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TMI Blog1996 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany in coffee curing and its sale. This activity has become the subject-matter of " investment allowance " under section 32A of the Income-tax Act, in relation to machinery or plant installed in a small-scale industrial undertaking for the purpose of business of manufacture or production of any article or thing. This activity of coffee curing and sale for the assessment year 1978-79 of the same assessee-company has been the subject-matter of an earlier judgment dated August 12, 1993, in I.T.R. No. 46 of 1991 (CIT v. Aspinwall and Co. Ltd. [1994] 207 ITR 353), wherein this court, being unable to answer properly and satisfactorily the factual position, declined to answer the situation as to whether any manufacturing activity or process is involved in curing coffee. Learned counsel has produced before us a copy of the judgment of the Income-tax Appellate Tribunal to know exactly as to what is " curing coffee " and the factual position in regard thereto. Before dealing with the factual position on the basis of the said fact-finding by the Appellate Tribunal, it would be beneficial to know what is understood by " coffee " as is generally known in commercial parlance. The said gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the assessee-company. The Tribunal has also noted that this was embarked upon by it, so as to enter a finding of fact. This was also done in the presence of both the parties through their representatives. The factual observations of the Tribunal as a result of the inspection found necessary deal with the following nine aspects in the curing of coffee : " (1) Receipt of coffee from the estates; (2) Storage of coffee in covered godowns; (3) Drying of coffee to the required standards prescribed by the Coffee Board in drying yards; (4) Hulling/pealing/polishing; (5) Grading of coffee mechanically; (6) Colour sorting; (7) Garbling and manual grading; (8) Out-turning of garbled coffee; and (9) Bulking ". The Tribunal has also found that to deal with the nine aspects, the assessee has the factory area where godowns for storage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc., are located. In the curing of coffee, certain processes are involved and they are also spread over by the Tribunal. The first is the process of drying. Thus, curing operations start with the drying of coffee in the drying yards in bright sunlight. Then comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elements of finality in regard thereto, even with regard to other assessment years, we proceed with our further reasoning as to whether any relief under section 32A of the Income-tax Act would be available, dwelling upon the above fact finding, which is specified by us hereinbefore with the benefit of the copy thereof placed for our consideration by learned counsel. Section 32A of the Income-tax Act deals with the question of investment allowance. It is in respect of the ship or aircraft or machinery or plant specifically spoken of in section 32A(2) thereof. In the proceedings before us, obviously, the investment allowance would be with reference to machinery or plant. The further step that is required in regard thereto is the ownership by the assessee and an additional requirement that it is wholly used for the purpose of the business carried on by the assessee-company. If these things are established, deduction can be allowed with regard to the machinery or plant installed in the immediately succeeding previous year. The percentage of the said investment allowance, unnecessary for our purpose, is also stated in the said statutory provision. The above statutory provision has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking or hotel business requiring the court to determine the exact nature of the activity, whether it relates to a situation of manufacture or production in relation to the process undertaken by the assessee concerned. Learned senior tax counsel also submitted before us that the courts are required to consider the nature of the activity whether it amounts to manufacture and/or production in regard to the process involved in regard thereto, also for the purposes of levy of tax and duty of excise. He submitted that in regard to necessary and relevant statutory provisions of the Kerala General Sales Tax Act (section 5A thereof) and the Central Sales Tax Act (section 5(3)), the concerned authorities are required to determine the nature of the process as to whether there is any element of manufacture and/or production in regard to the process undertaken by the person claiming deduction on the basis thereof. Illustratively in the context, learned senior tax counsel pointed out the provisions of section 5A of the Kerala General Sales Tax Act and submitted that apart from the question of levy of tax, the courts otherwise also are required to determine the nature of the activity for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 141 of the Constitution of India to the effect that the declaration of law made by the Supreme Court has an absolute binding character, on all courts within the territory of India and on the basis thereof contended that even if in a given situation, a distinction is made out to the effect that the decisions of the apex court rendered under the provisions of the Income-tax Act, 1961, would not govern the situations required to be considered with reference to proceedings either under the Sales Tax Act or under the Central Excise Act, such a situation can never be meaningful in terms of article 141 of the Constitution. Learned senior tax counsel submitted that the question is completely answered by the above decisions of the apex court. Learned senior tax counsel also submitted that reading the factual peculiarities of the said four decisions of the apex court, the question would not be leaving any doubt in regard thereto, because the apex court had an occasion to consider the