M.K. Shah Exports Limited, Kolkata V. ACIT, Central Circle - XIII, Kolkata, Kolkata

ITA 455/KOL/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70506 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 09-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 04-04-2008
• Court: TRIBUNAL
• Department Lawyers: R P NAG SRDR
• Assessee Lawyers: S JHAJHARIA
• Keywords: Assessment record
• Section: 143(3); 10AA; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA NO. 4 5 5 / KOL / 2008 ASSESSMENT YEAR :2004-05 M.K.SHAH EXPORTS LTD., 2/2 JUSTICE DWARKANATH ROAD, KOLKATA 700 020 [ PAN NO.AACCM 0884 H ] V/S . ACIT, CENTRAL CIRCLE- XIII, KOLKATA, 5 TH FLOOR, PODAR COURT, 18, RABINDRA SARANI, KOLKATA 700 001 / APPELLANT .. / RESPONDENT) /BY APPELLANT SHRI S.JHAJHARIA, AR /BY RESPONDENT SHRI R.P.NAG, SR-DR /DATE OF HEARING 28-11-2013 /DATE OF PRONOUNCEMENT 19-12-2013 / // / O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) CENTRAL-II, KOLKATA IN APPEAL NO. 272CC-XIII/CIT(A)/C- II/06-07 DATED 20-12-2007. ASSESSMENT WAS FRAMED BY THE DCIT U/S. 143(3) OF THE INCOME-TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 22-12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER IN DISALLOWING EXEMPTION U/S. 10B OF THE ACT ON THE ISSUE BLENDING OF TEA WHETHER IT IS MANUFACTURING OR NOT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2:- ITA NO.455KOL/2008 A.Y.2004-05 M.K.SHAH EXPTS. LTD. V. ACIT,CC-XIII, KOL PAGE 2 2. THAT THE REJECTION OF THE APPELLANTS CLAIM FOR EXEMPTION U/S.10B OF THE ACT FOR THE ASSESSMENT YEAR 2004-2005 IN THE SU M OF RS.49,88,713, IS ARBITRARILY MADE WITHOUT ANY RELEVANCE TO THE F ACTS. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE-COMPANY I S ENGAGED IN THE MANUFACTURING AND EXPORT OF TEA. THE ASSESSEE CLAIM ED EXEMPTION U/S.10B OF THE ACT FOR MANUFACTURING OF PACKED TEA FROM ITS 10 0% EOU. DURING THE COURSE OF ASSESSMENT PROCEEDING, ASSESSEE IN RESPON SE TO SPECIFIC QUERY REGARDING AS TO HOW THE UNDERTAKING FULFILLED THE C RITERIA LAID DOWN U/S.10B OF THE ACT AND CLAIMED THAT IT IS MANUFACTURING PACK ED TEA. ASSESSEE-COMPANY REPLIED THAT IT WAS ENGAGED IN MANUFACTURING OF PAC KED TEA THAT THE MANUFACTURING ACTIVITY WAS UNDERTAKEN IN 100% EOU A T FALTA. ASSESSEE CLAIMED THAT IT HAS BEEN GIVEN BY MINISTRY OF COMME RCE A SANCTION OF 100% EOU OF GREEN CARD. BEFORE THE ASSESSING OFFICER, AS SESSEE FILED A SANCTION LETTER OF 14-03-2000 ISSUED BY THE EPZ OF FALTA EXP ORT PROCESSING ZONE AND IN THE PERMISSION LETTER OF 15-09-2000 ISSUED BY THE E OU-NRI SECTION OF THE SECRETARIAT FOR INDUSTRIAL ASSISTANCE OF THE DEPART MENT OF INDUSTRIAL POLICY AND PROMOTION UNDER THE MINISTRY OF COMMERCE AND INDUST RY. THE ASSESSEE- COMPANY MANUFACTURED DURING THE FINANCIAL YEAR 2003 -04 PACKED TEA. THE INVOICES OF THE ASSESSEE-FIRM ALSO ENDORSE THIS FAC T AND EACH INVOICES IS ISSUED UNDER THE SIGNATURE OF THE OFFICIAL OF THE DEPARTMENT OF CUSTOMS BEFORE THE MANUFACTURED PACKET TEA IS SHIPPED. BUT ACCORDING TO AO, THE ASSESSEE-COMPANY HAS NOT MANUFACTURED OR PRODUCED A NY ARTICLE OR THING BUT IT HAS ONLY BLENDED TEA AND FOR BLENDING ASSESSEE H AS FILED DETAILS. THE RELEVANT FINDING OF THE AO HAS NOTED IN HIS ASSESSM ENT ORDER AT PAGE-2 READS AS UNDER:- HOWEVER, ON PERUSAL OF ASSESSMENT RECORD, IT IS SE EN THAT THE ASSESSEE COMPANY HAS NOT MANUFACTURED OR PRODUCED A NY ARTICLE OR THING HAS ONLY USED A MANUAL PROCESS FOR MIXING DIF FERENT VARIETIES OF TEAS AND CLAIM IT AS BLENDING. FURTHER THE ISSUE AR ISING IN THIS CASE IS THAT WHETHER THE ASSESSEE IS A MANUFACTURER OF TEA. AS THE ASSESSEE HAS PURCHASED DIFFERENT QUALITIES OF TEA FROM DIFFE RENT MANUFACTURES AND SIMPLY MIXED THESE TEAS AND CLAIMED IT TO BE BLENDI NG OF TEA, IT