Appeal Details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 1900 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 10 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2018
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
B
Assessment Year
2008-2009
Appeal Filed On
06-10-2016
Judgement Text
, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI, M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 1962 TO 196 6 / KOL / 20 16 ASSESSMENT YEARS :2007-08 TO 2009- 10 & 2011-12 TO 2012-13 DCIT/ACIT, CIRCLE-3(2), GANGTOK, AAYAKAR BHAWAN, INCOME TAXOFFICE, BHANUPATH, NR. WHITE MEMORIAL HALL, P.O. RAJ BHAWAN, GANGTOK-737 103, SIKKIM V/S . M/S UNICORN INDUSTRIES, 3, RAJNIGANDHA BUNGLOWS, B/H SANT KABIR SCHOOL, DRIVE-IN-ROAD, THALTEJ, AHMEDABAD (MANUFACTURING UNIT AT KHASRA NO.786/1064, OPP. NAYABVAZAR, MAJHIGAON, JORTHANG,, SOUTH SIKKIM- 737121 [ PAN NO.AABFV 9520 G ] /APPELLANT .. / RESPONDENT /BY ASSESSEE NONE /BY REVENUE SHRI G. HANGSHING CIT-DR & SHRI S. DASGUPTA, ADDL. CIT-DR /DATE OF HEARING 20-06-2018 /DATE OF PRONOUNCEMENT 31-08-2018 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THESE FIVE REVENUES APPEALS FOR ASSESSMENT YEAR(S) 2007-08 TO 2009-10 AND 2011-12 TO 2012-13 ARISE AGAINST THE CO MMISSIONER OF INCOME TAX (APPEALS)-3 AHMEDABAD IS SEPARATE ORDERS DATED 01.08.2016 IN CASE NO. CIT(A)-3/CIR.3(3)/201/15-16 (FORMER TWO ASSESSMENT YEARS) AND DATED 02.08.2016 IN LATTER THREE ASSESSMENT YEAR(S) IN CA SE NO. CIT(A)-3/CIR- 3(3)/199-187/15-16, INVOLVING PROCEEDINGS U/S. 143( 3) R.W. 147 IN FIRST, SECOND AND FOURTH ASSESSMENT YEAR(S), U/S 143(3) R.W.S. 26 3 IN THIRD AND U/S 143(3) OF ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 2 THE INCOME TAX ACT, 1961; IN SHORT THE ACT IN LAS T ASSESSMENT YEAR; RESPECTIVELY. CASES CALLED TWICE. NONE APPEARS AT ASSESSEES BEHE ST. THE REGISTRY HAD SENT IT AN RPAD NOTICE 25.04.2018. POSTAL AUTHO RITIES HAVE RETURNED BACK THE SAME UNSERVED WITH THE REMARKS M ILLS CLOSED. WE THUS PROCEED EX PARTE AGAINST THE ASSESSEE 2. THE REVENUES IDENTICAL PLEADINGS QUA ITS FIRST AND FOREMOST SUBSTANTIVE GRIEVANCE IN THESE FIVE APPEALS CHALLENGES CIT(A) S ACTION(S) REVERSING THE ASSESSMENT FINDINGS DISALLOWING ASSESSEES CLAIM OF SECTION 80IC DEDUCTION CLAIMS INVOLVING FIGURES OF 436,98,601/-, 32,43,234/-, 80,97,963/- , 57,051,53,98, 19,38,38,674/-;(ASSESSMENT YEAR-WISE) RESPECTIVELY, AS DELETED DURING THE LOWER APPELLATE PROCEEDINGS. THE REVENUE STATES VERY FAIRLY THAT AT THE OUTSET THAT ALL THE RELEVANT FAC T QUA THE ABOVE SOLE ISSUE ARE IDENTICAL IN THESE FIVE ASSESSMENT YEAR(S). WE THER EFORE TREAT ITA 1962/KOL/2016 FOR ASSESSMENT YEAR 2007-08 AS THE LEAD CASE. 3. WE NOW COME TO RELEVANT FACTS. THE ASSESSEE STAT ED TO BE ENGAGED IN MANUFACTURING AND TRADING ACTIVITIES. THE RELEVANT MANUFACTURED ITEMS IS PAN MASALA. THE ASSESSING OFFICER ISSUED SECTION 148 N OTICE DATED 03.03.2014 AFTER FORMING REASONS TO BELIEVE THAT THE INSTANT T AXPAYERS BUSINESS ACTIVITY NEITHER AMOUNTED TO MANUFACTURE NOR PRODUCTION OF A NY ARTICLE OR THING U/S 80IC(2) AND THEREFORE ITS CORRESPONDING DEDUCTION C LAIMED OF 436,98,608/- RESULTED IN ESCAPEMENT OF TAXABLE INCOME FROM BEING ASSESSED. 4. CASE FILE SUGGESTS THAT ASSESSEE FILED ITS OBJEC TION PETITION DATED 16.03.2015 CHALLENGING VALIDITY OF REOPENING. THE A SSESSING OFFICER DECLINED THE SAME IN HIS SEPARATE ORDER DATED 30.03.2015 AS REPRODUCED IN EXTEMPORE IN IMPUGNED RE-ASSESSMENT FRAMED ON 31.03.2011. HE WAS OF THE VIEW THAT THE ASSESSEE INTER ALIA NOT FILED ITS RETURN WITHIN THE STIPULATED TIME OF THIRTY DAYS, SECTION 142(1) NOTICE STOOD ISSUED ON 07.05. 2014 CALLING FOR RELEVANT DETAILS FOLLOWED BY VARIOUS HEARINGS AS WELL AS THE FACT THAT THE REOPENING REASONS SUFFICIENTLY QUOTED THE CORRESPONDING PROCE EDINGS IN ASSESSMENT YEAR 2010-11 INCLUDING THE LEGAL ISSUE OF SECTION 8 0IC DEDUCTION ALONGWITH ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 3 DETAILS OF PLANT AND MACHINERY INSTALLED, LABOUR EM PLOYED, INCONSISTENCIES IN CONSUMPTION OF RAW MATERIAL FOLLOWED BY ANALYSIS OF PURCHASE AND SALES; MADE IT CLEAR THAT THE IMPUGNED RECOURSE TO SECTION 148 PROCEEDINGS HAD BE VALIDLY UNDERTAKEN. 5. THE ASSESSING OFFICER THEREAFTER CAME TO ASSESSE ES PROFIT AND LOSS ACCOUNT. IT HAD STATED ITSELF TO BE ENGAGED IN BUSI NESS OF MANUFACTURING PAN MASALA/MOUTH FRERSHNER; AS PER THE RELEVANT SALES, CLOSING STOCK FINISHED GOODS, RAW MATERIAL CONSUMPTION AND ASSETS DEPRECI ATION DETAILS QUA SECTION 80IC DEDUCTION OF 436,98,608/-. ITS MANUFACTURING UNIT AS PER RECORDS WAS AT KHASRA (NO.786/1064; OPPOSITE NAYABAZAR, MAJHIGAON, JORETHANG, SIKKIM). 6. THE ASSESSING OFFICER THEN ISSUED A DETAILED SHO W CAUSE NOTICE DATED 05.03.2015 INTER ALIA SPELLING OUT VARIOUS CLARIFICATION(S) SOUGHT FROM THE TAXPAYER. BOTH THE LEARNED DEPARTMENTAL REPRESENTAT IVES ARE VERY FAIR IN INFORMING US AT THIS STAGE THAT THE REVENUES GRIEV ANCE IS CONFINED TO ASSESSEES SECTION 80IC DEDUCTION CLAIM ONLY. WE KE EP IN MIND THE SAME TO NOTICE THAT THE ASSESSEES REPLY DATED 16.03.2015; AS PER PAGE 6 IN ASSESSMENT ORDER IN ISSUE, INTER ALIA PLEADED THAT IT HAD COMMENCED ITS MANUFACTURING OPERATIONS FROM 24.04.2006 I.E. DURIN G THE RELEVANT PREVIOUS YEAR ONLY. ITS CASE WAS STATED TO BE COVERED UNDER ITEM SEVEN PART-B OF THE FOURTEENTH SCHEDULE OF THE ACT COMPRISING OF A POSI TIVE LIST OF ARTICLES OR THINGS TO BE FOOD PROCESSING INCLUDING AGRO BASED INDUSTR IES, PROCESSING, PRESERVATION AND PACKING OF FRUITS AND VEGETABLES ( EXCLUDING CONVENTIONAL GRINDING / EXTRACTION UNITS. CASE FILE SUGGESTS THA T ALL THIS FAILED TO EVOKE ASSESSING OFFICERS CONCURRENCE. HE OBSERVED FIRST OF ALL THAT ASSESSEES GRINDING ACTIVITY IN SO-CALLED MANUFACTURING OF PA N MASALA STOOD EXCLUDED IN THE ABOVE ITEM 7 (SUPRA). HE THEN REFERRED TO CENT RAL EXCISE DEPARTMENTS NOTIFICATION DATED 25.04.2007 PROHIBITING PAN MASA LA MANUFACTURING IN SIKKIM VIDE ITS NOTIFICATION DATED 25.04.2007 WIT H EFFECT FROM 01.04.2007. THE ASSESSING OFFICER FURTHER HELD THAT PAN MASALA COULD NOT BE TREATED AS A FOOD ITEM IN VIEW OF NATIONAL FOOD PROCESSING POLIC Y SPECIFYING VARIOUS PROJECTS NAMELY FRUITS AND VEGETABLES, FISHERIES, M EAT AND POULTRY PRODUCTS ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 4 MILK, DIARY, BREWESY ITEMS, CONSUMER INDUSTRYS MAJ OR PRODUCTS & PLANTATION MAJOR PRODUCTS. HE TOOK NOTE OF THE LEGISLATIVE DEV ELOPMENTS INCORPORATING SECTION 80IE OF THE ACT WITH EFFECT FROM 01.04.2007 SPECIFICALLY EXCLUDING THE ABOVE CORRESPONDING MANUFACTURED ITEMS IN THE RELEV ANT LIST. 7. THE ASSESSING OFFICER FURTHER WENT FOR A VERY CO MPREHENSIVE AND DETAILED DISCUSSION ON MANUFACTURING ASPECT OF THE ISSUE. HE OBSERVED THAT THE SAME HAD TO INVOLVE INTER ALIA PRODUCTION OF ARTICLE FROM USE OF RAW MATERIAL BY GIVING SUCH MATERIAL OF NEW FORM, QUALITY, PROPE RTIES BY APPLYING PROCESS UPON THE SAID RAW MATERIAL, MATERIAL CONCERNED TO H AVE UNDERGONE TRANSFORMATION INTO A NEW AND DIFFERENT ARTICLE COM MERCIALLY DIFFERENT FROM THE INITIAL RAW MATERIAL AND THAT THE RELEVANT PROCESS MUST BE CONNECTED WITH THE ULTIMATE PRODUCTION OF GOODS ONLY. THE ASSESSING AU THORITY FURTHER WAS OF THE VIEW THAT ASSESSEES FORM 3CD CONTAINING CAPITAL AS SETS NOWHERE INDICATED ANY FACTORY BUILDING AS WELL AND THEREFORE, IT WAS NOT CLEAR AS TO HOW IT COULD BE HELD TO HAVE BEEN MANUFACTURING ITS SPECIFIED PR ODUCTS. ITS PLANT AND MACHINERY DETAILS ALSO REVEALED MIXER EQUIPMENT OF 35,000/- PURCHASED FROM M/S BHARGAUA ENTERPRISE FOLLOWED BY BATCH COADING E LECTRONICS, WET PAVER GRINDER WITH ELECTRIC MOTOR, 3 SEAL MACHINES WITH P HOTO ELECTRIC CONTROL TO PACK MOUTH FRESHNER AND OVEN WITH STRUCTURE ONLY INVOLVI NG ALL LATTER ITEMS GROSS VALUE OF 5,56,005/- TO CONCLUDE THAT ITS MAIN ACTIVITY WAS T HAT OF MERE PACKING MOUTH FRESHNERS POUCHES ONLY INSTEAD OF HAVING CAR RIED OUT ANY MANUFACTURING AS PER THE DEDUCTION PROVISION IN QUE STION. HE NOTICED FLUCTUATION IN CONSUMPTION OF RAW MATERIAL PURCHASE S AS WELL. NEXT CAME ASSESSEES POWER AND FUEL CONSUMPTION OF 9,116/- ONLY UNREASONABLY HIGH GROSS PROFIT RATIO, PURCHASE SUPPLIERS TO HAVE EITH ER CLOSED DOWN THEIR BUSINESS OR SUSPICIOUS RESULTING ITS DISALLOWANCE O F DEDUCTION CLAIM OF 4,36,98,608/-. THIS FOLLOWED DISALLOWANCE OF PARTNE RS REMUNERATION OF 47,250/- AND TREATMENT OF FIXED DEPOSIT INTEREST IN COME AND EXCISE INCENTIVE RECEIPTS OF 1,300/- AND 295,28,821/-AS INCOME FROM OTHER SOURCES. ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 5 8. THE CIT(A) HAS REVERSED ASSESSMENT FINDINGS AS F OLLOWS:- A . I FIND THAT EFFECTIVE FROM 01.04.2007, THE GOVT O F INDIA HAS NOTIFIED THAT NEW UNIT WHICH MANUFACTURE PAN MASALA FROM 01.04.20 07 WILL NOT BE ELIGIBLE FOR EXEMPTION AS PAN MASALA WAS SHIFTED TO NEGATIVE LIST. I ALSO THEREFORE CONCLUDE THAT THE CONVERSE IS EQUALLY TRUE. I FIND THAT MANUFACTURE OF PAN MASALA WAS COVERED AS AN EXEMPTION PRIOR TO 01.04.2 007. I FIND THAT SINCE THE APPELLANT STARTED MANUFACTURING PAN MASALA FROM 200 6 THE APPELLANT SQUARELY FALLS UNDER THE EXEMPTION FROM 2006. I FIND THAT TH E LEARNED AO HAS TOTALLY MISDIRECTED HIMSELF IN APPRECIATING THIS SIMPLE EVI DENCE AND BASICALLY DIGRESSED TO IRRELEVANT ISSUES. B. THE VERY FIRST ISSUE TO BE DECIDED IS WHETHER TH E APPELLANT IS IN BUSINESS OF MANUFACTURE OF PAN MASALA (MOUTH FRESHENERS) AND WR IST WATCHES? 