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TMI Blog2020 (5) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... , Manager of the assessee that the assessee was not doing any manufacturing or processing activity but only mixing and repacking various ingredients and thus no finished product distinct from the raw material has come into existence, which may fall within the meaning of words "manufacturing, processing and production" as enunciated under the provisions of section 80IC of the IT. Act, 1961". 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of deduction u/s 80IC by holding that the assessee's claim for deduction in the original assessment in the relevant year and preceding years was thoroughly examined and thereafter allowed and holding the action of the AO of disallowing the assessee's claim for deduction u/s.80IC in the assessment u/s. 143(3) rws 153A as not justified.'' 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim for deduction u/s.80IC of the IT. Act, 1961, without appreciating the fact that the essential requirement to be eligible to claim the said deduction u/s 80IC of the I.T. Act, 1961 was not fulfilled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than 1,500 raw materials which are being used for manufacturing. The finished goods produced are also more than 500 all of which are different from each other. The finished goods manufactured by the assessee are used in various industries which include (but are not limited to) skin care products, detergents and toilet soaps, consumer edibles, incense sticks and room fresheners, industrial perfumes and flavors used by pan masala and other industries. He furnished price list of the firm showing the nature and type of finished goods manufactured or produced and it was submitted that each of the above category of the product require the different chemical compositions and properties. For example, an essence of rose has to have different ingredients when it is used in a toilet soap, as an agarbatti compound, as a food flavor and as a perfume spray etc. He submitted a flow chart in this regard and pointed out that the process of manufacture involves melting, grinding, mixing, stirring at optimal temperature to produce a distinct product. There is proper reaction amongst the products to produce a distinct flavor or fragrance. It was submitted that a perfume or a flavor may involve from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n XIII Schedule. Our attention was also drawn towards the definition of 'manufacture' as given u/s 2(29BA) of the Act. The reliance was placed on the following case laws: (i) CIT vs. Vinbros & Co. 349 ITR 697 (SC) (ii) CIT vs. Vinbros & Co. 218 ITR 634 (Mad) (iii) Shree Par Frangrances (P) Ltd. vs. Income Tax Officer 20 SOT 440 (Mum) (iv) Natural Frangrances Bhimtal vs. DCIT Nainital, I.T.A. No.4183/Del/2011 (Del) (v) DCIT Nainital vs. Natural Fragrances 219 TM 28 (Mag) (Uttaranchal) (vi) CIT vs. Innovative Industries (Guj) I.T.A. No. 2570 of 2010 (vii) Income Tax Officer Udaipur vs. Arihant Tiles and Marbles (P) Ltd. 320 ITR 79 (SC) (viii) Shree Veer Aromatic Herb Products vs. Income Tax Officer 147 ITD 86 (Del) (ix) Madhu Jayanti International Ltd. vs. DCIT 137 ITD 377 Kolkatta (SB) (x) Shree Bhavani Minerals vs. CIT, I.T.A. No.68/PNI/2013 (Goa) (xi) Fiberfill Engineers vs. ACIT, I.T.A. No.1853/Del/2015 (xii) Aspinwall & Co. Ltd. vs. CIT [2001] 251 ITR 323 (SC) 5.3 Learned counsel for the assessee vehemently contended that if this Tribunal wants to verify whether the product or the article produced by the assessee is different from the raw material havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yde C 18 0.1 2 Benzyl Phenyl Acetate 2.4 3 Benzyl Alcohol 5 4. Benzyl Acetate 36.5 5 Benzyl Butyrate 0.5 6 DEP 36 7 Ebanol 0.2 8 Galaxolide 100% 2.1 9 Hexyl Cinnamic Aldehyde 1.7 10 Hedione 0.4 11 Indole 2.5 12 Linalool 6.1 13 Methyl Anthranilate 2.8 14 Folione 0.015 15 Phenyl Ethyl Alcohol 1.7 16 Sandela 2 17 S Absolute 0.1 5.6 The chemical engineer has also brought the small bottle showing the fragrance and the smell of the product which were handed over to Learned D. R. On the basis of the demonstration held before us, we noted that the product being produced by mixing the various chemicals is entirely different from the raw material. Its usage as well as the utility is different. It cannot be converted again in the same form of the raw material. It has resulted in the transformation of the object or the article which is entirely new and distinct having a different name, character and use. We noted that the provision of section 80IC was inserted in the statute by the Finance Act, 2003 with effect from 2004. Section 80IC nowhere defines the word 'manufacture' or 'production' of an article. We noted that the word 'manufacture' or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression 'manufacture' as under:- "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining". 5.9 This definition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) 'Manufacture' shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. 