CANNOT CLAIM TO HAVE PRODUCED TEA. THE DICTIONARY MEANING OF BLEND IS TO MIX . THE PHYSICAL AD-MIXTURING OF GRANULES OF TWO DIFFER ENT TEA (QUALITATIVELY) ITA NO.455KOL/2008 A.Y.2004-05 M.K.SHAH EXPTS. LTD. V. ACIT,CC-XIII, KOL PAGE 3 IS NOT AT ALL A MANUFACTURING ACTIVITY AS THE BASIC ELEMENT OF MANUFACTURING THAT IS A SERIES OF EVENTS IS COMPL ETELY ABSENT HERE. FROM THE DETAILS FILED BY THE ASSESSEE, IT IS SEEN THAT DIFFERENT VARIETIES OF TEA PURCHASED BY THE ASSESSEE ARE MANUALLY MIXED BY LABORERS MAINLY AND CANNOT BE TERMED AS MANUFACTURING. EVEN IF CERTAIN MACHINERY HAS BEEN USED FOR THE PURPOSE OF MIXING, THE FACT REMAINS THAT THE PROCESS INVOLVED IS SIMPLE MIXING OF DIFFE RENT TEAS. 4. THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSE SSING OFFICER BY OBSERVING IN PARA-5 OF HIS ORDER WHICH READS AS UND ER:- 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. A/R. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXPO RT OF THE TEA. THE COMPANY PURCHASES TEA OF DIVERSE GRADES AND BRANDS AND BLEND THE SAME BY MIXING DIFFERENT KINDS OF TEA. NOW, THE QUE STION UNDER CONSIDERATION IS WHETHER THE BUSINESS ACTIVITY OF T HE APPELLANT FALLS WITHIN THE AMBIT OF PRODUCTION, MANUFACTURING OR PR OCESSING. THIS ISSUE HAS BEEN EXAMINED IN DETAILS BY THE CALCUTTA HIGH C OURT IN THE CASE OF APPEJAY PVT. LTD.(1994) 206 ITR 367 AND AFTER DISCUSSING THE PROCESS INVOLVED IN DETAILS, HAS HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF TEA. MOREOVER, NOW THE ISSUE IS FINALLY SETTLED. THE SUPREME COURT IN THE CASE OF C.I.T. V S- TARA AGENCIES (2007) 292 ITR 444 (SC) EXAMINED THE ISSUE IN DETAILS, AND AFTER CONSIDERING AND DISCUSSING THE MEANING OF THE TERMS MANUFACTURE, PRODUCTION AND PROCESS AND TAKING INTO ACCOUNT, THE DECISION OF THE HIGH COURT ON THE ISSUE, HELD THAT THE BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION. THE HONBLE SUPREME C OURT ENUMERATED ALL THE THREE STAGES, VIZ., PRODUCTION, MANUFACTURI NG AND PROCESSING OF TEAS AS UNDER: THE TEA IS PRODUCED IN THE TEA GARDENS. THE FIRST STAGE IS CALLED PRODUCTION OF TEA. THE SECOND STAGE IS MANUFACTURE OF TEA. IN THIS STAGE, THE TEA LEAVES ARE PLUCKED FROM THE TEA BUSH ES AND BY MECHANICAL PROCESS, TEA LEAVES ARE CONVERTED TO TEA . THIS SECOND STAGE IS CONSIDERED MANUFACTURING OF TEA. THE THIRD STAGE IS BLENDING OF DIFFERENT QUALITIES OF TEA IN ORDER TO SMOOTHEN ITS MARKETABILITY. THIS THIRD STATE IS CONSIDERED PROCE SSING OF TEACH. CONSIDERING THE ABOVE, THE FINDING OF THE AO THAT T HE APPELLANT IS NOT ENGAGED IN MANUFACTURING OR PRODUCTION OF TEA IS CO NFIRMED. ITA NO.455KOL/2008 A.Y.2004-05 M.K.SHAH EXPTS. LTD. V. ACIT,CC-XIII, KOL PAGE 4 AGGRIEVED ASSESSEE CAME IN APPEAL BEFORE US. 5. BEFORE US LD. COUNSEL, SHRI S. JHAJHARIA DRAWN O UR ATTENTION TO ASSESSMENT ORDER AT PAGE-2, WHERE THE ASSESSING OFF ICER HAS NOTED THE FACT THAT THE ASSESSEE HAS FILED DETAILS AND THE SAME IS REPRODUCED ABOVE BY US. IN VIEW OF THE FACT THAT ASSESSEE HAS BLENDED TEA A ND COMPLETE DETAILS ARE FILED BEFORE THE AO, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF MADHUJAYANTI INTERNATIONAL LTD. V. DCIT IN ITA NO. 1463/KOL/2007 AS REPORTED IN (2012) 137 ITD 377 (KOL) (SB), WHEREIN IT IS HELD AS UNDER:- 35. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAW S RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY EN GAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS. THE ASSESSEES DIVISION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOVT. OF INDIA. TH E 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 DEC LINED FOR THE REASONS THAT BY THE FINANCE ACT 2000, THE DEFINITION OF MANUFACTURE W HICH INCLUDED PROCESSING CONTAINED IN SECTION 10B OF THE ACT WAS DELETED W.E .F. 01.04.2001. THE ARGUMENT OF THE DEPARTMENT IS THAT MANUFACTURE OR PRODUCTION HA D LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE A CT UNTIL ITS DELETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING AND PACKAG ING OF TEA FOR EXPORT WAS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUAL IFYING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSE SSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. 