Dy. Commissioner of Income Tax, Lucknow V. M/s Khushbu Industries, Lucknow

ITA 371/LKW/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3961 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 142(1); 10AA; 80HHC; 10B; 147; 148; 144

Judgement Text

I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER AND SHRI ABY T. VARKEY, JUDICIAL MEMBER ITA NO.371/LKW/2016 ASSTT. YEAR:2008-09 DY.C.I.T., RANGE-4, LUCKNOW. VS. M/S KHUSHBU INDUSTRIES, TIKAIL RAI KA TALAB, SAADATGANJ, LUCKNOW. PAN:AAHFK7249L (APPELLANT) (RESPONDENT) O R D E R PER P. K. BANSAL, A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF CIT(A)-II, LUCKNOW DATED 12/04/2016 RELATING TO ASS ESSMENT YEAR 2008- 2009 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF A PPEAL: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ANNULLING THE ASSESSMENT ORDER PASSED U/S 147/143(3 ) OF THE I.T. ACT IGNORING THE FACT THAT THE ASSESSEE FAILED TO CHALLENGE THE JURISDICTION WITHIN PRESCRIBED TIM E OF 30 DAYS AS PER SECTION 124(3)(A) OF THE I.T. ACT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.31,31,98,995/- MADE ON ACCOUNT OF DISALLOWANCE U/S 80IC OF THE I.T. ACT WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT DOI NG ANY MANUFACTURING OR PROCESSING ACTIVITY. APPELLANT BY SHRI AMIT NIGAM, D. R. RESPONDENT BY SHRI RAJIV MEHROTRA, C. A. SHRI ABHINAV MEHROTRA, ADVOCATE DATE OF HEARING 15/09/2016 DATE OF PRONOUNCEMENT 19/10/2016 I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 2 2. GROUND NO. 1 OF THE APPEAL IS AGAINST ANNULMENT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 147/143(3 ) OF THE I.T. ACT. ACCORDING TO LEARNED D. R. THE ASSESSEE IS TO CHALL ENGE THE JURISDICTION TO MAKE THE ASSESSMENT U/S 147 WITHIN THE PRESCRIBED T IME OF 30 DAYS AS PROVIDED U/S 124(3)(A) OF THE I.T. ACT. LEARNED CO UNSEL FOR THE ASSESSEE, ON THE OTHER HAND, VEHEMENTLY CONTENDED THAT THE RE VENUE HAS CHALLENGED THE ORDER OF THE CIT(A) ANNULLING THE AS SESSMENT PASSED U/S 147/143(3) ONLY ON THE GROUND THAT THE ASSESSEE FAI LED TO CHALLENGE THE JURISDICTION WITHIN THE PRESCRIBED TIME OF 30 DAY A S PER SECTION 124(3)(A) OF THE ACT. THE PROVISIONS OF SECTION 124(3)(A) AR E APPARENTLY CLEAR. THIS CLAUSE IS APPLICABLE IN THE CASE OF THE ASSESSEE WH O HAS FILED THE RETURN U/S 139(1) OF THE ACT. CLAUSE (B) OF THE SAID SECT ION IS APPLICABLE TO THE ASSESSEE WHO HAS NOT FILED SUCH RETURN OF INCOME. THE ASSESSEE HAS FILED THE RETURN OF INCOME U/S 139(1) OF THE ACT ON 30/09 /2008 FOR THE IMPUGNED ASSESSMENT YEAR AT AN INCOME OF RS.7,120/- , THEREFORE, IT IS ONLY THE PROVISION OF SECTION 124(3)(A) WHICH IS TO BE L OOKED INTO. THE PROVISION OF SECTION 124(3)(A) OF THE ACT DO NOT PR OVIDE FOR ANY TIME LIMIT FOR QUESTIONING THE JURISDICTION IN RESPECT OF THE NOTICE ISSUED U/S 148 OF THE ACT. THIS SECTION PROVIDES TIME LIMIT ONLY FOR CHALLENGING THE NOTICE U/S 142(1) OR 143(2) OF THE ACT. IN THE CASE OF THE AS SESSEE, THE NOTICE U/S 148 WAS ISSUED BY THE INCOME TAX OFFICER-1(2), LUCK NOW WHO WAS NOT HAVING THE JURISDICTION OVER THE ASSESSEE. THE JUR ISDICTION IN THE CASE OF THE ASSESSEE LIES WITH DY.C.I.T., RANGE-4, LUCKNOW WHO HAS COMPLETED THE ASSESSMENT PROCEEDINGS U/S 147 READ WITH SECTION 14 3(3) OF THE ACT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TOWARDS THE PR OVISION OF SECTION 120(1), 120(2) OF THE ACT AS WELL AS THE DEFINITION OF THE ASSESSING OFFICER GIVEN UNDER SECTION 2(7A) OF THE ACT. I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY C ONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 121, 122, SECTION 2 SUB SECTION (7) WHICH DEFINES THE JURISDICTION OF ASSESSING OFFICER AS WE LL AS THE PROVISIONS OF SECTION 124(3) OF THE ACT. IN OUR OPINION, WE HAVE NOT TO LOOK INTO THE QUESTION, ON THE BASIS OF THE GROUND OF APPEAL TAKE N BY THE REVENUE, WITH WHICH ASSESSING OFFICER THE VALID JURISDICTION LIES IN THIS CASE TO MAKE THE ASSESSMENT. THE REVENUE HAS NOT CHALLENGED BEFORE US THAT THE JURISDICTION IN THE CASE OF THE ASSESSEE DOES NOT L IE WITH THE DY.C.I.T., RANGE-4, LUCKNOW BUT IT LIES WITH THE INCOME TAX OF FICER-1(2), LUCKNOW. THE ONLY GRIEVANCE OF THE REVENUE BEFORE US IS THAT THE ASSESSEE FAILED TO CHALLENGE THE JURISDICTION WITHIN THE PRESCRIBED TI ME OF 30 DAYS AS PER SECTION 124(3)(A) OF THE ACT. IN VIEW OF THE GRIEV ANCE OF THE REVENUE, THE ONLY QUESTION BEFORE US IS WHETHER UNDER CLAUSE (A) OF SECTION 124(3) THE ASSESSEE WAS REQUIRED TO CHALLENGE THE JURISDICTION OF THE ASSESSING OFFICER WHO ISSUED THE NOTICE U/S 148(2) OF THE ACT. THE R ELEVANT PROVISION OF SECTION 124(3) READS AS UNDER: (3) NO PERSON SHALL BE ENTITLED TO CALL IN QUESTIO N THE JURISDICTION OF AN ASSESSING OFFICER (A) WHERE HE HAS MADE A RETURN UNDER SUB-SECTION (1 ) OF SECTION 115WD OR UNDER SUB-SECTION (1) OF SECTION 1 39, AFTER THE EXPIRY OF ONE MONTH FROM THE DATE ON WHICH HE W AS SERVED WITH A NOTICE UNDER SUB-SECTION (1) OF SECTI ON 142 OR SUB-SECTION (2) OF SECTION 115WE OR SUB-SECTION (2) OF SECTION 143 OR AFTER THE COMPLETION OF THE ASSESSMENT, WHIC HEVER IS EARLIER ; (B) WHERE HE HAS MADE NO SUCH RETURN, AFTER THE EXP IRY OF THE TIME ALLOWED BY THE NOTICE UNDER SUB-SECTION (2) OF SECTION 115WD OR SUB-SECTION (1) OF SECTION 142 OR UNDER SU B-SECTION (1) OF SECTION 115WH OR UNDER SECTION 148 FOR THE M AKING OF THE RETURN OR BY THE NOTICE UNDER THE FIRST PROVISO TO SECTION 115WF OR UNDER THE FIRST PROVISO TO SECTION 144 TO SHOW CAUSE I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 4 WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE B EST OF THE JUDGMENT OF THE ASSESSING OFFICER, WHICHEVER IS EARLIER. 3.1 FROM THE READING OF SECTION 124(2)(A) OF THE AC T, IT IS SEEN THAT THIS SECTION MANDATES THAT NO PERSON SHALL BE ENTITLED T O CALL IN QUESTION THE JURISDICTION OF AN INCOME TAX OFFICER AFTER THE EXP IRY OF ONE MONTH FROM THE DATE ON WHICH HE HAS FURNISHED THE RETURN U/S 1 39(1) FROM THE DATE ON WHICH HE WAS SERVED WITH A NOTICE UNDER SUB SECTION (1) OF SECTION 142 OR SUB SECTION (2) OF SECTION 143 OR AFTER THE COMPLET ION OF THE ASSESSMENT WHICHEVER IS EARLIER. CLAUSE (A) OF SECTION 124(3) DOES NOT TALK OF ANY TIME LIMIT FOR QUESTIONING THE JURISDICTION OF THE ASSES SING OFFICER FOR THE SERVICE OF NOTICE U/S 148 OF THE ACT. THIS PROVISION PROVI DES A TIME LIMIT OF ONE MONTH TO QUESTION THE JURISDICTION OF THE ASSESSING OFFICER TO ISSUE NOTICE U/S 143(2) AND 142(1) OF THE ACT. IF WE LOOK INTO THE SAID CLAUSE (B) OF SECTION 124(3), WE NOTED THAT THIS CLAUSE TALKS OF CHALLENGE OF JURISDICTION NOT AFTER THE EXPIRY OF THE TIME ALLOWED BY THE NOT ICE ISSUED U/S 148 BUT CLAUSE (B) IS APPLICABLE ONLY IN CASE WHERE THE ASS ESSEE HAS NOT FURNISHED THE RETURN. IN THE CASE OF THE ASSESSEE, THE ASSES SEE HAS FURNISHED THE RETURN U/S 139(1) THEREFORE, IT IS ONLY CLAUSE (A) OF SECTION 124(3) WHICH IS APPLICABLE. CLAUSE (A) OF SECTION 124(3) DOES NOT REFER TO NOTICE ISSUED U/S 148 OF THE ACT. THEREFORE, WE DO NOT FIND ANY ILLE GALITY OR INFIRMITY IN THE ORDER OF CIT(A) WHICH WARRANTS OUR INTERFERENCE SO FAR IT RELATES TO GROUND TAKEN BY THE REVENUE IN RESPECT OF THE PROVISION OF SECTION 124(3)(A) OF THE ACT IS CONCERNED. WE ALSO NOTED THAT THE CIT(A ) HAS ANNULLED THE ASSESSMENT NOT ONLY ON THE BASIS OF JURISDICTION BU T HAS ALSO ANNULLED THE REASSESSMENT ON THE BASIS OF PROVISION OF SECTION 1 51 AS IN HIS OPINION, THE ASSESSING OFFICER HAS NOT TAKEN APPROVAL IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 151(2) BEFORE ISSUE OF NOTICE U/S 148 OF THE ACT. THE RELEVANT FINDINGS OF CIT(A) ARE REPRODUCED BELOW AS UNDER: I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 5 5(9) KEEPING IN VIEW OF ABOVE SAID VIEWS EXPRESSE D BY THE DIFFERENT HIGH COURT AND APEX COURT IT IS VERY MUCH CLEAR THAT THE APPROVAL/ SANCTION TO REOPEN THE CASE AND ISSUE THE NOTICE UNDER SECTION 148 OF THE ACT IS TO BE OF THE SAME O FFICER TO WHOM LAW REQUIRES AND NOT BY THE DIFFERENT OFFICER. IN THE PRESENT CASE AS PER SECTION 151(2) OF THE ACT IF TH E CASE IS TO BE RE-OPENED AFTER EXPIRY OF 4 YEARS THE APPROVAL/S ATISFACTION SHOULD BE OF JOINT COMMISSIONER OF INCOME TAX ONLY BUT IN THE PRESENT CASE THE CASE IS RE-OPENED AND NOTICE U NDER SECTION 148 OF THE ACT HAS BEEN ISSUED ON APPROVAL OF COMMISSIONER OF INCOME TAX WHO IS DIFFERENT AUTHORI TY THEN THE JOINT COMMISSIONER OF INCOME TAX AS PER SECTION 2 OF THE ACT. FOR THE SAID REASON THE NOTICE ISSUED UNDER SE CTION 148 OF THE ACT IS BAD IN LAW AND LIABLE TO BE QUASHED. THE ISSUE OF VALID JURISDICTION IS A CONDITION PRECEDENT TO THE VALIDITY OF ANY ASSESSMENT UNDER SECTION 147 OF THE ACT. IN ANY CAS E THE NOTICE UNDER SECTION 148 OF THE ACT HAS BEEN ISSUED BY THE AO WHO DID NOT HAVE JURISDICTION OVER THE APPELLANT AS DISCUSSED ABOVE AND CONSEQUENTLY THE APPROVAL GRANTED BY THE ADMINISTRATIVE AUTHORITIES UNDER WHOM THE SAID AO W ORKED ALSO DID NOT HAVE VALID JURISDICTION OVER THE APPEL LANT TO GRANT THE SAID APPROVAL UNDER SECTION 151 OF THE ACT. HE NCE, I HOLD THAT THE REASSESSMENT ON THE BASIS OF AN ILLEGAL NO TICE UNDER SECTION 148 OF THE ACT IS NOT SUSTAINABLE AND ACCOR DINGLY I ANNUL THE ASSESSMENT ORDER PASSED BY THE AO IN CONSEQUENCE OF THE NOTICE UNDER SECTION 148 OF THE ACT WHICH WA S INVALID. GROUND OF APPEAL NUMBERS 2 AND 3 ARE ALLOWED. 