1. I FIND THAT THE APPELLANT FIRM HAS PRODUCED ALL THE RELEVANT RECORDS AND IN SOME CASES TWICE AND THRICE AND ALSO IN ORIGINALS N OT ONLY TO THE AO BUT ALSO TO THE APPELLATE AUTHORITY. BASED ON THE RECORDS I FIND THAT THE APPELLANT FIRM IS HAVING VALID REGISTRATIONS WITH A. CENTRAL EXCISE DEPARTMENT B. SALES TAX AND VAT DEPARTMENT OF THE GOVT OF SIKK IM. C. REGISTRATION UNDER THE RELEVANT PROVISIONS OF TH E INDUSTRIES ACT (DIC) OF THE GOVT OF SIKKIM D. SERVICE TAX REGISTRATION ALL THE ABOVE REGISTRATIONS ARE VALID AND ARE EFFEC TIVE FORM THE DATE / YEAR OF MANUFACTURE VIZ 2006. C. I FIND THAT GAZETTED OFFICERS OF THE MINISTRY OF FINANCE, CENTRAL BOARD OF EXCISE AND CUSTOMS HAVE MADE SWORN AFFIDAVITS BEFOR E THE HON'BLE HIGH COURT OF SIKKIM CERTIFYING AND CONFIRMING THAT THE APPELLANT FIRM WAS ENGAGED IN THE MANUFACTURE OF PAN MASALA AND WRIST WATCHES FROM THE INCEPTION OF THE FIRM AND ALSO IN THE AY IN QUESTION. D. BE THAT AS IT MAY BE, THE APEX COURT IN ARIHANT TILES & MARBLES PVT. LTD. CASE ([2010] 186 TAXMAN 439 SC) BY A THREE MEMBER B ENCH HAS SETTLED THIS ISSUE ONCE AND FOR ALL. THE APEX COURT HELD AS FOLLOWS IN ITS CONCLUDING PARAGRAPH. BEFORE CONCLUDING WE WOULD LIKE TO MAKE ONE OBSERV ATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAM ELY THAT THEE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NO T A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. A S STATED ABOVE, EACH OF THE RESPONDENT IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKS AND THE ACTIVITY UNDERTAKEN BY THEM H AS BEEN RECOGNISED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. T O SAY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTI ON UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES, PARTICULARL Y IN VIEW OF THE FACT THAT THE ASSESSEE IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC. BECAUSE THE ACTI VITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION A ND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 6 9. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RE VENUES CONTENTIONS INTER ALIA PLEADING THAT THE CIT(A) HAS ERRED IN LAW AND ON F ACTS IN DELETING SECTION 80IC DEDUCTION DISALLOWANCE IN QUESTION AFT ER HOLDING THAT THE ASSESSEE HAD MANUFACTURED OR PRODUCED IT PAN MASAL A WITHIN THE SCHEME OF THE ACT. IT IS VEHEMENTLY CONTENDED THAT THIS PAN MASALA IS AN ARTICLE OR THING SPECIFICALLY INCLUDED IN THE THIRTEEN SCHEDULE AND THE INSTANT TAXPAYER HAS FAILED TO SATISFY ITS CASE TO BE COVERED UNDER ITEM 7 PART-B OF THE FOURTEENTH SCHEDULE FOR SIKKIM STATE. WE FIND NO FORCE IN REVE NUES FIRST ARGUMENT. LEARNED DEPARTMENTAL REPRESENTATIVE(S) ARE FAIR ENO UGH IN NOT DISPUTING. THE FACT REMAINS THAT THE ASSESSEE HAS BEEN REGISTERED UNDER THE CENTRAL EXCISE DEPARTMENT, SIKKIM STATE GOVERNMENT VAT LAW AS WELL AS INDUSTRIES DEPARTMENT AND UNDER THE SERVICE TAX REGIME(S); RIG HT FROM THE RELEVANT PREVIOUS YEAR 2006-07 ONWARDS. CASE FILE SUGGESTS T HAT THE BOTH THE PARTIES HAD ALSO BEEN ENTANGLED IN YET ANOTHER LITIGATION B EFORE HON'BLE JURISDICTIONAL HIGH COURT (SIKKIM) WHEREIN THE MINISTRY OF FINANCE HAD ITSELF FILED ITS AFFIDAVIT ACCEPTING THE ASSESSEE TO BE A MANUFACTURER. THESE CLINCHING FACTS HAVE GONE UNREBUTTED FROM THE REVENUE SIDE. WE THUS HOLD THAT ASSESSEE HAS INDEED MANUFACTURE PAN MASALA. THIS TRIBUNALS CO -ORDINATE BENCH DECISION IN DCIT VS. M/S KHUSHBU INDUSTRIES ITA 371/LKW/2016 DECIDED ON 19.10.2016 HAS DECLINED REVENUES SIMILAR ARGUMENT IN IDENTICA L FACT AS FOLLOWS:- 4. THE SECOND GROUND TAKEN BY THE REVENUE RELATES T O THE CLAIM OF THE ASSESSEE U/S 80IC, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER BUT ALLOWED BY THE CIT(A). THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSIN G OFFICER FOUND THAT THERE HAD BEEN SEARCH IN THE CASE OF THE ASSESSEE AND DURING THE C OURSE OF SEARCH CONDUCTED AT THE RESIDENTIAL AND BUSINESS PREMISES, THE STATEMENT OF THE EMPLOYEE OF THE ASSESSEE WAS RECORDED. THE ASSESSING OFFICER, ON THE BASIS O F THE STATEMENT, TOOK THE VIEW THAT THE ASSESSEE WAS NOT DOING ANY MANUFACTURING O R PROCESSING ACTIVITY. IT WAS ONLY MIXING AND REPACKING VARIOUS INGREDIENTS AND SELLIN G THESE IN THE MARKET. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE THEREFORE, HE TOOK THE VIEW THAT THE ASSESSEE HAS NOT COMPLIED WI TH PRIMARY CONDITION AS GIVEN U/S 80IC OF BEING ENGAGED IN MANUFACTURING OR PROCESSIN G. THE ASSESSING OFFICER THEREFORE, DISALLOWED THE CLAIM U/S 80IC OF THE ACT . THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO EXAMINED THE MANUFACTURING PR OCESS AND THE RELEVANT EVIDENCE AND CAME TO CONCLUSION THAT THE ASSESSEE I S ENGAGED IN MANUFACTURING PROCESS WHEREAS FINISHED PRODUCT IS DISTINCT FROM R AW MATERIAL AND ALLOWED THE DEDUCTION TO THE ASSESSEE U/S 80IC BY HOLDING AS UN DER: 6(5) THE APPELLANT'S CASE CAN THEREFORE BE EXAMINE D IN LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENTS TO SEE WHETHER THE ACTIVITY CARRIED OUT BY THE APPELLANT COMES UNDER THE EXPRESSION MANUFACTURE SO AS TO BE ELIGIBLE FOR ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 7 CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. T HE EVIDENCES FILED INDICATE THAT THE APPELLANT WAS ALLOTTED A PLOT FOR SETTING UP OF AN INDUSTRIAL UNIT AT INTEGRATED INDUSTRIAL ESTATE, PANTNAGAR I.E. SIDCUL THE UNIT IS REGISTERED AS A SSI. THE REGISTRATION HAS BEEN GRANTED TO THE APPELLANT UNDER THE CATEGORY OF A 'SMALL' UNIT ENGAGED IN 'MA NUFACTURING' ACTIVITY. THE PRODUCTS MANUFACTURED BY THE APPELLANT ARE EX CISABLE PRODUCTS FALLING UNDER THE CENTRAL EXCISE TARIFF HEADING NO.3302. HOWEVER THE APPELLANT'S UNIT BEING SITUATED IN A NOTIFIED AREA, WAS GRANTED EXEMPTION FROM EXCISE LEVY BY VIRTUE OF EXEMPTION NOTIFICATION NO.50/2003-CE DATED 10.06.20 03. THE APPELLANT HAS OBTAINED AN NOC FROM THE POLLUT ION CONTROL BOARD, OWING TO EFFLUENT DISCHARGE FROM THE MANUFACTURING PROCESS U NDERTAKEN BY THE APPELLANT. THE APPELLANT IS ALSO REGISTERED UNDER THE FACTOR IES ACT. THE APPELLANT WAS PAYING VAT ON THE PRODUCTS DEPE NDING ON THE ITEM PRODUCED AND THE VAT RATES WERE DIFFERENT FOR DIFFERENT PROD UCTS AND ALSO FOR DIFFERENT RAW MATERIALS. (6)(6)(I) THE APPELLANT IS ENGAGED IN MA NUFACTURE OF ODORIFEROUS COMPOUNDS AND INDUSTRIAL PERFUMES. THE APPELLANT IN ITS BUSINESS ACTIVITY CONSUMES OVER 1500 RAW MATERIALS AND PRODUCES MORE THAN 500 FINISHED GOODS, ALL DIFFERENT FROM EACH OTHER. THE FINISHED GOODS MANUFACTURED BY THE APPELLANT ARE USED IN VARIOUS INDUSTRIES WHICH INCLUDE SKIN CARE PRODUCTS , DETERGENTS AND TOILET SOAPS, CONSUMER EDIBLES, INCENSE STICKS AND ROOM FRESHENER S ETC, INDUSTRIAL PERFUMES AND FLAVORS USED BY PAN MASALA AND OTHER INDUSTRIES. TH E MANUFACTURING ACTIVITY CARRIED ON BY THE APPELLANT IS EXPLAINED AS UNDER THE PRO CESS OF MANUFACTURE INVOLVES, MELTING, GRINDING, MIXING, STIRRING AT OPTIMAL TEMP ERATURE TO PRODUCE A DISTINCT PRODUCT. THERE IS A PROPER REACTION AMONGST THE PRODUCTS TO PRODUCE A DISTINCT FLAVOR OR FRAGRANCE. IT MAY BE SUBMITTED THAT A PERFUME OR A FLAVOR MAY INVOLVE FROM AS LESS AS 10 TO AS MUCH AS 50 RAW MATERIALS TO MANUFACTURE TH E PRODUCT. FURTHERMORE, A RAW MATERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUT ION OF FINISHED GOODS. THE RAW MATERIALS HAVE TO BE ADDED IN A PROPER CHRONOLOGICA L MANNER AND A PROPER FORMULATION WITHOUT WHICH THE FINISHED GOODS CANNOT BE PRODUCED. 6(6)(II) SOME OF THE FEATURES EXPLAINED BY THE APPE LLANT OUTLINE THE FOLLOWING SIGNIFICANT CHARACTERISTICS MIXING HAS TO BE DONE AT CONTROLLED TEMPERATURES TO GET THE DESIRED CHEMICAL REACTION. THE FINISHED GOODS ARE THEMSELVES A RESU LT OF CHEMICAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE APPELLANT ARE H AZARDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMAN CONSUMPTION OR APPLICATION . HOWEVER SCIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCE S ARE MIXED WITH SUCH MATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE REMOVED ARE USED BY THE APPELLANT. SEVERAL NATURAL OILS AND FLAVOURS, WHICH MAY OTHE RWISE ROT/DECAY WITH PASSAGE OF TIME, AND ARE IN CONCENTRATED FORM ARE REQUIRED TO BE TREATED AND BLENDED WITH OTHER CHEMICALS ETC. SO AS TO RENDER THEM USABLE IN VARIO US TYPES OF INDUSTRIES AND APPLICATIONS. MIXING CANNOT BE DONE WITHOUT PROPER LAB TESTING TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATTERN OF VARIOUS BLENDS OVER A PER IOD OF TIME, WHICH MAY RANGE FROM ONE HOUR TO 15 DAYS. THE BLENDED MIXTURES' PROPERTI ES CHANGE AS SOME CHEMICALS REACT OVER A PERIOD OF TIME, WHILE IN SOME CASES RE ACTIONS ARE INSTANT. TESTING IS DONE AT EACH STAGE, BY AGAIN REACTING THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANCES, AT VARIOUS TEMPERATURES D EPENDING ON THE INTENDED USE OF THE FINISHED PRODUCT. 