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TMI Blog2017 (5) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in the circular despite specific opportunity was given, does not fall under any of the exceptions contemplated in the said Circular, as this is covered. We also find that the Circular makes it very clear that the revised monetary limits shall apply retrospectively to pending appeals also. We find that the Circular is binding on the tax authorities. This position has been confirmed by the Hon'ble Apex Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd reported in 267 ITR 272 (SC). Hence, we hold that the appeal of the revenue deserves to be dismissed in terms of low tax effect vide Circular No.21 / 2015 dated 10.12.2015. Accordingly, this being a low tax effect case, we dismiss this appeal of revenue in limine, as unadmitted, without going into the merits of the case. In case the revenue later finds that the tax effect is more than Rs. 10 lakhs then it is at liberty to move appropriate application to recall this order. With this Caveat, we are inclined to dismiss this appeal on the ground that it is below the tax effect of less than Rs. 10 lakh. 3. In the result, this appeal of revenue is dismissed as unadmitted. 4. Now we are coming to AYs 2010-11 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition clause of 'manufacture' contained in Section 2(r) of the Special Economic Zones Act, 2005, was incorporated in the provisions of Section 10AA of the Act with effect from February 10, 2006. The CIT(A) held that the subsequent amendment was clarificatory in nature whereas the Tribunal confirmed the disallowance on the ground that blending and export of tea by the assessee qualifies for benefit only after incorporation of the definition clause of 'manufacture' from the 2005 Act in Section 10AA of the Act. On appeal, Held "that the provisions of Section 10A and Section 10AA later introduced serve the very same purpose of granting exemption on the profits earned by industrial units in the free trade zone/special economic zone. 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 from February 10, 2006 onwards. Admittedly, Section 10A also provides for exemption in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 01.04.2001. Hon'ble High Court noted that the department's stand 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. Hon'ble Kerala High Court considered the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s. 10A of the Act and units in the free trade zone provided u/s. 10AA of the Act and the exemption available to 100% EOU u/s. 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon'ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies, supra relied on by the Sr. Standing Counsel for the revenue, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article, but is only processing. Hon'ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle or thing. Still it is recognised as a 100 per cent. export oriented unit by the concerned authority within the meaning of that term contained in the definition clause of section 10B of the Income-tax Act and the Department has no case that the assessee's unit engaged in export of tea bags and tea packets is not a 100 per cent. export oriented unit. So much so, in our view, if exemption is denied on the ground that products exported are not produced or manufactured in the industrial unit of the assessee's 100 per cent. export oriented unit, the same would defeat the very object of section 10B. Further, industrial units engaged in the very same activity ; i.e., blending, packing and export of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies' case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing and labeling. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim Policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution & Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce & Industry (Department of Commerce) the expressions "flavour tea", "green tea", "instant tea", "packet tea", "quick brewing black tea", "tea" and "tea bag" have been separately defined as distinct product. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section in the state of West Bengal for manufacture of Packet Tea, Tea Bags/Bulk Tea with annual capacity of 3110 Mt. in terms of Registration Certificate dated 26th December, 1995, inter alia, with the condition that its 100% production (excluding rejects not exceeding 5%) would have to be exported and that its registered EOU Unit shall make value addition to a minimum extent of 79%. Undisputedly, the exported consumer products, blended by Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India. 34. The subject for consideration under sections 10A and/ or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ & SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Prevention of Food Adulteration Act, 1953 read with Prevention of Food Adulteration Rules, 1955. The Tea (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial unit of the assessee's 100% EOU, it would defeat the very object of sections 10B of the Act. 36. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word "manufacture" as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term 'manufacture' under the common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 also the AO from the details noted that the assessee is engaged in blending different types of tea and then exporting it. This issue of the assessee is occurring in earlier years also and the CIT(A) has confirmed the disallowance made by AO in earlier years. The issue is now pending with the Tribunal, thus, to maintain judicial consistency, the claim of the assessee is rejected as all the facts and circumstances are same as in earlier years. Further, in AY 2007-08, the Assessing Officer noted that assessee's claim of exemption u/s. 10A of the Act has been the subject-matter of all the assessment orders passed since AYs 2004- 05 to 2006-07 in respect of the assessee and their actions were also subsequently upheld by CIT(A). The matter however, remains pending before the Tribunal. In view of the above position admitted by AO, that assessee is carrying on the activity of blending of tea consistently, on factual aspects, which Revenue has not objected. It is not the case of the Revenue that there is no blending. In such circumstances, respectfully following the Special Bench decision cited in the case of Madhu Jayanti International Ltd. (supra), we allow the claim of assessee for all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue for both the assessment years. 8. Ground no. 3 for AY 2011-12 reads as under: "3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Siliguri was justified in law, in treating the profit from sale of DEPB license as income from regular business and eligible for exemption u/s. 10A/10AA." 9. The facts as noted by the Ld. CIT(A) is as under: "4. Sale of DEPB Licences- In the AY 2011-12, the assessee had sold DEPB licences for Rs. 60,75,499. The AO held that the income from sale of DEPB licences is not the income from the regular business and hence, not eligible for exemption U/S 10A/10AA. The assessee submitted that the DEPB licences are an incentive given to exporters to neutralize the incidents of custom duty on the import. Since the assessee does not import any raw material/equipment for his business of export, the DEPB licenses were sold to importers to earn profit. If the assessee had used these DEPB licences for import of certain goods, benefit would have accrued to the assessee by way of reduction in the custom duty payment. In both situations there is an increase in the Trading profit. There is no difference in situations when DEPB license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of DEPB licence is no longer res integra. We note that the Special Bench in the case of M/s. Maral Overseas Ltd. reported in 136 ITD 177 (Ind) (SB) has dealt with the similar issue. The Ld. AR took our attention to page 63 of the paper book wherein we note that the Special bench has answered the question raised before it in favour of the assessee. We note that in the said case the eligibility of deduction in respect of export incentive received by the assessee in terms of the provision of section 10B(1) r.w.s. 10B(4) of the Act was under challenge. The facts in brief in that case was that during the year the assessee was in receipt of export entitlement of Rs. 1.65 cr. and special import licence of Rs. 4.47 lacs. The AO declined the claim of deduction by holding that such income was not derived from 100% export oriented undertaking, and therefore not eligible for claim of deduction u/s. 10B(1) r.w.s. 10B(4) of the Act. The Ld. CIT(A) following the Tribunal's order in the assessee's own case held that the assessee was eligible for exemption in respect of export entitlement and special import licence as the income of EOU is eligible for exemption u/s. 10B of the Act. The Special Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives. 78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by The undertaking 79. Thus, sub-section (4) of section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Research Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80lA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B(1) read with section 10B(4) of the Act." We note that the Special Bench observed that sub-section (4) of section 10A/10B of the Act is a complete code providing mechanism for computing the "profit of the business" eligible for deduction u/s. 10B of the Act. The Ld. DR could not po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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