Eepstien tester, Franklin tester, stacking, factor measuring instrument etc. 6. For storage of CRGO steel it was explained that CRGO steel is a delicate steel has to be handled with care. As the magnetic property of the steel and not the tensile strength is the important quality required to be maintained. If storage is not done properly, it ultimately leads to higher losses. 7. It was explained that stresses are of two types, elastic stress and plastic stress. An elastic stress is a temporary stress which any CRGO steel may be subjected to like some load on top of the coil or a slight force to decoil. The moment the stress is removed, the original magnetic properties of the material are restored and these are no longer damaged. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Core assembling is a delicate operation which has to be done with great care. The method of holding the lamination in a core assembly and the mechanical pressure applied to the core assembly also affects the total core loss. High assembly pressures decrease the service resistance. Therefore, excessive clamping on the core must be avoided as the resistance of surface insulation is inversely proportional to the pressure applied. 16. It was explained that final product is totally different in electrical properties in comparison to the raw coils. CRGO raw material can be used in other electrical applications whereas CRGO lamination can be used only in different types of Transformers. The CRGO material is in coil and sheet form whereas after process it is converted into Transformer Core, which consists of number of pieces stacked. Each CRGO lamination produced is specific to the customer's requirements and cannot be used by other customers. 17. Thereafter packing is done. The packing process is done as per specification received from each customer. In all of the above processes great care is taken to ensure that absolute precision is maintained regarding the dimensions. Only s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was pleaded that assessee employed huge plant and machinery and is an industrial undertaking engaged in manufacturing activities. The assessee firm holds licence to work as a factory under the provisions of Factories Act and its licence number is 1390, in which it was indicated that the factory of assessee is engaged in the manufacturing of electrical stamping and lamination. It was pointed out that assessee is registered with Sales-tax authorities and Xerox copy of Sales-tax Registration was furnished in which it was also mentioned that assessee-firm is engaged in the manufacture of electrical lamination. It was also pointed out that assessee is registered with Central Excise authorities where also the assessee is registered as manufacturing unit. It was explained that CRGO sheets are raw material and this is a marketable commodity in the metal market. Finished products being Transformer Core/Electrical Lamination is a different marketable commodity having independent sale in the electrical market. The assessee is liable for excise duty on such product. Manufacturing process was also explained which has already been discussed in the above part. Relying on photograph of raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-IB. (iii) There is no decision either of the Tribunal or High Courts on the issue of Transformer Core or Transformer Lamination as the Transformer Core or Transformer Lamination is the main component in the Transformer and are being manufactured since long it implies that issue of Transformer Stamping or Transformer Lamination or Transformer Core was not in dispute in the Income-tax Department and it must have been accepted as manufacturing activity by the Income-tax Department. (iv) In other case of M/s. Stamcor the issue was decided in favour of assessee and following the said order he has also decided the similar issue in favour of another assessee vide his order dated 15-7-2004. (v) There is a Special Bench decision of CEGAT in the case of Jhonson Electric Co. v. CCE 1989 (43) ELT 274 (Trib.-Delhi), wherein the appellant who had imported Cold Rolled Grain Oriented Electrical Grade Silicon Steel sheet, which after cutting in particular forms straight way went into transformers as stampings or laminations, was held to be new product compared with a steel sheets or laminated sheets. Thus it was held that process was a manufacturing process. In that case anneal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elastic stresses and improves the conductivity of magnetic value of Transformer core. 22. Considering the various processes adopted by the assessee he concluded that Transformer Lamination Core was an entirely different article as per following observations:- 50. Considering the various processing stages of the appellant's activity including the design and drawing involved, the annealing process, the assembling process, the test certificate given and packing in wooden pallent, I have no doubt that the activity of the appellant is not a manufacturing activity. The CRGO coils/sheets loose their identity during the manufacturing process and a new and different article comes into form which is called transformer lamination core. It is commercially known in different name in the market than CRGO coils/sheets. It is a different marketable article compared to the CRGO coils/sheets. The CRGO coils/sheets loose their character while cutting to particular shape and size and get structural and qualitative change after annealing process. After assembling process, it becomes the transformer lamination core, entirely a different article. Discussing the various case laws relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacturing and production of an article or thing within the meaning of section 80-IB is acceptable:- (i) Aspinwall Co. Ltd.'s case - on the ground that a new and different article has emerged from the process carried on by the assessee and the existence of article is accepted by Central Excise Department and Sales-tax Department. (ii) Ship Scrap Traders' case - on the ground that enactment of sections 80HHA and 80-I will have to be construed liberally in a broader commercial sense keeping its object in mind and also the decision of Hon'ble Gujarat High Court in the case of Gujarat Aluminium Extrusions (P.) Ltd. (iii) Tamil Nadu Heat Treatment Fetting Services (P.) Ltd.'s case - to hold that annealing process done by assessee is a manufacturing activity. 25. He has held that following decisions relied upon by the assessee are not applicable :- 1. Krishna Copper Steel Rolling Mills' case 2. Sesa Goa Ltd's case 3. Singh Engg. Works (P.) Ltd.'s case 4. Tata Locomotive Engg. Co. Ltd.'s case 5. Oswal Woollen Mills Ltd. (No. 1)'s case 6. EI Forge Ltd.'s case 7. Varistha Udyog Ltd.'s case 8. Nanda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (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; (v) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employees ten or more workers in a manufacturing process carried on with the aid of power, or employees twenty or more workers in a manufacturing process carried on without the aid of power. The deduction under section 80-IB has been denied by Assessing Officer on the ground that industrial undertakings of the assessees (hereinafter the assessee) have not fulfilled the condition as laid down in section 80-IB(2)(iii) inasmuch as it does not manufacture or produce an eligible article or thing. There is no dispute to the extent that the article or thing claimed to be manufactured and produced by the assessee is not an article or thing specified in list in the Eleventh Schedule. Now, therefore, the question in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context of sections 80HH and 80-I of the Act would mean making of articles or things, While dismantling the ship, steel plates are not made but only removed which is not the same thing as making of steel plates. The word production in context of these provisions would mean the action of making or manufacturing from components or raw materials an article or thing and not just removing existing article or cutting it. The Supreme Court in Indian Poultry v. CIT [2001] 166 CTR (SC) 503 : [2001] 9 SCC 740, held, in context of section 80-I, that it was not possible to conclude that the dressing of poultry is tantamount to manufacture. In CIT v. Gem India Mfg. Co. [2002] 172 CTR (SC) 615 : [2001] 249 ITR 307 (SC), the Supreme Court held in context of section 80-I, that there can be little difficulty in holding that the raw and uncut diamond is subjected to process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a new article or thing which is the result of manufacture or production. In CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 153 CTR (SC) 105 : [1999] 3 SCC 632, the Supreme Court, in context of sections 80HH, 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as well as Central Excise Act and the various Sales-tax Laws. The word production has a wider connotation than the word manufacture . While every manufacture can be characterised as production, every production need not amount to manufacture. The meaning of the expression 'manufacture' was considered by this Court in Dy. Commr. of ST v. Pio Food Packers 46 STC 63 (SC) among other decisions. In the said decision, the test evolved for determining whether manufacture can be said to have taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity. Pathak, J. as he then was, stated the test in the following words: '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding, cutting/slitting and packing is an activity of manufacture and production and it was observed as under:- 10. At the outset, we may point out that the assessee is one of the downstream producers. The assessee buys duty-paid jumbo rolls from M/s. Ellora Paper Mills and M/s. Padamjee Paper Mills. There are different types of papers namely, tissue paper, craft paper, thermal paper, writing paper, newsprints, filter paper, etc. The tissue paper is the base paper which is not subjected to any treatment. The jumbo rolls of such tissue papers are bought by the assessee, which undergoes the process of unwinding, cutting/slitting and packing. It is important to note that the characteristics of the tissue paper are its texture, moisture absorption, feel, etc. In other words, the characteristics of table napkins, facial tissues and toilet rolls in terms of texture, moisture absorption capacity, feel, etc. are the same as the tissue paper in the jumbo rolls. The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that they can be conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture vis-a-vis process and in the course of the judgment, it has been observed as follows: 16. On an analysis of the aforesaid rulings, a two-fold test emerges for deciding whether the process is that of 'manufacture'. First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process. In the present case, the plain bottles are themselves commercial commodities and can be sold and used as such. By the process of printing names or logos on the bottles, the basic character of the commodity does not change. They continue to be bottles. It cannot be said that but for the process of printing, the bottles will serve no purposes or are of no commercial use. 17. Applying the above tests to the facts of the present case, we hold that mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble form. The question that the High Court and we are here concerned with is whether, in cutting and polishing diamonds, the assessee manufactures or produces articles or things. 6. There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a new article or thing which is the result of manufacture or production. There is no material on the record upon which such a conclusion can be reached. The appeal is, therefore, allowed. The order under challenge is set aside. The question quoted above is answered in the negative and in favour of the revenue. The assessee shall pay to the revenue the costs of the appeal. 34. In the case of Prabhudas Kishordas Tobacco Products (P.) Ltd. - it has been held that the tests to ascertain whether an activity amounts to manufacture or production of an article or thing as laid down and reiterated by various decisions of the Apex Court and this High Court, broadly, are that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, a new and different article must emerge having a distinctive name, character or use. It will be relevant to reproduce following observations of Hon'ble Supreme Court from the said decision:- According to the ld. Counsel, 'manufacture' is complete as soon as by the application of one or more process, the raw material undergoes some change. To say this is to equate 'processing' to 'manufacture' and for this we can find no warrant in law. The word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance' and does not mean merely 'to produce some change in a substance', however minor in consequence the change may be. Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. The Supreme Court has followed the central idea in the above passage in a large number of cases for, e.g., Devi Dass Gopal Krishna v. State of Punjab [1967] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is done only to give a convenient shape to make it suitable/convenient for use in various types of Transformers electric applications. The process adopted by assessee did not bring any change in the basic and inherent properties of CRGO steel as per discussion below. (a) Testing - it cannot be said to be an activity of manufacturing or production of an article or thing because the material is tested only for use. (b) Slitting, Shearing, Notching and Holing - these activities cannot be held to be the activities of manufacturing and production of an article or thing within the meaning of section 80-IB(2)(iii) according to the decision of Hon'ble Supreme Court in the case of Bakelite Hylam Ltd. The relevant observations of Hon'ble Supreme Court are as under:- 29. It is the contention of the Central Excise Department that industrial laminates and glass epoxy laminates cannot be considered as electrical insulators because these sheets are required to be cut in the requisite shape and holes may have to be punched in them before they could be fitted as insulators. However, mere cutting or punching holes does not amount to manufacture. These sheets have insulating pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts paid the duty and later applied for refund of duty amounting to Rs. 22,23,290.26 on 21-1-1979. The Assistant Collector after discussing the matter with the Assistant Works Manager of the appellants held on 7-6-1979 that the question of refund would not arise, it was also pointed out that the appellants have not filed any appeal against the approval of the classification list. Thus the main question before the Special Bench was whether the sheets prepared by assessee from imported Cold Rolled Grain Oriented Electrical Grade Steel Silicon Sheets are within the tariff Item 28A and, therefore, liable for excise duty under that item. Tariff Item 28A is electrical stamping and laminations all sorts . As against this, the claim of assessee was that no duty can be levied as the assessee was not engaged in the activity of manufacturing as process of cutting adopted by it will not be manufacture. On consideration of these arguments, it was held that electrical stamping itself falls under specific entry, i.e., Item 28A were liable for Excise duty irrespective of the fact that whether assessee was involved in the activity of manufacture or not. It is clear from the following observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em before they could be fitted as insulators. However, mere cutting or punching holes does not amount to manufacture. Thus it was decided as a point that whether manufacturing is involved in cutting or punching of electrical insulator. The items dealt with in the aforementioned case are like items dealt with in the present case. The CEGAT Special Bench decision in the case of Jhonson Electric Co. is contrary to the decision of Apex Court in the case of Bakelite Hylam Ltd., and thus cannot be given preference to the decision of Hon'ble Supreme Court which is available on the very subject. 40. The decision of Hon'ble Supreme Court in the case of Bakelite Hylam Ltd., cannot be held to be inapplicable on the ground that to decide that whether the activity of cutting, punching holing was an activity of manufacture was not a question before the Hon'ble Supreme Court. Under section 3 of the Central Excise Act duty is levied on all excisable goods mentioned in the Schedule provided they are produced or manufactured. Therefore, where goods specified in the Schedule are excisable goods but whether such goods can be subjected to duty would depend on whether they were pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activities of manufacturing or production of an article or thing. 