6(7) I FIND FROM THE ABOVE THAT THE FINISHED GOODS MANUFACTURED BY THE APPELLANT ARE TOTALLY DISTINCT AND DIFFERENT FROM THE RAW MATERIA LS USED IN THEIR MANUFACTURE. THE PRICE LIST OF RAW MATERIALS AND FINISHED GOODS IS A LSO TOTALLY DIFFERENT. FURTHER, ONCE THE FINISHED PRODUCT IS MADE, IT IS EITHER A FLAVOR OR A FRAGRANCE AND THE SAME CAN, BY NO MEANS, BE EITHER CONVERTED OR SEPARATED BACK TO RAW MATERIALS STAGE. FURTHER SOME ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 8 RAW MATERIALS ARE RECEIVED IN SOLID STATE, SOME LIQ UID AND SUM IN LUMPS. SOME ARE ESSENTIAL OILS, SOME ARE AROMATIC CHEMICALS, SOME A RE SPICES, SOME ARE SPICE, EXTRACTS AND SOME ARE OLEORESINS. THUS ALL THESE TY PES OF RAW MATERIALS ARE REQUIRED TO PRODUCE THE FINISHED GOODS. IT MAY BE SUBMITTED THAT THESE RAW MATERIALS FALL UNDER VARIOUS TARIFF CLASSIFICATIONS OF CENTRAL EXCISE AN D HENCE DIFFER IN TYPE, PROPERTIES, PRODUCT GROUPS, USAGE ETC. WHEREAS SEVERAL RAW MATE RIALS ARE UNFIT FOR HUMAN CONSUMPTION OR INHALATION OR APPLICATION, THE FINIS HED GOODS WERE USED FOR ALL THESE PURPOSES. THEREFORE THE FINISHED GOODS HAD A DISTIN CT CHEMICAL COMPOSITION, PROPERTIES AND USAGE, WHICH CAN ONLY BE ACHIEVED TH ROUGH MANUFACTURE WHICH INTER ALIA INCLUDED STUDIED AND CONTROLLED CHEMICAL REACT IONS, MULTIPLE STAGES OF TESTING, FORMULATIONS, R & D ETC. 6(8) THE FACTS AND EVIDENCES BROUGHT ON RECORD THER EFORE CLEARLY ESTABLISH THAT THE ACTIVITY CARRIED ON BY THE APPELLANT IS MANUFACTURI NG PROCESS WHERE A FINISHED PRODUCT DISTINCT FROM THE RAW MATERIAL HAS COME INTO EXISTE NCE. THE APPELLANT IS REGISTERED WITH EXCISE DEPARTMENT. THE HON'BLE SUPREME COURT I N THE CASE OF ARIHANT TILES & MARBLES PVT. LTD. 320 ITR 79 (SC) HAS OBSERVED THAT WHEN THE ACTIVITY UNDERTAKEN BY THE ASSESSEE INVOLVES LEVY OF EXCISE DUTY THEN TO S AY THAT THE SAID ACTIVITY DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 8 0IA OF THE ACT WILL HAVE DISASTROUS CONSEQUENCES. THE APPELLANT HAS DEMONSTR ATED THAT IT IS ENGAGED IN THE MANUFACTURING OF ARTICLE AND THINGS. IT FULFILLS AL L THE ESSENTIAL CONDITIONS FOR AVAILING DEDUCTION UNDER SECTION 80IC OF THE ACT. I THEREFOR E DIRECT THE AO TO ALLOW DEDUCTION OF RS.31,31,98,995/- TO THE APPELLANT. THE APPELLAN T GETS CONSEQUENT RELIEF. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY C ONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AS WELL AS THE DOCUMENTS PLACED BEFORE US. THE ONLY QUESTION BEFORE US IS WHETHER THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITIES TO BE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE PROVISION OF SECTION 80IC ALTHOUGH LAYS DOWN VARIOUS CONDITIONS TO BE CO MPLIED WITH BY AN UNDERTAKING TO BE ELIGIBLE FOR DEDUCTION U/S 80IC(3) OF THE ACT BU T THE REVENUE DID NOT RAISE ANY OBJECTION IN THIS REGARD EXCEPT THAT THE ASSESSEE I S NOT ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICLE. LEARNED D. R. EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFFICER BUT DID NOT DENY THAT THE ASS ESSEE HAS NOT FAILED TO COMPLY WITH OTHER CONDITIONS AS STIPULATED U/S 80IC OF THE ACT FOR THE PURPOSE OF BEING ELIGIBLE FOR DEDUCTION 80IC OF THE ACT. HIS MAIN THRUST OF T HE ARGUMENT WAS THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING OR PRODUCTION OF A N ARTICLE. HE WAS SIMPLY MIXING THE VARIOUS CHEMICALS AND ON THAT BASIS HE WAS CLAI MING AS IF HE IS ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICLE. 5.1 ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY RELYING ON THE ORDER OF THE CIT(A) CONTENDED BEFORE US THAT TH E ASSESSEE IS VERY MUCH ENGAGED IN MANUFACTURING/PRODUCTION OF AN ARTICLE. HE WAS C ARRYING ON THE MANUFACTURING OPERATION. HE HAS SUBMITTED VARIOUS DOCUMENTS AND E VIDENCES BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE ASSESSING OFFICER COULD NOT APPRECIATE THIS FACT WHILE THE CIT(A) WAS ABLE TO APPRECIATE THE LI NE OF THE INDUSTRIES IN WHICH THE ASSESSEE IS ENGAGED. THE ASSESSEE IS ENGAGED IN MAN UFACTURE OF ODORIFEROUS SUBSTANCE. THERE ARE MORE 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 MANUF ACTURED BY THE ASSESSEE ARE USED IN VARIOUS INDUSTRIES WHICH INCLUDE (BUT ARE N OT LIMITED TO) SKIN CARE PRODUCTS, DETERGENTS AND TOILET SOAPS, CONSUMER EDIBLES, INCE NSE 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 COMPOSIT IONS AND PROPERTIES. FOR EXAMPLE, AN ESSENCE OF ROSE HAS TO HAVE DIFFERENT INGREDIENT S WHEN IT IS USED IN A TOILET SOAP, AS AN AGARBATTI COMPOUND, AS A FOOD FLAVOR AND AS A PERFUME SPRAY ETC. HE ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 9 SUBMITTED A FLOW CHART IN THIS REGARD AND POINTED O UT THAT THE PROCESS OF MANUFACTURE INVOLVES MELTING, GRINDING, MIXING, STIRRING AT OPT IMAL TEMPERATURE TO PRODUCE A DISTINCT PRODUCT. THERE IS PROPER REACTION AMONGST THE PRODU CTS TO PRODUCE A DISTINCT FLAVOR OR FRAGRANCE. IT WAS SUBMITTED THAT A PERFUME OR A FLA VOR MAY INVOLVE FROM AS LESS AS 10 TO AS MUCH AS 50 RAW MATERIALS TO MANUFACTURE THE P RODUCT. FURTHERMORE, A RAW MATERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUT ION OF FINISHED GOODS. THE RAW MATERIALS HAVE TO BE ADDED IN A PROPER CHRONOLOGICA L MANNER AND A PROPER FORMULATION WITHOUT WHICH THE FINISHED GOODS CANNOT BE PRODUCED. THE MIXING HAS TO BE DONE AT CONTROLLED TEMPERATURES TO GET THE DESIR ED CHEMICAL REACTION. THE FINISHED GOODS ARE THEMSELVES A RESULT OF CHEMICAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE ASSESSEE ARE HAZARDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMAN CONSUMPTION OR APPLICATION. HOWEVER, SCIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WITH THE M ATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE REMOVED, ARE USED BY THE ASSESSEE. S EVERAL NATURAL OILS AND FLAVORS, WHICH MAY OTHERWISE ROT/DECAY WITH PASSAGE OF TIME, AND ARE IN CONCENTRATED FORM ARE REQUIRED TO BE TREATED AND BLENDED WITH OTHER C HEMICALS ETC. SO AS TO RENDER THEM USABLE IN VARIOUS TYPE OF INDUSTRIES AND APPLICATIO NS. MIXING CANNOT BE DONE WITHOUT PROPER LAB TESTING TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATTERN OF VARIOUS BLENDS OVER A PERIOD OF TIME, WHICH MAY RANGE FROM ONE HOUR TO 15 DAYS. THE BLENDED MIXTURES PROPERTIES CHANGE AS SOME CHEMICA LS REACT OVER A PERIOD OF TIME, WHILE IN SOME CASES REACTIONS ARE INSTANT. IT WAS F URTHER SUBMITTED THAT THE TESTING IS DONE AT EACH STAGE BY AGAIN REACTING THE FINISHED P RODUCTS WITH OTHER CHEMICALS AND SUBSTANCES, AT VARIOUS TEMPERATURES DEPENDING ON TH E INTENDED USE OF THE FINISHED PRODUCT. THUS, IT WAS EXPRESSED THAT THE INDUSTRY R EQUIRES HIGH EXPERTISE, SPECIALIZATION AND KNOWLEDGE OF ORGANIC AS WELL AS INORGANIC CHEMISTRY. IT WAS SUBMITTED THAT ALL THE FINISHED GOODS ARE TOTALLY D ISTINCT, AS IS EVIDENT FROM THE PRICE LIST AND ALL THE RAW MATERIALS ARE ALSO TOTALLY DIF FERENT. 5.2 THE ASSESSEE HAS ALSO POINTED OUT THAT THE ASSE SSEE IS PAYING VAT DEPENDING ON THE ITEM PRODUCTS AND VAT RATES WERE DIFFERENT F OR DIFFERENT PRODUCTS AND ALSO FOR DIFFERENT RAW MATERIALS. THE VAT DEPARTMENT HAS PAS SED ORDERS FOR ALL THE YEARS, INCLUDING THE YEAR UNDER APPEAL. THE ASSESSEE HAS C OMMENCED THE PRODUCTION ON 04/10/2006 IN A NOTIFIED AREA AS PER NOTIFICATION N O.SO741(E) DATED 28/06/2004. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS C OMPOUNDS AND INDUSTRIAL PERFUMES WHICH ARE NOT SPECIFIED IN 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/PN I/2013 (GOA) (XI) FIBERFILL ENGINEERS VS. ACIT, I.T.A. NO.1853/D EL/2015 (XII) ASPINWALL & CO. LTD. VS. CIT [2001] 251 ITR 3 23 (SC) 5.3 LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY CON TENDED THAT IF THIS TRIBUNAL WANTS TO VERIFY WHETHER THE PRODUCT OR THE ARTICLE PRODUCED BY THE ASSESSEE IS DIFFERENT FROM THE RAW MATERIAL HAVING THE DIFFEREN T MARKET VALUE AND WHICH CANNOT BE RECONVERTED INTO THE RAW MATERIAL, THIS TRIBUNAL CA N VERIFY THE SAME BY VISITING THE ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 10 INDUSTRIAL UNIT OF THE ASSESSEE. AFTER HAVING THE D ISCUSSION WITH D.R, WE DECIDED TO CALL FOR THE DEMONSTRATION OF THE MANUFACTURING PRO CESS OF THE ASSESSEE IN RESPECT OF ONE OF THE ITEM AND THEREFORE, THE CASE WHEN IT WAS INITIALLY FIXED FOR 14/09/2016 WHEN THE DETAILED ARGUMENT HAS TAKEN PLACE, ADJOURNED TH E CASE FOR 15/09/2016 TO SEE THE DEMONSTRATION OF TWO OF THE PRODUCTS OF THE ASSESSE E I.E. SWEET GULAB AND COMPOUND BELA. 5.4 ON 15/09/2016 THE REPRESENTATIVE OF THE ASSESSE E APPEARED ALONG WITH THREE CHEMICAL ENGINEERS OF THE ASSESSEE COMPANY HAVING D IFFERENT CHEMICALS IN SMALL BOTTLES ALONG WITH THE INDUCTION AND GLASS JARS. TH E ASSESSEE FIRST DEMONSTRATED HOW THE SWEET GULAB IS MANUFACTURED. THE CHEMICAL ENGIN EER SHOWED US 15 ITEMS OUT OF WHICH TWO WERE IN SOLID FORM WHILE 13 WERE IN LIQUI D FORM. HE POINTED OUT THAT THE ITEMS BROUGHT BY HIM FOR MANUFACTURING 100 GMS OF S WEET GULAB WERE AS UNDER: 1. ALDEHYDE C 11 UNDECYLIC 0.1 2. ALDEHYDE C 8 0.02 3. ALDEHYDE C 9 0.05 4. BENZOPHENONE 10 5. CIS-3-HEXANOL 0.05 6. CIS-3-HEXANYL ACETATE 0.08 7. CITRAL 0.5 8. CITRONELLOL 15 9. DAMASCONE BETA 0.04 10. GERANIOL 12 11. GERANIUM CHINESE 4 12. LINALOOL 0.8 13. PHENYL ETHYL ALCOHOL 47 14. ROSE CRYSTALS 10 15. ROSE OXIDE INDIAN 0. 