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TMI Blog2015 (2) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking in the said zone was that the undertaking should be manufacturing engineering products and the entire production should be exported, after excluding the rejects and permissible sales in the domestic tariff area. The respondent has entered into an agreement with the said authority for carrying on the said business. The fact that the respondent assessee had assembled the entire plant outside India from the goods supplied and manufactured in India would include the expenditure incurred for commissioning and providing technical services outside India, after excluding expenses in form of payment made in foreign exchange for technical services provided outside India. It is not the case of the Revenue that the respondent assessee had made payment in foreign exchange for technical services provided outside India. It is apparent that the respondent assessee did not self-manufacture or produce most of the articles or things which were exported and used for setting up the plant. The assessee had undertaken detailed engineering drawings and as per the specification and drawings, the actual manufacture and production work was outsourced. Throughout the said process, inspection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r noticed that the asessee had incurred electricity expenditure of ₹ 19,771/- during the year and ₹ 2,27,694/- in the previous year, through they had turnover of ₹ 18.92 lacs and had shown opening stock of work in progress of ₹ 1.6 crores. The total turnover from Noida unit as declared was ₹ 6,19,35,990/-. 5. For the assessment year 2008-09, the assessment order is more detailed and elaborate. The assessee had filed return declaring NIL income and had claimed exemption/deduction under Section 10B of ₹ 12,17,41,816/-. The assessee had claimed that they had earned exempt income as they had carried out upgradation of cement plant in Zambia and also received consideration for design, fabrication and commissioning of a steel rolling mill in Kazakhastan. The assessee had filed a flow chart to explain the nature of work undertaken to support their claim under Section 10B of the Act. It was asserted that the respondent was a multifaceted project engineering company having highly qualified engineers, technocrats etc., who had extensive experience, and expertise in executing turnkey projects of diverse nature. The Assessing Officer, however, held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years : [Provided [further] that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:] Provided also that no deduction under this section shall be allowed to any undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; xxxxx xxxxx [Explanation 4.-For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semi-precious stones.] 8. Sub-section (1) to Section 10B states that a deduction of such profits and gains as derived from 100% export oriented undertaking from export of articles, things or computer software would be allowed for 10 consecutive assessment years beginning from the year in which the undertaking begins to manufacture or produce articles, things or computer software. Thus for deduction/exemption to be allowed under Section 10B of the Act, the undertaking in question should be 100% export oriented. The profits derived by the said undertaking from export of articles, things or computer software is treated as exempt/deductible for 10 consecutive years beginning from the year when manufacture/production starts. The provisos curtail t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re or produce , it has been elucidated, would include cutting and polishing of precious or semi precious stones. 10. A reading of the aforesaid clauses would indicate that Section 10B of the Act is beneficial provision and has been enacted to give tax concession or exemption to 100% export oriented units engaged in manufacture or production of articles, things or computer software. The exemption is only granted if the assessee has been declared as an 100% export oriented undertaking which means an undertaking approved by the Board appointed in this behalf under the Industries (Development and Regulation) Act, 1951. It is an undisputed and a factual position recorded by the Tribunal that the respondent assessee had an export oriented unit in Noida Export Processing Zone, which was duly approved. The Tribunal has also recorded that the Development Commissioner, Noida Export Process Zone, had extended all facilities and privileges admissible to the said unit under the Export-Import Policy 1997-2002. One of the conditions, for establishment of an undertaking in the said zone was that the undertaking should be manufacturing engineering products and the entire production should be exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its step-less speed control. 2. (a) Aeration Boxes. (b) Aeration Cloth. (c) Air Lift Assembly. (d) Air Lift with Expander. (e) Air Slides (f) Rotary Vane Feeder The equipment mentioned in the Column A of this table were purchased by assessee as per its technical specifications and drawings and after inspection they were assembled into subassemblies assemblies to manufacture Pneumatic material conveyors and Kiln feeding mechanism. The equipment are assembled together to ensure exact mating of the parts and tested for efficiency by injecting compressed air. The large sections are then disassembled into subassemblies, packed and containerized for shipment. For details lease refer to Appendix 1. 