41. The decision in the case of Gem India Mfg. Co. also supports the case of revenue. In the process of finished diamond from raw diamond following processes are involved:- Assortment is the initial stage where purity of the stone and checking of its colour is graded thereafter the rough diamond so assorted is sent to planning and marking and in the second stage of planning and marking the final shape of diamond its cut and weight is finally decided and it is a very crucial stage of the process. Thereafter cleaving sawing is the next stages where rough diamond is divided into two different pieces and the marked diamond is cleaved and sawn. A diamond has to be cleaved if the marking is along with parallel to its planes and sawn, i.e., cut in case the marking is perpendicular or against the planes. The process of sawing is now done with the latest machinery with laser. Thereafter the diamond is sent to bruting department where the diamond gets its final shape and this process is also to be done with utmost care so that the diamond does not break or its natural skin is not removed or there is minimum weight l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l world, though the chemical composition remained the same the physical characteristics of shape and class, etc. are substantially different was - held to have wrongly concluded the issue as polished diamond is not a new article or thing which is result of manufacture or production. In view of above discussion process of slitting, shearing, notching and holing done by the assessee on CRGO sheets cannot be termed to be the activities of manufacturing and production of an article or thing within the meaning of section 80-IB(2)(iii) of the Act. 42. In the case of S.R. Tissues (P.) Ltd. it has been held by Hon'ble Supreme Court that the pre-dominant test will be that whether the characteristics of the tissue paper in the jambo roll is different from the characteristics of the tissue paper in the form of table napkin toilet roll and facial tissue and it is held that the Tribunal was right in holding that the characteristics of the tissue paper in the jambo roll were not different from the characteristics of tissue paper after slitting and cutting in the table napkin, in the toilet roll facial tissue. According to the test of character or use, if a transformation takes place wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and there was only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. It was observed that in case of manufacturing of an article or thing it should be distinct and separate and in the said case no new product has come as bye-product which can be as distinct and separate from original one and there was no change in its basic identity. Generally in the case of manufacture there will be change which will be considerable and substantial which was not so in that case. It will be relevant to reproduce following observations from the said decision:- 7. We have considered the submissions of the parties, gone through the appellate order in the assessee's own case for the assessment year 1983-84 and the decision in (1990) 33 ITD 485 (Mad.). We have also perused the case laws relied on by both the parties which have already been mentioned in the foregoing paragraphs. We may state here the fact which is not in dispute is that the assessee purchases potable spirit from Rampur Distilleries as per the agreement. This potable spirit is already manufactured and does not require any further manufacturing. Only some processing is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstood by looking up to the meaning as understood in common parlance or by making a reference to its definition in cognate legislation. In this connection we may mention the Supreme Courts decision in the case of N.C. Budharaja Co. wherein Their Lordships have held that construction of a 'dam' did not amount to production or manufacture of an article or thing. That the words used in the Act, take their colour from the context in which these are used. That the expression manufacture or produce are normally associated with movable articles or goods. That the words articles and things are used interchangeably. That these words never denote construction of a dam or building. That the word article in section 80HH(2) cannot include, a dam, a bridge, a building, a road, a canal or so on. In my opinion the above decision is also applicable to the present as basic characteristics and feature of CRGO coils were not changed by the process done by the assessee. There was no considerable or substantial change in the inherent properties of CRGO steel which was manufactured by its suppliers to the assessee. Unless there is a considerable and substantial change, the activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-called manufacture. 46. It has also been the contention of the department that definition under Central Excise Act, is vast to cover the process which are incidental or ancillary to the completion of a manufactured product and which is specified in relation to any goods in the section or Chapter notes on Schedule-I, to the Central Excise Tariff Act as amounting to manufacture. The definition under Central Excise Act reads as under:- 2. Definitions.- In this Act, unless there is anything repugnant in the subject or context,- (1) manufacture includes any process- (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the section or Chapter Notes of Schedule 1 to the Central Excise Tariff Act, 1985 as amounting to manufacture. And the word manufacture shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account. The contention of ld. DR is that if any activity is not held to be an activity of manufacture under Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roller hearth annealing furnace. CRGO electrical steel and core laminations develop stress, strains and burns during shipment, transit, and processing which affects its quality. Annealing process is done as per the mill's specification at a temperature of 8200 for 72 to 90 seconds depending upon the thickness and grade of material. This process of annealing restores and improves the magnetic and electrical properties of lamination. 50. One of the suppliers of CRGO sheets to the assessee is a concern known as THYSSENKRUPP ELECTRIC STEEL of Germany. The assessee has placed before us, the literature of material supplied to the assessee by the said concern. In the said literature for CRGO sheets under head FURTHER PROCESSING HINTS following details are given:- Grain oriented electrical steel sheet is used for the building of magnetic cores. It must be recognized that the best magnetic properties exist only in the rolling direction. When the magnetization is outside the rolling direction the core loss will increase substantially e.g. at 90 to the rolling direction more than triple and at 60 more than quadruple. Therefore, it is absolutely necessary to constrain the magnet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd largely on the furnace size and the amount of material to be annealed. The annealing cycle must be adjusted according to the above parameters. In principle it must be recognized that too rapid heating may cause local overheating, especially of the outermost cores. This can be minimized by temperature control with a thermocouple located close to the heating elements. The soaking time must be such that the material reliably reaches the soaking temperature (minimum 800 C) throughout the cores. Too rapid heating or cooling may cause warping or distortion of the cores. It is further recommended to control the soaking temperature by thermo-couples which should be located at the hottest and the coolest position of the annealed material. To avoid quenching effects during unloading, the cores should remain in the furnace until a temperature of about 200 C to 300 C is reached. The material to be annealed must be free from grease, oil and other organic substances to prevent any recarburisation. From the above process as described, the annealing which is done by assessee is short-term annealing cycle which is for the duration between 1 to 2 minutes. The main purpose of such type of ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit