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TMI Blog2014 (12) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... e and sale of hydraulics/machine tools, parts, components and assemblies. The appellant had also started export of jewellery. 3. In the return for assessment year 1998-99, the assessee had claimed deduction under Section 88HHC of the Act, on exports of hydraulic power lift system and gold jewellery. For computation of deduction under the said Section, the assessee had invoked and applied sub-section (3)(a) to Section 80 HHC claiming that it was a manufacturer of the exported goods including jewellery. The assessee had computed deduction at Rs. 68,58,239/- by applying clause (a) to sub-section (3) to Section 80HHC. The Assessing Officer, however, held that the assessee was both, manufacturer of exported goods i.e. hydraulic lifts, but was a trader exporter in respect of jewellery items. Therefore, the Assessing Officer invoked and applied sub-section (3)(c) to Section 80HHC of the Act. Consequently, the Assessing Officer calculated indirect cost of the jewellery exported in proportion to the total indirect cost of both hydraulics/machine tools and jewellery business in ratio of the turnover of the respective businesses, to calculate the profits derived by the respondent assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total turnover of the business carried on by the assessee ; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export ; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,- (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiia) (not being profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or merchandise processed or manufactured by him or the assessee was both exporter of manufactured/processed goods and exporter of traded goods. This is the core and the central issue, which we have to determine. The first aspect which requires consideration is whether conversion of pure gold into jewellery amounts to manufacture or processing. The said aspect is covered by the decision of this Court in ITA No. 1223/2011 titled CIT vs. Lovlesh Jain and other connected cases dated 20th December, 2011. The said decision was related to Section 10A and 10B of the Act and it has been held as under: "9. The assessee converts standard gold into ornaments. The standard gold has purity levels of 0.999/0.995, whereas the ornaments have a purity level of 22 carats or lower. Purity is reduced by mixing other metals like silver, copper, etc. This is necessary to give strength and durability to the ornaments as gold with 0.999/0.995 purity is very soft and tends to bend or break easily. The contention of the Revenue is that conversion of standard gold into ornaments does not amount to "manufacture or production" of articles or things as the primary material is the same, i.e. gold, and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture". 12A. Clause (f) gives an inclusive definition of the term 'manufacture'. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. 13. The term manufacture has been defined by the Black Law Dictionary (5th Edition) as under: 'Manufacture : The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labor or machine. 14. The word 'manufacture' has been defined in Hal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed meaning which is found referred to in the authorities as meaning the transforming of raw material into a commercial commodity or a finished product which has a separate identity (Commissioner of Income tax v. Ajay Printery Pvt. Ltd.(1)). This shade of meaning is more appropriately used in the past participle "manufactured". See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is "fabricated from raw material". In Aswathanarayana v. Dy Commercial Tax Officer (1) at page 801 one finds a useful compilation of meaning attached to the word "manufacture" from various dictrionaries and other sources. Similarly, the word "produce" with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meaning are given as follows: "To bring forth, bring into being or existence (a) generally to bring (a thing) into existence from its raw materials or elements or as the result of a process" and " (d) To compose or bring out by mental or physical labour (a work of literature of art); to work up from raw material, fabricate, make, manufacture (material object) ". In the Ajay Printer's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, when one refers to the word "production", it means a process plus something in addition thereto. Every manufacture can qualify as production but every production need not amount to manufacture. The original marble block does not remain a block when it becomes slab or a tile and undergoes polishing, etc. and, therefore, amounts to production and qualifies for deduction under Section 80IA of the Act. Even though the chemical composition or the basic material may be the same but in commercial parlance, the two products were different. In this case, the Supreme Court noticed and observed that if the contention of the Revenue is accepted, it would have negative revenue consequences as the assessees are also liable to pay excise duty, sales tax, etc. because of the processing involved, resulting in the said change. The aforesaid change was held to be sufficient. After referring to CIT versus N. C. Budharaja & Co. (1993) 204 ITR 412 (SC), it was observed that the word "production" when used in juxtaposition with the word "manufacture" takes within its ambit bringing into existence new goods by a process which may or may not amount to manufacture. The word "production" takes in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of precious and non-precious stones. The said Explanation would not be applicable and does not relate to manufacture or production of jewellery, but in view of the ratio in Luvlesh Jain (supra), it could be appropriately held that the respondent assessee was engaged in processing of goods or merchandise as activity of converting raw gold into jewellery or ornaments amounts to processing, if not manufacture of goods or merchandise. Jewellery has distinctive name, character and use and is a different and new commercially saleable product. 10. The next aspect or the question is whether the assessee was engaged in manufacture or processing of jewellery or was merely procuring jewellery from the market as a trader and thereafter exporting the same. In the latter case, he would be a trader exporting jewellery and not the manufacturer or processor. The Assessing Officer has recorded that the assessee had purchased gold from MMTC and had swapped the same for readymade jewellery by paying an extra amount and got it prepared from jewellers. Thus, the assessee was neither a manufacturer nor a processor of the jewellery exported. The C.I.T (A) had held that the assessee had purchased gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re it was held that any statute dealing with sales tax the meaning manufacture must mean to bring into existence in the form in which it is capable of being sold or supplied in the course of business. The term manufacture must, therefore, mean necessarily one which brings into being from raw materials to finish goods which were capable of being sold. In that case, it was further held that though the exemption clause in the statute must be constitute strictly but even so it should not be so constitute to make exemption practically illusory. The facts in that case were that the petitioner carried on the business of selling gold and silver ornaments. They claimed exemption from sales tax under the notification in respect of sale of gold ornaments. The sales tax authorities found that the petitioner did not have a factory for the manufacture of ornaments but supplied goods to some independent artisans who made it into ornaments with the help of their tools. In some instances, the artisans worked in their own houses and in others they worked in the shop of the petitioner where they were given electricity factilies and provided sitting arrangements. The petitioner paid labour charges to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Longman Ltd. vs. Commissioner of Income Tax, Delhi -II (1981) 130 ITR 477 (Del), had approved the view taken by the Calcutta High Court in Additional CIT vs. A. Mukherjee and Co. (P) Ltd. (1978) 113 ITR 718 (Cal.), that a publisher who got the manuscript for publication prepared after getting them printed and bound from third parties, was engaged in manufacturing activity. This was inspite of the fact that the assessee did not possess or own any printing press. This, it was held, was not necessary as long as printing and binding was done under the supervision of the assessee. It was not necessary that the assessee should own a printing press or be a book binder himself, provided that the assessee who had acted as a publisher and got the book printed and bound from a binder who was only acting as a contractor of the assessee. In the said case, the High Court was examining whether the assessee was engaged in manufacture or processing of goods. The same view has been taken by the Bombay High Court in the case of CIT v. Neo Pharma Private Ltd. [1982] 137 ITR 879 (Bom.), CIT vs. Acrow India Ltd. [1991] 188 ITR 485 (Bom.) and CIT vs. Anglo French Drug Co. (Eastern) Ltd. (1991) 191 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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