3. (a) Instruments. (b) Kiln hood. (c) Nodulizer feed hopper overflow screw conveyor. (d) Pneumatic Cylinder. (e) Refractory bricks Powder (f) Repair kit for cylinder (g) Screw Conveyor (h) Settling Chamber (i) VSK Gearbox and accessories. (j) VSK Shell and Chimney (k) Nodulizer The equipment mentioned in the Column A of this table were purchased by assessee as per it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make Oust Collector, the Oust Collector was tested for conformance with the design Parameters and thereafter disassembled for safe shipment as they are delicate items. For details please refer to Appendix 6 8. (a) Table Feeder. (b) Table Feeder The equipment mentioned in the Column A of this table were purchased by assessee as per its technical specifications and drawings and after inspection they were assembled together to make a Material by assembling with it scrapper, drive shaft, gearbox, motor etc and fixing the assembly to the Hopper; after, testing the system is disassembled into subassembly called Table type material proportionator. For details refer to Appendix 7. 9. Grit Separate The equipment mentioned in the Column A of this table were purchased by assessee as per its technical specifications and drawings and after inspection they was assembled together to make a Coarse Particle Cyclone which is fitted in the Raw Mill section to perform its duty of recycling under done material to the Raw Mill. For details please refer to Appendix 3 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is direct reference to profits and gains derived from export of articles or things or computer software by 100% export oriented unit. The profits are to be computed with respect to export turnover under sub-section (4) in respect of such articles, things or computer software in proportion to the total turnover of the business carried on by the undertaking. Thus, while computing export turnover in terms of clause (iii) to Explanation 2, expenses incurred for providing technical services outside India in connection with articles or things so exported would be included and added, provided the said expenditure was not incurred in foreign exchange. The Legislature was conscious that an assessee engaged in export of articles or things may have to incur expenditure in nature of technical services in connection with the said exports and in a given case would be reimbursed or paid for the said expenditure. The payment received for the aforesaid expenditure would be included in the export turnover, provided the expenditure was not incurred in foreign exchange. The explanation only excludes expenses incurred in foreign exchange in providing technical services outside India. The services must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to reproduce our finding in ITA 141/2002, Commissioner of Income Tax Vs. Harig India Limited, Dated 22.12.2014,which read :- 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 from MMTC and thereafter paid labour and other charges to the artisans who had manufactured the jewellery on job work basis as per the specifications provided by the overseas buyers to the assessee. Contention of the assessee that to be a manufacturer or processor, they need not carry on manufacturing or processing activities by employing own labour or workers was specifically raised, but not accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In these cases, it has been held that assessee was not a trader but a manufacturer/processor engaged in manufacturing and processing activities, when these activities were undertaken by a third person, under the control and supervision of the assessee. In the present case we are not examining and deciding whether the respondent-assessee was an industrial undertaking, but a narrower and specific question, of distinction between a manufacturer and trader, arises for consideration. A manufacturer of jewellery or ornaments might not require huge investment in machinery etc. Mode and manner of engaging and undertaking manufacturing activity could be variable. Aforesaid decisions are relevant as they differentiate between a trader and a manufacturer/processor, on the principle of control and supervision, when the manufacturing activity is undertaken. The same test has been applied by the Tribunal. 13. In view of the findings recorded above, it has to be held that sub-clause (a) to sub-section (3) to Section 80 HHC of the Act, would be applicable in view of the factual finding recorded by the Tribunal that the aforesaid work was undertaken by the job workers under the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r connotation it means transforming of the raw material into a commercial product/commodity or finished product which has a new, separate entity but this does not necessarily mean that the material by which the commodity is manufactured must lose its identity. The latter connotation has been accepted and applied with some moderation/clarification in several decisions, keeping in view the context in which the word manufacture has been used. The Supreme Court in Graphic Company India Limited versus Collector of Customs, (2001) 1 SCC 549 and Union of India versus Delhi Cloth and General Mills Company Limited, AIR 1963 SC 791 has held that manufacture has to be understood to mean transformation of goods into a new commodity commercially distinct and separate, and having its own character, use and name whether it be the result of one or several processes. However, every change does not result in manufacture though every change in an article may be a result of treatment or manipulation by labour or/and machines. If an operation or process that renders a commodity or article fit for use, which it is otherwise not fit, the change/process falls within the meaning of the word manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of industrial activities than such a definition would suggest. It includes articles made in situ as well as articles made in a factory. 