9911796707
TMI Blog2012 (7) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... card issued by the Development Commissioner, Ministry of Commerce, Government of India, Kolkata. Assessee Company's said 100 Export Oriented Undertaking (EOU) is also registered with Central Excise Authorities. Section 2(r) of the Special Economic Zones Act, 2005, which is a Central Act passed by the Parliament in May, 2005, and which Act also governs the said industrial unit owned by Assessee Company herein, also defines the term 'manufacture' to include processes such as 'blending' - in CHOWGULE & CO. PVT. LTD. Versus UNION OF INDIA [1980 (11) TMI 61 - SUPREME COURT OF INDIA]the word used 'producing' in relation to the tea mixture, which was produced through the process of blending. Though Section 10A did not contain a definition for 'manufacture', the definition of the term contained in Section 2(r) of the 2005 Act was incorporated in Section 10AA with effect from February 10, 2006. Admittedly, this definition covers blending also. Therefore, blending and packing of tea done by the assessee qualifies for exemption under Section 10AA - the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s. 10A and units in the free trade zone pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Thereafter, it is packed in consumer packets of 50,100,250,500 or 1000 gms. etc. or packed in the form of tea bags of 1.94 gms or 2 gms etc., as the case may be. During the relevant assessment year 2004-05, the assessee filed its return of income on 01.11.2004 along with the tax audit report in form no.3CA/3CD and in form no.3CEB. 3. The A.O. issued notices under sections 143(2) and 142(1) of the Act for framing assessment. The assessee claimed exemption under section 10B of the Act in respect of its 100% Export Oriented Undertaking (EOU) for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The assessee also claimed deduction under section 80HHC of the Act. During the course of assessment proceedings, the AO, while framing assessment vide order dated 08.12.2006 under section 143(3) of the Act in respect of its 100% EOU observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in its signal decision in the case of collector of Central Excise v. Kutty Flush Door and Furniture Pvt. Ltd. (1988) 17 ECC 37) the Hon'ble Apex Court held that "manufacturing refers to production of articles for use from raw, semi-raw or prepared materials by giving these materials new forms, qualities, properties or combination whether by hand labour or machinery" It may be worthwhile to note that manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment labour and manipulation but something was necessary and there must be transformation; a new and different article must emerge having a definite name, greater use; thus manufacture implies bringing in something new. Almost similar definition has been provided by the Hon'ble Apex Court in another singal decision i.e. CIT v. N. S. Budharaja & Co. [1993] 204 ITR 412. Similarly, in another important case i.e. Ujagar Prints v. Union of India & hers [1989] 179 ITR 317, the Hon'ble Apex Court held that "'manufacture' Involves the change or series of changes brought about by the application of process that take the commodity where co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within tile meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex court of the country. But, this does not amount to saying that the order of the court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent preceding between the parties. Similar view was taken by the apex Court in the case of Supreme Court Employees' Welfare Association, AIR 1990 SC 334." Accordingly, the arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before AO as well as before CIT(A). The assessee company entered into an agreement with Trot Private Ltd. having their registered office at 19/4A, Munshiganj Road, Tollygunge, Kolkata -700023 for carrying out, on contract basis, various manufacturing, processing, blending, packing including loading and unloading activities for and on behalf of the assessee company. This agreement was initially entered into on 15.05.1996 for 10 years and later revised on 15th May, 2006. The above-said Trot Pvt. Ltd. had provided their own premises with shop floor and warehouse etc. and in turn, the assessee company provided various machineries to the said company for carrying out operations set out hereinabove. All raw materials, packing materials, spares and finished goods are owned by the assessee company and stored at the warehouse facilities provided by the Trot Pvt. Ltd. and some raw materials are stored at other warehouses hired by assessee. 5. The ld. Counsel for the assessee, in view of the above facts, stated that in relation to its 100% EOU unit, the assessee company buys tea of different grades in bulk from various persons and particularly, from recognized auction centres in India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intendence Co. Pvt. Ltd., SGS International Certification Services S.A. etc. through their respective representatives. He stated that before packaging the blended tea, the above-stated agencies used to carry out inspection/ supervision by drawing samples so as to ensure that the packaged tea is free from foreign smell, impurities, free from being mouldi, musty or acidic and is also fit for human consumption and conforms to the specifications as to quality controls as set out in the respective export orders. 