2014 (12) TMI 16 - HC - Income Tax

Deduction u/s 80IA - job work of decoration of glazed ceramic tiles amounts to manufacture or not - Whether the Appellate Authorities were correct in holding that the job work activity carried on by the assessee of screen printing, embossing on ceramic tiles as per the requirements of the customers would amount to a manufacturing activity entitling it to relief u/s 80-IA of the Act, when the assessee did not carry on actual manufacturing activities of providing infrastructure as contemplated in the Section Held that - In India Cine Agencies v. CIT 2008 (11) TMI 15 - SUPREME COURT it has been held that the test to determine whether a particular activity amounts to manufacture or not is does a new and different good emerge having distinctive name, use and character - The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture' takes place and liability to duty is attracted - blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity - The original block does not remain the marble block, it becomes a slab or tile - not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence. The whole industry set up by the assessee is for processing plain glazed ceramic tiles - The process includes application of chemical and other materials like glazes, colours, mediums, glass, luster, etc. and burning at a very high degree of controlled temperature with the help of the kiln which is also imported from Italy by adopting the single fast fired technology, which is the latest development in the ceramic industry - Before that, designing and preparation of a photomechanical film, preparation of screens, colour-recipe-formulation, automatic screen-printing and spray application, three dimensional glass-embossing and single fast-firing is undertaken and the object of this process of printing results in decorating or painting the said glazed tiles which constitutes a distinct and different article in the market - both the Appellate Authorities were justified in holding that the job work undertaken by the assessee constitutes manufacture and they are entitled to the benefit of Section 80-IA Decided against revenue.

Summary

Issues Involved:
1. Whether the job work activity of screen printing and embossing on ceramic tiles amounts to manufacturing activity.
2. Eligibility for deduction under Section 80-IA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the job work activity of screen printing and embossing on ceramic tiles amounts to manufacturing activity:

The primary contention revolves around whether the processes undertaken by the assessee, such as screen printing, embossing, dyeing, mercerizing, bleaching, and designing of plain glazed ceramic tiles, constitute manufacturing. The assessee argued that these processes transform plain ceramic tiles into a new and distinct product, thus qualifying as manufacturing. The Tribunal and the Commissioner of Income Tax (Appeals) both held that these activities result in a change or transformation of the material, creating a new article with distinct characteristics from the original product. This transformation aligns with the definition of manufacturing as recognized under the Central Excise Act, where such decorated tiles are treated as manufactured goods. The Tribunal's decision was based on the fact that the processes involved substantial chemical and physical changes, resulting in a new product that is commercially distinct.

2. Eligibility for deduction under Section 80-IA of the Income Tax Act, 1961:

The assessee claimed deductions under Section 80-IA for the assessment years 2000-01, 2001-02, and 2002-03. The Assessing Officer initially denied this claim, arguing that the job work did not amount to manufacturing. However, both the Commissioner of Income Tax (Appeals) and the Tribunal disagreed, concluding that the job work did indeed qualify as manufacturing. They noted that the assessee's activities were recognized as manufacturing under the Central Excise Act, and the processes employed resulted in a new product. The courts referenced several precedents, including the Supreme Court's rulings in India Cine Agencies v. CIT and CIT v. N.C. Budharaja & Co., which emphasized that manufacturing involves transforming raw materials into a new product with a distinct name, character, and use. The Karnataka High Court upheld these findings, reiterating that the processes undertaken by the assessee constituted manufacturing and thus entitled the assessee to deductions under Section 80-IA. The judgment highlighted that the transformation of plain ceramic tiles into decorated tiles through various processes met the criteria for manufacturing, as it resulted in a commercially distinct product.

Conclusion:

The High Court concluded that the job work activities undertaken by the assessee amounted to manufacturing, thereby entitling the assessee to deductions under Section 80-IA. The judgment emphasized the transformation of the original product into a new and distinct commodity, aligning with the legal definitions and precedents of manufacturing. The appeals by the Revenue were dismissed, and the substantial question of law was answered in favor of the assessee.