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2008 (6) TMI 303 - AT - Income TaxDeduction u/s 80-I and 80HHA - process amounting to manufacture/production or not - new goods coming into existence or not? - Whether the process of pasteurization of milk amounts to process of manufacture/production? - Assessee contended that the activities of the assessee firm has been accepted as manufacture/production for the AY 1985-86 and the proposal to withdraw the benefit of investment allowance for the AY's 1980-81 and 1981-82 - It is independent from raw milk and therefore there is a manufacture of new product. HELD THAT - In the case of Sesa Goa Ltd. 2004 (11) TMI 14 - SUPREME COURT , the Hon'ble Supreme Court held that extraction and processing of iron ore amounts to manufacture or production of an article or thing. The Court held the word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. The Hon'ble Supreme Court in the case of Idandas v. Anant Ramchandra Phadke 1981 (11) TMI 185 - SUPREME COURT , has laid down three tests as to what constitutes manufacture. They are - (i) a certain commodity should have been produced; (ii) the process of production must involve either labour or machinery; and (iii) the end product should have a distinct character, name and used. The complete pasteurize steps, are purification, boiling and standardization . It does not go beyond the stages of 'processing' and by this processing it has become little more 'clean' and 'more fit' for consumption. But the milk in its raw stage was also fit for consumption. Assessee do processing. But all processing does not amount to production of an article or thing. If the assessee markets curd, ghee or other products after processing, that amounts to 'manufacture or production of an article or thing'. Pasteurization and standardization does not amount to production. Therefore, we hold that the process of standardization and pasteurization of milk amounts to processing but does not amount to manufacture/production for the purpose of claiming deduction under sections 80-I and 80HHA of the Act. In the result, appeals by the assessee are rejected and appeals by the revenue are allowed.
Issues Involved:
1. Whether the process of pasteurization of milk amounts to manufacture/production for the purpose of claiming deduction under Sections 80-I and 80HHA of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Whether the process of pasteurization of milk amounts to manufacture/production for the purpose of claiming deduction under Sections 80-I and 80HHA of the Income Tax Act, 1961. Background: The original assessment by the Assessing Officer treated the pasteurization of milk as a process of manufacture/production, thus allowing deductions under Sections 80-I and 80HHA. However, the CIT reviewed this and found the order erroneous and prejudicial to the revenue's interest, leading to the withdrawal of these deductions. The matter was referred to a Special Bench due to conflicting views from different Tribunal Benches. Assessee's Contention: The assessee argued that pasteurization involves significant processing, making the milk a new product with independent ISI code, thus qualifying as manufacture/production. They cited several judicial precedents supporting their claim, including: - Adarsh Dugdhalaya Pvt. Ltd. (80 CTR 48 Mum) - Singh Engineering Works Pvt. Ltd. v. CIT (119 ITR 891 All) - CIT v. Marwell Sea Foods (166 ITR 624 Ker) CIT's Rejection: The CIT rejected the assessee's claim, stating that pasteurization does not result in a new product. The end product remains milk, and the process does not transform it into a commercially distinct commodity. The CIT relied on the Supreme Court's decision in Collector of Central Excise v. Jayant Oil Mills (3 SCC 340), which held that hydrogenation of oil does not constitute manufacturing. Special Bench's Observations: The Special Bench examined the detailed process of pasteurization, which includes: - Filtering and clarifying raw milk - Blending cow and buffalo milk - Heating and cooling to specific temperatures - Standardizing fat content Despite these processes, the Bench noted that the end product remains milk, albeit with improved quality and shelf-life. The Bench referenced several judicial decisions, including: - CIT v. Sesa Goa Ltd. (271 ITR 331 SC), which emphasized that "production" has a broader scope than "manufacture" but still requires the creation of a new commodity. - G A Renderian Ltd. v. CIT (145 ITR 387 Cal), which clarified that a process must result in a commercially distinct commodity to qualify as manufacturing. Conclusion: The Special Bench concluded that pasteurization and standardization of milk amount to processing but do not constitute manufacture/production. The process enhances the milk's quality but does not transform it into a new product. Therefore, the assessee is not entitled to deductions under Sections 80-I and 80HHA. Judgment: The appeals by the assessee were rejected, and the appeals by the revenue were allowed. Pronouncement: The judgment was pronounced on 5th June 2008.
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