3.2 THE REVENUE HAS NOT COME IN APPEAL AGAINST THE AFORESAID FINDING OF CIT(A). EVEN IF THE FIRST GROUND OF APPEAL TAKEN B Y THE REVENUE IS ALLOWED, THE FINDING OF THE CIT(A) THAT THE ASSESSM ENT ORDER PASSED U/S 147 READ WITH SECTION 143(3) WILL REMAIN TO BE FINA L AND THE GROUND TAKEN BY THE REVENUE WILL BECOME TO BE INFRUCTUOUS. IN V IEW OF THE AFORESAID DISCUSSION, WE DISMISS GROUND NO. 1 TAKEN BY THE RE VENUE. 4. THE SECOND GROUND TAKEN BY THE REVENUE RELATES T O THE CLAIM OF THE ASSESSEE U/S 80IC, WHICH WAS DISALLOWED BY THE ASSE SSING OFFICER BUT ALLOWED BY THE CIT(A). THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSING OFFICER FOUND THAT THERE HAD BEEN SEARCH IN THE CASE OF THE I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 6 ASSESSEE AND DURING THE COURSE 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 OF T HE STATEMENT, TOOK THE VIEW THAT THE ASSESSEE WAS NOT DOING ANY MANUFACTUR ING OR PROCESSING ACTIVITY. IT WAS ONLY MIXING AND REPACKING VARIOUS INGREDIENTS AND SELLING THESE IN THE MARKET. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE THEREFORE, HE TOOK THE VIEW T HAT THE ASSESSEE HAS NOT COMPLIED WITH PRIMARY CONDITION AS GIVEN U/S 80IC O F BEING ENGAGED IN MANUFACTURING OR PROCESSING. THE ASSESSING OFFICE R THEREFORE, DISALLOWED THE CLAIM U/S 80IC OF THE ACT. THE ASSESSEE WENT I N APPEAL BEFORE THE CIT(A) WHO EXAMINED THE MANUFACTURING PROCESS AND T HE RELEVANT EVIDENCE AND CAME TO CONCLUSION THAT THE ASSESSEE I S ENGAGED IN MANUFACTURING PROCESS WHEREAS FINISHED PRODUCT IS D ISTINCT FROM RAW MATERIAL AND ALLOWED THE DEDUCTION TO THE ASSESSEE U/S 80IC BY HOLDING AS UNDER: 6(5) THE APPELLANT'S CASE CAN THEREFORE BE EXAMIN ED IN LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENTS TO SEE WHETHER THE ACTIVITY CARRIED OUT BY THE APPELLANT COMES UNDER T HE EXPRESSION MANUFACTURE SO AS TO BE ELIGIBLE FOR CLA IM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE EVIDEN CES FILED INDICATE THAT THE APPELLANT WAS ALLOTTED A PLOT FOR SETTING U P OF AN INDUSTRIAL UNIT AT INTEGRATED INDUSTRIAL ESTATE, PA NTNAGAR I.E. SIDCUL THE UNIT IS REGISTERED AS A SSI. THE REGISTRATI ON HAS BEEN GRANTED TO THE APPELLANT UNDER THE CATEGORY OF A 'S MALL' UNIT ENGAGED IN 'MANUFACTURING' ACTIVITY. THE PRODUCTS MANUFACTURED BY THE APPELLANT ARE EXCISABLE PRODUCTS FALLING UNDER THE CENTRAL EXCISE TARIFF HE ADING NO.3302. HOWEVER THE APPELLANT'S UNIT BEING SITUAT ED IN A NOTIFIED AREA, WAS GRANTED EXEMPTION FROM EXCISE LE VY BY I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 7 VIRTUE OF EXEMPTION NOTIFICATION NO.50/2003-CE DATE D 10.06.2003. THE APPELLANT HAS OBTAINED AN NOC FROM THE POLLU TION CONTROL BOARD, OWING TO EFFLUENT DISCHARGE FROM THE MANUFACTURING PROCESS UNDERTAKEN BY THE APPELLANT. THE APPELLANT IS ALSO REGISTERED UNDER THE FACT ORIES ACT. THE APPELLANT WAS PAYING VAT ON THE PRODUCTS DE PENDING ON THE ITEM PRODUCED AND THE VAT RATES WERE DIFFERE NT FOR DIFFERENT PRODUCTS AND ALSO FOR DIFFERENT RAW MATER IALS. (6)(6)(I) THE APPELLANT IS ENGAGED IN MANUFACTURE O F ODORIFEROUS COMPOUNDS AND INDUSTRIAL PERFUMES. THE APPELLANT IN ITS BUSINESS ACTIVITY CONSUMES OVER 15 00 RAW MATERIALS AND PRODUCES MORE THAN 500 FINISHED GOODS , ALL DIFFERENT FROM EACH OTHER. THE FINISHED GOODS MANUF ACTURED BY THE APPELLANT ARE USED IN VARIOUS INDUSTRIES WHI CH INCLUDE SKIN CARE PRODUCTS, DETERGENTS AND TOILET SOAPS, CO NSUMER EDIBLES, INCENSE STICKS AND ROOM FRESHENERS ETC, IN DUSTRIAL PERFUMES AND FLAVORS USED BY PAN MASALA AND OTHER INDUSTRIES. THE MANUFACTURING ACTIVITY CARRIED ON B Y THE APPELLANT IS EXPLAINED AS UNDER THE PROCESS OF MANUFACTURE INVOLVES, MELTING, GRIND ING, MIXING, STIRRING AT OPTIMAL TEMPERATURE TO PRODUCE A DISTINCT PRODUCT. THERE IS A PROPER REACTION AMONGS T 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 THE PRODUCT. FURTHERMORE, A RAW MATERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUTION OF FINISHED GOODS. THE RAW MATERIALS H AVE TO BE ADDED IN A PROPER CHRONOLOGICAL 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 TEMPERATURE S TO GET THE DESIRED CHEMICAL REACTION. I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 8 THE FINISHED GOODS ARE THEMSELVES A RESULT OF C HEMICAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE APPELLANT ARE HAZARDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMAN CONSU MPTION OR APPLICATION. HOWEVER SCIENTIFICALLY DERIVED FORMULA TIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WI TH SUCH MATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE RE MOVED ARE USED BY THE APPELLANT. SEVERAL NATURAL OILS AND FLAVOURS, WHICH MAY OT HERWISE ROT/DECAY WITH PASSAGE OF TIME, AND ARE IN CONCENTR ATED FORM ARE REQUIRED TO BE TREATED AND BLENDED WITH OTHER C HEMICALS ETC. SO AS TO RENDER THEM USABLE IN VARIOUS TYPES O F INDUSTRIES AND APPLICATIONS. MIXING CANNOT BE DONE WITHOUT PROPER LAB TESTIN G TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATT ERN OF VARIOUS BLENDS OVER A PERIOD OF TIME, WHICH MAY RAN GE FROM ONE HOUR TO 15 DAYS. THE BLENDED MIXTURES' PROPERTI ES CHANGE AS SOME CHEMICALS REACT OVER A PERIOD OF TIME, WHIL E IN SOME CASES REACTIONS ARE INSTANT. TESTING IS DONE AT EACH STAGE, BY AGAIN REACTIN G THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANC ES, AT VARIOUS TEMPERATURES DEPENDING 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 MATERIALS USED IN THEIR MANU FACTURE. THE PRICE LIST OF RAW MATERIALS AND FINISHED GOODS IS ALSO TOTALLY DIFFERENT. FURTHER, ONCE THE FINISHED PRODU CT 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 RAW MATERIALS ARE REC EIVED IN SOLID STATE, SOME LIQUID AND SUM IN LUMPS. SOME ARE ESSENTIAL OILS, SOME ARE AROMATIC CHEMICALS, SOME ARE SPICES, SOME ARE SPICE, EXTRACTS AND SOME ARE OLEORESINS. THUS ALL THESE TYPES OF RAW MATERIALS ARE REQUIRED TO PRODUCE THE FINISH ED GOODS. IT MAY BE SUBMITTED THAT THESE RAW MATERIALS FALL UNDE R VARIOUS TARIFF CLASSIFICATIONS OF CENTRAL EXCISE AND HENCE DIFFER IN TYPE, PROPERTIES, PRODUCT GROUPS, USAGE ETC. WHEREAS SEVE RAL RAW MATERIALS ARE UNFIT FOR HUMAN CONSUMPTION OR INHALA TION OR APPLICATION, THE FINISHED GOODS WERE USED FOR ALL T HESE PURPOSES. THEREFORE THE FINISHED GOODS HAD A DISTIN CT CHEMICAL COMPOSITION, PROPERTIES AND USAGE, WHICH C AN ONLY I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 9 BE ACHIEVED THROUGH MANUFACTURE WHICH INTER ALIA IN CLUDED STUDIED AND CONTROLLED CHEMICAL REACTIONS, 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 T HE APPELLANT IS MANUFACTURING PROCESS WHERE A FINISHED PRODUCT DIST INCT FROM THE RAW MATERIAL HAS COME INTO EXISTENCE. THE APPEL LANT IS REGISTERED WITH EXCISE DEPARTMENT. THE HON'BLE SUPR EME COURT IN THE CASE OF ARIHANT TILES & MARBLES PVT. L TD. 320 ITR 79 (SC) HAS OBSERVED THAT WHEN THE ACTIVITY UNDERTA KEN BY THE ASSESSEE INVOLVES LEVY OF EXCISE DUTY THEN TO S AY THAT THE SAID ACTIVITY DOES NOT AMOUNT TO MANUFACTURE OR PRO DUCTION UNDER SECTION 80IA OF THE ACT WILL HAVE DISASTROUS CONSEQUENCES. THE APPELLANT HAS DEMONSTRATED THAT I T IS ENGAGED IN THE MANUFACTURING OF ARTICLE AND THINGS. IT FULFILLS ALL THE ESSENTIAL CONDITIONS FOR AVAILING DEDUCTION UNDER SECTION 80IC OF THE ACT. I THEREFORE DIRECT THE AO TO ALLOW DEDUCTION OF RS.31,31,98,995/- TO THE APPELLANT. TH E APPELLANT 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 BEFO RE 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 COMPLIED WITH BY AN UNDERT AKING TO BE ELIGIBLE FOR DEDUCTION U/S 80IC(3) OF THE ACT BUT THE REVENUE DI D 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 OFF ICER BUT DID NOT DENY THAT THE ASSESSEE HAS NOT FAILED TO COMPLY WITH OTH ER CONDITIONS AS STIPULATED U/S 80IC OF THE ACT FOR THE PURPOSE OF B EING ELIGIBLE FOR DEDUCTION 80IC OF THE ACT. HIS MAIN THRUST OF THE ARGUMENT WAS THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING OR PRODUC TION OF AN ARTICLE. I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 10 HE WAS SIMPLY MIXING THE VARIOUS CHEMICALS AND ON T HAT BASIS HE WAS CLAIMING AS IF HE IS ENGAGED IN MANUFACTURING OR PR ODUCTION OF AN ARTICLE. 