5.10 As per the said definition 'process' is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defining the expression "manufacture" as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) Resulting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to processing of the commodity. The nature and extent of change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta Vs Commissioner of Commercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. We do not agree with Learned D. R. that there is not any change in physical and chemical composition of the output than the input as is being processed in the case of the assessee. If we go to section 2 sub-section (29BC) inserted with effect from 01/04/2009, we find that clause (b) of this section clearly states that bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure, tantamount to manufacture. Even though they remain in liquid form but it is not a case that all the ingredients which are being mixed are in liquid forms. The taste as well as the smell and the utility of the input and the output which we have seen during the course of demonstration in the court, are entirely different. In our opinion, in view of this clause and the decision of Hon'ble Supreme Court in the case of Chowgule & Co. (supra), it cannot be held that the assessee is engaged in these units in manufacturing. 5.13 Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon'ble Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423): "The word " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ceylon Tea Supplying Co. Vs. State of Bombay [10 STC 500 (Bom HC)]. The assessees in this case were registered dealers in tea under the Bombay Sales Tax Act, 1953 and they purchased in bulk diverse brands of tea and without the applicationof any mechanical or chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been 'processed' after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as 'processed' within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 8(3)(b) and Rule 13 and the mechanical ore handling plant fell within the description of "machinery, plant, equipment" used in the processing of ore for sale...... " 5.17 In deciding the said question, the Hon'ble Supreme Court after considering the judgment of the Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed as follows: (i) When different brands of tea were mixed by the assessee as in Nilgiri Ceylon Tea Supplying Co.'s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, 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 (292 ITR 444 (SC) relied upon 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 or thing, but is only processing. Hon'ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her spices, etc. The assessee, as per the claim is a 100% EOU within the meaning of section 10B of the I.T. Act, 1961 and claimed exemption under that section. The assessee buys tea from auctions held in Tea Board recognized Auction centres at Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 "test bag" have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions "manufacturer", "Buyer", "Packet Tea", "Tea Bag",- "Green Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Marketing) Control Order, 2003, The Tea (Distribution & Export) Control Order, 2005 as well as the Rules and Regulations framed by the Tea Board and also Calcutta Tea Traders Association from time to time as discussed above. 35. We find from the above facts and circumstances and case laws relied on by bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 parlance, and it includes processing, blending, packaging etc. In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaken by the assessee was manufacture or production? In this case, the Hon'ble Supreme Court after discussing various cases, the provisions of different Acts and the dictionary meaning took the view that the assessee was engaged in manufacture / production. While holding so under para 12 of its order, Hon'ble Supreme Court has given the same analogy for the purpose of eligibility of deduction under section 80HH and 80-I as has been given by the Kerala High Court in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon'ble Apex Court accepted that manufacture/production includes processing also. 5.26 We have also gone through the decision of Hon'ble Supreme Court in the case of ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79(sc). In this case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on' as after processing marble block no more remains as marble block. This decision has also duly considered, in our opinion, whether the activity of processing is manufacture / production. 6. In view of our aforesaid discussion, we hold that the assessee is engaged in manufacturing and production of an article and therefore, the assessee shall be entitled for the deduction available u/s 80IC of the Act. We accordingly confirm the order of CIT(A) as in our opinion, no illegality or infirmity is found in the order of CIT(A). 5. Dealing with exactly the same grounds of appeal in the case of sister concern Khushbu Industries, and vide order on ITA Nos. 2164 to 2169/Mumbai/2018, a coordinate bench has dismissed identically worded appeal and added as follows: 5. Learned Departmental Representative, however, urges us not to follow the aforesaid order. He submits that even though the aforesaid order is confirmed by Hon'ble jurisdictional High Court, Their Lordships have confirmed the order on technical grounds and not on merits. He also submits that what has been termed as production is just mixing up of products and repacking the same. In support of this contention, he relies upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: 5. The pronouncement may be in any of the following manners :- (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite clearly, "ordinarily" the order on an appeal should be pronounced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown". Hon'ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, "It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly", and also observed that "arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020". It has been an unprecedented situation not only in India but all over the world. Government of India has, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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