for use in automobiles, although there is no physical change in them. In such state of affairs, it cannot at all be stated that the crankshafts, subjected to heat treatment, etc., cannot at all change the status of new products of different quality for a different quality for a different purpose altogether. In this view of the matter, we are of the view that the activities of the assessee in relation to raw or untreated crankshafts being subjected to heat treatment, etc., is definitely a manufacturing activity entitling it to claim investment allowance under section 32A of the Income-tax Act. We answer question Nos. 2 and 3 accordingly. Thus it was found as a fact by Hon'ble High Court that process of heat treatment to crankshaft, was absolutely essential for rendering it marketable whereas in the present case annealing was not absolutely essential for rendering the transformer core as marketable as it has been specifically pointed out that in other cases for preparing transformer core, annealing has not been done at all. Thus annealing in the present case is not a process absolutely essential and the same is done only to restore original electrical and magnetic pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess amount of annealing can be harmful to the product. The relevant portion has already been reproduced in paragraph 50 of this order. It is thus clear that annealing done by assessee does not add any property in CRGO sheet but only rectify the defects/deformities arising out of the process of cutting, slitting, shearing, notching, holing etc. It has also been pointed out that no material has been brought on record by the assessee to show that what addition is made by annealing in the original properties of CRGO sheets, i.e., the properties consisting in CRGO sheets before the process of cutting, slitting, shearing, notching, holing etc. The changes which have been given in chart are the changes occurred to CRGO sheets after cutting, slitting, shearing, notching, holing etc. when compared them with the annealed sheets. That chart also does not help the assessee because by the process of annealing which is done for a period between 1 to 2 minutes, nothing could be added to the original properties of the CRGO sheets and annealing is done only to rectify the defects occurred due to the process of cutting, slitting, shearing, notching, holing etc. 51. It may also be pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laminations before packing. 10. Die and punching tools are maintained upto date by using surface grinding machines regularly. By performing manufacturing operations as above, there are some significant invisible changes in the characteristics of the material. There is change in core losses and permeability. Due to proper laminations stacking footer... the original sheet also changes by a very small amount due to the process. During the manufacturing activity of laminations, scrap is also generated. Thus it is a clear fact that for preparing transformer core from CRGO coil annealing is not an essential activity to render it as a marketable product as was in the case of Tamil Nadu Heat Treatment Fetting Services (P.) Ltd. following which decision this Tribunal in the case of Anil Steel Traders has held that annealing is an activity of manufacturing and that case also is distinguishable on the ground that in that case annealing was an essential process to be done to make those products as marketable and in the present case it has been shown that it is not an essential process. 52. It is also the contention of revenue that after cutting also sheet remained sheet tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of S.R. Tissues (P.) Ltd. have held that no new product had emerged on winding, cutting/slitting and packing plain tissue paper/aluminium foils into smaller size is not manufactured on first principle apart from definition under section 2(f) of the Central Excise Act. The relevant observations of Hon'ble Supreme Court from the said decision are reproduced below:- 12. Applying the above test, we hold that no new product had emerged on winding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, therefore, there was no manufacture on first principles. Thus Their Lordships of Hon'ble Supreme Court have held that irrespective of definition given under Central Excise Act, the process of winding, cutting/slitting of jambo rolls of tissue paper/aluminium into smaller size does not amount to manufacture. In my opinion this decision will have full application to the facts of the present case as by adopting similar process there is no change in the basic character of CRGO coil/sheets when after process even if it is called as Lamination core . 54. Similarly classification of transformer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cannot advance the case of assessee. 55. Now coming to the opinions submitted by assessee from SAIL and Veer Mata Jijabai Technological Institute (VJTI). These opinions have been furnished by assessee to contend that activities like cutting, slitting, shearing, notching, holing etc. performed by assessee are in the nature of manufacture. In my opinion, these opinions do not advance the case of assessee for the following reasons:- (i) These opinions have not been given in the case of assessee but are given in the case of Trans Lam Electricals. (ii) The product described in these opinions is not the same product as is being dealt with by the assessee. In the opinions the raw material which has been dealt with is CRNO whereas in the case of assessee it is CRGO. CRNO represent Cold Rolled Non-Oriented Steel whereas the product being dealt by assessee is Cold Rolled Grain Oriented Steel. This difference has also been brought out in the literature of products being manufactured by THYSSENKRUPP ELECTRICAL STEEL. (iii) The opinion of SAIL is signed by Shri S.P. Dash who is described as Chief (M)/PET. It is not known that what qualification he possesses to state the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore be said that the decision in the assessee's case before us, relating to the prior years, would operate as res judicata. The Tribunal is entitled to take a different view of the matter, if new materials were placed or on a closer and more intelligent analysis. It is evident from the various decisions placed before us that a different aspect of the matter has been presented for consideration, as laid down in the decisions mentioned earlier. The Tribunal was, therefore, entitled to have a fresh look at the matter based on the line of thinking disclosed by these decisions. That was what was done by the Tribunal in the instant case. We are not, therefore, inclined to accept the contention that the assessment in the earlier years operates as res judicata or that it precludes the assessee from raising the plea as done in the instant case. We overrule the contention. In the circumstances, we do not find any reason to refer the questions raised to this Court under section 256(2) of the Income-tax Act, 1961. These petitions are, therefore, dismissed. 2. Director of Income-tax (Exemption) v. Dharam Pratisthanam [1999] 155 CTR (Delhi) 385. Perused the contents of paragraph 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1922. The assessment of this income to the tax was challenged, inter alia, on the ground that since in the earlier year of assessment the income was treated as exempted, it was not permissible for the assessing authorities to treat it differently in the subsequent years. It was observed that each year is a separate self-contained period of time for purpose of assessment and the opinion of the AAC made in connection with the previous assessment year was not relevant. 4. CIT v. Avery India Ltd [2002] 255 ITR 485 (Cal.) We need not go into the authorities for two very simple propositions of law, although some authorities will be considered hereafter. The first proposition is that a decision taken in regard to an earlier assessment year does not operate as res judicata for a subsequent assessment year. Thus the Tribunal's decision has to be judged on its merits as to the correct application of the law for the assessment year 1976-77 itself, whatever might have been the decision of the Commissioner of Income-tax (Appeals) for the assessment year 1975-76. 