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2009 (10) TMI 37 - HC - Income TaxManufacture - roasted groundnut from groundnut seed trading unit or manufacturing unit held that - manufacture a new material should be produced - The process of roasting groundnut is an extremely simple process. According to the assessee the raw groundnut is put into machines which are in the shape of moving drums. These drums are attached to Bhatties and the groundnut is roasted. Thereafter the groundnut is sieved and the net product is packed into gullible packs of different sizes. In our view this process is only of roasting and is even less cumbersome than the process applied to shrimps prawns and lobsters in Sterling Foods case and the process of roasting and powdering chicory roots in Sacs Eagles Chicory s case assessee is not entitled for benefit of exemption u/s 80IA or 80IB
Issues:
1. Whether roasting groundnut amounts to manufacture under Section 80IA and 80IB of the Income Tax Act. 2. Whether the process of roasting groundnut results in a new commodity. 3. Whether the judgments cited support the contention that roasting groundnut constitutes manufacture. 4. Whether the appellant is entitled to the benefits under Sections 80IA or 80IB of the Income Tax Act. Issue 1: Roasting Groundnut as Manufacture The central issue in this judgment is whether the process of roasting groundnut constitutes "manufacture" under Section 80IA and 80IB of the Income Tax Act. The court examined various legal definitions of "manufacture" and referenced cases like M/s. Sterling Foods v. State of Karnataka and another, where processed shrimps, prawns, and lobsters were still considered the same commodity. The court also highlighted the decision in Commissioner of Income Tax v. Relish Foods, emphasizing that processed food items may not qualify as manufactured goods. Additionally, the court discussed Commissioner of Income Tax v. Gem India Manufacturing Co., where cutting and polishing raw diamonds were not considered manufacturing. Issue 2: New Commodity from Roasting Groundnut The court analyzed whether roasting groundnut results in a new commodity. It compared the process of roasting groundnut to cases like Sacs Eagles Chicory, where roasting chicory roots did not amount to manufacture. The court differentiated the transformation of raw coffee berries into roasted coffee beans in Aspinwall and Co. Ltd. v Commissioner of Income Tax, where a new and distinct commodity was recognized. The court examined Computer Graphics Ltd. v. Commissioner of Income Tax, where the production of a commercial commodity capable of being sold or supplied was considered manufacturing. Issue 3: Support from Legal Precedents The judgment extensively referred to legal precedents to determine the definition of "manufacture" in the context of roasting groundnut. It cited cases like Indian Hotels Co. Ltd. and others v. Income Tax Officer, highlighting that processing raw food items into edible items may not constitute manufacturing. The court also discussed Aspinwall and Co. Ltd. v Commissioner of Income Tax, where the process of manufacturing coffee beans from raw berries was recognized as manufacture due to the creation of a new and distinct commodity. Issue 4: Entitlement to Tax Benefits Ultimately, the court concluded that roasting groundnut into roasted groundnut did not result in a new and distinct product, therefore not meeting the criteria for "manufacture" under Sections 80IA or 80IB of the Income Tax Act. The court compared the simplicity of the roasting process to other cases involving processing of food items and determined that the identity and character of groundnut remained unchanged after roasting. Consequently, the court ruled in favor of the revenue and against the appellant, denying the tax benefits under the relevant sections of the Income Tax Act.
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