5.1 ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY RELYING ON THE ORDER OF THE CIT(A) CONTE NDED BEFORE US THAT THE ASSESSEE IS VERY MUCH ENGAGED IN MANUFACTURING/ PRODUCTION OF AN ARTICLE. HE WAS CARRYING ON THE MANUFACTURING OPER ATION. HE HAS SUBMITTED VARIOUS DOCUMENTS AND EVIDENCES BEFORE TH E ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE ASSESSING OFFICE R COULD NOT APPRECIATE THIS FACT WHILE THE CIT(A) WAS ABLE TO APPRECIATE T HE LINE OF THE INDUSTRIES IN WHICH THE ASSESSEE IS ENGAGED. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS SUBSTANCE. THERE ARE MO RE THAN 1,500 RAW MATERIALS WHICH ARE BEING USED FOR MANUFACTURING. THE FINISHED GOODS PRODUCED ARE ALSO MORE THAN 500 ALL OF WHICH ARE DI FFERENT FROM EACH OTHER. THE FINISHED GOODS MANUFACTURED BY THE ASSE SSEE ARE USED IN VARIOUS INDUSTRIES WHICH INCLUDE (BUT ARE NOT LIMIT ED 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 SH OWING THE NATURE AND TYPE OF FINISHED GOODS MANUFACTURED OR PRODUCED AND IT W AS SUBMITTED THAT EACH OF THE ABOVE CATEGORY OF THE PRODUCT REQUIRE T HE DIFFERENT CHEMICAL COMPOSITIONS AND PROPERTIES. FOR EXAMPLE, AN ESSEN CE OF ROSE HAS TO HAVE DIFFERENT INGREDIENTS WHEN IT IS USED IN A TOILET S OAP, AS AN AGARBATTI COMPOUND, AS A FOOD FLAVOR AND AS A PERFUME SPRAY E TC. HE SUBMITTED A FLOW CHART IN THIS REGARD AND POINTED OUT THAT THE PROCESS OF MANUFACTURE INVOLVES MELTING, GRINDING, MIXING, STIRRING AT OPT IMAL TEMPERATURE TO PRODUCE A DISTINCT PRODUCT. THERE IS PROPER REACTI ON AMONGST THE PRODUCTS TO PRODUCE A DISTINCT FLAVOR OR FRAGRANCE. IT WAS SUBMITTED THAT A PERFUME OR A FLAVOR MAY INVOLVE FROM AS LESS AS 10 TO AS MU CH AS 50 RAW MATERIALS I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 11 TO MANUFACTURE THE PRODUCT. FURTHERMORE, A RAW MAT ERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUTION OF FINISHED GOODS. THE RAW MATERIALS HAVE TO BE ADDED IN A PROPER CHRONOLOGICAL 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 CHEMI CAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE ASSESSEE ARE HAZA RDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMAN CONSUMPTION OR A PPLICATION. HOWEVER, SCIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WITH THE MATERIAL, SUCH THAT T HE HAZARDOUS PROPERTIES ARE REMOVED, ARE USED BY THE ASSESSEE. SEVERAL NATURAL OILS AND FLAVORS, WHICH MAY OTHERWISE ROT/DECAY WITH PAS SAGE 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 TYPE OF INDUSTRIES AND APPLICATIONS. MIXING CANNOT BE DONE WITHOUT PR OPER LAB TESTING TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATT ERN OF VARIOUS BLENDS OVER A PERIOD OF TIME, WHICH MAY RANGE FROM ONE HOU R TO 15 DAYS. THE BLENDED MIXTURES PROPERTIES CHANGE AS SOME CHEMICA LS REACT OVER A PERIOD OF TIME, WHILE IN SOME CASES REACTIONS ARE I NSTANT. IT WAS FURTHER SUBMITTED THAT THE TESTING IS DONE AT EACH STAGE BY AGAIN REACTING THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANC ES, AT VARIOUS TEMPERATURES DEPENDING ON THE INTENDED USE OF THE F INISHED PRODUCT. THUS, IT WAS EXPRESSED THAT THE INDUSTRY REQUIRES H IGH EXPERTISE, SPECIALIZATION AND KNOWLEDGE OF ORGANIC AS WELL AS INORGANIC CHEMISTRY. IT WAS SUBMITTED THAT ALL THE FINISHED GOODS ARE TOTAL LY DISTINCT, AS IS EVIDENT FROM THE PRICE LIST AND ALL THE RAW MATERIALS ARE A LSO TOTALLY DIFFERENT. 5.2 THE ASSESSEE HAS ALSO POINTED OUT THAT THE ASSE SSEE IS PAYING VAT DEPENDING ON THE ITEM PRODUCTS AND VAT RATES WERE D IFFERENT FOR DIFFERENT I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 12 PRODUCTS AND ALSO FOR DIFFERENT RAW MATERIALS. THE VAT DEPARTMENT HAS PASSED ORDERS FOR ALL THE YEARS, INCLUDING THE YEAR UNDER APPEAL. THE ASSESSEE HAS COMMENCED THE PRODUCTION ON 04/10/2006 IN A NOTIFIED AREA AS PER NOTIFICATION NO.SO741(E) DATED 28/06/2004. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS COMPOUNDS AND INDUSTRIAL PERFUMES WHICH ARE NOT SPECIFIED IN XIII SCHEDULE. OUR ATTENTION WAS ALSO DRAWN TOWARDS THE DEFINITION OF MANUFACTURE AS GI VEN 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 OFFIC ER 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 MA RBLES (P) LTD. 320 ITR 79 (SC) (VIII) SHREE VEER AROMATIC HERB PRODUCTS VS. INCOME TAX OF FICER 147 ITD 86 (DEL) (IX) MADHU JAYANTI INTERNATIONAL LTD. VS. DCIT 137 ITD 3 77 KOLKATTA (SB) (X) SHREE BHAVANI MINERALS VS. CIT, I.T.A. NO.68/PNI/20 13 (GOA) (XI) FIBERFILL ENGINEERS VS. ACIT, I.T.A. NO.1853/DEL/20 15 (XII) ASPINWALL & CO. LTD. VS. CIT [2001] 251 ITR 323 (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 DIFFERENT MARKET VALUE AND WHICH CANNOT BE RECONVERTED INTO THE RAW MATERIAL, THIS TRIBUNAL CAN VERIFY THE SAME BY VISITING THE INDUSTRIAL UNIT OF THE ASSESSEE. AFTER HAVING THE DISCUSSION WITH D.R, WE DECIDED TO CALL FOR THE DEMONSTRATION OF THE MANUFACTURING PROCESS OF THE ASSESSEE IN RESPEC T OF ONE OF THE ITEM I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 13 AND THEREFORE, THE CASE WHEN IT WAS INITIALLY FIXED FOR 14/09/2016 WHEN THE DETAILED ARGUMENT HAS TAKEN PLACE, ADJOURNED THE CA SE FOR 15/09/2016 TO SEE THE DEMONSTRATION OF TWO OF THE PRODUCTS OF THE ASSESSEE 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 COMPA NY HAVING DIFFERENT CHEMICALS IN SMALL BOTTLES ALONG WITH THE INDUCTION AND GLASS JARS. THE ASSESSEE FIRST DEMONSTRATED HOW THE SWEET GULAB IS MANUFACTURED. THE CHEMICAL ENGINEER SHOWED US 15 ITEMS OUT OF WHICH T WO WERE IN SOLID FORM WHILE 13 WERE IN LIQUID FORM. HE POINTED OUT THAT THE ITEMS BROUGHT BY HIM FOR MANUFACTURING 100 GMS OF SWEET GULAB WERE A S 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 SAM E SERIATIM AS IT APPEARED IN THE LIST. IF THESE ITEMS ARE MIXED UP IN DIFFER ENT ORDER, THE DESIRED SWEET GULAB WILL NOT COME AND THE PRODUCT WILL BE J UST A WASTE. TWO ITEMS NAMELY BENZOPHENONE AND ROSE CRYSTALS BEING SOLID W ERE PUT IN A JAR AND HE APPLIED HEATING PROCESS SO THAT THEY CAN BE CONV ERTED INTO LIQUID FORM. I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 14 BEFORE US AND BEFORE LEARNED D. R., THE CHEMICAL EN GINEER 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 PRO DUCTS IN A DIFFERENT ORDER, THE CHEMICAL ENGINEER SHOWED US THE REACTION BY MIXING 3-4 RAW MATERIALS IN A DIFFERENT ORDER. SIMILARLY, THE DEM ONSTRATION WAS ALSO MADE IN RESPECT OF THE COMPOUND 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 BUTYRATE 0.5 6 DEP 36 7 EBANOL 0.2 8 GALAXOLIDE 100% 2.1 9 HEXYL CINNAMIC ALDEHYDE 1.7 10 HEDIONE 0.4 11 INDOLE 2.5 12 LINALOOL 6.1 13 METHYL ANTHRANILATE 2.8 14 FOLIONE 0.015 15 PHENYL ETHYL ALCOHOL 1.7 16 SANDELA 2 17 S ABSOLUTE 0.1 5.6 THE CHEMICAL ENGINEER HAS ALSO BROUGHT THE SMAL L BOTTLE SHOWING THE FRAGRANCE AND THE SMELL OF THE PRODUCT WHICH WERE H ANDED OVER TO LEARNED D. R. ON THE BASIS OF THE DEMONSTRATION HELD BEFOR E US, WE NOTED THAT THE PRODUCT BEING PRODUCED BY MIXING THE VARIOUS CHEMIC ALS IS ENTIRELY DIFFERENT FROM THE RAW MATERIAL. ITS USAGE AS WELL AS THE UTILITY IS DIFFERENT. IT CANNOT BE CONVERTED