5. Dwaraka Prasad Sheokaran Das v. CIT [1953] 24 ITR 410 (All.) In the assessment proceedings, the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een expressed. In Caroline M. Armytage v. Frederick Wilkinson [(1878) 3 A.C. 355], a decision of the Privy Council, it was observed:- Their Lordships have now to consider whether the decision of Mr. Justice Molesworth upon the merits of the application to him is correct. They must begin by expressing their dissent from the principle which seems to have influenced Mr. Justice Molesworth in this and some of the earlier cases, viz., that the provisions of the 24th section, because they establish an exception to the general rule, are to be construed strictly against those who invoke their benefit. That principle is opposed to the rule expressed by Lord Ellenborough in Warington v. Furbor (8, East 242), and followed and confirmed in Hobson v. Neale (17, Beav 185). Lord Ellenborough's words are - I think that when the subject is to be charged with a duty, the cases in which it is to attach ought to be fairly marked out, and we should give a liberal construction to words of exception confining the operation of the duty. It is only, however, in the event of their being a real difficulty to ascertaining the meaning of a particular enactment that the question of strictness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said case, Their Lordships of Hon'ble Supreme Court have clearly observed that even if the principle of liberal construction in favour of assessee in case of ambiguity may be good and sound but does not apply to the construction of an exception or an exempting provision which are required to be construed strictly. It has been held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubtful ambiguity, benefit of it must go to the State and the reason for the same is that each such exception/exemption increases the tax burden on other member of the community correspondingly. 62. It has already been pointed out that language of section 80-IB(2)(iii) is clear and there is no ambiguity and unless assessee establishes clearly that he is involved in the activity of manufacturing and production of an article or thing as envisaged in that section, assessee cannot be held to be entitled to get deduction under section 80-IB. Because as per above decision Hon'ble Supreme Court a person invoking an exception or exemption provision to relieve him of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to spend more amount for scientific research and it also wants the assessee to get the benefit immediately in the year in which he incurs the expenditure in the nature of revenue or capital for scientific research and therefore the Legislature refers to incurring of the expenditure and not the using of the asset. Once it is established that the expenditure was incurred for the purpose of scientific research and the conditions incorporated in section 35 of the Act are fulfilled, in our opinion, the revenue cannot expect the assessee to start using the asset immediately. In a given case the assessee might have to go on incurring expenditure for several years before putting the asset to actual use. If the interpretation advanced by standing counsel for the revenue is accepted, we are afraid, the assessee would not be in a position to avail of the deduction under section 35 of the Act to the extent to which the Legislature intends to give to the assessee. Thus reliance on the above decision by the assessee is misplaced as the provisions of section 35 were found not to be ambiguous as there was no requirement therein for user of the asset for the purpose of scientific re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le interpretations. According to us, the question of accepting the principle of beneficial interpretation would arise only in a case where two views are reasonably possible in the opinion of the court deciding the point at issue. In such a case the court should tilt in favour of the assessee. But where on a plain reading of the statutory provision, it is of the opinion that one and only one interpretation is reasonably possible and that is against the assessee, it cannot give an erroneous interpretation in favour of the assessee by taking resort to the principle of beneficial interpretation. . . 8. Another submission of learned counsel for the assessee was that section 80G being intended to give relief in respect of donations for charitable purposes, it should be construed liberally so as to give benefit to the assessee. We appreciate the sentiments of learned counsel. Left to us, we might have considered this submission. But that is not so. It is for the Legislature to decide how much relief to give in respect of which donations, when and under what circumstances. Where the law is clear and unambiguous, we cannot act contrary to it with a view to giving benefit to an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation is reasonably possible which is against the assessee, it cannot give an erroneous interpretation in favour of the assessee by resorting to the principle of beneficial interpretation. [CIT v. New Sharrock Spg. and Mfg. Co. Ltd [1995] 212 ITR 355 (Bom.)]. Moreover, as held by this Court in CIT v. Boots Co. (I) Ltd. [1995] 214 ITR 175, the doubt as to the true meaning should be real, and not conjectural or fanciful. It is not for the courts to invent fancied ambiguities and stretch or pervert the language of the enactment in favour of the taxpayer. In the instant case, it is clear from the foregoing discussion that the principle of beneficial interpretation has no application. The contention of learned counsel based on principle of beneficial interpretation is also therefore rejected. (iv) CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker.). So long as the language employed in the statutory provision and more so in the fiscal statute is clear, the court should interpret that on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and semantic view alone should be taken. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as a whole and in its context. That intention, and, therefore, the meaning of the statute, is primarily to be sought in the words used in the statute itself, which' must, if they are plain and unambiguous, be applied as they stand.... Artificial and unduly latitudinarian rules of construction, which with their general tendency to give the taxpayer the breaks , are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an impertinent intrusion into the sacred rights of private property and it is now increasingly regarded as a potent fiscal tool of State policy to strike the required balance required in the context of the felt needs of the times between the citizens' claim to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain special services and purposes on the other. These words of Thomas M. Cooley in 'Law of Taxation', Volume 2, are worth mentioning: Artificial rules of construction have probably found more favour with courts than they have ever deserved. Their application in legal controversies has often times been pushed to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down by Hon'ble Supreme Court in the decisions (i), (ii), (iii). The Special Bench decision is also distinguishable on facts. (iii) Annealing as done by assessee is not an absolutely necessary process as without annealing also the cut and punched sheets can be utilized in transformer as is clear from the opinions furnished by the assessee from SAIL/Veer Mata Jijabai Technological Institute. Following cases which have been relied upon by the assessee in support of its contention that annealing tentamounts to manufacture are distinguishable on the ground that in those cases, annealing was found to be an absolutely essential process to make the craneshafts etc. as distinct marketable product: (i) Tamil Nadu Heat Treatment Fetting Services (P.) Ltd.'s case. (ii) Anil Steel Traders' case. In the case of assessee annealing done on CRGO sheets is short-term annealing which does not bring any change in the basic electrical and magnetic properties of the CRGO sheets. It only rectify to some extent the iron loss and current loss of CRGO sheets which occur to CRGO sheets during the process of testing, slitting, shearing, notching, holing etc. (iv) The require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-IB cannot be granted to assessee even according to the principle of liberal construction, as assessee does not fulfil