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TMI Blog2003 (7) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from manufacturing activities and hence the disallowance of Rs. 1,03,99,474 out of claim of deduction under s. 80-IA ought to have been deleted." 2. The assessee is a manufacturer of tin container components, 'tin sheets cut to size' and tin containers having its factory situated at Silvassa. In this case a survey action under s. 133A was conducted on 7th Jan., 2000, at the business premises of the assessee at A-62, Industrial Estate Road No. 22, Thane (West), and the assessee's factory premises at Silvassa. A notice under s. 148 of the Act was issued to the assessee on 16th March, 2000. In response to this notice, the assessee stated that the return of income filed on 30th Nov., 1998, may be treated as has been filed in response to notice under s. 148. 3. The grounds of appeal filed by the assessee pertain to the claim of deduction under s. 80-IA of the Act. After calling for the various details from the assessee, the AO observed that the industrial undertaking atleast satisfies the basic conditions enumerated in s. 80-IA. At the time of assessment proceedings, the assessee explained that the components are intermediaries on which embossing is done. According to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of these items is eligible for the deduction under s. 80-IA. However, (for) the third component, i.e., 'tin sheet cut to size' the assessee is not eligible for the deduction under s. 80-IA, because it cannot be said to be manufacturing. According to the AO, the input tin sheet metal and output also remains the sheets though cut to the required size. Therefore, according to the AO, tin sheets cut to size are not eligible for deduction under s. 80-IA. The AO referred to the decision of the Hon'ble Supreme Court in the case of Union of India vs. Delhi Cloth General Mills Co. Ltd. AIR 1963 SC 791, wherein the word manufacture has been defined as follow : "The word 'manufacture' used as a verb is generally understood to mean bringing into existence a new substance and does not mean merely to produce some change in a substance, however minor in consequence, the change may be. This distinction is well brought about in a passage thus quoted in permanent edition of Words and Phrases, Vol. 26, from an American judgment. The passage runs thus: 'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y vs. Devidayal Electronics Wires Ltd. 66 ELT 198 (Bom), the process of reducing thickness of copper wire bars or wire rods amounts to processing and not manufacturing. (iv) CIT vs. Lucky Minerals (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj), cutting of boulder (marble block) into slabs is not manufacturing though it involves use of machinery and skill. In view of the ratio of various case laws discussed above which included that of the jurisdictional High Court and Supreme Court on the various benefits claimed by the assessee under the Act or other statutes, the AO came to the conclusion that even if some process was involved but the resultant article was not materially different than the item fed into the process, it was not held to be manufacture or production of an article or thing entitling the assessee for the benefits. 6. The learned CIT(A) placed his reliance on the Supreme Court decision in the case of CIT vs. N.C. Budhiraja Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC), wherein the Hon'ble Supreme Court has laid down that the test for determining whether a manufacture can be said to have taken place is whether the commodity which is subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the CIT(A), since the product tin plate in a particular size and shape is not substantially and essentially different from what is acquired as a raw material in rolls, the process in itself, therefore, cannot be held as manufacturing. The learned CIT(A) has further stated that at best, it can be considered as a part of the overall manufacturing process. Coming to the submissions of the assessee that where there are two views possible the one in favour of the assessee should be adopted, the learned CIT(A) has stated that in the case of N.C. Bhudiraja Co., the apex Court has observed that the principle of adopting a liberal interpretation which advances the purpose and object of beneficial provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. The learned CIT(A) also referred to the decision of the Supreme Court in the case of Kesavaji Ravji Co. vs. CIT (1990) 82 CTR (SC) 123 : (1990) 183 ITR 1 (SC), wherein the Hon'ble Supreme Court has observed that artificial and undue latitudinarian rules of construction with their general tendency to give taxpayer a brake or out of place where the legislation has a fisca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in photograph 14 and then the top and bottom is seamed assembled as shown in photographs 15, 16 and 17, after the can is assembled as shown in photograph No. 18. After assembling the soldering is done with a hand as shown in photographs 18, 19 and 20. After soldering the handle is also put on the can hereby completing the cans for despatch." 10. The learned counsel also produced before us the various photographs mentioned in the manufacturing process. The learned counsel stated that tin plates are cut into the desirable size on a foot sheering machine, which is more popularly known as cutter. The sheet is first cut into strips, which are further cut into the desirable size of the component. It could be round, rectangular and accordingly, the tooling is fixed in the hand press and the pressing is done to put the necessary marks to give the strength to the component by way of embossing, etc. He further explained that the component could be ends of the can which are known as top and bottom, they could be the body of the tin containers. The learned counsel thus contended that the making of the component is a very precision process which requires skill and series of processes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials by giving these materials new forms, qualities, properties or combinations, whether by hand labour or by machinery. In other words, it means making of articles or materials commercially different from the basic components by physical labour or mechanical process. In its ordinary connotation, manufacture signifies emergence of new and different goods as understood in the relevant commercial circles. The learned counsel also referred to the meaning of the word "produce" and contended that though the word "produce" has a wider connotation than the word "manufacture", it takes in bringing into existence new goods by a process which may even not amount to manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. Nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of processing at each stage, with each process suffered, the original commodity experiences a change. But, it is only when the change or a series of changes, take the commodity to the point where commercially it can no linger be regarded as original comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or produce any article or thing". The learned counsel contended that in the case of the assessee-company, the final produce is a new commodity with a distinctive name, character and use. The learned counsel referred to the Supreme Court decision in the case of Pio Food Packers, wherein the Hon'ble Supreme Court has applied the test as follows: "There are several criteria for determining whether a commodity is consumed in the manufacture of another. The general prevalent test is whether the article produced is regarded in the trade by those who deal in it as distinct in identity from the commodity involved in its manufacture." In the case of Dy. CST vs. Coco Fibres 80 STC 249, the apex Court applied the aforesaid test and held that the coconut husk and coconut fibre made therefrom, are commercially different items despite the fact that the ingredients remained substantially the same. The learned counsel, thus, contended that in the present case also, the end product is a new commodity used by the manufacturers of containers, with a distinctive name, character and use. The learned counsel also referred to the decision of the Supreme Court in the case of Atul Glass Industries (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the learned counsel placed his reliance on the following Court cases: (i) Bajaj Tempo Ind. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC), wherein it has been held that "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it." (ii) Grackwar Foam Rubber Co. Ind. vs. CIT (1959) 35 ITR 662 (Bom), wherein it has been held that "there is some difference of judicial opinion about the cannon of construction applicable to a provision for exemption in a taxing statute. In CIT vs. Chhaganlal Co. my Brother Tendolkar and I, although we took different paths, were agreed that a provision relating to exemption must as far as possible be liberally constructed and in favour of the assessee, provided in doing so no violence was being done to the language used. But in this case, as we have already mentioned, we find no difficulty in interpreting the relevant provision of the Act. If we had found any difficulty, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to the AO during the course of assessment proceedings. On p. 3 of the letter the assessee has stated as follow: "Our input is tin sheets but output is tin sheets cut and shaped, embossed, and includes tin containers ready manufactured therefrom. The photographs have already been submitted." Thus the learned counsel contended that the learned Departmental Representative has raised this issue without verifying the facts of this case, which were very much before the AO. The issue of embossing was brought to the notice of the AO during the course of assessment proceedings and the contentions raised by the learned Departmental Representative that this issue was neither taken before the AO nor before the CIT(A) is without any substance. 18. We have carefully considered the submissions made by the rival parties. We have also gone through the various documents and Court cases referred by both the parties. The assessee is a closely held public limited company incorporated under the Companies Act, 1956, and engaged in the business of manufacturing of tin containers and allied products. The assessee-company is a small scale industrial undertaking set up in specified backward area and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch embossing has been done is totally different from the raw materials, i.e., tin plates/tin sheets. These 'tin sheets cut to size' cannot be restored back to the original tin plates/tin sheets. Therefore, these tin sheets cut to size are totally different and are also separately saleable in the market as an independent and separate commodity. These 'tin plates cut to size' are commercially known as different product from the materials out of which it is so produced. These 'tin sheets cut to size' are having different name and the same are identified by the buyers and sellers as different product and they are bought and sold as a distinct product from its raw materials which are known as tin plates/tin sheets. In this case the end product, i.e., 'tin sheet cut to size' is different from the tin plates/tin sheets. This is, therefore, sufficient to meet the requirement of producing. Therefore, the process involved in converting the tin plates/tin sheets into 'tin sheets cut to size' and embossing on them is a manufacturing process for producing a new commodity, which is different from the original commodity. 20. The Hon'ble Madras High Court in the case of CIT vs. M.R. Gopal (1965) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versed the finding recorded by the CIT under s. 263 and held that the assessee was entitled to the benefit of deduction of tax under s. 80-I. On appeal, the High Court held that the assessee was transforming the plain glassware into decorative glassware with a process which was irreversible and the end product was distinct and different in character and it was marketed as a commodity different form plain glass. The assessee was entitled to the benefit of s. 80-I of the Act. In the case of Aspinwall Co. Ltd. vs. CIT (2001) 170 CTR (SC) 68 : (2001) 251 ITR 323 (SC), the Hon'ble Supreme Court defined the word "manufacture" as follows: "The word 'manufacture' has not been defined in the IT Act. In the absence of a definition of 'manufacture' (it) has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations, whether by hand labour or machines. If the change made in the article results in a new or different articles then it would amount to manufacture activity." 21. In the present case, the assessee was engaged in the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though there is some processing involved. Thus, the Courts held that the processing of prawns for making them fit for the market cannot be held to amount to "manufacture of prawns". Here also, the facts of the present case are entirely different from the facts of the cases relied upon by the Department. In the present case, the end product manufactured by the assessee is entirely different from the raw material. The same is having distinct name, character and is also saleable independently in the market. In the case of Municipal Corporation of Greater Bombay vs. Devidayal Electronics Wires Ltd. 66 ELT 198 (Bom), the Hon'ble High Court has held that the process of reducing thickness of copper wire bars does not amount to manufacturing. In this case the reduction in thickness of copper wire bars was done in routine manner and the commodity is not different from the raw material used for the production. The copper wire remains copper wire, therefore, the question of any manufacturing process in this case does not arise. We do not understand how this case is relevant to the present case. In the present case, 'tin sheets cut to size' are semi-finished goods for the manufacture of con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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