AGAIN IN THE SAME FORM OF TH E 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 I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 15 THAT THE PROVISION OF SECTION 80IC WAS INSERTED IN THE STATUTE BY THE FINANCE ACT, 2003 WITH EFFECT FROM 2004. SECTION 8 0IC NOWHERE DEFINES THE WORD MANUFACTURE OR PRODUCTION OF AN ARTICL E. WE NOTED THAT THE WORD MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING HAS ALSO BEEN USED U/S 80IA AS WELL AS U/S 10B OF THE ACT. SECTION 10B DEFINED THE WORD MANUFACTURE FOR THE PURPOSE OF THE SAID SECTION T O INCLUDE ANY (A) PROCESS OR (B) ASSEMBLING OR (C) RECORDING OF PROGR AMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. THUS, PROCESS WAS INCLUDED WITHIN THE WORD MANUFACTURE FOR THE PURPOS E OF SEC. 10B. EXPLANATION (IV) OF THE SAID SEC. 10B FURTHER PROVI DED THAT THE WORD PRODUCE FOR THE PURPOSE OF SAID SECTION, IN RELAT ION TO ANY ARTICLE OR THING SHALL INCLUDE PRODUCTION OF COMPUTER PROGRAMME. CB DT 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 INCENTIVE FOR EARNING FOREIGN EXCHANGE SO AS TO SECURE THAT THE I NCOME OF A 100% EOU SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSE CUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS. THE EXEMPTION PROVIDED UNDER THIS NEW SECTION WAS SIMILAR TO THE ONE PROVI DED UNDER SEC. 10A OF THE ACT TO INDUSTRIAL UNDERTAKING OPERATING UNDER T HE FREE-TRADE ZONE. IT WAS ALSO CLARIFIED THEREIN THAT THE EXPRESSION MAN UFACTURE FOR THE PURPOSE OF BOTH SECTIONS 10A AND 10B OF THE SAID ACT 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 W HEN SEC. 10A AND 10B OF THE ACT WERE AMENDED BY THE FINANCE ACT, 200 1 W.E.F. 01/04/2001. SECTIONS 10A AND 10B OF THE ACT WERE FURTHER AMENDE D BY THE FINANCE ACT, I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 16 2003 W.E.F. 01/04/2004 AND THE DEFINITION OF MANUF ACTURE WAS INSERTED AS UNDER:- EXPLANATION (IV) FOR THE PURPOSE OF THIS SECTION , MANUFACTURE OR PRODUCE 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 M EANING AS ASSIGNED TO IT IN CLAUSE OF SECTION 2 OF SPECIAL ECONOMIC ZONE ACT, 2005. SUBSEQUENTLY, SPECIAL ECONOMIC ZONE ACT, 2005 WAS P ASSED BY THE PARLIAMENT IN MAY, 2005, WHICH WAS BROUGHT INTO EFF ECT W.E.F. 23/06/2005. SECTION 2(R) OF SPECIAL ECONOMIC ZONE ACT DEFINES T HE EXPRESSION MANUFACTURE AS UNDER:- MANUFACTURE MEANS TO MAKE, PRODUCE, FABRICATE, AS SEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACH INE, A NEW PRODUCT HAVING A DISTINCT NAME, CHARACTER OR USE AN D SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, P OLISHING, BLENDING, REPAIR, REMAKING, RE-ENGINEERING AND INCL UDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICU LTURE, HORTICULTURE, PISCI CULTURE, POULTRY, SERICULTURE, AVICULTURE AND MINING. 5.9 THIS DEFINITION WAS ADOPTED BY THE LEGISLATURE IN SECTION 10AA W.E.F. 10/02/2006 AS ADOPTED BY THE SPECIAL ECONOMIC ZONES ACT, 2005 BY INSERTING EXPLANATION 1(III) TO SECTION 10AA OF THE ACT WHICH READS AS UNDER:- (III) MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONE ACT, 2005. 5.10 AS PER THE SAID DEFINITION PROCESS IS INCLUD ED IN MANUFACTURE. SUBSEQUENTLY, BY THE FINANCE ACT, 2009 W.E.F 1.4.20 09, CLAUSE (29BA) WAS I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 17 INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961DE FINING THE EXPRESSION MANUFACTURE AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEA NS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE 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 DIFFERENT NAME, CHARACTER AND USE OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR I NTEGRAL STRUCTURE. 5.11 IN CHOWGULE & CO. PVT. LTD. VS. UNION OF INDIA (1981) 1 SCC 653 HONBLE SUPREME COURT, AFTER CONSIDERING THE JUDGME NT OF HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY (1959) 10 STC 500 (BOM.), CLEARLY OBSERVED ON THE QUESTION WHETHER THE BLENDING OF ORE, WHILST LOADING IT IN THE SHIP BY MEANS OF T HE MECHANICAL ORE HANDLING PLANT, CONSTITUTED MANUFACTURE OR PROCESS ING OR ORE FOR SALE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 O F THE CENTRAL SALES TAX ACT, 1956. DEALING WITH THIS QUESTION, THEIR LORDSH IPS HELD AND OBSERVED AT PAGES 659 AND 660 OF THE REPORTS AS UNDER:- IT STILL REMAINS TO CONSIDER WHETHER THE ORE BLEND ED IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT CAN BE SAID TO UNDERGO PROCESSING WH EN IT IS BLENDED. THE ANSWER TO THIS QUESTION DEPENDS UPON WHAT IS THE TRUE MEANING AND CONNOTATION OF THE WOR D PROCESSING IN SECTION 8(3)(B) AND RULE 13. THIS W ORD HAS NOT BEEN DEFINED IN THE ACT AND IT MUST THEREFO RE BE INTERPRETED ACCORDING TO ITS PLAIN NATURAL MEANING. WEBSTERS DICTIONARY GIVES THE FOLLOWING MEANING OF THE WORD PROCESS: TO SUBJECT TO SOME SPECIAL PROCESS OR TREATMENT, TO SUBJECT (ESPECIALLY RAW MATERIAL) TO A PROCESS OF MANUFACTURE, DEVELOPMENT OF PREPARATION FOR THE MARKET ETC.; TO CONVERT INTO MARKETABLE FORM AS LIVESTOCK BY SLAUGHTERING, GRAIN BY MILLING, COTTON BY I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 18 SPINNING, MILK BY PASTEURIZING, FRUITS AND VEGETABL ES BY SORTING AND REPACKING. WHERE THEREFORE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMEN T OR PREPARATION FOR THE MARKET, AS, FOR EXAMPLE, BY SO RTING AND REPACKING FRUITS AND VEGETABLES, IT WOULD AMOUN T TO PROCESSING OF THE COMMODITY WITHIN THE MEANING OF SECTION 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 EXTENSIVE; BUT WITH EACH PROCESS SUFFERED, THE COMMODITY WOULD EXPERIENCE A CHANGE. WHEREVER A COMMODITY UNDERGOES A CHANGE AS A RESULT OF SOME OPERATION PERFORMED ON IT OR IN REGARD TO IT, SUCH OPERATION WOULD AMOUNT TO PROCESSING OF THE COMMODITY. THE NATURE AND EXTENT OF CHANGE IS NOT MATERIAL. IT MAY BE THAT CAMPHOR POWDER MAY JUST BE COMPRESSED INTO CAMPHOR CUBES BY APPLICATION OF MECHANICAL FORCE OR PRESSURE WITHOUT ADDITION OR ADMIXTURE OF ANY OTHER MATERIAL AND YET THE OPERATION WOULD AMOUNT TO PROCESSING OF CAMPHOR POWDER AS HELD BY THE CALCUTT A HIGH COURT IN OM PRAKASH GUPTA VS COMMISSIONER OF COMMERCIAL TAXES [16 STC 935 (CAL)]. WHAT IS NECESS ARY IN ORDER TO CHARACTERIZE AN OPERATION AS PROCESSIN G IS THAT THE COMMODITY MUST AS A RESULT OF THE OPERATIO N, EXPERIENCE SOME CHANGE. HERE, IN THE PRESENT CASE, DIVERSE QUANTITIES OF ORE PROCESSING DIFFERENT CHEM ICAL AND PHYSICAL COMPOSITIONS ARE BLENDED TOGETHER TO PRODUCE ORE OF THE REQUISITE CHEMICAL AND PHYSICAL COMPOSITION DEMANDED BY THE FOREIGN PURCHASER AND OBVIOUSLY AS A RESULT OF THIS BLENDING, THE QUANTIT IES OF ORE MIXED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT EXPERIENCE CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITION, BECAU SE WHAT IS PRODUCED BY SUCH BLENDING IS ORE OF A DIFFE RENT CHEMICAL AND PHYSICAL COMPOSITIONS. WHEN THE CHEMICAL AND PHYSICAL COMPOSITION OF EACH KIND OF ORE WHICH GOES INTO THE BLENDING IS CHANGED , THERE CAN BE NO DOUBT THAT THE OPERATION OF BLENDIN G I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 19 WOULD AMOUNT TO PROCESSING OF ORE WITHIN THE MEAN ING OF SECTION 8(3)(B) AND RULE 13. IT IS NO DOUBT TRUE THAT THE BLENDING OF ORE OF DIV ERSE PHYSICAL AND CHEMICAL COMPOSITIONS IS CARRIED OUT B Y THE SIMPLE ACT OF PHYSICALLY MIXING DIFFERENT QUANTITIE S 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 F OR THE PURPOSE OF BLENDING. WHAT IS MATERIAL TO CONSIDER IS WHETHER THE DIFFERE NT QUANTITIES OF ORE WHICH ARE BLENDED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLI NG PLANT UNDERGO ANY CHANGE IN THEIR PHYSICAL AND CHEM ICAL COMPOSITION IS A RESULT OF BLENDING AND SO FAR AS T HIS ASPECT OF THE QUESTION IS CONCERNED, IT IS IMPOSSIB LE TO ARGUE THAT THEY DO NOT 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 HON BLE APEX COURT HELD EVEN BLENDING OF IRON ORE FOR THE PURPOSE OF EXPORT INVOLVES CHANGE IN THE CHEMICAL AND PHYSICAL COMPOSITION OF IRON ORE. IF WE LOOK TO THE FACTS OF THE IMPUGNED CASE OF THE ASSESSEE, WE FIND THAT THE ASSESSEE IS MIXING VARIOUS CHEMICALS EITHER IN LIQUID OR SOLID FORM BY APPLYING A PREDETERMINED PROCESS AND MIXING THEM IN A PREDETERMINED MANNER S O THAT OUT OF THE