15. The Supreme Court of the United States of America has defined the term 'manufacture' a century ago in Anheuser-Busch Brewing Assn. v. United States (1907) 52 L Ed. 336. The definition has been followed in subsequent American, English and Indian cases. The definition reads as under: Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary. ..There must be transformation; a new and different article must emerge, .having a distinctive name, character or use. 12. As noticed above, Section 10A/10B is applicable when an undertaking manufactures, or is engaged in production of articles or things. The term production has a larger magnitude and is more ITA 1223/2011, 67/2010 and 458/2010 Page 11 expansive and liberal than the term manufacture . The terms manufacture and produce were interpreted in the Commissioner of Income Tax, Bombay City versus TATA Locomotive and Engineering Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence an article or a product either by physical labour or by power. The word manufacture in ordinary parlance would mean a person who makes, fabricates or brings into existence a product or an article by physical labour or power. The other shade of meaning which is the narrower meaning implies transforming raw materials into a commercial commodity or a finished product which has an entity by itself, but this does not necessarily mean that the materials with which the commodity is so manufactured must lose their identity. Thus both the words manufacture and produce apply as well to the bringing into existence of something which is different from its components. One manufactures or produces an article which is necessarily different from its components. 13. The difference in the words manufacture , ‗production (to produce) and process was examined by the Supreme Court in Commissioner of Income Tax, Kerala v. Tara Agencies, (2007) 6 SCC 429. On the question of what is meant by the term production‟, it has been elucidated and explained as under:- 16. In Black's Law Dictionary (5th Edn.), the term production has been de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and residual products, which emerge in the course of manufacture of goods. 15. In CIT versus Emptee Poly Yarn (P.) Ltd. (2010) 320 ITR 665, the thermo mechanical process that converts partially oriented yarn into textured yarn, which is a new and a distinct product or article was regarded as manufacture as it brings about a structural change in the yarn itself. Partially oriented yarn cannot be used in warp or weft but texturized yarn can be used. It was held that the structure, the character, the use and the name of the product are indicia, which are to be taken into account while deciding the question whether the process amounts to manufacture or not. We have referred to the said decision, as the chemical composition of the partially oriented yarn and ITA 1223/2011, 67/2010 and 458/2010 Page 15 the textured yarn is similar, but the use, name and character of the yarn becomes different after texturizing. 16. In the present case, manufacture as well as production of goods, articles or things is covered under Section 10A/10B. The activity for converting gold bricks, biscuit or bars, into jewellery amounts to production or manufacture of a new artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and illustratively every manufacture could be categorised as production, but not vice-a-versa. In the present context, in Section 10B, the word production has been used in addition to the word manufacture and also an expanded scope and ambit is envisaged for the said term in the context of Section 10B in Explanation 4. It would be incongruous and inappropriate in the context of Section 10B of the Act to hold that the respondent-assessee, an 100% export oriented unit, who had refurbished a mini cement plant in Zambia and established a mini steel mill in Kazakhstan, were not engaged in manufacture or production of articles or things. The fallacy in the argument raised by the Revenue is apparent. It is accepted that in case the mini steel plant and refurbished cement mill had been completely assembled in the unit in Noida and exported as such, the assessee would qualify and would be a manufacturer or a person engaged in production of articles or things. However, benefit under Section 10B, it is asserted by the Revenue, should be denied for what was exported were separated or disassembled parts of the mini cement and steel plant/mill, as it was not possible to export after fabr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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