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TMI Blog1997 (9) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... merely break the ships into various sizes of pieces and do not change the character of the materials used from the beginning to the end of the process. He, accordingly, disallowed the claims of the assessees. 3. On appeal, the CITs(A) following the decision of Bombay Bench of the Tribunal in ITO vs. Rama Ship Breaking Yard and the decision of Ahmedabad Bench of the Tribunal in Gujarat Ship Trading Corpn. [sic—Chandu Lal Venichand vs. ITO (1991) 40 TTJ (Ahd) 358 : (1991) 38 ITD 138 (Ahd)] held that ship-breaking was an industrial undertaking and, accordingly, the assessees were eligible for deductions under ss. 80HH and 80-I. The Revenue, in all these appeals, has challenged the above finding of the learned CITs(A). 4. Shri R.K. Choudhary, the learned Departmental Representative vehemently opposed the orders of the CITs(A) and filed elaborate written submissions before us. His preliminary contention is that various ship-breaking units are claiming the deductions under the various sections not only in the State of Gujarat but also in the States of Maharashtra, etc., wherever such ship-breaking activities are going on; that the quantum of deduction with reference to the gross t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections. The learned Departmental Representative has quoted extensively from the said decision in Virendra & Co. and pointed out that the Bombay Bench of the Tribunal again considered a miscellaneous application filed by that assessee and reaffirmed the decision in Virendra & Co. and dismissed the miscellaneous application as reported in as Virendra & Co. vs. Asstt. CIT (1997) 60 ITD 463 (Mumbai). In the said miscellaneous application, the assessee had taken objections regarding the Bombay Bench not following the earlier judgment on the issue, which was in favour of the assessee, which objection was overruled by the Bombay Bench. The Learned Departmental Representative has reproduced certain portions from the said order in miscellaneous application in his written submissions and contended that since the later decision of the Bombay Bench in favour of the Revenue was based on the decision of the Hon'ble Supreme Court in CIT vs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) as well as the later judgment of the Bombay High Court in CIT vs. Sterling Foods (Goa) (1995) 127 CTR (Bom) 30 : (1995) 213 ITR 851 (Bom); the later judgment was binding on other Benches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship for dismantling and in fact the dealer acquired only the old materials and articles contained therein, which was sold by it in the form in which they were acquired and, therefore, no process whatsoever was applied to the goods, much less any process of manufacture. According to the learned Departmental Representative, this decision has a direct bearing on the issue involved in the instant cases and this decision was in fact not brought to the notice of the Tribunal Bench in the case of Virendra & Co., but this decision further fortifies the conclusion drawn by the Tribunal, Bombay. The learned Departmental Representative also pointed out that the above decision of the Bombay High Court was arrived at in spite of a very wide and extended definition to the term "manufacture" given in s. 2(17) of Bombay ST Act, 1959, and further that the Hon'ble Bombay High Court drew support from the decision of the Hon'ble Madras High Court in State of Madras vs. Raman & Co. & Ors. 33 STC 1, which was later affirmed by the Hon'ble Supreme Court as reported in 93 STC 185. On the basis of the above submissions, the learned Departmental Representative concluded that the assessees were not entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing) (10) CIT vs. Best Chem Lime Stone Ind (P) Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj) (11) CIT vs. Ashwin Kumar Gordhanbhai & Bros P. Ltd. (1995) 122 CTR (Guj) 164 : (1994) 212 ITR 614 (Guj) (Cutting tobacco leafs into small pieces) (12) CIT vs. Hindustan Marbles Ltd. (1996) 134 CTR (Guj) 30 : (1996) 219 ITR 655 (Guj) (Cutting & processing of marbles) (13) CIT vs. Kanam Latex Industries (P) Ltd. (1996) 132 CTR (Ker) 178 : (1996) 221 ITR 1 (Ker) (Making centrifugal slates from rubber) (14) B.S. Bajaj & Sons vs. CIT (1996) 135 CTR (P&H) 491 : (1996) 222 ITR 418 (P&H) (Extracting timber from forest) (15) CIT vs. R.C. Construction (1997) 137 CTR (Gau) 486 : (1996) 222 ITR 658 (Gau) (Making chips out of big boulders) (16) V.M. Solgaokar Bros. (P) Ltd. vs. CIT (1996) 130 CTR (Kar) 1 : (1996) 217 ITR 849 (Kar) (17) CIT vs. S.L. Agarwala & Co. (1992) 101 CTR (Ori) 222 : (1992) 197 ITR 239 (Ori) III. SUPREME COURT JUDGMENTS (1) Empire Industries Ltd. & Anr. vs. Union of India & Ors. (1986) 162 ITR 846 (SC) (Process of bleaching etc. of cloth) (2) Ujagar Prints vs. Union of India (1987) 167 ITR 904 (SC) (Process of bleaching amounted to manufacture) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institutions like banks have treated ship-breaking units as an industrial undertaking. The learned counsel, accordingly, concluded that the orders of the CITs(A) be confirmed. 