MIXING, ENTIRELY A NEW PRODUCT COME AND ITS FINISHE D PRODUCT TECHNICALLY AFTER HAVING THE PROCESS OF MIXING HAS DIFFERENT NA MES. THERE ARE DIFFERENT CHEMICALS AND THE ITEMS WHICH ARE BEING U SED FOR DIFFERENT PRODUCT IN A DIFFERENT PROPORTION IN A PREDETERMINE D ORDER OF THE MIXING, AS SHOWN TO US DURING THE COURSE OF HEARING AND DUR ING THE COURSE OF DEMONSTRATION OF TWO ITEMS, AS GIVEN BY US IN THE P RECEDING PARAGRAPH, BOTH THE PRODUCTS MANUFACTURED ARE ENTIRELY DIFFERE NT FROM THE VARIOUS CHEMICALS AND THE ITEMS USED BY THE ASSESSEE. THES E ITEMS SO PRODUCED I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 20 HAVE A DIFFERENT NAME, DIFFERENT UTILITY AND THEY A RE BEING USED FOR DIFFERENT PURPOSES IN SOAPS, DETERGENTS, EDIBLE ITE MS, JUICES ETC. ACCORDING TO THE FRAGRANCES AND TASTE TO BE GIVEN TO THESE IT EMS. THESE ITEMS SO PRODUCED ARE DIFFERENT IN PHYSICAL APPEARANCE AND C HEMICAL COMPOSITION. WE DO NOT AGREE WITH LEARNED D. R. THAT THERE IS NO T ANY CHANGE IN PHYSICAL AND CHEMICAL COMPOSITION OF THE OUTPUT THA N THE INPUT AS IS BEING PROCESSED IN THE CASE OF THE ASSESSEE. IF WE GO TO SECTION 2 SUB-SECTION (29BC) INSERTED WITH EFFECT FROM 01/04/2009, WE FIN D THAT CLAUSE (B) OF THIS SECTION CLEARLY STATES THAT BRINGING INTO EXIS TENCE OF NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE, TANTAMOUNT TO MANUFACTURE. EVEN THOUGH THEY REMAIN IN LIQUID FORM BUT IT IS NOT A CASE THAT ALL THE INGREDIENTS WHICH ARE BEING MIXED ARE IN LIQUID FORMS. THE TASTE AS WELL AS THE SMELL AN D THE UTILITY OF THE INPUT AND THE OUTPUT WHICH WE HAVE SEEN DURING THE COURSE OF DEMONSTRATION IN THE COURT, ARE ENTIRELY DIFFERENT. IN OUR OPINION , IN VIEW OF THIS CLAUSE AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F CHOWGULE & CO. (SUPRA), IT CANNOT BE HELD THAT THE ASSESSEE IS ENG AGED IN THESE 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 WOR D PRODUCTION 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 CHARA CTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE THE WORD PRODUCTION OR PRODUCE WHEN USED IN JUX TAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINGING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT ALSO TAKES IN ALL THE BY-PRODUCTS, INTERMEDIATE I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 21 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 P RODUCTION, ALBEIT, IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEANING ASCRIBED TO THE WORD PRODUCTION IN THE OXFORD ENGLISH DICTIONARY, AS MEANING AMONGST OTHER THINGS THAT W HICH IS PRODUCED; A THING THAT RESULTS FROM ANY ACTION, PROCESS OR EFFO RT, A PRODUCT; A PRODUCT OF HUMAN ACTIVITY OR EFFORT. FOR 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 WORD PRODU CTION SINCE ORE IS A THING, WHICH IS THE RESULT OF HUMAN ACTIVITY OR EF FORT. 5.15 ACCORDING TO WEBSTER INTERNATIONAL ENGLISH DI CTIONARY, THE VERB PRODUCE MEANS TO BRING FORWARD, BEGET, ETC. THE J UXTAPOSITION OF THE WORD MANUFACTURE WITH AGRICULTURE AND HORTICULTURE IS SIGNIFICANT AND CANNOT BE LOST SIGHT OF. THE INTENTION IN EMPLOYING THE WO RD PRODUCED OBVIOUSLY WAS TO INTRODUCE AN ELEMENT OF VOLITION AND EFFORT INVOLVING THE EMPLOYMENT OF SOME PROCESS FOR BRINGING INTO EXISTENCE SOME GO ODS. 5.16 IN PARAGRAPH 7 OF ITS IN THE CASE OF CHOWGULE & C0 (P) LTD. VS. UOI (SUPRA), HONBLE APEX COURT ALSO CONSIDERED THE QUE STION WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND BLENDED BY TH E ASSESSES FOR THE PURPOSE PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE BEEN PROCESSED, AFTER THE PURCHASE, WITHIN THE MEANING OF THE PROVI SO TO SECTION 8(A), SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLED TO DED UCT THEIR TURNOVER UNDER SECTION 8(A), SO AS TO PRECLUDE THE VALUE OF THE TE A PURCHASED BY THEM. THE RELEVANT OBSERVATIONS MADE BY THE HONBLE SUPRE ME COURT IN THIS RESPECTIVE ARE QUOTED AND SET OUT HEREIN 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 I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 22 BOMBAY [10 STC 500 (BOM HC)]. THE ASSESSEES IN THIS CASE WERE REGISTERED DEALERS IN TEA UNDER THE BOMBAY SAL ES TAX ACT, 1953 AND THEY PURCHASED IN BULK DIVERSE BRANDS OF T EA AND WITHOUT THE APPLICATION OF ANY MECHANICAL OR CHEMIC AL PROCESS BLENDED THESE BRANDS OF DIFFERENT QUALITIES ACCORDI NG TO A CERTAIN FORMULA EVOLVED BY THEM AND SOLD THE TEA MI XTURE IN THE MARKET. THE QUESTION AROSE BEFORE THE SALES TAX AUT HORITIES WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND B LENDED BY THE ASSESSEE FOR THE PURPOSE OF PRODUCING THE TEA M IXTURE 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 FROM THEIR T URNOVER UNDER SECTION 8(A), THE VALUE OF THE TEA PURCHASED BY THE M. THE HIGH COURT OF BOMBAY HELD THAT DIFFERENT BRANDS OF TEA P URCHASED BY THE ASSESSES COULD NOT BE REGARDED AS PROCESSED W ITHIN THE MEANING OF THE PROVISO TO CLAUSE (A) OF SECTION 8, BECAUSE THERE WAS NOT EVEN APPLICATION OF MECHANICAL FORCE SO AS TO SUBJECT THE COMMODITY TO A PROCESS, MANUFACTURE, DEVELOPMEN T OR PREPARATION AND THE COMMODITY REMAINED IN THE SAME CONDITION. THE ARGUMENT OF THE REVENUE BEFORE US WA S THAT THIS DECISION OF THE BOMBAY HIGH COURT WAS ON ALL FOURS WITH THE PRESENT CASE AND IF THE BLENDING OF DIFFERENT BRAND S OF TEA FOR THE PURPOSE OF PRODUCING A TEA MIXTURE IN ACCORDANC E WITH A FORMULA EVOLVED BY THE ASSESSES COULD NOT BE REGARD ED AS PROCESSING OF TEA, EQUALLY ON A PARITY OF REASONI NG, BLENDING OF ORE OF DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS COULD NOT BE HELD TO CONSTITUTE PROCESSING OF THE ORE. NOW UNDOUBTEDLY THERE IS A CLOSE ANALOGY BETWEEN TH E FACTS OF NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AND THE FACTS OF THE PRESENT CASE, BUT WE DO NOT THINK WE CAN ACC EPT THE DECISION OF THE BOMBAY HIGH COURT IN THE NILGIRI TE A COMPANY CASE [10 STC 500 (BOM HC)] AS LAYING DOWN THE CORRE CT LAW. WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSE SSEE IN NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT K IND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THE RE 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 C AME INTO EXISTENCE WAS OF DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. THERE AR E, IT IS TRUE, SOME OBSERVATIONS IN THE JUDGMENT OF THE BOMBAY HIG H COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APP LICATION OF ENERGY IN MIXING THE DIFFERENT BRANDS OF TEA, THERE HAD BEEN I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 23 APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TE A MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINC E IN THE PRESENT CASE THE BLENDING WAS DONE BY APPLICATION O F MECHANICAL FORCE, BUT WE DO NOT THINK THAT IS THE C ORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER T HERE IS PROCESSING. THE QUESTION IS NOT WHETHER THERE IS MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF ME CHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF C ARRYING OUT THE OPERATION, IT IS THE EFFECT OF THE OPERATIO N ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETER MINING WHETHER THE OPERATION CONSTITUTES PROCESSING WE A RE CLEARLY OF VIEW THAT THE BLENDING OF ORE IN THE COURSE OF LOAD ING THROUGH THE MECHANICAL ORE HANDLING PLANT AMOUNTED TO PROC ESSING OF ORE WITHIN THE MEANING OF SECTION 8(3)(B) AND RULE 13 AND THE MECHANICAL ORE HANDLING PLANT FELL WITHIN THE DESCR IPTION OF MACHINERY, PLANT, EQUIPMENT USED IN THE PROCESSIN G OF ORE FOR SALE 5.17 IN DECIDING THE SAID QUESTION, THE HONBLE SU PREME COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [1959] 10 STC 500 (BOM), INTER ALIA, OBSERVED AS FOLLOWS: (I) WHEN DIFFERENT BRANDS OF TEA WERE MIXED BY THE ASSESSEE AS IN NILGIRI CEYLON TEA SUPPLYING CO.S CASE (1959 ) 10 STC 500 (BOM) FOR THE PURPOSE OF PURCHASING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDING T O A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING FOR THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESUL T OF MIXING, A QUALITATIVE CHANGE, IN THAT THE TEA MIXTU RE WHICH CAME INTO EXISTENCE WAS OF A DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF THE TEA WHICH WENT