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TMI Blog2008 (9) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the assessee, like procurement of raw material wherein different herbs are collected and thereafter passed through various checks. After that it is dried, mixed in specified proportion, thereafter passed through chemical reaction and again mixed and dried upto particular extant based on set formulae and then grinded with the aid of power/machinery. The gist of arguments is that a new commercially known product has come into existence. Plea was also raised that the assessee is 100 per cent export-oriented unit. Our attention was also invited to certain judicial pronouncements, which will be discussed while concluding the issue. Reliance was placed in the case of M/s Shogi Communications, an order of the Chandigarh Bench of the Tribunal. On the other hand, the argument on behalf of the Revenue is that it is merely a processing which does not amount to manufacturing. Reliance was placed in D.D. Shah Brothers vs. Union of India Anr. (2005) 197 CTR (Raj) 1 : (2005) 148 Taxman 1 (Raj) and (2001) 251 ITR 178 (SC) (sic). In nutshell, the impugned order was supported. 3. We have considered the rival submissions and perused the material available on the file. Brief facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in appeal before the learned CIT(A), which is under challenge before the Tribunal. 4. After considering the submissions from both sides and on perusal of records available on the file for asst. yr. 2003-04, the following fixed assets (plant and machinery) were found to be used by the assessee, as is evident from p. 3 of the assessment order. ------------------------------------------------------------- S.No. Name of the machinery Date of purchase/ Installation ------------------------------------------------------------- 1. Wet grinder 17-4-2002 ------------------------------------------------------------- 2. Milan magnetic flour mill 17-6-2002 ------------------------------------------------------------- 3. Electronic weighing scale 1-8-2002 ------------------------------------------------------------- 4. Pouch sealing machine 1-8-2002 ------------------------------------------------------------- 5. Ribbon 1-8-2002 ------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction/sales at p. 4 of the assessment order. The claim of the assessee is that Baddi is an industrially backward area where electricity is supplied at a cheaper rate to promote industries. Without going into much deliberation, it is nowhere established either the assessee consumed electricity in illegal way. The main question before us is manufacturing. Even otherwise, there is a possibility that the machines used by the assessee might be consuming less energy. However, we are refraining ourselves in going into such details due to the reason that issue for adjudication is whether the assessee is a manufacturing unit or not. As far as the employment of number of workers is concerned, the assessee has claimed 13 workers whereas the requirement of law is that there must be minimum 10 numbers of workers. The stand of the Department is that insufficient salary has been paid to the workers and skilled persons cannot be employed in such a meagre salary. The claim of the assessee is that both husband and wife are trained/qualified persons who themselves are looking after the technical aspect. Even otherwise, there is a finding in the order that in the attendance register there are 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the product. therefore, it cannot be said to be a manufacturing. We are making it clear that as per Central Excise Tariff Act, 1985, exemption has been granted to certain goods/new units in Uttranchal and Himachal Pradesh (inserted by Notification No. 76 of 2003-CE, dt. 5th Nov., 2003 and substituted by Notification No. 27 of 2004-CE, dt. 9th July, 2004 and No. 12 of 2006-CE, dt. 1st March, 2006). Even otherwise, the small scale industrial units (SSI units) are not supposed to pay excise duty where the turnover is less than Rs. 1.5 crores. During arguments, the learned counsel for the assessee contended that in view of the notification of the Central Government, Central excise duty is even otherwise exempted from payment in the backward State so that the new entrepreneurs may feel attracted and new units can be set up. These facts were not controvered by the Revenue. We are making it clear that branded heena powder is an excisable item, therefore, the claim of deduction cannot be denied to the assessee solely on the ground that no excise duty has been paid. Even otherwise, the only issue for adjudication before us is whether the assessee