6. The ld. Counsel for the assessee explained the process involved in export of blended and processed tea by the assessee which involves various steps right from the purchase of tea in bulk packaging from different Auction Centres in India and overseas to the physical stuffing of the packaged teas in containers for shipment. He stated that teas are purchased mainly from six tea auction centres in India at Kolkata, Siliguri, Guwahati, Cochin, Conoor and Coimbatore. He also stated that it also imported tea from various overseas countries including, inter alia, Argentina, China, Kenya, Sri Lanka etc. According to the Counsel, teas are tasted at testing rooms by assessee's expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achine itself. Some pouches are directly packed into CFC boxes and others are packed in cartons. These cartons are then ready for export. The ld. Counsel for the assessee explained the entire process of manufacturing and blending of different teas. 7. The ld. Counsel for the assessee drew our attention to assessee's paper book-IV at page 387 where percentage of value addition is given. The same reads as under: Details of Sales from 100% EOU during Financial Year 2003-04 (AY 2004-05) Rupee Value Percentage Non-consumer/ Commercial Packing- Bulk Tea 24,23,322.00 0.94% Value added- Consumer Packing of different varieties of products samples of which have been referred to in pages 279 to 281 of Paper Book Volume-III 25,63,17,126.81 99.06% Total 25,87,40,448.81 100.00% The ld. Counsel for the assessee also drew our attention to pages 297 to 281 whereby complete chart of ingredients including value addition is provided in terms of quantity and value. In some of the cases, according to the ld. Counsel, there is 100% value addition, in some, it is 92%, in some, it is 99%, in some, it is 85%. According to the ld. Counsel, the assessee produced 79 types of products, in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Roaster, Peach Herb 100% 8. Thereafter, the ld. Counsel for the assessee took us to the provisions of section 10A of the Act, which deals with Special provisions in respect of newly established undertakings in free trade zone, etc. and section 10AA of the Act, which deals with special provisions in respect of newly established units in special economic zone and also to section 10B of the Act, which deals with special provisions in respect of newly established 100% export oriented undertakings. Section 10B of the Act as inserted in the Statute Book by the Finance Act 1988 w.e.f. 01.04.1989, provides that any profits and gains derived by an assessee by a 100% EOU shall not be included in the total income and it applies to any undertaking which manufactures or produces any article or things. Ld. Counsel explained this provision that Explanation (i) to section 10B of the Act further provided, that the expression 'hundred per cent export oriented undertaking' means an undertaking which has been approved by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development & Regulation) Act, 1951, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR (St) 21, 34-35 vide paragraph 15.3 explained that deduction under section l0B would be granted in respect of profits & gains derived by an undertaking, which 'manufactures or produces' articles or things or computer software, and derive profits & gains from the exports thereof. It was stated that the said deduction was available for a period of 10 consecutive years in a graded manner. The new provisions contained some additional conditions as under: i. the sale proceeds of articles or things or computer software exported out of India, should be received in or brought into India within a period of 6 months from the end of the previous year or within such further period as the competent authority may allow - Sub-section (3); ii. The profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion, as the export turnover in respect of such articles or things or computer software bears to the total turnover of business - Sub-section (4); iii. The assessee must furnish in the prescribed form No. 56G, along with his return of income, .the report of a Chartered Accountant certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal. husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining". Ld. Counsel for the assessee stated that this definition was adopted by the legislature in section 10AA w.e.f. 10.02.2006, as adopted by Special Economic Zones Act, 2005, by inserting in explanation 1 (iii) to section 10AA of the Act, which reads as under: (iii) "manufacture" shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 2005." In such position, Ld. Counsel for the assessee also referred to export and import policies issued by the Ministry of Commerce and industry and valid in between 1997-2002 and again, in between 2002-2007, all along recognised the meaning of the expression 'manufacture' to include, inter alia, 'processing' of goods by hand or by machine. Finally, Ld. Counsel