situation with reference to the meaningful nature of activities and that the apex court had considered the situation with regard to the problem relating to the claim for deduction by a contractor engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered all the cognitive related terms such as " manufacture, production, produce, article " to understand the meanings thereof. It is observed in the process of reasoning that the test for determining whether manufacture can be said to have taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. In this process of reasoning, reliance is placed by the apex court on its earlier decision in Pio Food Packers [1980] 46 STC 63 (SC). Then, the word " production " is considered to be of a wider connotation than the word " manufacture ". It is observed that while manufacture can be characterised as production, every production need not amount to manufacture. The word " production " or " produce ", when used in juxtaposition with the word " manufacture ", takes in bringing into existence new 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. It is also observed that the expressions " manufacture " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal commodity is made to pass and to record thereafter that with each process suffered, the original commodity experiences a change and it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. It is in this process, the word " manufacture " is understood as bringing into existence new goods by a process which may or may not amount to manufacture. Thereafter, it is emphasised that all by-products, intermediate products and residual products which emerge in the course of manufacture of goods are also to be taken into consideration. Thereafter, the question is posed as to what does " article " mean, being conscious that the word " article " is not defined in the Act or in the Rules. The apex court has emphasised that, therefore, the word " article " would have to be understood in its normal connotation---that the sense in which it is understood in the commercial world. In the context, it is observed that the word " article " is preceded by the words " it has begun or begins to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the words " manufacturing and processing ". In fact, a paragraph from Chowgule's case [1981] 47 STC 124 (SC) is found quoted at page 659 of the report, again to emphasise the experience of some change as a result of the processing. The apex court also has relied on the said judgment accepting the proposition with regard to the experience of a change emphasising that the said aspect also received endorsement elsewhere, In fact, we find from the judgment that the Allahabad and the Calcutta High Courts' decisions had been overruled taking a contrary view relating to the process of air-conditioning as a process of storing articles showing a change in regard thereto. Thus, we find that the same principle has been considered with regard to the cold storage activity of the assessee under the Income-tax Act with the aid of its earlier decision dealing with the liability under the Sales Tax Act. Still going back in the process, is a third decision of the apex court in Pio Food Packers' case [1980] 46 STC 63 (SC). The apex court in that case was concerned with a question of purchase tax deductions in relation to the activity of processing of pineapple fruits into pineapple slices for bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysical properties. It has also considered the question of raw tobacco manufactured into chewing tobacco as well as paddy dehusked into rice, in order to deal with the situation and contention where the original commodity would appear to have undergone a change as a result of the degree of processing. A situation of hydrogenated groundnut oil whether to be regarded as groundnut oil or not as well as bristles plucked from pigs, boiled, washed with soap and other chemicals and sorted out in bundles according to their size could be considered as the same commercial commodity as pig bristles has also been considered leading to the proposition enunciated hereinbefore. The fourth decision of the apex court in Sterling Foods' case [1986] 63 STC 239 relating to the applicability of section 5(3) of the Central Sales Tax Act statutorily requiring that the goods which are purchased by the assessee for the purpose of complying with the agreement or order for or in relation to export, must be the same goods which are exported out of the territory of India. In order to understand as to whether the goods exported are the same, the apex court was concerned with the situation as to whether the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent article is available. In other words, the process concerned in the production of final product is such that during its pathway, there was no situation of change in the context of the commercial necessity as has been emphasised. The situation cannot be understood even as production related to the process of manufacturing taking obvious colour therefrom. The court also will have to consider the situation right from the point of origin down to the final stage in the process under consideration to find out as to whether at any time any change appeared and from stage to stage in regard thereto, the change was such that it related to a commercially distinct article in the process with reference to the stage under consideration. If, on the basis of the examination of the factual matrix before it, the court finds that in the process at different stages a change was perceptible in such a way that commercially from stage to stage different articles appeared and the process was terminated by the final product, the real article, meaningful in the context of its commercial character. In our judgment, whether it is a question of levy of sales tax, whether it is a question of deduction or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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