2004 (2) TMI 642 - HC - Central Excise

Summary

Issues Involved:
1. Eligibility for deduction under Section 32A of the Income Tax Act, 1961.
2. Definition of 'manufacturing' or 'producing' a new marketable commodity.
3. Binding nature of judgments from other High Courts and the Supreme Court.

Detailed Analysis:

1. Eligibility for Deduction under Section 32A of the Income Tax Act, 1961:
The primary issue in this case was whether the assessee, a public limited company engaged in blending and selling tea, could claim an investment allowance under Section 32A of the Income Tax Act, 1961. The assessee argued that it should be considered a manufacturer or producer of a new marketable commodity due to the blending and packaging process, which resulted in tea with distinct qualities and brand names. The Assessing Officer, however, held that the assessee was merely engaged in 'processing' and thus not eligible for the deduction under Section 32A.

2. Definition of 'Manufacturing' or 'Producing' a New Marketable Commodity:
The court examined whether the blending of various teas and subsequent packaging under different brand names constituted manufacturing or production of a new marketable commodity. The assessee relied heavily on a Division Bench judgment from the Karnataka High Court in a similar case involving Brooke Bond Lipton India Ltd., where it was held that the blended and packaged tea was a manufactured product. The Karnataka High Court's decision was based on the fact that the blending process added value and resulted in a product with distinct commercial incidents, thus qualifying as manufacturing.

3. Binding Nature of Judgments from Other High Courts and the Supreme Court:
The court also had to consider the binding nature of the Karnataka High Court's judgment, especially since a Special Leave Petition (SLP) against it was dismissed by the Supreme Court on merits. The revenue argued that the dismissal of the SLP did not equate to a declaration of law by the Supreme Court. The court referred to the Supreme Court's ruling in Kunhay Ahmed v. State of Kerala, which clarified that the dismissal of an SLP, even on merits, does not constitute a declaration of law under Article 141 of the Constitution. Therefore, the Karnataka High Court's judgment was not binding on the Calcutta High Court.

Judgment:
After considering the arguments and precedents, the court concluded that the assessee's activities did not amount to manufacturing or producing a new marketable commodity. The court found that the facts of the case did not support the application of the Karnataka High Court's decision, particularly as the sophisticated mechanical processes and electro-mechanical weighers mentioned in the Karnataka case were not present in the assessee's case. Consequently, the assessee was not entitled to the investment allowance under Section 32A of the Income Tax Act, 1961. The appeal was dismissed.

Assent:
The judgment was agreed upon by both judges, with S.K. Gupta, J. concurring with the decision.