2019 (10) TMI 1001 - HC - Income Tax

Deduction u/s.10B - Manufacturing - Export of Copper Cladded Glass expoxy Laminate (CCGL) - claim denied as assessee had not carried out any manufacturing activities qua the said product i.e. CCGL - Tribunal allowed deduction - HELD THAT - It appears that in the case on hand, the raw material is first sent to the shearing department. The shearing machine is set for the desired size and the laminates are cut into the specified sizes as required by the customer. The laminates are, thereafter, checked for the oxidation effect. A thorough surface clearing is done to remove the oxidation. The Quality Control Department, thereafter, would verify the quality parameters like the thickness of the material, thickness of copper using Alco Meter etc.. At the end of the entire process, the final product is called as CCGL. It goes without saying that the change or the series of changes brought about by the application of the process explained above, the commodity in the form of CCGL can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that is emerged as a result of the process. We are of the view that no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in passing the impugned order. We would not like to disturb the order passed by the ITAT. - Decided against revenue.

Issues Involved:
1. Whether the ITAT erred in allowing the deduction under Section 10B of the Income Tax Act for the export of Copper Cladded Glass Epoxy Laminate (CCGL) despite no manufacturing activities being carried out by the assessee.

Issue-Wise Detailed Analysis:

1. Deduction under Section 10B for Export of CCGL:
The primary issue in this case was whether the assessee was eligible for a deduction under Section 10B of the Income Tax Act for the export of Copper Cladded Glass Epoxy Laminate (CCGL), given the claim that no manufacturing activities were carried out. The Revenue argued that the activities performed by the assessee did not constitute manufacturing, as the CCGL sheets were merely cut, repacked, and exported, retaining their original identity. The Revenue's counsel, Mr. Varun K. Patel, relied on several judicial precedents to support the claim that the activities did not amount to manufacturing.

Conversely, the assessee's counsel, Mr. B.S. Soparkar, argued that the process undertaken by the assessee did amount to manufacturing. He detailed the various stages the CCGL sheets underwent, including cutting, oxidation removal, quality control, and packing, asserting that these processes transformed the raw material into a new and distinct product, thereby qualifying as manufacturing.

2. Legal Precedents and Analysis:
The court referred to the Supreme Court's decision in India Cine Agencies vs. Commissioner of Income-Tax, Madras, which clarified that manufacturing involves a change resulting in a new and distinct article. The Supreme Court emphasized that the essence of manufacturing is the transformation of an article into something commercially different from the original. The court also cited the Supreme Court's judgment in Income Tax Officer, Udaipur vs. Arihant Tiles & Marbles (P.) Ltd., which held that activities involving multiple stages of processing that result in a new and distinct commodity constitute manufacturing or production.

3. Findings and Conclusion:
The court analyzed the processes undertaken by the assessee and concluded that the activities performed—cutting, cleaning, oxidation removal, and quality control—resulted in a new and distinct product, CCGL. The court noted that the cumulative effect of these processes transformed the original commodity into a commercially different product, thereby qualifying as manufacturing.

The court also referred to the findings of the ITAT, which had restored the issue to the Assessing Officer to examine the stance of the Excise Department regarding the export of CCGL. The ITAT had found that the processes undertaken by the assessee resulted in a product that could no longer be regarded as the original commodity but was recognized as a new and distinct article.

4. Dismissal of Revenue's Appeal:
The court dismissed the Revenue's appeal, affirming the ITAT's decision to allow the deduction under Section 10B. The court held that no error of law was committed by the ITAT and that the processes undertaken by the assessee constituted manufacturing. The court emphasized that the transformation of the raw material into a new and distinct product qualified the assessee for the deduction under Section 10B.

Conclusion:
The court concluded that the processes undertaken by the assessee amounted to manufacturing, thereby entitling the assessee to the deduction under Section 10B of the Income Tax Act. The appeal was dismissed, and the questions of law were answered in favor of the assessee and against the Revenue.

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