for the assessee stated that the above legal position clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even under section 10A and 10B of the Act. Ld. Counsel for the assessee also relied on the decision of Hon'ble Kerala High Court in the case of Tata Tea Ltd. (supra) and also on the decision of Hon'ble Supreme Court in the case of Arihant Tiles & Marbles Pvt. Ltd. (supra). Apart from these arguments he adopted the arguments made by Ld. Counsel Shri G. C. Srivastava in the case of Madhu Jayanti International Ltd. 11. On behalf of Rajrani Exports Pvt. Ltd., Ld. Counsel Shri Pawan Kumar Agarwal filed written submissions and also stated that he is adopting the arguments made by Ld. Counsel Shri G. C. Srivastava in the lead case of Madhu Jayanti International Ltd. 12. On behalf of intervener Tea Promoters (India) Pvt. Ltd., Ld. Counsel Shri Naresh Jain filed written submissions and also stated that he is adopting the arguments made by Ld. Counsel Shri G. C. Srivastava in the lead case of Madhu Jayanti International Ltd. 13. On the other hand, Ld. CIT, DR Shri D. R. Sindhal heavily relied on the written submissions filed on 30.09.2011 vide no CIT(ITAT)-III & Admn./DRS/ Spl. Bench/Sec.10A/10B/11-12/1316. Shri Sindhal first of all referred to the provisions of section 10A, 10AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to 'manufacture'. But even if it might amount to 'processing' the assessee was not entitled to the deduction u/s. 35B, since the term was not included in Sec. 35B(1A)." He further stated that there are three stages, viz., production, manufacturing and processing of tea as enumerated by Hon'ble Supreme Court in the case of Tara Agencies (supra). He stated that the tea is produced in the tea garden. This first stage is called production of tea. The second state is manufacture of tea. In this state, the tea leaves are plucked from the tea buses and by mechanical process, tea leaves are converted into tea. The second stage is considered manufacturing of tea. The third stage is blending of different qualities of tea in order to smoothen for its marketability. This third stage is considered processing of tea. He stated that Hon'ble Calcutta High Court in the case of Brooke Bond India Ltd. v. CIT [2004] 269 ITR 232 (Cal) had followed the decision of jurisdictional High Court in the case of Apeejay Pvt. Ltd. (1994) 206 ITR 367 (Cal) which was directly on the issue of blending of tea. Hon'ble Calcutta High Court in the case of Brooke Bond (supra) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture" something more was required. Input was tea and output was also tea and accordingly no new, different and distinct commercially known article or thing brought into existence of new name, character or use. Hence, blending of tea was held by Hon'ble Apex Court as process and not manufacture. Hence, the present assessee does not entitled to get any benefit from the decision of the Karnataka High court supra. Further the view of Calcutta High Court has also been fortified from the Supreme Court's decision in the case of Tara Agencies (supra) and then by Rajasthan High Court in D.D. Shah & Bros. v. U.O.I. [2006] 283 ITR 486 (Raj). 15. Ld. CIT, DR further argued the issue on interpretation of taxing statute. He stated that liberal construction should not be adopted and the word 'manufacture' and lifting the definition of 'manufacture' from section 10AA of the Act, from Exim policy and from SEZ Act, 2005 into section 10A and 10B of the Act will defeat the purpose of legislature. He referred to the decision of Hon'ble Supreme Court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149 wherein Hon'ble Supreme Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding directors of the company as well as tea testers outsourced on specific requirements. The samples of different grades and brands of tea available in tea auctions are analyzed and identified, having regard to the particular specification set out in the export order one more fact that tea being an agricultural crop, is subject to variations in quality and different in taste from garden to garden because of soil, altitude, climate, harvesting and processing etc. Each garden has its own subtle shade, flavour, colour, brightness, strength and aroma. The assessee company also imports tea from overseas to meet the quality specifications of overseas buyers. It is also a fact that the blending of different varieties of tea is made container-wise and details of such blending are recorded in the 'blend sheets'. It is also a fact that assessee during previous year 2003-04, relevant to assessment year 2004-05, entered into contract with Trot Pvt. Ltd. for carrying out various activities at its factory premises i.e., unloading, blending, filling in paper sacks, marking of paper sacks, weighment, stacking and container stuffing etc. in relation to the tea purchased by it from vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bagging machines. The filter paper rolls, wire for staples, thread and tags for tea bags are loaded on the machines which automatically manufacture the tea bags. The quantity of tea that has to go in each bag is measured using sophisticated and automatic volumetric measurement systems in the tea