10A OF THE ACT AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S. 10AA OF THE ACT AND THE EXEMPTIO N AVAILABLE TO 100% EOU U/S. 10B OF THE ACT ARE VERY SIMILAR IN NATURE AND THE W ORDINGS 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 AGENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHEREIN HONBLE SUPRE ME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXC LUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THING. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT THE ASSESSEE'S UNIT ENGAGED IN EXPORT OF TEA B AGS AND TEA PACKETS WAS NOT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRO DUCTS 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 ASSESSEES UNIT IS RECOGNIZED AS A 100% EOU 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 SECTION 10A, 10AA AND 1 0B, WE HAVE TO CONSIDER THE ITA NO.455KOL/2008 A.Y.2004-05 M.K.SHAH EXPTS. LTD. V. ACIT,CC-XIII, KOL PAGE 5 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 A S PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED IN SECTION 10AA OF THE INCOME- TAX ACT WITH EFFECT FROM 10.02.2006. HONBLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIF ICATORY IN NATURE. THE DEFINITION OF MANUFACTURE UNDER THE SEZ ACT, EXIM POLICY, FO OD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WIDER THAN WHAT I S THE MEANING OF THE TERM MANUFACTURE UNDER THE COMMON PARLANCE, AND IT INC LUDES PROCESSING, BLENDING, PACKAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFUL LY FOLLOWING THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF GIRNAR IND USTRIES (SUPRA) AND TATA TEA LIMITED (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTIT LED FOR EXEMPTION UNDER SECTION 10B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. SIMILARL Y, IN OUR VIEW, THE INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY I.E. BLENDING, PA CKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL ALSO BE ENTITLED TO ENJOY TAX EXEM PTION UNDER SECTION 10A OF THE ACT. 37. 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 WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA IN RESPE CT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER OF TEA FOR THE PURP OSE 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 THERE 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 ALLOWED. AS REGARDS OTHER APPEALS AND THAT OF THE INTERVENERS, THE MATTERS ARE RESTORED BACK TO THE DIVISION BENCH, WI TH DIRECTIONS TO DECIDE THOSE APPEALS IN THE LIGHT OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10A OR 10B OF THE ACT IN ACCORDANCE WITH LAW. 6. AS THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENT ICAL, AS WHAT WAS BEFORE SPECIAL BENCH IN THE CASE OF MADHUJAYANTI INTERNATIONAL LTD. (SUPRA), TAKING A CONSISTENT VIEW, WE ALLOW THE CLAIM OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 8. ORDER PRONOUNCED IN THE OPEN COURT 19/1 2/2013 SD/- SD/- (ABRAHAM P GORGE) ( MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP ITA NO.455KOL/2008 A.Y.2004-05 M.K.SHAH EXPTS. LTD. V. ACIT,CC-XIII, KOL PAGE 6 !' #- 19/ 12/2013 ) **+ **+ **+ **+ ,+ ,+ ,+ ,+ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '.'*/ 0 / CONCERNED CIT 4. 0- / CIT (A) 5. +34 ***/, */ , / DR, ITAT, KOLKATA 6. 478 9: / GUARD FILE. BY ORDER/ , ;/< '= */ , )