16 5.5 HE TOLD US ABOUT EACH AND EVERY ITEM AND ALSO P OINTED OUT THAT EACH OF THE ITEMS HAS TO BE PUT UP IN THE JAR IN THE SAME SERIATIM AS IT APPEARED IN THE LIST. IF THESE ITEMS ARE MIXED UP IN DIFFERENT ORDER, THE DESIRED SWEET GULAB WILL NOT COME AND THE PRODUCT WILL BE JUST A WASTE. TWO ITEMS NAMELY BENZ OPHENONE AND ROSE CRYSTALS BEING SOLID WERE PUT IN A JAR AND HE APPLIED HEATIN G PROCESS SO THAT THEY CAN BE CONVERTED BEFORE US AND BEFORE LEARNED D. R., THE C HEMICAL ENGINEER MIXED UP ALL THESE ITEMS IN A GLASS JAR IN THE SAME SERIATIM AND ULTIMATELY BROUGHT US THE SMELL OF THE PRODUCT MANUFACTURED CALLED SWEET GULAB, WHICH WAS IN LIQUID FORM. WHEN WE ASKED HIM TO MIX UP THESE PRODUCTS IN A DIFFERENT O RDER, THE CHEMICAL ENGINEER SHOWED US THE REACTION BY MIXING 3-4 RAW MATERIALS IN A DIFFERENT ORDER. SIMILARLY, THE DEMONSTRATION WAS ALSO MADE IN RESPECT OF THE COMPO UND BELA WHICH IS BEING MADE BY USING THE FOLLOWING CHEMICALS: 1 ALDEHYDE C 18 0 .1 2 BENZYL PHENYL ACETATE 2.4 3 BENZYL ALCOHOL 5 4. BENZYL ACETATE 36.5 5 BENZYL BU TYRATE 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 F OLIONE 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 SMAL L 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 CONV ERTED 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 S TATUTE 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 PRODUCTION OF AN ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 11 ARTICLE OR THING HAS ALSO BEEN USED U/S 80IA AS WEL L AS U/S 10B OF THE ACT. SECTION 10B DEFINED THE WORD MANUFACTURE FOR THE PURPOSE OF THE SAID SECTION TO INCLUDE ANY (A) PROCESS OR (B) ASSEMBLING OR (C) RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. THUS, PROCESS WAS INCLUDED WITHIN THE WORD MANUFACTURE FOR THE PURPOSE OF SEC. 10B. EXPLANATION (IV) OF THE SAID SEC. 10B FURTHER PROVIDED THAT THE WORD PRODUCE F OR THE PURPOSE OF SAID SECTION, IN RELATION TO ANY ARTICLE OR THING SHALL INCLUDE PROD UCTION OF COMPUTER PROGRAMME. CBDT VIDE ITS CIRCULAR NO. 528 DATED 16/12/1988 176 ITR ST. 154 EXPLAINED THE [PROVISIONS ENACTED BY THE FINANCE ACT, 1988 UNDER PARA 8.2 OF THE CIRCULAR. IN THIS CIRCULAR, CBDT HAD CLEARLY EXPLAINED THAT THE SAID NEW SEC. 10B HAD BEEN INSERTED IN THE STATUTE BOOK WITH A VIEW TO PROVIDE FURTHER INC ENTIVE FOR EARNING FOREIGN EXCHANGE SO AS TO SECURE THAT THE INCOME OF A 100% EOU SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS. THE EXEMPTION PROVIDED UNDER THIS NEW SECTIO N WAS SIMILAR TO THE ONE PROVIDED UNDER SEC. 10A OF THE ACT TO INDUSTRIAL UN DERTAKING OPERATING UNDER THE FREE- TRADE ZONE. IT WAS ALSO CLARIFIED THEREIN THAT THE EXPRESSION MANUFACTURE FOR THE PURPOSE OF BOTH SECTIONS 10A AND 10B OF THE SAID AC T WOULD INCLUDE ANY PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMME ON DISC, TA PE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. 5.7 THIS DEFINITION OF MANUFACTURE WAS REMOVED WHEN SEC. 10A AND 10B OF THE ACT WERE AMENDED BY THE FIN ANCE ACT, 2001 W.E.F. 01/04/2001. SECTIONS 10A AND 10B OF THE ACT WERE FU RTHER AMENDED BY THE FINANCE ACT, 2003 W.E.F. 01/04/2004 AND THE DEFINITION OF MANUFACTURE WAS INSERTED AS UNDER:- EXPLANATION (IV) FOR THE PURPOSE OF THIS SECTION, MANUFACTURE OR PR ODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI-PRECIOUS STONES. 5.8 UNDER SECTION 10B THE DEFINITION OF MANUFACTUR E WAS AGAIN AMENDED TO MEAN MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGN ED TO IT IN CLAUSE OF SECTION 2 OF SPECIAL ECONOMIC ZONE ACT, 2005. SUBSEQUENTLY, S PECIAL ECONOMIC ZONE ACT, 2005 WAS PASSED BY THE PARLIAMENT IN MAY, 2005, WHI CH WAS BROUGHT INTO EFFECT W.E.F. 23/06/2005. SECTION 2(R) OF SPECIAL ECONOMIC ZONE ACT DEFINES THE EXPRESSION MANUFACTURE AS UNDER:- MANUFACTURE MEANS TO MAKE, PRODUCE, FABRICATE, AS SEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUC T HAVING A DISTINCT NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH A S REFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, RE-ENGINEERI NG AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTIC ULTURE, 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 SEC TION 2 OF THE SPECIAL ECONOMIC ZONE ACT, 2005. 5.10 AS PER THE SAID DEFINITION PROCESS IS INCLUD ED 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 MANUFA CTURE AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING,- (A)RESULTING IN TRANSFORMATION O F THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR (B)BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION SPINNING, MILK BY PA STEURIZING, FRUITS AND VEGETABLES BY SORTING AND REPACKING. WHERE THEREFORE ANY COMM ODITY IS SUBJECTED TO A PROCESS ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 12 OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PRE PARATION FOR THE MARKET, AS, FOR EXAMPLE, BY SORTING AND REPACKING FRUITS AND VEGETA BLES, IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF S ECTION 8(3)(B) AND RULE 13. THE NATURE AND EXTENT OF PROCESSING MAY VARY FROM CASE TO CASE; IN ONE CASE THE PROCESSING MAY BE SLIGHT AND IN ANOTHER IT MAY BE E XTENSIVE; BUT WITH EACH PROCESS SUFFERED, THE COMMODITY WOULD EXPERIENCE A CHANGE. WHEREVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PE RFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE CO MMODITY. THE NATURE AND EXTENT OF CHANGE IS NOT MATERIAL. IT MAY BE THAT CAMPHOR P OWDER MAY JUST BE COMPRESSED INTO CAMPHOR CUBES BY APPLICATION OF MECHANICAL FOR CE OR PRESSURE WITHOUT ADDITION OR ADMIXTURE OF ANY OTHER MATERIAL AND YET THE OPER ATION WOULD AMOUNT TO PROCESSING OF CAMPHOR POWDER AS HELD BY THE CALCUTTA HIGH COUR T 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 THA T 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 C OMPOSITIONS ARE BLENDED TOGETHER TO PRODUCE ORE OF THE REQUISITE CHEMICAL AND PHYSIC AL 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 DIFFE RENT CHEMICAL AND PHYSICAL COMPOSITIONS. WHEN THE CHEMICAL AND PHYSICAL COMPOS ITION OF EACH KIND OF ORE WHICH GOES INTO THE BLENDING IS CHANGED, THERE CAN BE NO DOUBT THAT THE OPERATION OF BLENDING WOULD AMOUNT TO PROCESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13. IT IS NO DOUBT TRUE THAT THE BLENDING OF ORE OF DIVERSE PHYSICAL AND CHEMICAL COMPOSITIONS IS CARRIED OUT BY THE SIMPLE ACT OF PHYSICALLY MIXING DIFFERENT QUANTITIES FOR SUCH ORE ON THE CONVEYOR BELT OF THE MECHANICAL ORE HANDLING PLANT, BUT TO OUR MIND IT IS IMMATERIAL AS TO HOW THE BLENDING IS DONE AND WHAT PROCESS IS UTILIZED FOR THE PURPOSE OF BLENDING. WHAT IS MATER IAL TO CONSIDER IS WHETHER THE DIFFERENT QUANTITIES OF ORE WHICH ARE BLENDED TOGET HER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT UNDERGO ANY CHANG E IN THEIR PHYSICAL AND CHEMICAL COMPOSITION IS A RESULT OF BLENDING AND SO FAR AS T HIS ASPECT OF THE QUESTION IS CONCERNED, IT IS IMPOSSIBLE TO ARGUE THAT THEY DO N OT SUFFER ANY CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITIONS. 5.12 THUS, THE HON'BLE SUPREME COURT ACCEPTED THAT THERE IS CHANGE IN CHEMICAL COMPOSITIONS AFTER PROCESSING OF THE IRON ORE. FROM THE SAID DECISION OF THE APEX COURT, IT IS APPARENT THAT HONBLE APEX COURT HELD EVEN BLENDING OF IRON ORE FOR THE PURPOSE OF EXPORT INVOLVES CHANGE IN THE CHEMICAL A ND PHYSICAL COMPOSITION OF IRON ORE. IF WE LOOK TO THE FACTS OF THE IMPUGNED CASE O F THE ASSESSEE, WE FIND THAT THE ASSESSEE IS MIXING VARIOUS CHEMICALS EITHER IN LIQU ID OR SOLID FORM BY APPLYING A PREDETERMINED PROCESS AND MIXING THEM IN A PREDETER MINED MANNER SO THAT OUT OF THE MIXING, ENTIRELY A NEW PRODUCT COME AND ITS FIN ISHED PRODUCT TECHNICALLY AFTER HAVING THE PROCESS OF MIXING HAS DIFFERENT NAMES. T HERE ARE DIFFERENT CHEMICALS AND THE ITEMS WHICH ARE BEING USED FOR DIFFERENT PRODUC T IN A DIFFERENT PROPORTION IN A PREDETERMINED ORDER OF THE MIXING, AS SHOWN TO US D URING THE COURSE OF HEARING AND DURING THE COURSE OF DEMONSTRATION OF TWO ITEMS, AS GIVEN BY US IN THE PRECEDING PARAGRAPH, BOTH THE PRODUCTS MANUFACTURED ARE ENTIR ELY DIFFERENT FROM THE VARIOUS CHEMICALS AND THE ITEMS USED BY THE ASSESSEE. THESE ITEMS SO PRODUCED HAVE A DIFFERENT NAME, DIFFERENT UTILITY AND THEY ARE BEIN G USED FOR DIFFERENT PURPOSES IN SOAPS, DETERGENTS, EDIBLE ITEMS, JUICES ETC. ACCORD ING TO THE FRAGRANCES AND TASTE TO BE GIVEN TO THESE ITEMS. THESE ITEMS SO PRODUCED AR E DIFFERENT IN PHYSICAL APPEARANCE AND CHEMICAL COMPOSITION. WE DO NOT AGRE E WITH LEARNED D. R. THAT THERE IS NOT ANY CHANGE IN PHYSICAL AND CHEMICAL CO MPOSITION OF THE OUTPUT THAN THE INPUT AS IS BEING PROCESSED IN THE CASE OF THE ASSE SSEE. IF WE GO TO SECTION 2 SUB- ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 13 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 INT EGRAL 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 FOR MS. THE TASTE AS WELL AS THE SMELL AND THE UTILITY OF THE INPUT AND THE OUTPUT WHICH W E 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 CA SE OF CHOWGULE & CO. (SUPRA), IT CANNOT BE HELD THAT THE ASSESSEE IS ENGAGED IN THES E UNITS IN MANUFACTURING. 