2003 (3) TMI 25 - HC - Income Tax

Whether the Tribunal was right in law in holding that the activity of heating raw bitumen to 300 degrees centigrade, without any addition or chemical change in order to obtain solid bitumen, constitutes manufacturing activity , entitling the assessee to claim deduction under sections 80HHA and 80-I - No new product emerges from the process employed by the assessee. What was bitumen continues to be bitumen, but with lesser quantity of oil and moisture. - Tribunal was in error in holding that heating of the scrap bitumen which only resulted in separation of oil and water from bitumen, amounts to a process of manufacturing. - The question referred to us, is therefore answered in favour of the Revenue and against the assessee.

Summary

Issues:
Whether heating raw bitumen to obtain solid bitumen constitutes "manufacturing activity" for claiming deductions under sections 80HHA and 80-I of the Income-tax Act, 1961.

Analysis:
The case involved determining whether heating raw bitumen to 300 degrees centigrade, without any addition or chemical change, to obtain solid bitumen constitutes "manufacturing activity" for claiming deductions under sections 80HHA and 80-I of the Income-tax Act, 1961. The assessee, a small scale industrial undertaking, engaged in the process of making blown bitumen. The process included heating scrap bitumen to 225 degrees centigrade, transferring it to a reactor, blowing it with an air compressor to raise the temperature to 300 degrees centigrade, and keeping it in a chamber for three to four hours for evaporation of water and oil. The assessee did not consider the resulting product as different from the original bitumen and did not possess a manufacturing license under the Central Excise Act.

The assessee argued that despite not resulting in a new product, the process should be considered manufacturing based on the Supreme Court's decision in Aspinwall and Co. Ltd. v. CIT [2001] 251 ITR 323, where coffee curing was deemed manufacturing due to the distinct change in the finished product. However, the court differentiated the heating of scrap bitumen from coffee curing, emphasizing that no new product emerged from the bitumen heating process, and the resulting solid bitumen remained suitable for the same purposes as bitumen.

The court referred to various precedents where activities like converting chicory root into powder, cutting diamonds, preparing foodstuff, printing on glass bottles, drilling brake lining blanks, and other processes were not considered manufacturing. The court highlighted that heating scrap bitumen to separate oil and water did not amount to manufacturing, as it did not result in a new product with a distinct identity from the original bitumen. The Tribunal's decision in favor of the assessee was deemed erroneous, and the question was answered in favor of the Revenue against the assessee.