the necessary condition of manufacture and production of an article or thing as laid down in section 80-IB(2)(iii). As according to the decision of Hon'ble Supreme Court in the case of Novopan India Ltd., the person who is invoking an exception or exemption must establish clearly that he is covered by the said provision and in case of doubt or ambiguity the benefit must go to the State. Language of section 80-IB(2)(iii) is clear and unambiguous, therefore assessee has to fulfil the condition of manufacturing or production of an article or thing. Deduction cannot be granted to the assessee on the basis of liberal construction unless assessee satisfies the condition laid down in section 80-IB(2)(iii). Reference can be made to following decisions:- (1) Novopan India Ltd.'s case (2) New Sharrock Spg. Mfg. Co. Ltd.'s case (3) Boots Co. (I) Ltd.'s case (4) Oudh Sagar Mills Ltd.'s case (5) CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker.) (6) CAIT v. Plantation Corpn. of Kerala Ltd. [2001] 247 ITR 155 (SC). (7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove controversy are that the assessees before me in their returns of income for the assessment years under consideration claimed exemption under section 80-IB of the Act on the ground that these were engaged in the activity of manufacture of transformer core in the specified areas where such exemption was available. 4. Before the Assessing Officer, it was submitted by the assessees that basic raw material for the manufacture of transformer core was Cold Rolled Grain Oriented/Cold Rolled Non-grain Oriented (CRGO/CRNO) Coils. CRGO coils/sheets were imported, the CRNO sheets were purchased locally. It was explained before the Assessing Officer that assessee's customers are transformer manufacturing concerns, supplying their own design and technical specifications and the assessees, as per their specific requirements manufactured transformer core. It was explained that in the manufacturing of transformer core, a series of processes were involved. When the transformer core is manufactured, the raw material loses its identity and a different identifiable and marketable commodity having different characteristics comes into existence. There was a complete transformation of the raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutting activity. However, the Assessing Officer admitted that annealing activity and core assembling activity was different activity than cutting. He further observed that annealing processes performed by the two concerns namely M/s. National Lamination Industries and M/s. Alfa Lamination Industries, though decreases the iron loss of the core and relieves, lamination of plastic and elastic stresses, improves the conductivity and magnetic value of the transformer core, yet it cannot be said that in this process a new product came into existence. He observed that as the exemption under section 80-IB was available to the assessees who were engaged in the activity of manufacture and the assessees were not engaged in the activity of manufacture, the exemption under section 80-IB of the Act was not available to them. 6. Aggrieved, by the orders of the Assessing Officers, all the assessees carried the issue in appeal before the ld. CIT (Appeals) who considered various submissions made by the Assessing Officers as well as the assessees. He perused various documents filed before the Assessing Officers as well as the experts opinion filed by the assessees before the Assessing Officers, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w material had not lost its identity even after various processes and no new product had come into existence. But in the case of the assessees the raw material had lost its identity and after various processes a new product having different name had come into existence. (6) The assessees were engaged in the manufacture of transformer core which was a distinct and commercially different article. Several cases are given in his order supporting the proposition that the activities of the assessees were manufacturing activity and the assessees were entitled to deduction under section 80-IB of the Act. 6.1 Being aggrieved, the revenue carried the matter in appeal before the ITAT. A preliminary objection was raised by the ld. DR to the effect that CIT(A) has not allowed opportunity of further submissions/hearing to the department in spite of a specific request. However, this objection was ruled out by the Bench and there is no difference between the ld. Members on this issue. In the course of hearing before the Bench, the ld. DR heavily relied on the statement of facts filed before the Tribunal. He stated that various activities namely testing, slitting, shearing, notching, holing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal material. While every change in an article is the result of treatment, labour and manipulation, every change is not manufacture. Something more is necessary and the application of labour must be carried out to such an extent that the articles suffer the species of transformation and a new and different article emerges. It was argued that Hon'ble Supreme Court in the case of COCO Fibres has held that by processes of manufacture something is produced and brought into existence which is different from that which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or become transformed into basic or essential product. It was pleaded that Hon'ble Supreme Court in the case of Kores India Ltd. has held that manufacture is a transformation of article which is commercially different from the one which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that in manufacture something is brought into existence which is differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court decision in the case of Ship Scrap Traders. Hon'ble Bombay High Court while considering the object of enactment of sections 80HHA and 80-I held that the said expression will have to be considered liberally in a broader commercial sense having its object in mind. 9. Reliance was also placed on the experts' opinion of SAIL, VJTI and ERDA as well as literature on various processes including annealing which supported the case of the assessees that they were engaged in the manufacture of transformer core. It was also argued that all the case laws relied on by the revenue were misplaced as the facts of the assessees were completely different from the facts of the cases relied on by the revenue. 10. Rival submissions were considered by the Bench. The Bench also perused various documents and literature filed before it. The Bench also took note of the experts' opinion filed by the assessees. The Bench also visited the plant of M/s. National Lamination Industries to have a proper appreciation of actual processing involved in making the transformer core. Thereafter a note on various processes was prepared by the Bench which was also sent to the department for its comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... President also referred to various cases relied on by the revenue and observed that ratio laid down in these cases was not applicable to the cases of the present assessees as the facts in those cases were entirely different than the facts of the assessee s cases. In the cases of the assessees the raw materiallose its identity and a new distinct marketable item emerges whereas in the cases relied on by the revenue no new and distinct commodity had come into existence even after processing. (5) The raw material used by the assessees was called CRGO/CRNO - coil whereas the product supplied by the assessees to the transformer manufacturers was called transformer core. The end-product called transformer core was new and different marketable article having different quality, characteristics due to various processes. CRGO/CRNO coil loses its existence during the course of various processes. The two products namely CRGO coils and Core Lamination are not only separately classified in the respective commercial market, but also in other legislation like Central Excise, Central and State Sales-tax and Factories Act. (6) CRGO sheets lose their characters or cutting to particular sizes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as to whether the commodity after the change takes a new name, though in stated circumstances it may be useful to resort to it. This may prove to be deceptive something for it will suit the