5.13 FURTHER, IN CIT VS N.C. BUDHARAJA & CO. (1993) 204 ITR 412 (SC), HONBLE SUPREME COURT FURTHER OBSERVED THAT THE WORD PRODU CTION IS MUCH WIDER THAN THE WORD MANUFACTURE. IT WAS SAID (PAGE 423): THE WORD PRODUCTION HAS A WIDE CONNOTATION THAN THE WORD MANUFACTURE. WHILE EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRO DUCTION, 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 WHIC H 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. 5.14 IN CHRISTIAN MICA INDUSTRIES LTD. VS. STATE OF BIHAR (1961) 12 STC 150 (SC), HONBLE SUPREME COURT DEFINED THE WORD PRODUCTION , ALBEIT, IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPT ED FROM THE MEANING ASCRIBED TO THE WORD PRODUCTION IN THE OXFORD ENGLISH DICTION ARY, AS MEANING AMONGST OTHER THINGS THAT WHICH IS PRODUCED; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFORT, A PRODUCT; A PRODUCT OF HUMAN ACTIVITY OR EFFORT. FO R THE WIDE DEFINITION OF THE WORD PRODUCTION, IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES WOULD COME WITHIN THE AMBIT OF THE WOR D PRODUCTION SINCE ORE IS A THING, WHICH IS THE RESULT OF HUMAN ACTIVITY OR EF FORT. 5.15 ACCORDING TO WEBSTER INTERNATIONAL ENGLISH DIC TIONARY, THE VERB PRODUCE MEANS TO BRING FORWARD, BEGET, ETC. THE JUXTAPOSITI ON OF THE WORD MANUFACTURE WITH AGRICULTURE AND HORTICULTURE IS SIGNIFICANT AND CANNOT BE LOST SIGHT OF. THE INTENTION IN EMPLOYING THE WORD PRODUCED OBVIOUSLY WAS TO I NTRODUCE AN ELEMENT OF VOLITION AND EFFORT INVOLVING THE EMPLOYMENT OF SOME PROCESS FOR BRINGING INTO EXISTENCE SOME GOODS. 5.16 IN PARAGRAPH 7 OF ITS IN THE CASE OF CHOWGULE & C0 (P) LTD. VS. UOI (SUPRA), HONBLE APEX COURT ALSO CONSIDERED THE QUESTION WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSES FOR THE PURPOSE 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 PR ECLUDE THE ASSESSES FROM BEING ENTITLED TO DEDUCT THEIR TURNOVER UNDER SECTION 8(A ), SO AS TO PRECLUDE THE VALUE OF THE TEA PURCHASED BY THEM. THE RELEVANT OBSERVATIONS MA DE BY THE HONBLE SUPREME COURT IN THIS RESPECTIVE ARE QUOTED AND SET OUT HER EIN BELOW FOR READY REFERENCE: 7. THE REVENUE HOWEVER RELIED ON THE DECISION OF T HE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBA Y [10 STC 500 (BOM HC)]. THE ASSESSEES IN THIS CASE WERE REGISTERED DE ALERS IN TEA UNDER THE BOMBAY SALES TAX ACT, 1953 AND THEY PURCHASED IN BU LK DIVERSE BRANDS OF TEA AND WITHOUT THE APPLICATION OF ANY MECHANICAL O R CHEMICAL PROCESS BLENDED THESE BRANDS OF DIFFERENT QUALITIES ACCORDI NG TO A CERTAIN FORMULA EVOLVED BY THEM AND SOLD THE TEA MIXTURE IN THE MAR KET. THE QUESTION AROSE BEFORE THE SALES TAX AUTHORITIES WHETHER THE DIFFER ENT BRANDS OF TEA PURCHASED AND BLENDED BY THE ASSESSEE FOR THE PURPO SE OF PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE BEEN PROCESSED AFTE R THE PURCHASE WITHIN THE ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 14 MEANING OF THE PROVISO TO SECTION 8(A), SO AS TO PR ECLUDE 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 B E REGARDED AS PROCESSED WITHIN THE MEANING OF THE PROVISO TO CL AUSE (A) OF SECTION 8, BECAUSE THERE WAS NOT EVEN APPLICATION OF MECHANIC AL FORCE SO AS TO SUBJECT THE COMMODITY TO A PROCESS, MANUFACTURE, DEVELOPMEN T OR PREPARATION AND THE COMMODITY REMAINED IN THE SAME CONDITION. THE A RGUMENT OF THE REVENUE BEFORE US WAS THAT THIS DECISION OF THE BOM BAY HIGH COURT WAS ON ALL FOURS WITH THE PRESENT CASE AND IF THE BLENDING OF DIFFERENT BRANDS OF TEA FOR THE PURPOSE OF PRODUCING A TEA MIXTURE IN ACCORDANC E WITH A FORMULA EVOLVED BY THE ASSESSES COULD NOT BE REGARDED AS PROCESSIN G OF TEA, EQUALLY ON A PARITY OF REASONING, BLENDING OF ORE OF DIFFERENT C HEMICAL AND PHYSICAL COMPOSITIONS COULD NOT BE HELD TO CONSTITUTE PROCE SSING OF THE ORE. NOW UNDOUBTEDLY THERE IS A CLOSE ANALOGY BETWEEN THE FA CTS OF NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AND THE FACTS OF THE PRESENT CASE, BUT WE DO NOT THINK WE CAN ACCEPT THE DECISION OF THE B OMBAY HIGH COURT IN THE NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AS L AYING DOWN THE CORRECT LAW. WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSESSEE IN NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING T O A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESUL T OF MIXING, QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXI STENCE WAS OF DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN THE JUD GMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANU AL APPLICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TEA MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE IN THE PRESENT CASE THE BLENDING WAS DONE BY APPLIC ATION OF MECHANICAL FORCE, BUT WE DO NOT THINK THAT IS THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER THERE IS PROCESSING. THE QUES TION IS NOT WHETHER THERE IS MANUAL APPLICATION OF ENERGY OR THERE IS APPLICA TION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF C ARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CO NSTITUTES PROCESSING WE ARE CLEARLY OF VIEW THAT THE BLENDING OF ORE IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT AMOUNTED TO PROCESSI NG OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 AND THE MECH ANICAL ORE HANDLING PLANT FELL WITHIN THE DESCRIPTION OF MACHINERY, PL ANT, EQUIPMENT USED IN THE PROCESSING OF ORE FOR SALE 5.17 IN DECIDING THE SAID QUESTION, THE HONBLE SUP REME COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN NILGIR I 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 TH E PURPOSE OF PURCHASING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING T O A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING FOR THE DIFF ERENT 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 DIFFEREN T QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF THE TEA WHICH WENT INTO THE MIX TURE; (II) THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIGH COU RT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING T HE DIFFERENT BRANDS OF TEA, THERE ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 15 HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCI NG THE TEA MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE, IN THE PRESENT CASE, THE BL ENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT THAT IS NOT THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES IS P ROCESSING. (III) THE QUESTION IS NOT WHETHER THERE IS ANY MANUAL APPLICATION OF ENERGY O R THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FO R THE PURPOSE OF CARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTI TUTES PROCESSING. 5.18 THEREFORE, HONBLE SUPREME COURT, IN CONSTRUIN G THE EXPRESSION PROCESSING ALLOWED THE APPEAL OF THE ASSESSEE, IN CHOWGULE & C O. PVT. LTD. (SUPRA), HOLDING, INTER ALIA, THAT WHERE ANY COMMODITY IS SUBJECTED T O A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMENT OR PREPARATION FOR THE MAR KET IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF CENTRAL SALE S TAX ACT, 1956. HONBLE SUPREME COURT, IN THE SAID JUDGMENT, DID NOT CONSID ER THE EXPRESSION MANUFACTURE SINCE THE QUESTION WAS DECIDED ONLY ON THE EXPRESSI ON PROCESSING. HOWEVER, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT I N THE CASE OF NILGIRI TEA CO. [1959] 10 STC 500, HONBLE SUPREME COURT OBSERVED T HAT, FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUA LITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSI NG OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESUL T OF A QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A QUALITY AND FLAVOR FROM THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE . 5.19 HONBLE KERALA HIGH COURT HAD THE OCCASION TO CONSIDER WHETHER ASSESSEE IS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF AN ARTI CLE OR THING WHEN ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPO RT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN THE CASE OF TATA TEA LTD. VS. ACI T 338 ITR 285. HONBLE HIGH COURT NOTED IN THAT CASE THAT THE REVENUES STAND IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAIN ED IN SECTION 10B OF THE ACT UNTIL ITS DELETION WHICH COVERS EVEN PROCESSING AND, THER EFORE, BLENDING AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS MANUFACTURE OR PRO DUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. HONBLE KERALA HIGH COURT CONSIDERED THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNI TS 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 S IMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE. HONBLE 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 FO R THE REVENUE, WHEREIN HONBLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOE S NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING, BUT IS ONLY PR OCESSING. HONBLE HIGH COURT ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE W AS 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 ASSESSEES UNIT ENGAGED IN EXP ORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNITS OF THE ASSESSEES 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTION 10B OF THE ACT. (SIMILAR TO ASSESSEES CASE). FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VER Y SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC Z ONES AND