INT O THE MIXTURE; (II) THERE ARE, IT IS TRUE, SOME OBSERVATIONS IN TH E JUDGMENT OF THE BOMBAY HIGH COURT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING T HE 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, SINC E, IN THE PRESENT CASE, THE BLENDING WAS DONE BY APPLICAT ION OF I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 24 MECHANICAL FORCE, BUT THAT IS NOT THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETERMINING WHETHER THE OPERATION CONSTITUTES IS PROCESSING. (III) THE QUESTION IS NOT WHETHER THERE IS ANY MANU AL APPLICATION OF ENERGY OR THERE IS APPLICATION OF ME CHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPO SE 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 & CO. PVT. LTD. (SUPRA), HOLDING, INTER ALIA, THAT WHERE ANY C OMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WITH A VIEW TO ITS DEVELOPMEN T OR PREPARATION FOR THE MARKET IT WOULD AMOUNT TO PROCESSING OF THE COMMOD ITY WITHIN THE MEANING OF CENTRAL SALES TAX ACT, 1956. HONBLE SUP REME COURT, IN THE SAID JUDGMENT, DID NOT CONSIDER THE EXPRESSION MAN UFACTURE SINCE THE QUESTION WAS DECIDED ONLY ON THE EXPRESSION PROCES SING. HOWEVER, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT I N THE CASE OF NILGIRI TEA CO. [1959] 10 STC 500, HONBLE SUPREME COURT OB SERVED THAT, FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT K IND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND INDUBITABLY PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRAND S OF TEA EXPERIENCED, AS A RESULT OF A QUALITATIVE CHANGE, IN THAT THE TEA M IXTURE WHICH CAME INTO EXISTENCE WAS OF A QUALITY AND FLAVOR FROM THE DIFF ERENT 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 PRODUCTIO N OF AN ARTICLE OR THING WHEN ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN THE CASE OF TATA TEA LTD. VS. ACIT 338 ITR 285. HONBLE HIGH COURT NOTE D IN THAT CASE THAT THE REVENUES STAND IS THAT MANUFACTURE OR PRODUCTION H AD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10 B OF THE ACT UNTIL ITS I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 25 DELETION WHICH COVERS EVEN PROCESSING AND, THEREFOR E, BLENDING AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS MANUFAC TURE OR PRODUCTION OF AN ARTICLE QUALIFYING FOR EXEMPTION. HONBLE KERALA HIGH COURT CONSIDERED THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF I NCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S 10A OF THE ACT AN D UNITS IN THE FREE TRADE ZONE PROVIDED U/S 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S 10B OF THE ACT ARE VERY SIMILAR IN NATURE A ND 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. S TANDING COUNSEL FOR THE REVENUE, WHEREIN HONBLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING, BUT IS ONLY PROCESSING. HONBLE HIGH COURT ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE WAS EXCLUSIVELY ENG AGED 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 ENG AGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTI ON 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 ASSES SEES CASE). FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WOULD CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT AND SECTION 10AA OF THE ACT RESPECTIVELY. THE ASSESSEE WAS ALLOWED EXEMPTION ON THE PROFIT DERIVED BY ITS 100% EOU ENG AGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. HON BLE HIGH COURT HELD AS UNDER: THE FINDING OF THIS COURT IS THAT THE PURPOSE OF I NCORPORATION OF SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 200 5, INTO SECTION 10AA OF THE INCOME-TAX ACT IS TO PROVIDE A LIBERAL I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 26 MEANING TO THE WORD MANUFACTURE WHICH TAKES IN EV EN BLENDING, REFRIGERATION, ETC. IT WAS NOTICED BY THI S COURT THAT THE DEFINITIONS OF MANUFACTURE CONTAINED IN THE ABOVE DEFINITION CLAUSES ARE VERY LIBERAL WHICH TAKES IN EVEN PROCES SING LIKE BLENDING. THE CONTENTION OF THE COUNSEL FOR THE ASS ESSEE IS THAT THE PURPOSE OF REMOVAL OF THE DEFINITION OF MANUFA CTURE 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 LEGISLATURE WOULD HAVE ONLY MODIFIED THE DEFINI TION CLAUSE. FURTHER, THE DEFINITION OF 100 PER CENT EXPORT ORIE NTED UNIT EVEN AFTER THE AMENDMENT IS RETAINED IN THE SAID SECTION , WHICH DEFINES IT AS AN UNDERTAKING WHICH HAS BEEN APPROVE D AS A 100 PER CENT EXPORT ORIENTED UNDERTAKING BY THE BOARD A PPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE O F POWERS CONFERRED BY SECTION 40 OF THE INDUSTRIES (DEVELOPM ENT & REGULATION) ACT, 1951, AND THE RULES MADE UNDER THA T ACT. IT IS PERTINENT TO NOTE THE PRODUCTS FOR WHICH THE ASSESS EES UNIT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT A RE 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 AND IS NOT MANUFACTURING OR PRODUCING ANY OTHER ART ICLE OR THING. STILL IT IS RECOGNIZED AS A 100 PER CENT EXP ORT ORIENTED UNIT BY THE CONCERNED AUTHORITY WITHIN THE MEANING OF THAT TERM CONTAINED IN THE DEFINITION CLAUSE OF SECTION 10B O F THE INCOME- TAX ACT AND THE DEPARTMENT HAS NO CASE THAT THE ASS ESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS IS NOT A 100 PER CENT EXPORT ORIENTED UNIT. SO MUCH SO, IN OUR V IEW, IF EXEMPTION IS DENIED ON THE GROUND THAT PRODUCTS EXP ORTED ARE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEES 100 PER CENT EXPORT ORIENTED UNIT, THE S AME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B. FURTHER, IND USTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FRE E TRADE ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER S ECTION 10A AND SECTION 10AA RESPECTIVELY. THE STILL WORSE POSI TION IS THAT THE APPELLANT WOULD BE DENIED OF EXPORT EXEMPTION A VAILABLE UNDER SECTION 80HHC EVEN TO A MERCHANT EXPORTER. IN OUR VIEW, THE DECISION OF THE SUPREME COURT IN TARA AGENCIES CASE [2007] 292 ITR 444 (SC) IS NOT APPLICABLE FOR THE P URPOSE OF CONSIDERING EXEMPTION FOR INDUSTRIES IN THE EXPORT PROCESSING ZONES, FREE TRADE ZONES AND TO 100 PER CENT EXPORT ORIENTED UNITS COVERED BY SECTIONS 10A, 10AA AND 10B OF THE INCOME- TAX ACT. THEREFORE, FOLLOWING THE JUDGMENT OF THIS COURT ABOVE REFERRED TO WE HOLD THAT THE ASSESSEE IS ENTITLED T O EXEMPTION ON THE PROFIT DERIVED BY ITS 100 PER CENT EXPORT OR IENTED UNIT I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 27 ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. CONSEQUENTLY, WE ALLOW THE APPEALS BY REVE RSING THE ORDERS OF THE TRIBUNAL AND BY RESTORING THE ORDERS OF THE FIRST APPELLATE AUTHORITY DECLARING THE APPELLANTS ENTIT LEMENT FOR EXEMPTION. 5.20 HONBLE HIGH COURT IN THIS CASE, IN OUR OPINIO N, HAS CLEARLY LAID DOWN THAT ONCE THE ASSESSEE IS RECOGNIZED AS A 100% EOU FOR ENGAGING IN AN ACTIVITY AND ASSESSEE IS ENGAGED IN THE SAME VERY A CTIVITY, IF THE EXEMPTION IS DENIED TO THE ASSESSEE ON THE GROUND T HAT THERE IS NO PRODUCTION OR MANUFACTURING BUT ONLY PROCESSING OF THE PRODUCTS EXPORTED IN THE 100% EXPORT ORIENTED UNIT, THE SAME WOULD DE FEAT THE VERY OBJECT OF SECTION 10B. THE HONBLE HIGH COURT TOOK THE VIEW T HAT THE DECISION OF THE HONBLE SUPREME COURT IN TARA AGENCYS CASE 292 ITR 444 WILL NOT APPLY EVEN THOUGH HONBLE SUPREME COURT IN THAT CASE HAS HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE BUT IS ONLY PROCESSING. THUS, THE HONBLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUPRA) GAVE THE CLEAR CUT FINDING IMPLIEDLY T HAT EVEN IF THE ASSESSEE IS ENGAGED IN PROCESSING AND IS RECOGNIZED AS 100% EOU , IT WILL BE ENTITLED FOR EXEMPTION CLAIMED U/S 10B OF THE ACT. 5.21 THUS, HON'BLE KERALA HIGH COURT IN THE CASE OF TATA TEA LTD. (SUPRA) GAVE THE CLEAR CUT FINDING IMPLIES THAT EVEN IF THE ASSESSEE IS ENGAGED IN PROCESSING, IT WILL BE ENTITLED FOR EXEMPTION AS IT CAN BE SAID TO HAVE BEEN ENGAGED IN MANUFACTURING OR AN ARTICLE. 