manufacturer to retain the same name to the end-product also. The character and use test has been given due importance by pronouncement of the Supreme Court. When adopting a particular process if a transformation takes place which makes the product for use of its own which it did not bear earlier then the process would amount to manufacture . He also referred to the decision of Hon'ble Supreme Court in the case of N.C. Budhiraja Co., Ashpinwall Co. Ltd.'s case, S.R. Tissues (P.) Ltd.'s case, Prabhudas Kishordas Tobacco Products (P.) Ltd.'s case and Delhi Cloth General Mills Co. Ltd.'s case. He held that slitting, shearing, notching, holing and deburring, core assembling and packing cannot be held to be the activities of manufacture or production of an article or thing. For taking such view the ld. Judicial Member has relied on the observation made by the Hon'ble Courts in different cases. In para 38 of his order he has quoted the following observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own which it did not bear earlier then the process would amount to manufacture. Relying on the above observations, ld. J.M. held that no transformation took place in the case of the assessees. CRGO sheets retained their characteristics even after the activities of cutting, slitting, shearing and v-notching etc. The above ratio laid down by the Hon'ble Supreme Court was fully applicable in the case of the assessees and, therefore, the assessees could not be said to be engaged in the manufacture of transformer core. 16. Ld. JM also relied on the decision of the ITAT Calcutta (SB) in the case of Shaw Scot Distrilleries particularly the following observations:- Generally manufacture means consumption of one article for production of another but in the instant case, no article or thing is consumed for production of another. Alcohol remains alcohol. There is only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. This again at best can be said to be processing and not manufacturing. There should also be transformation of article or thing if manufacture is involved for the same. But in the instant case no transformati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of res judicata or the estoppel was not applicable to the Income-tax proceedings. In support, the ld. JM has also placed reliance on certain cases mentioned in paragraph 58 of his proposed order. 19. He also observed that the deduction under section 80-IB cannot be allowed on the basis of liberal interpretation. Relying on the decision of Hon'ble Supreme Court in the case of Novapan India Ltd., in the case of New Sharrock Spg. Mfg. Co. Ltd., in the case of Boots Co. (I) Ltd., in the case of Oudh Sagar Mills Ltd. and some other cases, ld. JM observed that as there is no ambiguity in the provisions of the Act, the principles of liberal interpretation in favour of the assessee cannot be applied. He, therefore, held that the assessees do not fulfil the necessary condition of manufacture or production and, therefore, no exemption under section 80-IB was available to them. 20. On account of above difference, the matter has come up before me as a Third Member. The ld. CIT (DR) of the revenue as well as the ld. Counsels Shri Keshav Prasad, Shri S.N. Soparkar, Shri K.C. Patel and Shri J.P. Shah were heard. While supporting the proposed order of ld. JM, the ld. CIT(DR) Shri Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cum-manufacturing process based on analysis of final core geometry. The main and very important function of transformer core lamination is to carry the magnetic flux linked in a transformer winding. In transformer energy is transferred from one electrical circuit to another through magnetic field. The transformer core made of lamination provide magnetic circuit for the flow of magnetic flux mutually linking the electrical circuit. 4. The transformer occupies prominent position in the power system being a vital link between the generating station and point of utilization. Since it regulates, restricts and controls power supply from point of generation to point of utilization and the said vital function is carried out by transformer mainly because of transformer core lamination and that is why transformer core in power distribution industry is known as heart of transformer. 5. The Cold Rolled Grain Oriented Electrical Steel (CRGO) are iron silicon alloyed, which provides low iron loss and high permeability required for efficiency and economical electrical transformer. CRGO is available in various grades and sizes with superior magnetic properties in a rolling direction. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis on the above portion of the decision by underlining them he has not highlighted the subsequent observation of the Hon'ble Court. He argued that ld. JM has completely overlooked significance of the word mere used by the court in its order, Hon'ble Court had held that mere cutting or punching holes does not amount to manufacture. In this case, the issue was as to whether industrial laminates and glass epoxy laminates could be construed as electrical insulator. Hon'ble Supreme Court noted that electrical sheets were already having insulating property and were used as insulator. Thus before the process and after the process the basic characteristic of insulation was present and no new product came into existence. Regarding cutting and punching holes the Hon'ble Supreme Court observed that only because they had to be cut to the requisite shape or a few holes may be required to be punched in them in order that they may be fit into electrical equipments, this could not be taken out of category of electrical insulator. From the observation of Hon'ble Supreme Court it was clear that the activity of cutting and punching holes was not a process of manufacturing ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that case. While deciding the issue the Hon'ble Supreme Court had made the following observations before coming to the above conclusion:- The Tribunal took the view that it did because in common parlance and commercial raw diamonds are not the same thing as polished and cut diamond. The two are different entities in the commercial world. Though the chemical composition remains the same the physical characteristics of shape and class etc., are substantially different. It would appear that no material had been placed on the record before the Tribunal upon which it could have reached the conclusion that, either in common or in commercial parlance raw diamonds were not the same thing as polished and cut diamond and that they were different identities in the commercial world. 27. The above observation of the Hon'ble Supreme Court makes it abundantly clear that even in common parlance the raw diamond and polished diamonds were the same. There was no evidence that the cut diamond and polished diamonds were not the same entities as uncut and unpolished diamonds. But in the case of the assessees the raw material was CRGO/CRNO sheets. The finished product was transformer c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material and use of the transformer core was completely different. The CRGO sheets can never be used in the transformer. The end-product was altogether different in the name, shape, use, characteristics and marketability. Thus reliance on this case by the ld. JM was also misplaced. 29. Ld. JM has also heavily relied on the decision of Special Bench of the Tribunal in the case of Shaw Scot Distrilleries. In this case, the assessee used to purchase potable spirit from outside. For making Indian made foreign liquor it mixed certain percentage of water, colour and essence. The assessee claimed the above activities to be in the name of manufacturing activity. However, the Special Bench denied the claim of the assessee. While doing so the Bench observed as under:- Generally manufacturing means consumption of one article for production of another. But in the instant case no article or thing is consumed for production of another. Alcohol remains alcohol. There is only reduction of degree of alcohol content because of addition of water to potable alcohol and stirring it. This action at best can be said to be processing and not manufacturing. There should also be transformatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer and the Assessing Officers have accepted the claims that the assessees were engaged in the manufacturing activities, in the year under consideration nothing fresh has come to the knowledge of the Assessing Officer, principle of judicial consistency should be followed. 