6. Shri G.C. Pipara, the learned counsel for the assessee appearing for Anupam Steel Co. fully supported the arguments put forth by Shri K.C. Patel. He also filed a paper book. His first submission is that the reliance placed by the learned Departmental Representative on the decision of the Bombay Tribunal in Virendra & Co. was not proper and for this, he relied upon the observations of the Delhi Bench of the Tribunal in the case of Degrimont India Ltd. vs. Dy. CIT. According to Shri Pipara, the process of breaking up of the ships, boat and other floating structure amounted to 'manufacture' for the purpose and within the meaning of s. 2(f) of the Central Excise and Salt Act, 1944, which defined 'manufacture' in its well accepted legal sense (sic) jurist and not with reference to an artificial and statutorily extended import, as argued by the learned Departmental Representative. He brought to our notice the fact that during the year under appeal his client had paid excise duty of Rs. 3,44,561 which had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Shri K.C. Thakker, it is to bring about these articles that these units are carrying on business, and not for breaking ships. He drew our attention to the observations of the Hon'ble Supreme Court in the case of N.C. Budharaja & Co. at page 243 and submitted that the Hon'ble Supreme Court has adopted the same interpretation of the word 'manufacture' and the emphasis is not so much on the processes employed, but on the changes brought about in the commodity that has undergone the processes. In short, if the end product could be regarded as a different article as compared to the original commodity then 'manufacture' can be said to have taken place. He, therefore, strongly supported the orders of the learned CITs(A). 8. Shri N.B. Shah, the learned counsel appearing for International Steel Corpn. and Shri N.R. Divatia, the learned counsel appearing for Crown Steel Corpn., fully supported and subscribed to the submissions made in the course of hearing by Shri K.C. Patel, the learned senior counsel. 9. In the rejoinder submitted by the learned Departmental Representative Shri R.K. Choudhary, he referred to page Nos. 2 and 9 of the paper book filed by Shri K.C. Patel, wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is only when the 'process' results in the emergence of a new and different articles having a distinctive name, character or use, that 'manufacture' can be said to have taken place. Similarly, 'production' is wider than 'manufacture'. As a result, every production need not amount to manufacture though every manufacture can be characterised as 'production'. On a careful reading of s. 80HH of the IT Act, 1961, in the light of the scheme thereof and other provisions of the Act, it is clear that the legislature intended to extend the benefit of deduction under s. 80HH only to the industrial undertakings which manufacture or produce articles. This section was not intended to be applied to industrial undertakings which are engaged in 'processing of goods' not amounting to manufacture or production of articles. The ship-breaking activity involves buying of damaged and unserviceable ships which are otherwise uneconomic to run for the purpose of breaking and scrapping and sale of various goods and scrap obtained from such breaking and dismantling of old and used ships. 'Process' is employed for breaking ship for dismantling and selling the scrap, and substantial part of the items namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein which were sold by it in the form in which they were acquired. No process whatsoever was applied to the goods, much less any process of manufacture. 11. In State of Madras vs. Raman & Co. & Ors. decided by the Hon'ble Madras High Court, the assessee, a dealer in scrap iron, purchased in auction condemned railway coaches sold by railway department and also components of Nissen huts sold by the resultant timber and iron materials in bulk. The question for consideration before the High Court was whether the sale of scrap by the assessee was the first sale taxable under the provisions of the Madras General ST Act as contended by the Revenue or it was second sale exempted from tax as contended by the assessee. The assessee's contention was upheld by the Tribunal. On a revision, the Hon'ble High Court held that though the sales by the railways and the Director of Supplies and Disposals were not sales of scrap iron as such, the intention of the sellers and buyers could be taken to be to sell or buy condemned articles only for the purpose of acquiring the property in the old materials contained in those condemned articles and, therefore, what the assessee purchased in the auct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognised ship-breaking as industry and, hence, the assessees are entitled to deductions under ss. 80HH and 80-I, we are of the opinion that there is no presumption that every industry is engaged in 'manufacture' or 'production of articles or things'. Even if ship-breaking is considered as an industry in the light of the definition in s. 2(f) of the Industrial Disputes Act, 1947, it would not mean that it would amount to manufacture or production so as to entitle the assessees to claim deductions under the respective sections. The assessees being governed by the Factories Act also would not change the matter in any way, because that is broadly meant for welfare of labourers employed. The argument that the ship-breaking industry is labour intensive and that in the process, heavy machinery like cranes and winches are employed is not relevant in the absence of any manufacturing process involved. Mere application of systematic and sophisticated process would not turn an activity into manufacture. Once the ship is broken, the unit basically is a scrap dealer and nothing else. The Govt. Departments recognising the ship-breaking as an industry is also of no avail; so is the treatment given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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