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TMI Blog2018 (10) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... arts and the end product resulted into a watch. At this stage, the assessee, stated that the assessee is merely screwing up some parts/components, used for manufacturing of the watches. So far as, consumption of electricity is concerned, it was explained that the electricity is used only for light purposes and it is not the case that some machinery used in the process rather broadly the screw drivers are used. Also explained that clearance is granted by the check post by the Excise and the VAT department for raw material as well as for finished watches/end product and the sales tax returns and excise returns filed by the assessee for every quarter has been accepted by the receptive Department. The assessee, during hearing before us, also filed the photocopy of the wages register to demonstrate that employees were employed and due wages were paid, therefore, it cannot be said that the assessee is not dong manufacturing activity. So far as, carrying forward losses of the unit eligible for 80IC deduction is concerned, the issue has been dealt with in para 2.3.7 of the impugned order in which also, we find no infirmity. Thus, the stand of the Ld. Commissioner of Income Tax (Appeal) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer rejected the claimed deduction on the plea that no manufacturing activity was actually done by the assessee and thus total income was computed at ₹ 2,02,62,603/-. 2.3. On appeal before the Ld. Commissioner of Income Tax (Appeal), the factual matrix was considered and finally the assessee was held to be eligible for claimed deduction under section 80IC of the Act. The Revenue is aggrieved and is in appeal before this Tribunal. We find that the assessee sold 8,57,826 watches resulting into sales of ₹ 13,30,03,065/-. The addition was made by the Ld. Assessing Officer that with the small use of electricity and with the help of only thirteen employees, the manufacturing/sale of a such magnitude is not possible., whereas, the Ld. Commissioner of Income Tax (Appeal) while coming to a particular conclusion observed that while making the addition, the Ld. Assessing Officer disregarded the entire manufacturing activity carried out by the assessee. It was further observed that the assessee is merely assembling the parts of the watches like cases, dials, movements and straps, etc., thus, no sophisticated machinery is used and merely the parts are assembled. Admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate proceedings as well as during the course of assessment proceedings detailed the assembling of its quartz watches (page No.188 to 190 of paper book submitted to the AO on 30.12.2013). In the same the appellant has stated the components used for the manufacturing of watches. The production process had been detailed in 12 steps from opening the dials from butter paper to testing and packing of the watches. 2.3.4 The appellant has further explained the confusion with regard to the . usage of electricity during the night and day stating the difference in units shown kVA and kWh. 2.3.5. As far as whether the appellant has manufactured/assembled 859 198 watches during the year, the Assessing Officer has stated that it is not possible considering the number of employees, amount of electricity used and the machinery employed. The appellant on the other hand has provided clearances obtained by it at the check post by the excise and VAT department for the raw materials and furnished its sales tax returns, the excise returns filed by it every quarter of the number. of watches manufactured and sold, the customers who placed the orders, register for raw materials etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of the undertaking or enterprise. (6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section94. (8) For the purposes of this section,- (i) Industrial Area means such areas, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r thing. The assessee unit was established in the area/backward area, wherein, specific concession was guaranteed and manufacturing is not in dispute, therefore, it is a beneficial section, therefore, the benefit cannot be denied to the assessee. So far as, whether assembling is a manufacturing or not is concerned, there are so many decisions, wherein, it has been held that assembling tantamount to manufacturing as the end product is commercially known differently. So far as, the expression derived from or derived by is concerned, it has been elaborated in various decisions including NOCI Ltd vs Collector Central Excise, (1997) 106 STC 467, 470 (Supreme Court), ratio laid down in Great Eastern Shipping Company Ltd. vs CIT 206 ITR 505 (Bom.), CIT vs UP State Agro Industrial Corporation 180 ITR 370 (All.). So far as, the general tests for manufacture/ production are concerned, we find that manufacturing and processing are not clearly demarcated field. The test of manufacture lies in the answer to the question whether what is processed or produced as end product is commercially known as a different product from the material out of which it was so produced. Therefore, if the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilicate and caustic soda. The only new material used in the detergent soap is LAB in place of fatty acid. This fact clearly show that the detergent soaps are one kind of soap. In the eleventh schedule the phrase mentioned is Soap. In substance, soaps made by using fatty acid or LAB are soap. In view of these facts, it is held that detergent soap manufactured by the appellant are covered by list of prohibited articles and things as given in the Eleventh Schedule hence the appellant is not entitled for deduction u/s 80IB. The disallowance of deduction u/s 80IB at ₹ 6,63,956/- is confirmed. This ground of appeal is dismissed. 