bagging machines. The two major types of tea bags are single chamber and double chamber. The tea bags are then packed into a carton. The assessee also explained the process of packing in pouches. The pouches are produced in an FFS machine which fills and seals the tea in laminated pouches and the quantity required to be packed in each pouch is measured through electro-mechanical weighing system which is in-built in the machine itself. Some pouches are directly packed into CFC boxes and others are packed in cartons. These cartons are then ready for export. The assessee explained the entire process of manufacturing and blending of different teas. 17. We further find facts that Assessee Company has established a new industrial Undertaking (100% EOU) for the manufacture of packet tea/tea bulk tea in the Falta Special Economic Zone, and it holds a green card issued by the Development Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." 18. In Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". From the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit, of the word 'production', since' ore is 'a thing', which is the result of human activity or effort; According to Webster International' English Dictionary, the verb "produce" means to bring forward, beget etc. The juxtaposition of the word "manufacture" with 'agriculture' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical. force 'or' pressure without addition or admixture of any other material and yet the 'operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta v. Commissioner of Commercial Taxes (16 STC 935 (Cal)). What is necessary in order to characterise an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical .and physical composition of each kind of ore which goes into the blending is change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that the different brands of tea purchased by the assessees could not be regarded as 'processed' within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay high Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assessees could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore. Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case (10 STC 500 (Bom HC) and the facts of the present case, but we do not think we can accept the decision of the Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavour than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes 'processing'. (iii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation it is the effect of the operation on the commodity t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction or manufacture, which makes the article excisable to duty. While considering the expression "manufacture", it was held that package tea is the manufactured 'goods, as the articles themselves prepared are the result of the process of manufactured, and the net result of the process of manufacture, is the production of articles in some form, which is envisaged as goods to be subjected to excise duty. In the case of G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal), while considering the claim of the assessee for treating it as an "industrial company" within the meaning of section 2(7) (c) of the Finance Act, 1978, for allowing the benefit of concessional rate of tax, it was held by the Hon'ble Calcutta High Court following the principles laid down by Hon'ble Supreme Court in Chowgule & Co. Ltd. v. Union of India that 'blending of tea' amounts to processing and as such the assessee was an 'industrial company' in terms of section 2(7) (c/) of the Finance Act 1978. Hon'ble Calcutta High Court in Renderian's case observed that, as there is no specific or separate definition of the expression 'processing' or the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dismissed by the Apex Court with the observations "the Special Leave Petitions are dismissed on merits", as reported in [1998] 111 STC (statute). 25 Hon'ble Calcutta High Court in Brooke Bond India Ltd.'s case [2004] 269 ITR 232 (Cal) were dealing with the assessee's claim for investment allowance under section 32A of the said Act in respect of new machinery purchased and put to use during the previous year relevant to the assessment year 1984-85. The contention of the said assessee was that it was not merely a blender of tea, but it produced a new and distinct type of tea having a predetermined quality in terms of taste, liquor and aroma and hygienically packed through mechanical contrivances, which it marketed in packets under different names. The assessee had inter alia placed reliance on the decision of the Hon'ble Karnataka High Court in Brooke Bond Lipton India Ltd. v. State of Karnataka [1998] 109 STC 535 (Kar), wherein the court had held that production of packed blended tea in the industrial unit of the assessee led to value addition to the original garden teas; and that the packaged blended tea produced in an industrial unit was a manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the case of the assessee company, Appeejay Pvt. Ltd., the input of the assessee's business was tea, and its output in the form of end products sold by it, was also tea. Their Lordships also noted at page 380 of the reports that the word manufacture' implied a change, but