FREE TRADE ZONES, WOULD CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A O F THE ACT AND SECTION 10AA OF THE ACT RESPECTIVELY. THE ASSESSEE WAS ALLOWED EXEM PTION ON THE PROFIT DERIVED BY ITS 100% EOU ENGAGED IN BLENDING, PACKING AND EXPOR T OF TEA BAGS AND TEA PACKETS. HONBLE HIGH COURT HELD AS UNDER: THE FINDING OF T HIS COURT IS THAT THE PURPOSE OF ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 16 INCORPORATION OF SECTION 2(R) OF THE SPECIAL ECONOM IC ZONES ACT, 2005, INTO SECTION 10AA OF THE INCOME-TAX ACT IS TO PROVIDE A LIBERAL MEANING TO THE WORD MANUFACTURE WHICH TAKES IN EVEN BLENDING, REFRIGERATION, ETC. I T WAS NOTICED BY THIS COURT THAT THE DEFINITIONS OF MANUFACTURE CONTAINED IN THE ABOVE DEFINITION CLAUSES ARE VERY LIBERAL WHICH TAKES IN EVEN PROCESSING LIKE BLENDING. THE C ONTENTION OF THE COUNSEL FOR THE ASSESSEE IS THAT THE PURPOSE OF REMOVAL OF THE DEFI NITION OF MANUFACTURE FROM SECTION 10B WAS NOT TO PROVIDE A RESTRICTED MEANING FOR THAT TERM CONTAINED IN THE MAIN SECTION BECAUSE IF THAT WAS SO, THEN THE LEGIS LATURE WOULD HAVE ONLY MODIFIED THE DEFINITION CLAUSE. FURTHER, THE DEFINITION OF 1 00 PER CENT EXPORT ORIENTED UNIT EVEN AFTER THE AMENDMENT IS RETAINED IN THE SAID SECTION , WHICH DEFINES IT AS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A 100 PER CE NT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRA L GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 40 OF THE INDUSTRIES (D EVELOPMENT & REGULATION) ACT, 1951, AND THE RULES MADE UNDER THAT ACT. IT IS PERT INENT TO NOTE THE PRODUCTS FOR WHICH THE ASSESSEES UNIT IS RECOGNIZED AS A 100 PE R CENT EXPORT ORIENTED UNIT ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS. IN FACT , THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT A ND IS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. STILL IT IS R ECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT BY THE CONCERNED AUTHORITY WITHIN THE MEANING OF THAT TERM CONTAINED IN THE DEFINITION CLAUSE OF SECTION 10B OF THE INCOME TAX ACT AND THE DEPARTMENT HAS NO CASE THAT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS IS NOT A 100 PER CENT EXPORT ORIENTED UNIT. SO MUCH SO, IN O UR VIEW, IF EXEMPTION IS DENIED ON THE GROUND THAT PRODUCTS EXPORTED ARE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEES 100 PER CENT EXPORT ORIENTED UNIT, THE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. FURTHER, INDUSTRIAL UNI TS ENGAGED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SP ECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER S ECTION 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 M ERCHANT 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 EXEMP TION FOR INDUSTRIES IN THE EXPORT PROCESSING ZONES, FREE TRADE ZONES AND TO 100 PER C ENT 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 TH AT THE ASSESSEE IS ENTITLED TO EXEMPTION ON THE PROFIT DERIVED BY ITS 100 PER CENT EXPORT ORIENTED UNIT ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PA CKETS. CONSEQUENTLY, WE ALLOW THE APPEALS BY REVERSING THE ORDERS OF THE TRIBUNAL AND BY RESTORING THE ORDERS MANUFACTURE/PRODUCER OF THE TEA FOR THE PURPOSE O F SECTION 10A/10B OF THE I.T. ACT, 1961? 5.23 THE BRIEF FACTS IN THE CASE OF MADHU JAYANTI I NTERNATIONAL LTD. IN ITA NO. 1463/KOL/2007 WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING, PROCESSING, EXPORTING AND DEALING IN VARIOUS COMMODITIES, MORE PARTICULARLY TEA, COFFEE, JUTE, PEPPER, CHILLIES, C ARDAMOM, TURMERIC AND SIMILAR OTHER SPICES, ETC. THE ASSESSEE, AS PER THE CLAIM IS A 10 0% EOU WITHIN THE MEANING OF SECTION 10B OF THE I.T. ACT, 1961 AND CLAIMED EXEMP TION UNDER THAT SECTION. THE ASSESSEE BUYS TEA FROM AUCTIONS HELD IN TEA BOARD R ECOGNIZED 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 ASSES SEE, TEA SO BOUGHT IN DIFFERENT AUCTIONS IS PROCESSED WITH A VIEW TO REMOVE ALL DUS T 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 PACK ED 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. ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 17 ETC., AS THE CASE MAY BE. THE ASSESSEE CLAIMED EXEM PTION 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 ASSESSE E OF EXEMPTION U/S 10B IN RESPECT OF EXPORT OF BLENDING OF TEA. THE REJECTION OF EXEM PTION U/S 10B WAS CONFIRMED BY THE CIT(A). WHEN THE MATTER WENT BEFORE THE SPECIAL BEN CH, SPECIAL BENCH AFTER DISCUSSION THE RELEVANT PROVISIONS AS WELL AS THE V ARIOUS DECISIONS OF HIGH COURT AND THE SUPREME COURT HELD AS UNDER:- THE PROVISIONS OF SECTION 10AA OF THE ACT WAS INSER TED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT, 2005 W.E.F. 10.02.2 006. EVEN PRIOR TO THE ENACTMENT OF THE SAID SEZ ACT, SPECIAL ECONOMIC ZON ES (INCLUDING UNITS THEREIN) WERE ALL ALONG TREATED LIKE EQU / FTZ / EP Z FOR ALL PURPOSES WHATSOEVER AND WERE DEALT WITHIN THE EXIM POLICY AC CORDINGLY. SECTION 2(K) OF THE SPECIAL ECONOMIC ZONE ACT, 2005 DEFINES THE EXP RESSION 'EXISTING SPECIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOM IC ZONE WHICH IS IN EXISTENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECTION 2(E) DEFINES THE EXPRESSION 'EXISTING UNIT' TO MEAN EVER Y UNIT WHICH HAS BEEN SET UP ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT IN AN EXISTING SPECIAL ECONOMIC ZONE. IN OTHER WORDS, ADMITTEDLY ALL SPECI AL ECONOMIC ZONES WERE ALSO BEING GOVERNED BY THE EXIM POLICY PRIOR TO THE ENACTMENT OF SEZ ACT, 2005. CLAUSE (III) OF EXPLANATION 1 TO SECTION 1OAA LAYS DOWN THAT THE EXPRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANIN G AS ASSIGNED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 200 5, WHICH DEFINITION IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRIC ATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A N EW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUD E PROCESSES SUCH AS REFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR , REMAKING, RE-ENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDLY , FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING'. IN EXIM POLICY, THE EXPRESSION 'MANUFACTURE' IS DEFINED, IN PARAGRAPH 9 .30 & 9.31 THEREOF ALMOST IN THE SAME MANNER AS IN THE SPECIAL ECONOMIC ZONE ACT, 2005, WHICH IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRIC ATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A N EW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUD E PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELING. M ANUFACTURE, FOR THE PURPOSE OF THIS POLICY, SHALL ALSO INCLUDE AGRICULTURE, AQU ACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING.' BUT THE ONLY DIFFERENCE BETWEEN THE EXIM P OLICY OF 2002-07 AND OF 2000 IS THAT WORDS 'AND SEGREGATION' WHICH WERE APP EARING 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 TE A USED IN THE MANUFACTURE OF FLAVOURED TEA SHALL CONFORM TO THE STANDARDS OF TEA . THE FLAVOURED TEA : MANUFACTURERS SHALL REGISTER THEMSELVES WITH THE TE A BOARD BEFORE MAKING FLAVOUR TEA IN THE TEA (DISTRIBUTION & EXPORT) CONT ROL ORDER, 1957 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & IND USTRY (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) CON TROL 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 'MAN UFACTURER', 'BUYER', 'PACKET TEA', 'TEA BAG',- 'GREEN TEA', 'QUICK BREWI NG BLACK TEA', 'INSTANT TEA' AND 'MADE TEA' HAVE ALSO BEEN DISTINCTLY AND S EPARATELY DEFINED. CLAUSE (29BA) WAS INSERTED IN SECTION 2 OF THE INCO ME TAX ACT, 1961 BY THE FINANCE (NO.2) ACT, 2009 W.E.F. 01.04.2009 TO DEFIN E THE EXPRESSION 'MANUFACTURE' AS UNDER: 'MANUFACTURE', WITH ITS GRA MMATICAL VARIATIONS, ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 18 MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR A RTICLE OR THING, - (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFER ENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINC T OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL S TRUCTURE; THE AFORESAID DEFINITION OF THE EXPRESSION 'MANUFACTURE', ALTHOUG H BROUGHT INTO THE STATUTE BOOK W.E.F. 01.04.2009, WAS APPLIED BY THE HON'BLE SUPREME COURT EVEN FOR THE ASSESSMENT YEAR 2001-02 IN ITO V. ARIHANT TILES AND MARBLES PVT. LTD. (2010) 320 ITR 79, 82 (SC) ON THE GROUND THAT PARLI AMENT HAD TAKEN NOTE OF GROUND REALITY IN INSERTING SECTION 2(29BA) IN THE INCOME TAX LAW. THE SAID DEFINITION WAS AGAIN APPLIED BY THE HON'BLE SUPREME COURT IN CIT V. EMPTEE POLY-YARN PVT. LTD. (2010) 'GREEN TEA' MEANS THE VA RIETY OF MANUFACTURED TEA COMMERCIALLY KNOWN AS GREEN TEA; 320 ITR 665,66 7 (SC). 33. THE ASSESSEE COMPANY CARRIES OUT ITS OPERATIONS OF BLEN DING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN ITS MODERN FACTORY, WELL EQUIPPED WITH ALL IMPORTED AND SOPHISTICATED AUTOMA TIC PLANT AND MACHINERIES WITH THE HELP OF OVER 100 WORKMEN ENGAGED ON CONTRA CT BASIS THROUGH M/S. TROT PVT. LTD. THE MANUFACTURING'. OPERATIONS ARE C ARRIED IN ITS SAID FACTORY SITUATED AT 19/4A, MUNSHIGANJ ROAD (UNDER FALTA EXP ORT PROCESSING ZONE), KOLKATA. WE FIND FROM FACTS OF THE CASE THAT THE DE TAILS OF TURNOVER OF THE ASSESSEE SHOWS BULK TEA (0.94%), PACKET TEA AND TEA BAGS .