3.2. If the aforesaid conclusion drawn in the impugned order is analysed, one of the basis for such rejection is that the soaps are covered in the prohibited articles and things as provided in Eleventh Schedule, therefore, we are reproducing hereunder the list/things of negative list (as provided in Eleventh Schedule) :- i. Beer, Wine and other alcoholic spirits ii. .... iii. .... iv. Toothpaste, dental cream, tooth-powder and soap v. .... vi. .... (11 - 21) omitted by the Finance Act, 1981 with effect from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le were kept sweet-smelling by the action of perfume rather than soap. However, the current widespread use of soap is only a very recent occurrence, despite the fact that it has been made for more than 2500 years. The first recorded manufacture of soap was in 600BC, when Pliny the Elder described its manufacture by the Phonecians from goats tallow and ash, and it was known among the British Celts and throughout the Roman Empire. However, these people used their soap medicinally, and it was not until the second century AD that it was used for cleaning, and not until the nineteenth century that it began to be commonly used in the Western world. Early this century the first synthetic detergents were manufactured, and these have now taken the place of soap for many applications. Their manufacture is covered briefly in the second part of this article. I - Detergents-A -Soap-I The Chemistry of Soap and Detergent Function All soaps and detergents contain a surfactant' as their active ingredient. This is an ionic species consisting of a long, linear, non-polar 'tail' with a cationic or anionic 'head' and a counter ion. The tail is water insoluble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the viscosity and colour of the soap. XXXXXXXXXXXXXXXXX Once the spent lye has been removed the soap is dried, chipped, mixed with other additives such as perfumes and preservatives and then plodded (squeezed together), formed into tablets and packaged for sale. There are two different soap-making processes used in New Zealand, and these are both described below. The Colgate-Palmolive Process This is a continuous process (Figure 1) which uses a plant built by Binacchi Co. The process is best understood in terms of two streams: soap flowing in the order given below against a counter-current of lye. Step 1 - Saponification The raw materials are continually fed into a reactor in fixed proportions. Assuming a production rate of 1000 kg wet soap per hour and a 80:20 tallow:coconut oil mix, the raw materials would be fed in at the following rates: coconut oil 525.9 kghr-1 tallow 131.5 kghr-1 50% NaOH solution 3101 kghr-1 Although this is not the formula quantity. it gives a general indication to the process condition. The actual amount is affected by the caustic concentration in half - spent lye. These ingredients alone would gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are quite low, they are still unacceptably high for toilet and laundry soap. The NaOH is removed by reaction with a weak acid such as coconut oil (which contains significant levels of free fatty acids), coconut oil fatty acids, citric acid or phosphoric acid, with the choice of acid being made largely on economic grounds. Some preservative is also added at this stage. Step 6 - Drying Finally, the water levels must be reduced down to about 12%. This is done by heating the soap to about 125 C under pressure (to prevent the water from boiling off while the soap is still in the pipes) and then spraying it into an evacuated chamber at 40 mm Hg (5.3 kPa). The latent heat of evaporation lost as the water boils off reduces the soap temperature down to 45 C, at which temperature it solidifes onto the chamber walls. 11 XI - Detergents- A -Soap- 5 The soap chips are scraped off the walls and plodded (i.e. squeezed together) by screws known as plodder worms to form soap noodles. The soap is now known as base or neat soap chip, and can be converted into a variety of different soaps in the finishing stages. The moisture evaporated off the wet soap is transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s flashed off under vacuum in the same manner as was described above for the Colgate-Palmolive process. Laundry or 'hard' soap manufacture The base soap is mixed with colour and preservatives and milled. Perfume is then added and the mixture plodded then extruded into a continuous bar. This, in turn, is cut into billets and stamped out into tablets ready for packaging. Toilet soap manufacture Toilet soap has less water and more fatty material (fatty acids and soap) than laundry soap. For this reason base soap intended for toilet soap manufacture usually has extra fatty acids added with the preservatives before it is vacuum dried. These ensure that there is no unreacted caustic left in the soap by the time it reaches the consumer, and also make the soap softer. Perfume, dye and opacifier are then added to the dried soap and the mixture milled to . ensure even mixing. It is then plodded and extruded out as a continuous bar, cut into billets and stamped ready for packaging and sale. THE DETERGENT MANUFACTURING PROCESS Detergents use a synthetic surfactant in place of the metal fatty acid salts used in soaps. They are made both in powder a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surfactant - the main active ingredient Caustic soda solution Neutralises the LAS. Coconut diethanolamide or a fatty alcohol ethoxylate Nonionic detergent and foam former Fluorescer Absorbs UV light and emits blue light, causing ageing cotton to appear white rather than Water Dissolves the various causing them to mix better ingredients, Liquid detergent manufacture Step 1 - Soap premix manufacture Liquid detergent contains soap as well as synthetic surfactants. This is usually made first as a premix, then other ingredients are blended into it. This step simply consists of neutralising fatty acids (rather than fats themselves) with either caustic soda (NaOH) or potassium hydroxide. Step 2 - Ingredient mixing All ingredients except enzymes are added and mixed at high temperature. The ingredients used in liquid detergent manufacture are typically sodium tripolyphosphate, caustic sod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh lye. When the glycerin content of the solution reaches 80 - 85% it is pumped to the crude settling tank where more salt separates out. XI - Detergents-A -Soap-I 0 Step 3 - Glycerine purification A small amount of caustic soda is added to the crude glycerine and the solution then distilled under vacuum in a heated still. Two fractions are taken off - one of pure glycerine and one of glycerine and water. The glycerine thus extracted is bleached with carbon black then transferred to drums for sale, while the water/glycerine fraction is mixed with the incoming spent lye and repeats the treatment cycle. ENVIRONMENTAL IMPLICATIONS Soap is designed as a product to be used once then flushed down the drain, so as expected the environmental implications of its manufacture are not nearly so great as many other chemical processes. There are two main areas of concern: the safe transport and containment of the raw materials, and the minimisation of losses during manufacture. The three main components of soap by both cost and volume are oils, caustic and perfumes. Oils and perfume are immiscible in water and if spilled create havoc, although the oils do soli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etergents and shampoos a're highly biodegradable, being made from either natural or synthetic linear C12 - C15 alcohols. Phosphates from detergent products used in New Zealand are independently monitored and have been found to not be an environmental hazard. Detergent powder Detergent powder manufacture has some specific environmental issues associated with it that are not present in other areas of the industry. These are dust control and volatile organic emissions. Dust present during delivery and transfer of bulk powdered detergent (and powdered raw materials) is a potential problem. Dry and wet cyclones are used to filter out most of the dust, and all emissions are monitored. If the dust level in these does exceed acceptable limits, appropriate remedial action is taken. Dust levels in emissions must be kept below 50 mg m-3. The spray drying tower also releases volatile organics. These emissions are minimised by having tight specifications on what can be added as primary detergent active material. Any potentially hazardous material is added with the secondary actives after the tower so that it is not heated. Spot checks are done on the total hydrocarbon content of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent, sodium tripolyphosphate, moisture, soda ash, enzymes and bleach, and monitors physical properties such as dynamic flow rate, compressibility, particle size, colour and perfume. Liquid detergent The product is typically tested for viscosity, pH, cationic detergent (fabric conditioner) content, enzyme content, conductivity (a measure of detergent stability), colour and perfume. Compiled by Heather Wansbrough from two articles, one from Ralph Laing (Colgate Palmolive) and the other from Paul Milson (Lever Rexona) and with reference to: The Enclyclopcedia Britannica (15th ed); Encyclopredia Britannica, Inc.; 1979 Selinger, Ben; Chemistry in the Marketplace (3rd ed.); Harcourt Brace Jovanovich; 1986 XI - Detergents- A -Soap- I 3 Soap is the product of reaction between a fat and sodium hydroxide (Fat + 3NaOH - glycerine + 3 soap). The whole process of both the items is indicative of factor that both the products are altogether different and commercially also known differently. 3.5 For claiming deduction u/s 80IB of the Act, as per subsection (2), the any industrial undertaking has to fulfil the conditions mentioned in the section. As per sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing services (2012) 345 ITR 548 (Raj.) held that computer data processing and sale of computer stationery amounts to manufacturing. v. The Hon‟ble Punjab Haryana High Court in CIT vs HSED Corporation Ltd. held that activity of manufacturing of voter identity card amounts to manufacture. vi. Likewise, in CIT vs Zainav Trading pvt. Ltd. 333 ITR 144 (Mad.) conversion of paper corrugated sheets into paper boxes was held to be manufacturing. vii. Likewise, the Hon‟ble Apex Court in CIT vs Vinbros Company (2012) 210 taxman 252 (SC) held that blending and bottling Indian manufacture foreign liquor would amount to manufacturing. viii. Identically, Hon‟ble Apex Court, in CIT vs Emptee Poly Yarn (P.) Ltd. held that twisting of yarn amounts to manufacturing. ix. Hon‟ble Madras High Court in CIT vs Balaji Hotels Enterprises Ltd. 311 ITR 389 held that printing of paper labeles constitutes manufacturing. x. The Hon‟ble Apex Court in India Cine Agencies vs DCIT 210 taxman 253 (SC) held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing. xi. Hon‟ble Allahabad High Court in CIT vs Shiv Oil Dal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tyre retreading is not manufacturing. c) In Appeejy Pvt. Ltd. vs CIT 77 taxman 208 (Cal.) it was held that packing of tea is not manufacturing thus not entitle to relief. d) Foundation work was not held to be characterized as production or manufacture in CIT vs N.C. Buddha Raja and Company 204 ITR 412 (SC) e) In CIT vs Hindustan metal refining works Pvt. Ltd. 128 ITR 472 (Cal.) it was held that galvanization is not covered within the meaning of manufacturing and thus not entitled to the deduction. f) Rearing of Chicks was not held to be industrial undertaking and thus not entitled to deduction in CIT vs Venkateshawara Hatcheries Pvt. Ltd 237 ITR 174 (SC), Indian Poultry vs CIT 116 Taxman 493 (SC) and CIT vs JD Farms (2010) 187 taxman 151 (Del.) g) In CIT vs Relish Foods 237 ITR 59 (SC) held that processing of Shrimps could not be said to be manufacturing or production. h) Likewise in Bhatsons Acquatic Products vs ACIT 329 ITR 67 (Ker.) held that fish processing does not amount to manufacture or production. i) Likewise in CIT vs Gitwako Pharma (I.)(P) Ltd. (2011) 10 taxman.com 261 (Del.) held that converting raw fish into tinned fish does not amount to manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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