33. Regarding liberal interpretation, it was argued that it was not the case of interpretation of the statutes. There was no dispute about the language of the statutes which provide that the assessees engaged in the manufacturing activities alone could claim exemption under section 80-IB of the Act. But the dispute was as to whether various activities performed by the assessee would amount to manufacture or not. The factual position of various processes involved in the manufacture of transformer core, has already been placed before the Assessing Officer, CIT(A) and the ITAT. The actual activities involved in the manufacture of transformer core clearly establish that the assessees were engaged in the manufacturing activities and, therefore, the question of liberal interpretation did not arise. The observation of the ld. VP in this regard was that even if there were two possible opinions, one favourabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be culled out from reading the same in its entirety and not only part of it. Similar view was taken by the Hon'ble Supreme Court in the case of N.K. Rajgarhia v. Mahavir Plantation Ltd. [2006] 1 SCC 502 where the court observed that an order of the court of law in particular the consent order must be read in its entirety for the purpose of understanding its true intent and purposes. He stated that if the judgment relied on by the assessees are seen as a whole there was no doubt that the assessees were engaged in the manufacturing activities. He also argued that the opinion of the expert was also before the ld. JM and he should have given his opinion on the merits of the opinion rather than ignoring it as of no value. He supported the order of the ld. VP in its entirety. 37. Shri K.C. Patel, ld. Counsel stated that the Bench has visited the plant of one of the assessees and had prepared a note for making the proper assessment of the actual activities involved. The note was also given to the department. Thus this document was a very vital document and should have been made the part of the order by way of annexure. He argued that this report was a piece of evidence and admis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial commodity. By process of manufacture something is produced and brought into the existence which is different from that out of which it is made in the sense that the produce is by itself a commercial commodity, capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may be transformed into basic or essential product. Manufacture is a transformation of an article which is commercially different from the one which is converted. In manufacture something is brought into existence which is different from that which originally existed. In other orders the test to determine whether a particular activity amounts to manufacture of thing is: Does new and different goods emerge having distinctive name, use and characteristic? The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name comes info existence, the identity of the original commodity ceases to exist and the commodity coming into existence will serve no purpose other than the said purpose for which it was manufactured. Manufacture is end-result of one or more pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former core made from such sheets could conform all the requirements and technical specifications of the customers or not. Various transformer manufacturing concerns provide their own design and technical specifications according to which the core has to be made. As the CRGO/CRNO sheets are purchased in Jumbo roll forms this has to be first cut in different sizes as per requirements of the customers. This process is called slitting. Slitted roll has to be further cut in the trape-zodical shape by employing hydraulically operating guillotine machines. After guillotine operation, the piercing operation takes place in which the holes are punched. During these processes of slitting, cutting and piecing of lamination the cut edges gets some burrs. These burrs are removed by passing the lamination through deburring operation. The presence of burrs impairs, increases the losses. During the course of these processes, the mechanical stresses are developed inside the lamination. It is tested to find out as to how much stress have developed and how much losses will be increased. It is done so to find out as to whether with these stresses, the transformer core will give desired result as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities performed by the assessees for making the transformer core was manufacturing activity. Nothing has been brought to my notice to take a different view in this regard. 46. I further notice that the ld. JM has observed that the activity of making transformer core cannot be treated as manufacturing activity as no new product has come into existence and there was no substantial change in the characteristic of the product even after various processes have taken place. For this proposition he has relied on certain observation of the courts in different cases, which are referred by him in paragraphs 38-44 of his proposed order. 47. Ld. JM has observed in the proposed order that cutting and punching holes could not amount to manufacturing activities and as the assessees were engaged only in this type of activity they cannot be said to be engaged in manufacturing, producing an article or thing. In order to support this proposition the ld. JM has relied on the observations of the Hon'ble Supreme Court in the case of Bakelite Hylam Ltd. I have gone through the full text of the decision and found that while holding the activity, not to be in the nature of manufacturing act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same could not be used either as napkin paper, toilet paper or facial paper. In order to facilitate the use of the tissue paper the Jumbo rolls were cut into small pieces and required sizes. The resultant product was napkin, toilet tissues and facial tissues. The court observed that the texture, feel and moisture absorption capacity was the same when the tissue paper was in Jumbo roll and after cutting when it was being used as napkin, toilet or facial tissues. It was under these circumstances that the Hon'ble Court held that the tissue paper in Jumbo roll remained the same and there was no change in the basic paper. All the characteristics of tissue paper in Jumbo roll continued to be the same in the cut tissue paper. Admittedly in such a situation it cannot be said that a napkin, toilet paper facial tissues has been manufactured out of Jumbo rolls of tissue paper. But in these cases there are various documents as well as evidences to prove that the raw material has transferred into a different and distinct article and the raw material has lost its identity after the same was processed and the transformer core was manufactured. 50. Ld. JM has also placed reliance on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said purpose the attendant circumstances may also be taken consideration. As held by Hon'ble Supreme Court in the case of Ramesh Chand Daga, P.S. Sathappa and N.K. Rajgaria and order of court of law must be read in its entirety for the purposes of ascertaining its true intent and purport. Reliance on the part judgment may do violence to the true intent and purport of the judgment. 54. In my final analysis, I am inclined to agree with the views and observations made by ld. Vice President in his proposed order regarding factual aspects of various processes undertaken by the assessee and its effect which are well supported by treatise from various foreign and Indian books on the subject and especially supported by Research Institute known as ERDA which is the highest authority on the subject and approved by the CBDT for giving the technical opinion and ld. VP's analysis of various judicial pronouncements for ascertaining the test for manufacturing activity. From the evidences on record, I am of the opinion that the ld. VP has rightly held that the assessees were engaged in the manufacturing or producing an article or thing and he has rightly allowed the exemption under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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