(99.06%),. AS. PER DIFFERENT DESCRIPTIONS, BRAND NAMES AND VARIETI ES, AS LISTED APR. ASSESSEE COMPANY IS DULY REGISTERED AS A 100% EOU B Y THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRI AL POLICY AND PROMOTION SECRETARIAL FOR INDUSTRIAL APPROVALS, ECU SECTION I N THE STATE OF WEST BENGAL FOR MANUFACTURE OF PACKET TEA, TEA BAGS/BULK TEA WI TH ANNUAL CAPACITY OF 3110 MT. IN TERMS OF REGISTRATION CERTIFICATE DATED 26TH DECEMBER, 1995, INTER ALIA, WITH THE CONDITION THAT ITS 100% PRODUCTION ( EXCLUDING REJECTS NOT EXCEEDING 5%) WOULD HAVE TO BE EXPORTED AND THAT IT S 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, A S COMPARED TO THE UNBLENDED BLACK TEA IN GRANULE AND DUST FORM NORMAL LY AVAILABLE FOR SALE IN THE OPEN RETAIL MARKET THROUGHOUT INDIA. THE SUBJEC T FOR CONSIDERATION UNDER SECTIONS 10A AND/OR 10B OF THE SAID ACT IS MANUFACT URE / 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 AC CORDANCE WITH THE EXIM POLICY DECLARED BY THE GOVERNMENT OF INDIA IN PARLI AMENT AND IN THE LIGHT OF ALLIED AND GOVERNING LAWS; IN THE LIGHT OF ALLIED L AWS E.G. THE TEA ACT, 1953, THE PREVENTION OF FOOD ADULTERATION ACT, 1953 READ WITH PREVENTION OF FOOD ADULTERATION RULES, 1955. THE TEA (MARKETING) CONTR OL ORDER, 2003, THE TEA (DISTRIBUTION & EXPORT) CONTROL ORDER, 2005 AS WELL AS THE RULES AND REGULATIONS FRAMED BY THE TEA BOARD AND ALSO CALCUT TA TEA TRADERS ASSOCIATION FROM TIME TO TIME AS DISCUSSED ABOVE. W E FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKA GING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS. THE ASSESSEE' S DIVISION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOVT . OF INDIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B OF THE ACT FOR AYS 2000-01 ONWARDS, WHICH WAS GRANTED UPTO THE AY 2003-04. HOWEVER, FOR THE AY 2004-05, EXEMPTION WAS DECLINED FOR THE REASONS THAT BY THE FINANCE ACT, 2000, THE DEFINITION OF `MANUFACTURE WHICH INCLUDED 'PROCESS ING' CONTAINED IN SECTION 1OB OF THE ACT WAS DELETED W.E.F. 01.04.2001. THE A RGUMENT OF THE DEPARTMENT IS THAT MANUFACTURE OR PRODUCTION HAD LI BERAL MEANING UNDER THE ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 19 DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE A CT UNTIL ITS DELETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING 'AN D PACKAGING OF TEA FOR EXPORT WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUALIFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE C ONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE T O UNITS IN THE SEZ U/S. TOA OF THE ACT AND UNITS IN THE FREE TRADE ZONE PRO VIDED U/S, 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S. 1OB OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE IS CORRECT. WE FIND THAT HON'BLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN-THE DECISION OF SUPREME COURT IN TARA A GENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHEREIN HON'BLE SUPREME COURT C LEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO 'MANUFACTURE' OR 'PRODUCT ION' OF AN ARTICLE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCL USIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGN ISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE AS SESSEE'S UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% E OU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NO T PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEE 'S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTIONS 10B OF THE ACT. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PRODUCTS FOR WHICH THE ASSESSEE' S UNIT IS RECOGNIZED AS A 100% EOU ARE TEA BAGS, TEA IN PACKETS AND TEA IN BU LK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PAC KING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY OTHER AR TICLE 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, 1 955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEF INITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORAT ED 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 AME NDMENT 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, BLENDI NG, PACKAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DE CISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LIMITED (SUPRA), WE 'HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. SIMIL ARLY, IN OUR VIEW, THE INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY I.E. BLENDING, PACKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL ALSO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY , WE ANSWER THE QUESTION REFERRED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA AND EXPORT THEREOF, IN 100% EOUS ARE MANUFACTURER/ PRODUCER OF THE TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S.10B OF THE ACT. FURTHER, ASSESSEES WH O ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA HI RESPECT OF UNDERT AKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER OF TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10A OF THE ACT. WE HAVE EXAMINED AND DISCUSSED THE FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND FOUND THAT THE RE IS BLENDING OF TEA AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2004-05 IS ALLO WED. AS REGARDS OTHER APPEALS AND THAT OF THE INTERVENERS, THE MATTERS AR E RESTORED BACK TO THE DIVISION BENCH, WITH DIRECTIONS TO DECIDE THOSE APP EALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/ S. 10A OR 10B OF THE ACT IN ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 20 ACCORDANCE WITH LAW. 5.24 FROM THE READING OF PARA 35 OF THE AFORESAID JUDGMENT WE NOTED THAT THE SPECIAL BENCH IN THIS CA SE CLEARLY HELD THAT THE ASSESSEE WAS ENGAGED ONLY IN PROCESSING AND WAS NOT ENGAGED IN THE MANUFACTURE OR PRODUCTION BUT HAD ULTIMATELY UNDER PARA 36 IT TOOK THE VIEW IN VIEW OF THE FACT THAT THE DEFINITION OF MANUFACTUR E U/S 2(R) OF THE SEZ ACT, 2005 WHICH IS INCORPORATED IN SECTION 10AA W.E.F. 1 0/02/2006 INCLUDES PROCESSING. THEREFORE, FOLLOWING THE DECISION OF KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES AND TATA TEA LTD. (WHICH WAS DISCUSSED BY US IN THE PRECEDING PARAGRAPHS) HELD THAT THE ASSESSEE IS ENT ITLED FOR EXEMPTION U/S 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. 5.25 WE HAVE ALSO GONE THROUGH THE DECISION OF HON BLE SUPREME COURT IN INDIAN CINE AGENCIES VS CIT 308 ITR 98. IN THIS CASE THE Q UESTION BEFORE THE HONBLE SUPREME COURT WAS: WHEN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF CUTTING JUMBO ROLL FILMS INTO FLAT AND SMALL ROLLS IN DESIR ED SIZES, WHETHER SUCH ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS MANUFACTURE OR PRODU CTION? IN THIS CASE, THE HONBLE SUPREME COURT AFTER DISCUSSING VARIOUS CASE S, THE PROVISIONS OF DIFFERENT ACTS AND THE DICTIONARY MEANING TOOK THE VIEW THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE / PRODUCTION. WHILE HOLDING SO UNDER PA RA 12 OF ITS ORDER, HONBLE SUPREME COURT HAS GIVEN THE SAME ANALOGY FOR THE PU RPOSE OF ELIGIBILITY OF DEDUCTION UNDER SECTION 80HH AND 80-I AS HAS BEEN GIVEN BY TH E 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 REF ERRING TO ITEM 10 OF ELEVENTH SCHEDULE FOR THE PURPOSE OF EXCLUSION DOES NOT ARIS E. FROM THIS JUDGMENT, THUS, IT IS APPARENT THAT THE HONBLE 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 A CTIVITIES UNDERTAKEN BY THE ASSESSEE WOULD FALL WITHIN THE MEANING OF THE WORDS MANUFACTURE OR PRODUCTION IN SECTION 80-IA OF THE INCOME-TAX ACT, 1961? IN THIS CASE, HONBLE SUPREME COURT, AFTER DISCUSSING THE DEFINITION OF MANUFACTURE GI VEN IN SECTION 2(29BA) OF THE INCOME-TAX ACT, 1961 AND ALSO DISCUSSING THE PROVIS IONS OF SECTION 80- IA(2)(III) AND AFTER GOING THROUGH VARIOUS DECISIONS, HELD AS UNDE R: 22. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COU RT IN CIT VS. N.C. BUDHARAJA AND CO. 204 ITR 412 (SC) TO THE FACTS OF THE PRESENT CASES, WE ARE OF THE VIEW THAT BLOCKS CONVERTED INTO POLISHED SLA BS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE CERTAINLY RE SULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT REMAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CIRCUMSTAN CES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THER EFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAKEN BY THE RESP ONDENTS-ASSESSEES DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SE CTION 80IA OF THE INCOME TAX ACT, 1961. 23. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE OBSERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPT ED, NAMELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUF ACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDENTS IS PAYING EXCISE DUTY, SOME OF THE RESP ONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGN IZED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 8 0IA WILL HAVE DISASTROUS ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 21 CONSEQUENCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASES WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES TAX ETC. BECAUSE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE . KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESE NT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES M ANUFACTURE OR PRODUCTION AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEF IT OF SECTION 80IA OF THE INCOME TAX ACT, 1961. 