5.22 EVEN ON THIS ISSUE WE HAVE GONE THROUGH THE DE CISION OF HONBLE SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNAT IONAL LTD. AND OTHERS VS. DCIT. THE QUESTION FOR CONSIDERATION AND DECISI ON OF THE SPECIAL BENCH WAS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE ASSESSEES, WHO ARE IN THE BUSINESS OF BLENDING & PROCESSING OF TEA AND EXPORT THEREOF, CAN BE SAID T O BE I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 28 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 INTERNATIONAL LTD. IN ITA NO. 1463/KOL/2007 WERE THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF MANUFACTURING, PROCESSING, EXPORTING AND DEALING IN VARIOUS COMMODITIES, MORE PARTICULARLY TEA, COFFEE, JUTE, PEPPER, CHILLI ES, CARDAMOM, TURMERIC AND SIMILAR OTHER SPICES, ETC. THE ASSESSEE, AS PE R THE CLAIM IS A 100% EOU WITHIN THE MEANING OF SECTION 10B OF THE I.T. A CT, 1961 AND CLAIMED EXEMPTION UNDER THAT SECTION. THE ASSESSEE BUYS TEA FROM AUCTIONS HELD IN TEA BOARD RECOGNIZED AUCTION CENTRES AT KOLKATA, GU WAHATI, SILIGURI, COCHIN, COIMBATORE AND COONOOR. THE ASSESSEE CONCED ED THE FACTUAL POSITION THAT IT IMPORTS SMALL QUANTITY OF TEA OF T HE 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 REMO VE ALL DUST AND FOREIGN SUBSTANCES AND THEREAFTER IT BLENDS DIFFERENT VARIE TIES OF TEA TO MAKE IT OF UNIFORM AND CONSISTENT QUALITY THROUGHOUT THE YEA R. THEREAFTER, IT IS PACKED IN CONSUMER PACKETS OF 50, 100, 250, 500 OR 1000 GMS. ETC. OR PACKED IN THE FORM OF TEA BAGS OF 1.94 GMS. OR 2 GM S. ETC., AS THE CASE MAY BE. THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF T HE 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 REJEC TION OF EXEMPTION U/S 10B WAS CONFIRMED BY THE CIT(A). WHEN THE MATTER WE NT BEFORE THE SPECIAL BENCH, SPECIAL BENCH AFTER DISCUSSION THE R ELEVANT PROVISIONS AS WELL AS THE VARIOUS DECISIONS OF HIGH COURT AND THE SUPREME COURT HELD AS UNDER:- I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 29 32. THE PROVISIONS OF SECTION 10AA OF THE ACT WAS I NSERTED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT, 2005 W.E.F. 10.02.2006. EVEN PRIOR TO THE ENACTMENT OF THE SAID SEZ ACT, SPECIAL ECONOMIC ZONES (INCLUDING UNITS THEREIN) WERE ALL A LONG TREATED LIKE EQU / FTZ / EPZ FOR ALL PURPOSES WHATSOEVER AND WER E DEALT WITHIN THE EXIM POLICY ACCORDINGLY. SECTION 2(K) OF THE SP ECIAL ECONOMIC ZONE ACT, 2005 DEFINES THE EXPRESSION 'EXISTING SPE CIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOMIC ZONE WHICH IS IN EXISTENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECT ION 2(E) DEFINES THE EXPRESSION 'EXISTING UNIT' TO MEAN EVER Y UNIT WHICH HAS BEEN SET UP ON OR BEFORE THE COMMENCEMENT OF THE SA ID ACT IN AN EXISTING SPECIAL ECONOMIC ZONE. IN OTHER WORDS, ADM ITTEDLY ALL SPECIAL ECONOMIC ZONES WERE ALSO BEING GOVERNED BY THE EXIM POLICY PRIOR TO THE ENACTMENT OF SEZ ACT, 2005. CLA USE (III) OF EXPLANATION 1 TO SECTION 1OAA LAYS DOWN THAT THE EX PRESSION 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIGN ED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 200 5, WHICH DEFINITION IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, AS SEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACH INE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, P OLISHING, BLENDING, REPAIR, REMAKING, RE-ENGINEERING AND INCLUDES AGRIC ULTURE, AQUACULTURE, ANIMAL HUSBANDLY, FLORICULTURE, HORTIC ULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING'. IN EXIM POLICY, THE EXPRESSION 'MANUFACTURE' IS DEF INED, IN PARAGRAPH 9.30 & 9.31 THEREOF ALMOST IN THE SAME MA NNER AS IN THE SPECIAL ECONOMIC ZONE ACT, 2005, WHICH IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, AS SEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACH INE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELING. MANUFACTURE, FOR THE PURPOSE OF THIS POLI CY, SHALL ALSO INCLUDE AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, V ITICULTURE AND MINING.' BUT THE ONLY DIFFERENCE BETWEEN THE EXIM POLICY OF 2002-07 AND OF 2000 IS THAT WORDS 'AND SEGREGATION' WHICH WERE APP EARING IN THE DEFINITION OF THE EXPRESSION 'MANUFACTURE' IN THE E XIM POLICY OF 2000 WAS DELETED IN THE EXIM POLICY OF 2002-07. FU RTHER, EVEN IN PREVENTION OF FOOD ALTERNATION RULES, 1955, IT HAS BEEN INTER ALIA I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 30 STATED THAT TEA USED IN THE MANUFACTURE OF FLAVOUR ED 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) CONTROL ORDER, 1957 ISSUED BY THE GOVERNMENT OF INDIA, MINI STRY OF COMMERCE & INDUSTRY (DEPARTMENT OF COMMERCE) THE EX PRESSIONS 'FLAVOUR TEA', 'GREEN TEA' 'INSTANT TEA', 'PACKET T EA' '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 'MANUFACTURER', 'BUYER', 'PACKET TEA', 'TEA BAG',- 'GREEN TEA', 'QUICK BREWING BLACK TEA', 'INSTANT TE A' AND 'MADE TEA' HAVE ALSO BEEN DISTINCTLY AND SEPARATELY DEFINED. CLAUSE (29BA) WAS INSERTED IN S ECTION 2 OF THE INCOME TAX ACT, 1961 BY THE FINANCE (NO.2) ACT, 200 9 W.E.F. 01.04.2009 TO DEFINE THE EXPRESSION 'MANUFACTURE' A S UNDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEA NS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING , - (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVIN G A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT O BJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSIT ION OR INTEGRAL STRUCTURE; THE AFORESAID DEFINITION OF THE EXPRESSION 'MANUFAC TURE', ALTHOUGH BROUGHT INTO THE STATUTE BOOK W.E.F. 01.04 .2009, WAS APPLIED BY THE HON'BLE SUPREME COURT EVEN FOR THE A SSESSMENT YEAR 2001-02 IN ITO V. ARIHANT TILES AND MARBLES PV T. LTD. (2010) 320 ITR 79, 82 (SC) ON THE GROUND THAT PARLIAMENT H AD TAKEN NOTE OF GROUND REALITY IN INSERTING SECTION 2(29BA) IN THE INCOME TAX LAW. THE SAID DEFINITION WAS AGAIN APPLIED BY T HE HON'BLE SUPREME COURT IN CIT V. EMPTEE POLY-YARN PVT. LTD. (2010) 'GREEN TEA' MEANS THE VARIETY OF MANUFACTURED TEA C OMMERCIALLY KNOWN AS GREEN TEA; 320 ITR 665,667 (SC). 33. THE ASSESSEE COMPANY CARRIES OUT ITS OPERATIONS OF BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND B ULK TEA PACKS IN ITS MODERN FACTORY, WELL EQUIPPED WITH ALL IMPOR TED AND SOPHISTICATED AUTOMATIC PLANT AND MACHINERIES WITH THE HELP OF OVER 100 WORKMEN ENGAGED ON CONTRACT BASIS THROUGH M/S. TROT I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 31 PVT. LTD. THE MANUFACTURING'. OPERATIONS ARE CARRIE D IN ITS SAID FACTORY SITUATED AT 19/4A, MUNSHIGANJ ROAD (UNDER F ALTA EXPORT PROCESSING ZONE), KOLKATA. WE FIND FROM FACTS OF TH E CASE THAT THE DETAILS OF TURNOVER OF THE ASSESSEE SHOWS BULK TEA (0.94%), PACKET TEA AND TEA BAGS .(99.06%),. AS. PER DIFFERE NT DESCRIPTIONS, BRAND NAMES AND VARIETIES, AS LISTED APR. ASSESSEE COMPANY IS DULY REGISTERED AS A 100% EOU BY THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL POLI CY AND PROMOTION SECRETARIAL FOR INDUSTRIAL APPROVALS, ECU SECTION I N THE STATE OF WEST BENGAL FOR MANUFACTURE OF PACKET TEA, TEA BAGS /BULK TEA WITH ANNUAL CAPACITY OF 3110 MT. IN TERMS OF REGIST RATION CERTIFICATE DATED 26TH DECEMBER, 1995, INTER ALIA, WITH THE CONDITION THAT ITS 100% PRODUCTION (EXCLUDING REJEC TS NOT EXCEEDING 5%) WOULD HAVE TO BE EXPORTED AND THAT IT S REGISTERED EOU UNIT SHALL MAKE VALUE ADDITION TO A MINIMUM EXT ENT OF 79%. UNDISPUTEDLY, THE EXPORTED CONSUMER PRODUCTS, BLEND ED BY ASSESSEE IN ITS SAID FACTORY PREMISES IS A CASE OF SUBSTANTIAL VALUE ADDITION, AS COMPARED TO THE UNBLENDED BLACK TEA IN GRANULE AND DUST FORM NORMALLY AVAILABLE FOR SALE IN THE OPEN R ETAIL MARKET THROUGHOUT INDIA. 34. THE SUBJECT FOR CONSIDERATION UNDER SECTIONS 10 A AND/OR 10B OF THE SAID ACT IS MANUFACTURE / PRODUCTION OF TEA ; THE OBJECT BEING GRANT OF BENEFITS OF TAX EXEMPTION TO EXPORTERS CARRYING OUT THEIR OPERATIONS IN FTZ, EOU, EPZ & SE Z AREAS IN ACCORDANCE WITH THE EXIM POLICY DECLARED BY THE GOV ERNMENT OF INDIA IN PARLIAMENT AND IN THE LIGHT OF ALLIED AND GOVERNING LAWS; IN THE LIGHT OF ALLIED LAWS E.G. THE TEA ACT, 1953, TH E 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 CALCUTTA TEA TRADERS ASSOCIATION FROM TIME TO TIME AS DISCUSSED ABOVE. 35. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BA GS, 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 & IN DUSTRY, GOVT. OF INDIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B OF THE ACT FOR AYS 2000-01 ONWARDS, WHICH WAS GRANTED UPTO THE AY I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 32 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 'PROCESSING' 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 HA D LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SE CTION 10B OF THE ACT UNTIL ITS DELETION WHICH COVERS EVEN PROCES SING AND, THEREFORE, BLENDING 'AND PACKAGING OF TEA FOR EXPOR T WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUAL IFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE C ONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOME TAX EXEMPTIO N AVAILABLE TO UNITS IN THE SEZ U/S. TOA OF THE ACT AND UNITS I N THE FREE TRADE ZONE PROVIDED U/S, 10AA OF THE ACT AND THE EXEMPTIO N AVAILABLE TO 100% EOU U/S. 1OB OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILA R IN NATURE IS CORRECT. WE FIND THAT HON'BLE KERALA HIGH COURT ALS O CONSIDERED THE JUDGMENT IN-THE DECISION OF SUPREME COURT IN TA RA AGENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHERE IN HON'BLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOE S NOT AMOUNT TO 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTIC LE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCLUSIVE LY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THI NG. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMEN T HAD NO CASE THAT THE ASSESSEE'S UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DE NIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT 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. 36. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PR ODUCTS FOR WHICH THE ASSESSEE'S UNIT IS RECOGNIZED AS A 100% E OU ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY OTHER ARTICL E OR THING IN COMMON PARLANCE. HOWEVER, FOR THE PURPOSE OF SECTIO N 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD 'MANUFACTURE' AS DEFINED IN SECTION 2(R) OF SEZ ACT , EXIM POLICY, FOOD ADULTERATION RULES, 1955, TEA (MARKETI NG) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFINITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPO RATED IN SECTION 10AA OF THE INCOME-TAX ACT WITH EFFECT FROM 10.02.2 006. HON'BLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 33 HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIF ICATORY IN NATURE. THE DEFINITION OF 'MANUFACTURE' UNDER THE S EZ 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 PROCESSI NG, BLENDING, PACKAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFULL Y FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LIMITED (SUPRA), WE 'HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTIO N 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. SIMILARLY, 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 SH ALL ALSO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTION 10A O F THE ACT. 37. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN T HE BUSINESS OF BLENDING AND PROCESSING OF TEA AND EXPORT THEREOF, IN 100% EOUS ARE MANUFACTURER/ PRODUCER OF THE TEA FOR THE PURPO SE OF CLAIMING EXEMPTION U/S.10B OF THE ACT. FURTHER, ASS ESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF T EA HI RESPECT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/P RODUCER OF TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10A OF THE ACT. WE HAVE EXAMINED AND DISCUSSED THE FACTS IN THE CAS E OF MADHU JAYANTI INTERNATIONAL LTD. AND FOUND THAT THERE IS BLENDING OF TEA AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FOR EXEMP TION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2 004-05 IS ALLOWED. AS REGARDS OTHER APPEALS AND THAT OF THE I NTERVENERS, THE MATTERS ARE RESTORED BACK TO THE DIVISION BENCH , WITH DIRECTIONS TO DECIDE THOSE APPEALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10 A OR 10B OF THE ACT IN ACCORDANCE WITH LAW. 5.24 FROM THE READING OF PARA 35 OF THE AFORESAID J UDGMENT WE NOTED THAT THE SPECIAL BENCH IN THIS CASE CLEARLY HELD TH AT THE ASSESSEE WAS ENGAGED ONLY IN PROCESSING AND WAS NOT ENGAGED IN T HE MANUFACTURE OR PRODUCTION BUT HAD ULTIMATELY UNDER PARA 36 IT TOOK THE VIEW IN VIEW OF THE FACT THAT THE DEFINITION OF MANUFACTURE U/S 2(R) OF THE SEZ ACT, 2005 WHICH IS INCORPORATED IN SECTION 10AA W.E.F. 10/02/ 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 I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 34 THE PRECEDING PARAGRAPHS) HELD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. 5.25 WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE SUPREME COURT IN INDIAN CINE AGENCIES VS CIT 308 ITR 98 . IN THIS CASE THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS: WHEN THE ASSE SSEE WAS ENGAGED IN THE ACTIVITY OF CUTTING JUMBO ROLL FILMS INTO FL AT AND SMALL ROLLS IN DESIRED SIZES, WHETHER SUCH ACTIVITY UNDERTAKEN BY THE ASSESSEE WA S MANUFACTURE OR PRODUCTION ? IN THIS CASE, THE HONBLE SUPREME COURT AFTER DIS CUSSING VARIOUS CASES, THE PROVISIONS OF DIFFERENT ACTS AND THE DICTIONARY MEANING TOOK THE VIEW THAT THE ASSESSEE WAS ENGAGED IN MANU FACTURE / PRODUCTION. WHILE HOLDING SO UNDER PARA 12 OF ITS ORDER, HONBL E SUPREME COURT HAS GIVEN THE SAME ANALOGY FOR THE PURPOSE OF ELIGIBILI TY OF DEDUCTION UNDER SECTION 80HH AND 80-I AS HAS BEEN GIVEN BY THE KERALA HIGH COURT IN THE CASE OF TATA TEA DISCUSSED HEREIN ABOVE FOR THE PURPOSE OF SECTION 10B, THAT IF THERE WAS NO MANUFACTURING ACTIVITY, THEN T HE QUESTION OF REFERRING TO ITEM 10 OF ELEVENTH SCHEDULE FOR THE PURPOSE OF EXCLUSION DOES NOT ARISE. FROM THIS JUDGMENT, THUS, IT IS APPARENT THA T THE HONBLE APEX COURT ACCEPTED THAT MANUFACTURE/PRODUCTION INCLUDES PROCE SSING 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 A CTIVITY OF CUTTING AND POLISHING OF MARBLE BLOCKS, THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE W OULD 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 GIVEN 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 DECISION S, HELD AS UNDER: I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 35 22. APPLYING THE ABOVE TESTS LAID DOWN BY THIS COURT 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 C ONVERTED INTO POLISHED SLABS AND TILES AFTER UNDERGOING THE PROCESS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIGINAL BLOCK DOES NOT RE MAIN THE MARBLE BLOCK, IT BECOMES A SLAB OR TILE. IN THE CI RCUMSTANCES, NOT ONLY THERE IS MANUFACTURE BUT ALSO AN ACTIVITY WHICH IS SOMETHING BEYOND MANUFACTURE AND WHICH BRINGS A NEW PRODUCT INTO EXISTENCE AND, THEREFORE, ON THE FACTS OF THESE CASES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS R IGHT IN COMING TO THE CONCLUSION THAT THE ACTIVITY UNDERTAK EN BY THE RESPONDENTS-ASSESSEES DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA OF THE INCOME T AX ACT, 1961. 23. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE OB SERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPT ED, NAMELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HER EIN IS NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPOND ENTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS 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 PROD UCTION UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCE S, 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 CONSTIT UTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UN DERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE 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 WHICH CONSTITUTES MANUFACTURE OR PRODUCTION AS AFTER PROCESSING MAR BLE BLOCK NO MORE REMAINS AS MARBLE BLOCK. THIS DECISION HAS ALSO DUL Y CONSIDERED, IN OUR OPINION, WHETHER THE ACTIVITY OF PROCESSING IS MANU FACTURE / PRODUCTION. I.T.A. NO.371/LKW/16 ASSESSMENT YEAR:2008-09 36 6. IN VIEW OF OUR AFORESAID DISCUSSION, WE HOLD THA T THE ASSESSEE IS ENGAGED IN MANUFACTURING AND PRODUCTION OF AN ARTIC LE AND THEREFORE, THE ASSESSEE SHALL BE ENTITLED FOR THE DEDUCTION AVAILA BLE U/S 80IC OF THE ACT. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) AS IN OU R OPINION, NO ILLEGALITY OR INFIRMITY IS FOUND IN THE ORDER OF CIT(A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 19/10/2016 SD/. SD/. ( ABY T. VARKEY ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:19/10/2016 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. R EGISTRAR