is a manufacturing unit or not and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 1 (Ker); (iv) CIT vs. Tata Locomotive Engineering Co. Ltd. (1968) 68 ITR 325 (Bom); (v) Addl. CIT vs. A. Mukherjee Co. (P) Ltd. (1978) 113 ITR 718 (Cal); (vi) CIT vs. Darshak Ltd. (2001) 165 CTR (Kar) 17 : (2001) 247 ITR 489 (Kar); (vii) Ship Scrap Traders Ors. vs. CIT (2001) 168 CTR (Bom) 489 : (2001) 251 ITR 806 (Bom); (viii) CIT vs. Premium Tobacco Packers (2006) 203 CTR (Mad) 201 : (2006) 284 ITR 222 (Mad); (ix) CIT vs. Prabhu Dass Kishore Dass Tobacco Products (2006) 201 CTR (Guj) 312 : (2006) 154 Taxman 404 (Guj); (x) CIT vs. Shiv Oil Val Mill (2006) 153 Taxman 27 (All); (xi) CIT vs. Jamal Photo Industries (I) (P) Ltd. (2006) 205 CTR (Mad) 427 : (2006) 285 ITR 209 (Mad). If the aforesaid decisions are analysed, it is seen that even the tobacco curing, Bidi manufacturing and conversion of plain glassware into decorative glassware were held to be amounting to manufacture. Even book publishing and book binding [Addl. CIT vs. A. Mukherjee Co. (P) Ltd. (1978) 113 ITR 718 (Cal)] were held to be manufacturing. There are certain decisions wherein it was held that there is a no manufacturing activity like packing of tea [Appeejay (P) Ltd. vs. CIT (1994) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions and perused the material available on the file. Brief facts are that the assessee purchases old/used tyres/rubber scrap and cuts them with the help of machines into small pieces and grinds these pieces into rubber crumb. Grinded material is sieved from different mashes and the final product was claimed as rubber crumb. "The assessee declared nil income in its return filed on 1st Nov., 2004 since the deduction of Rs. 13,16,982 was claimed under s. 80-IB of the Act. The learned AO asked the assessee to explain the manufacturing process including raw material used in the process and also to explain the finished products. The assessee explained the process as detailed in pp. 2 and 3 of the assessment order. The assessee also relied upon various judicial pronouncements as have been mentioned in the assessment order. Ultimately, the learned AO was of the view that the claimed deduction under s. 80-IB amounting to Rs. 13,16,982 is not allowable to the assessee, consequently, it was treated as taxable business income. On appeal, the assessment order was affirmed by the learned CIT(A) which is under challenge before the Tribunal. Before coming to any conclusion, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,000 -------------------------------------------------------------- 2. Electric motors -------------------------------------------------------------- 80 H.P. 1 8,000 -------------------------------------------------------------- 60 H.P. 4 2,40,000 -------------------------------------------------------------- 25 H.P. 2 50,000 -------------------------------------------------------------- 3 H.P. 1 3,000 -------------------------------------------------------------- 2 H.P. 1 2,000 -------------------------------------------------------------- 3. Electric cables 10,000 -------------------------------------------------------------- 4. Electric starters 5,000 -------------------------------------------------------------- 5. Transformer 315 JVA 1,00,000 -------------------------------------------------------------- 6. Furniture/office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout the help of this machinery, the end-product may not be possible. Admittedly, the use of machinery is not the only criteria because if a new and distinct article is produced manually, it cannot be said that no manufacturing has taken place like a potter manufacturers mud utensils from mud/clay (Gara) and the end-product is commercially known differently. The use of such final product is also different. Therefore, it can be safely said that the assessee has manufactured commercially different articles. Even if the fixed assets, used by the assessee are analysed it is seen that in the manufacturing process, a huge amount has been incurred by the assessee for manufacturing the end-product. If the issue is analysed with the case law, we are reproducing herewith the decision of the Tribunal in the case of Janak Raj Bansal vs. ITO (ITA Nos. 83 to 85/Chd/2006, order dt. 28th Feb., 2007), wherein identical ratio was laid down. The relevant portion of the order is reproduced herewith. '2. The first ground raised by the assessee is that the first appellate authority is not justified in upholding the disallowance of deduction claimed under s. 80-IA amounting to Rs. 8,22,079. Rs. 5,85, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Court further held that conversion of limestone into lime dust or concrete by stone crusher could legitimately be considered to be a manufacturing process. The Chandigarh Bench of Tribunal in the case of ITO vs. Jitendra Stone Crushing Co. (ITA Nos. 463 673/Chd/2005) [reported at (2007) 108 TTJ (Chd) 983-Ed.] after placing reliance upon various judicial pronouncements including the decision of the Hon'ble apex Court in the case of CIT vs. Gem India Manufacturing Co. (2002) 172 CTR (SC) 615 : (2001) 249 ITR 307 (SC), CIT vs. Lucky Mineral (P). Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj) and CIT vs. Gogte Minerals (1996) 136 CTR (Kar) 499 : (1997) 225 ITR 60 (Kar) wherein the assessee was cutting boulders into small pieces held that no manufacturing activity is involved. The Hon'ble Bench further held that by bringing the boulders into small pieces there is no change in the composition of the boulder because the big size had been reduced to small size, therefore, no manufacturing activity is involved. If the ratio of the decision of the Hon'ble apex Court pronounced in the case of Lal Kunwa Stone Crushers (P) Ltd., the question was raised whether gitty, st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sizing the same before being sold in the market.' The conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process while the mere mining of limestone and marble and cutting the same before it was sold in the market could not be so considered. The assessee was not entitled to special deduction under s. 80HHC of the IT Act, 1961.' While coming to this conclusion, the Hon'ble apex Court affirmed the decision of the Hon'ble Rajasthan High Court pronounced in CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj) and distinguished the decision of the Hon'ble Rajasthan High Court in CIT vs. Best Chem. Limestone Industries (P) Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj). Admittedly, the decision of the Hon'ble apex Court in the cases of Bherhaghat Mineral Industries and Sacs Eagle Chicory are against the assessee but the decision in the case of Lucky Minmat (P) Ltd. is directly on the issue wherein the Hon'ble apex Court has clearly held that the 'conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idis by contract workers. The Bidis were held to be distinct products different from tendu leaves. The assessee was held to be entitled to special deductions under ss. 80HH and 80-I of the Act. In the case of CIT vs. Best Chem Limestone Industries (P). Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj) there was conversion of limestone by crushing them into Rori or lime dust, it was held to be the process of manufacture. The Hon'ble Gauhati High Court in the case of CIT vs. R.C. Constructions (1997) 137 CTR (Gau) 486 : (1996) 222 ITR 658 (Gau), wherein there was crushing of stone boulders or making chips was held to be manufacturing. The Hon'ble jurisdictional High Court in the case of CIT vs. Oswal Woollen Mills Ltd., wherein there was conversion of crude oil into refined oil by degumming, neutralizing, bleaching, etc. held the same to be manufacturing activity. The learned Departmental Representative during arguments relied upon the case of Indian Hotel Company Ltd. Ors. vs. ITO Ors. wherein the flight kitchens were preparing food packets; it was held that there is no manufacturing or processing of articles, therefore not entitled to special deduction as manufacturers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lain glassware into decorative glassware, the end-product was different and distinct from plain glassware, the assessee was held to be entitled to the benefit of s. 80-I of the Act. If we take the argument of the learned Departmental Representative to be correct to be effect that there was no new product then it can be said that the case of the assessee is on more stronger footing to the case in Darshak Ltd. because the plain glassware was already in existence and it was merely made decorative still was held to be entitled to benefit whereas in the present appeal, the tyres were cut into pieces with the help of machines and after passing through certain processes, the same is grinded and then after mixing with clay, etc. the end-product is sold to the tyre manufacturing company, therefore, it can be said that there is a manufacture of commercially distinct item then from its raw material. The Hon'ble Karnataka High Court while coming to a particular conclusion relied upon the decision of the Hon'ble apex Court in Empire Industries Ltd. vs. Union of India (1986) 162 ITR 846 (SC). The Hon'ble jurisdictional High Court in the case of CIT vs. Oswal Woollen Mills Ltd. wherein there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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