5.27 IN THIS CASE ALSO, HONBLE SUPREME COURT TOOK THE VIEW THAT CUTTING AND POLISHING OF THE MARBLE BLOCKS IS THE ACTIVITY WHIC H CONSTITUTES MANUFACTURE OR PRODUCTION AS AFTER PROCESSING MARBLE BLOCK NO MOR E 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 THA T THE ASSESSEE IS ENGAGED IN MANUFACTURING AND PRODUCTION OF AN ARTICLE AND THER EFORE, THE ASSESSEE SHALL BE ENTITLED FOR THE DEDUCTION AVAILABLE U/S 80IC OF TH E 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). WE ADOPT THE ABOVE DETAILED DISCUSSION MUTATIS MUTANDIS TO DECLINE REVENUES FIRST AND FOREMOST PLEA QUA MANUFACTURING ASPECT TO CONCLUDE THAT THE ASSESSEE CAN BE SAFELY HELD TO HAVE MANUFACTURE D / PRODUCED ITS PAN MASALA IN THE SPECIFIED UNIT SITE IN SIKKIM. 10. NEXT COME THE REVENUES LATTER ARGUMENTS BASED ON INTER-PLAY OF IMPUGNED SECTION 80IC DEDUCTION PROVISION VIS--VIS OPERATION OF THE RESTRICTIVE COVENANT ENSHRINED IN THIRTEEN SCHEDULE S NEGATIVE LIST READ WITH POSITIVE LIST OF THE FOURTEENTH SCHEDULE (SUPRA) RE LEVANT TO THE SPECIFIED LIST OF ARTICLE(S) OR THING(S) IN ISSUE. WE FIND FIRST OF A LL THAT HON'BLE APEX COURTS LATEST CONSTITUTIONAL BENCHS DECISION IN COMMISSIONER OF CUSOMS VS. DILIP KUMAR ROY CIVIL APPEAL NO.3327 OF 2017 DECIDED ON 30.07.2 018 HAS GONE INTO A VERY ELUCIDATE DISCUSSION ON THE ISSUE OF BASIC TEN ETS OF LITERAL OR STRICT INTERPRETATION TO BE ADOPTED WITH REGARD TO A TAXIN G STATUTE, THEIR INTERPLAY, PURPOSIVE CONSTRUCTION (PARA 25) AS WELL AS APPLICA TION OF EQUITABLE PRINCIPLES TO INTER ALIA CONCLUDE THAT THERE IS NO ROOM FOR INTENDMENT IN S UCH A FISCAL STATUTE AND REGARD MUST BE HAD TO CLEAR MEANING OF THE WORDS AND THE MATTER SHOULD BE GOVERNED WHOLLY BY THE LANGUAGE INCORPORA TED THEREIN. THEIR LORDSHIPS MAKE IT CLEAR THAT ONE HAS TO STRICTLY L OOK TO THE LANGUAGE USED WITHOUT ANY SCOPE FOR SEARCHING INTENDMENT OR FOR D RAWING ANY PRESUMPTION ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 22 HON'BLE HIGHEST COURT OF THE LAND THEREAFTER CAME T O THE CORE ISSUE I.E. IN THE EVENT OF AMBIGUITY IN AN EXEMPTION NOTIFICATION, SH OULD THE BENEFITS FLOWING THEREFROM BE CONSTRUED IN REVENUES OR TO THE SUBJE CT / ASSESSEE FAVOUR. THEIR LORDSHIPS SUM UP ANSWER OF THE REFERENCE MADE IN PARA 51 THAT AN EXEMPTION PROVISION IN A TAXING STATUTE IS TO BE IN TERPRETED STRICTLY. IT IS THE ASSESSEES BURDEN TO HOW THAT HIS CASE COMES WITHIN THE SPECIFIED PARAMETERS ENVISAGED IN THE EXEMPTION CLAUSE OR NOT IFICATION AND ANY AMBIGUITY IN SUCH A PROVISION HAS TO BE INTERPRETED IN REVENUES FAVOUR. 11. COUPLED WITH THIS, THEIR LORDSHIP EARLIER DECIS ION IN RAGHUNATH RAI BAREZA VS. PNB (2007) 135 COMPANY CASES 163 (SC) HOLDS THAT IT IS A CARDINAL PRINCIPLE OF INTERPRETATION OF A STATUTE T HAT THE WORDS USED THEREIN BY THE LEGISLATIVE ARE TO BE UNDERSTOOD IN THEIR NATUR AL, ORDINARY OR POPULAR SENSE AND CONSTRUED AS PER THEIR GRAMMATICAL MEANING UNLE SS SUCH A CONSTRUCTION LEADS TO SOME ABSURDITY OR UNLESS THERE IS SOMETHIN G IN THE CONTEXT OR IN THE OBJECT OF THE STATUTE TO SUGGEST TO THE CONTRARY. T HEIR LORDSHIPS FURTHER INVOKED GOLDEN RULE OF INTERPRETATION THAT THE WORDS OF A STATUTE MUST PRIMA FACIE TO BE GIVEN THEIR ORDINARY MEANING. WE FIND IT VERY MU CH RELEVANT AT THIS STAGE THAT THEIR LORDSHIPS YET ANOTHER JUDGMENT IN SMT. TARULATA SHYAM VS. CIT (1977) 108 ITR 345 (SC) ALSO MADE IT CLEAR THAT IT IS THE FUNDAMENTAL RULE OF TAXATION THAT WHERE THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE WORDS WHICH ARE NOT THERE, SUCH AN IMPORTANT WORD WOULD B E NOT TO CONSTRUE BUT TO AMEND THE STATUTE. AND ALSO THAT EVEN IF THERE IS A NY CASUS OMISUS, THE DEFECT CAN BE REMEDIED BY THE LEGISLATION ALONE AND NOT BY JUDICIAL INTERPRETATION. 12. WE KEEP IN MIND ALL THESE SETTLED LEGAL PRINCIP LES TO AVERT TO THE TAXPAYERS IMPUGNED SECTION 80IC DEDUCTION CLAIM. T HERE IS HARDLY ANY DISPUTE BY NOW THAT IT HAS MANUFACTURED PAN MASALA IN ITS SPECIFIED UNIT SITUATED IN SIKKIM STATE. ITS CLAIM THROUGHOUT WAS THAT PAN MASALA IS COVERED IN 7 TH ITEM PART-B IN THE FOURTEENTH SCHEDULE (APPLICABLE FOR THE STATE OF SIKKIM) TO BE FOOD PROCESSING INCLUDING AGRO-BASED INDUSTRIES, PROCESSING, ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 23 PRESERVATION & FOOD PACKAGING OF FRUITS AND VEGETAB LES (EXCLUDING CONVENTIONAL GRINDING / EXTRACTION UNITS). WE ARE O F THE VIEW THAT THE ABOVE ITEM IN THE POSITIVE LIST IS MEANT TO PROMOTE FOOD PROCESSING INCLUDING OF AGRO- BASED INDUSTRIES, PROCESSING, PRESERVATION & FOOD P ACKAGING OF FRUITS AND VEGETABLES ONLY. WE GO BY ORDINARY GRAMMATICAL MEAN ING OF FOOD PROCESSING TO BE THE PROCESS BY WHICH FOOD IS PROCESSED FOR CONSUMPTION BY HUMANS OR ANIMALS AS PER COLLINS ENGLISH DICTIONARY THEREFOR E. WE REPEAT THAT THE ASSESSING OFFICER THREW SUFFICIENT LIGHT AS PER SUI TABLE REFERENCES; SECTOR-WISE, THAT PAN MASALA DOES NOT FIND PLACE IN NATIONAL F OOD PROCESSING POLICY AS WELL. THE ASSESSEES SECTION 80IC DEDUCTION CLAIM T HEREFORE FAILS TO SATISFY THE REQUISITE TEST OF ITS INCLUSION IN POSITIVE LIST OF SPECIFIED ARTICLES OR THINGS PRESCRIBED IN ITEM NO.7, PART-B, FOURTEENTH SCHEDUL E TO SECTION 80IC(2) OF THE ACT. IT THEREFORE FAILS TO DISCHARGE ITS BURDEN TO BE COVERED UNDER THE IMPUGNED DEDUCTION PROVISION AS PER HON'BLE APEX CO URTS CONSTITUTIONAL BENCHS RATIO HEREINABOVE. 13. IT FURTHER TRANSPIRES THAT THE ASSESSEES MANUF ACTURED ITEM PAN MASALA FORMS PART OF THIRTEENTH SCHEDULE PART-A (FOR THE S TATE OF SIKKIM) COMPRISING OF A NEGATIVE LIST AT SERIAL NO.1 READING TOBACCO PRODUCTS (INCLUDING CIGARETTES,, SIGMA AND GUTKA ETC.) RATHER. THE QUES TION AS TO WHETHER PAN MASALA IS INCLUDED IN TOBACCO PRODUCTS OR NOT STAN DS ANSWERED BY THE LEGISLATURE ITSELF IN PART-B IN THE SAME SCHEDULE V ERY MUCH CONTAINING THE CRUCIAL EXPRESSION TOBACCO AND TOBACCO PRODUCTS IN CLUDING CIGARETTES AND PAN MASALA. IT IS THUS CLEAR THAT LEGISLATURES CLINCHI NG EXPRESSION ETC USED IN FORMER PART-A IS INCLUSIVE IN NATURE WHICH IS SUFF ICIENTLY ANSWERED IN PART-B OF THE VERY SCHEDULE WHEREIN THE TOBACCO PRODUCTS CATE GORY INCLUDES PAN MASALA SINCE ETC HAS BEEN OMITTED TO BE USED. WE OBSERVE THEREFORE THAT THE LEGISLATIVE INTENTION IS EXPLICITLY CLEAR THAT IT HAD SOUGHT TO EXCLUDE TOBACCO PRODUCTS AS SEGMENT INCLUDING CIGARETTES AND PAN MA SALA FROM THE AMBIT OF SECTION 80IC OF THE ACT. WE APPLY NECESSARY IMPLICA TION PRINCIPLE IN THESE FACTS AND CIRCUMSTANCES TO HOLD THAT PAN MASALA D EFINITION USED IN PARA-B OF ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 24 THE THIRTEENTH SCHEDULE IS INCLUDED IN TOBACCO PROD UCTS WOULD ALSO COVER PART- A THERETO DESCRIBING VERY CATEGORIES OF TOBACCO PRO DUCTS TO BE NOT ELIGIBLE FOR SECTION 80IC DEDUCTION. WE CONCLUDE IN THESE PECULI AR FACTS AND CIRCUMSTANCES THAT THE ASSESSEES IMPUGNED CLAIM FA ILS TO CLEAR THE RIGOR OF THE ABOVE NEGATIVE LIST IN THIRTEENTH SCHEDULE PART -1 ITEM NO. 1 APPLICABLE FOR SIKKIM. WE FURTHER ARE OF THE VIEW THAT AN ITEM COV ERED IN THE NEGATIVE LIST CANNOT BE HELD TO HAVE BEEN SIMULTANEOUSLY INCLUDED IN THE POSITIVE LIST AS SUCH AN INTERPRETATION WOULD LEAD TO ABSURDITY IN I NTERPRETATION OF THE TWO LIMBS OF SECTION 80IC DEDUCTION PROVISION. WE ACCORDINGLY RESTORE ASSESSING OFFICERS ACTION MAKING ASSESSEES DEDUCTION CLAIM OF 436,98,608/- IN LEAD ASSESSMENT YEAR 2007-08. 14. LEARNED DEPARTMENTAL REPRESENTATIVE(S) INFORM U S AT THIS STAGE THAT ALL OTHER PLEADINGS REGARDING PLANT AND MACHINERY AS W ELL AS VARIOUS REMAINING ANCILLARY ISSUES ARE NOT PRESSED SINCE THE REVENUE HAS ALREADY SUCCEEDED ON THE MAIN ISSUE OF SECTION 80IC DEDUCTION. WE ACCEPT THE ABOVE LEAD CASE ITA NO. 1962/KOL/2016 THEREFORE. 15. SAME ORDER TO FOLLOW IN REVENUES REMAINING FOU R APPEALS; ITA NO.1963 TO 1966/KOL/016 FOR ASSESSMENT YEAR(S) 2008-09, 200 9-10, 2011-12 AND 2012- 13 CHALLENGING CORRECTNESS OF ASSESSEES IDENTICAL SECTION 80IC DEDUCTION CLAIMS OF 32,43,234/-, 80,97,963/-, 570,515,398 AND 193,838,674/- (ASSESSMENT YEAR-WISE RESPECTIVELY) AS IT HAS COME ON RECORD THAT THE SAME PERTAINS TO VERY PAN MASALA PRODUCT MANUFACTURED IN SIKKIM UNIT WITHOUT INVOLVING ANY DISTINCTION ON FACTS OR LAW. 16. THE REVENUES INSTANT FIVE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 31 /08/2018 SD/- SD/- ( ) (( ) (M.BALAGANESH) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S )- 31 / 08 /201 8 ITA NO. 1962-1966/KOL/2016 AYS 07-08 TO 09- 10, 11-12 TO 12-13 DCIT/ACITX, CIR-32(2), GANGTOK VS. M/S UNICORN INDS. PAGE 25 / COPY OF ORDER FORWARDED TO:- 1 . /ASSESSEE-M/S UNICORN INDUSTRIES, KASRA NO. 786/106 4, OPP. NAYABAZAR, MAJHIGAON, JORETHAN G, SOUTH SIKKIM-737121 2. /REVENUE-DCIT/ACIT, CIR-3(2), AAYAKAR BHAWAN, INCOM E TAX OFFICE, BHANUPATH NR. WHILE MEMORIAL H ALL, P.O. RAJ BHAWAN, GANGTOK-737103, SIKKIM 3. 4 5 / CONCERNED CIT KOLKATA 4. 5- / CIT (A) KOLKATA 5. 8 ((4, 4, / DR, ITAT, KOLKATA 6. = / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 4,
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