every change in an article, with the result of treatment, labour and manipulation, was not 'manufacture'. Something more was necessary and there must be transformation and a new and different article must emerge having a distinct name, character or use. The essence of a manufacturing process was the conversion of raw material into an entirely new commodity or new thing or a new product, which is of a different chemical composition or whose integral structure was different from the raw materials. In that view of the matter, Hon'ble Calcutta High Court affirming the view of the Tribunal, held that the assessee Appeejay Pvt. Ltd. did not manufacture or produce any article or thing to be entitled to relief under section 80J of the Act. 27. In the case of G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal), while considering the claim of the assessee for treating it as an "industrial com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be contended by the learned Counsel for the Revenue, that the mined ores must be commercially new product…." 29. In CIT v. Jansons & Co. [2006] 283 ITR 181 (All), their lordships of the Hon'ble Allahabad High Court applied the wider meaning of the word 'production' as compared to the word 'manufacture' in the context of section 35B of the said Act, as laid down by the Hon'ble Supreme Court in Chrestian Mica Industries Ltd. v. State of Bihar (supra), CIT v. N. C. Buddharaja & Co. (supra) and in CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 (SC). The Hon'ble Allahabad High Court was dealing with the case of an assessee, who was engaged in the business of exporting brass wares purchased from karigars and karkhanedars. The activity of soldering, welding, engraving, polishing, coloring and lacquering of such brass wares before their export, was held by the Hon'ble Court to be an activity amounting to 'production of articles' within the meaning of section 35B(1A) of the Act, 1961. 30. We find that the Hon'ble Kerala High Court considered exactly the same issue in the case of Girnar Industries v. CIT [2011] 338 ITR 277 (Ker.). In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy had a wide and liberal meaning covering tea blending as well and so much so, blending and packing of tea qualifies for exemption under section 10A. Besides this, the assessee-industry in the special economic zone engaged in the same process of blending and packing of tea was specifically brought under the exemption clause through incorporation of Section 2(r) of the 2005 Act, in the provisions of Section 10AA of the Act. Therefore, the later amendment was only clarificatory and the definition of 'manufacture' contained in Section 2(r) of the 2005 Act, incorporated in Section 10AA of the Act with effect from February 10, 2006, which was essentially the same as the definition contained in the EXIM Policy, applies to Section 10A also. Therefore, blending of tea was a manufacturing activity which entitles the assessee for exemption under Section 10A of the act for the assessment year 2004-05." That the ratio of the above decision would be squarely applicable in the case of the assessee because the facts are identical. 31. The Hon'ble Kerala High Court reiterated the same view in the case of Tata Tea Ltd. v. ACIT [2011] 338 ITR 285 (Ker). In that case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was entitled to exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under: The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income-tax Act is to provide a liberal meaning to the word "manufacture" which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of "manufacture" contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of counsel for the assessee is that the purpose of removal of the definition of "manufacture" from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate authority declaring the appellant's entitlement for exemption." 32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. l0.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EQU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005. Clause (iii) of Explanation 1 to section 1OAA lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, which def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. [2010] 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-04. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act 2000, the definition of 'manufacture' which included 'processing' contained in section 10B of the Act was deleted w.e.f. 01.04.2001. The argument of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the assessee that the scheme of income tax ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act. 37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessees who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessees who are in the business of blending and processing of tea in respect of undertakings in free trade zones are manufacturer/producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International Ltd. and found that there is blending of tea and consequently the assessee is eligible for exemption u/s. 10B of the Act as prayed for. Their appeal for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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