2015 (4) TMI 60 - HC - Income Tax

Entitlement to deduction u/s 80IC - process of cutting of stainless steel pipes of larger size with electric cutter and including painting and welding of pipes - whether manufacturing of Route Markers falls within the definition of manufacture , entitling him to the deductions, under Section 80IC? - Tribunal allowed the claim - Held that - The question as to what amounts to manufacture, is no more res integra. It is a settled principle of law that the word manufacture is generally understood to mean bringing into existence a new substance and not some change in the substance. (Union of India v. Delhi Cloth and General Mills Co. Ltd., 1962 (10) TMI 1 - SUPREME COURT OF INDIA ). It is also a settled principle of law that manufacture implies a change, though every change may not be a manufacture, even though article is a result of treatment, labour and manipulation. (Deputy Commissioner of Sales Tax v. Pio Food Packers, 1980 (5) TMI 30 - SUPREME COURT OF INDIA ). In Collector of Central Excise v. Technoweld Industries, 2003 (3) TMI 123 - SUPREME COURT OF INDIA as relied by revenue the Court was dealing with a case where the assessee was engaged in the business of drawing wires into thinner gauge from wires of thicker gauge, by cold drawing process. The old product did not lose its identity or could be put to similar and same use. In our considered view, no ratio of law is laid down by the Apex Court in the said decision, unlike the ones we have noticed hereinabove. In the instant case, as we have already observed, by applying the settled principles, the activity carried out by the assessee can only be said to be manufacturing a new product. Thus no hesitation in holding that the Appellate Tribunal was justified in concluding that the product (Route Marker) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. In other words, the assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IC of the Income Tax Act. We find no reason to disagree with the said opinion of the Tribunal. - Decided in favour of assessee.

Summary

Issues:
1. Whether the process of cutting stainless steel pipes with electric cutter, painting, and welding amounts to manufacturing?
2. Whether the impugned judgment is contrary to the Supreme Court's decision in Collector Excise v. Technoweld Industries?

Issue 1:
The primary issue is whether the manufacturing of "Route Markers" by the assessee qualifies as "manufacture" under Section 80IC of the Income Tax Act. The Income Tax Officer disallowed the deduction claimed by the assessee for the Assessment Year 2006-2007. The Commissioner and the Income Tax Appellate Tribunal had differing opinions on the matter. The Tribunal considered the detailed manufacturing process of Route Markers involving stainless steel pipes, electronic rods, welding, and assembly, leading to the production of a new finished product.

Issue 2:
The judgment delves into the legal principles of what constitutes "manufacture." It references various Supreme Court decisions to establish the definition of manufacture, emphasizing the creation of a new and distinct product from raw materials. The judgment highlights that the change brought about by the manufacturing process must result in a commercially different and recognized commodity. It also discusses the importance of examining the nature of the activity undertaken by the assessee to determine if it amounts to manufacturing.

Analysis:
The Tribunal's decision was upheld as it deemed the Route Markers produced by the assessee to be a new commercial commodity distinct from the raw materials used. The judgment distinguishes cases where activities like cutting pipes without significant transformation did not amount to manufacturing. It emphasizes that the end product must have a distinct name, character, and use to qualify as manufactured. The judgment also dismisses the Revenue's reliance on past cases involving activities that did not result in commercially distinct products.

In conclusion, the High Court affirmed the Tribunal's decision that the assessee's manufacturing process of Route Markers constituted "manufacture" under Section 80IC of the Income Tax Act. The judgment provides a detailed analysis of the manufacturing process, legal principles, and relevant case laws to support the decision. The appeal was dismissed, and the substantial questions of law were answered accordingly, leading to the disposal of the appeal and any pending applications.