Appeal Details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 6264 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-01-2019
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2010-2011
Appeal Filed On
11-01-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA (BEFORE SRI S.S. GODARA, JUDICIAL ME MBER & SRI M. BALAGANESH, ACCOUNTANT MEMBER) ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 DCIT/ACIT, CIRCLE-3(2), GANGTOK....... .............................APPELLANT VS. M/S. UNICORN INDUSTRIES...................... .................RESPONDENT C/O VED PRAKASH WADHWANI B/H SANT KABIR SCHOOL DRIVE-IN-ROAD AHMEDABAD - 380054 [PAN : AABFV 9520 G] APPEARANCES BY: SHRI GAUTAM BANERJEE, FCA, APPEARED ON BEHALF OF THE A SSESSEE . SHRI A.K. NAYAK, CIT D/R. APPEARING ON BEHALF OF THE RE VENUE. DATE OF CONCLUDING THE HEARING : DECEMBER 27 TH , 2018 DATE OF PRONOUNCING THE ORDER : JANUARY 2 5 TH , 2019 ORDER PER S.S. GODARA, JM :- 1. THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST COMMISSIONER OF INCOME TAX (APPEALS)-3, AHMEDABADS ORDER DATED 10/11/2015 PASSED IN CASE NO. CIT(A)-3/WD.3(3)(5)/468/14-15, INVOLVING PROCEEDING S U/S 143(3) IN ASSESSMENT ORDER DT. 28/03/2013, OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). 1.1. HEARD BOTH PARTIES. CASE FILES PERUSED. 2. THE REVENUE PLEADS THE FOLLOWING SUBSTANTIVE GRO UNDS IN ITS INSTANT APPEAL:- 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD HAS, WHILE DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, FAILED T O APPRECIATE THE INTRICATE ISSUE THAT THE ASSESSEE COMPANY WAS MERELY ENGAGED IN PURCHASE AND SALE OF READYMADE MOUTH FRESHENERS AND WRIST WATCHES WITHOUT AN Y PROCESS THAT WOULD QUALIFY AS MANUFACTURING WITHIN THE STRICT TE ST OF ELIGIBILITY CONDITION PROVIDED U/S 80IC OF THE I.T. ACT, 1961. 2. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD, HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE EVI DENCE OF MANUFACTURING TO THE ASSESSING OFFICER NOR COULD PRODUCE LIST OF PLAN T & MACHINERY WITH INSTALLED MANUFACTURING CAPACITY. 2 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 3. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD HAS F AILED TO NOTE THAT THE UNIT WAS RUNNING WITH ONLY ONE MIXER TO MANUFACTU RE 79120 PIECES OF WRIST WATCHES AND 159529 KGS OF MOUTH FRESHENERS TO RE CORD A WHOPPING INCOME OF RS.12,64,40,955/- ALLEGEDLY CLAIMED AS DE DUCTION U/S 80IC OF THE I.T. ACT, 1961. 4. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD HAS E RRED IN ACCEPTING THE FACT THAT 04 LABOURERS COULD MANUFACTURE 159259 KGS OF MOUTH FRESHENERS AND 7910 WRIST WATCHES WITHOUT THE REQUIRED TECHNICAL EXPERTISE FOR QUALITY CONTROL AND QUALITY ASSURANCE. 3. WE NOTICE AT THE OUTSET THAT THIS TRIBUNALS CO- ORDINATE BENCHS DECISION DT. 31/08/2018 IN ASSESSEES CASE ITSELF FOR THE ASSESS MENT YEARS 2007-08 TO 2009-10 & 2011-12 TO 2012-13 HAS HELD THAT IT IS NOT ENTITLED FOR SECTION 80IC DEDUCTION FROM PAN MASALA MANUFACTURING AS FOLLOWS:- 2. THE REVENUE'S IDENTICAL PLEADINGS QUA ITS FIRST AND FOREMOST SUBSTANTIVE GRIEVANCE IN THESE FIVE APPEALS CHALLENGES CIT(A)'S ACTION(S) REVERSIN G THE ASSESSMENT FINDINGS DISALLOWING ASSESSEE'S CLAIM OF SECTION 80IC DEDUCTION CLAIMS INVOLVING FIGURES OF 436,98,601/- , 32,43,234/-, 80,97,963/- ,57,051,53,98, 19,38,38,67 4/-;(ASSESSMENT YEAR-WISE) RESPECTIVELY, AS DELETED DURING THE LOWER APPELLATE PROCEEDINGS. THE REVENUE STATES VERY FAIRLY THAT AT THE OUTSET THAT ALL THE RELEVANT FACT QUA T HE ABOVE SOLE ISSUE ARE IDENTICAL IN THESE FIVE ASSESSMENT YEAR(S). WE THEREFORE 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 NOTICE DATED 03.03.2014 AFTER FORMING REASONS TO B ELIEVE THAT THE INSTANT TAXPAYER'S BUSINESS ACTIVITY NEITHER AMOUNTED TO MA NUFACTURE NOR PRODUCTION OF ANY ARTICLE OR THING U/S 80IC(2) AND THEREFORE ITS CORRESPONDIN G DEDUCTION CLAIMED 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 ASSESSING OFFICER DECLIN ED THE SAME IN HIS SEPARATE ORDER DATED 30.03.2015 AS REPRODUCED IN EXTEMPORE IN IMPUGNED R E-ASSESSMENT FRAMED ON 31.03.2011. HE WAS OF THE VIEW THAT THE ASSESSEE INTER ALIA NOT FI LED ITS RETURN WITHIN THE STIPULATED TIME OF THIRTY DAYS', SECTION 142(1) NOTICE STOOD ISSUED ON 07.05.2014 CALLING FOR RELE VANT DETAILS FOLLOWED BY VARIOUS HEARINGS AS WELL AS THE FACT TH AT THE REOPENING REASONS SUFFICIENTLY QUOTED THE CORRESPONDING PROCEEDINGS IN ASSESSMENT YEAR 20 10-11 INCLUDING THE LEGAL ISSUE OF SECTION 80IC DEDUCTION ALONGWITH DETAILS OF PLANT AND MACHINERY INSTALLED, LABOUR EMPLOYED, INCONSISTENCIES IN CONSUMPTION OF RAW MATERIAL FOLL OWED 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 E'S PROFIT AND LOSS ACCOUNT. IT HAD STATED ITSELF TO BE ENGAGED IN BUSINESS OF MANUFACTURING ' PAN MASALA/MOUTH FRERSHNER'; AS PER THE RELEVANT SALES, CLOSING STOCK FINISHED GOODS, RAW M ATERIAL CONSUMPTION AND ASSETS' DEPRECIATION DETAILS QUA SECTION 80IC DEDUCTION OF 436,98,608/-. ITS MANUFACTURING UNIT AS PER RECORDS WAS AT KHASRA (NO.786/1064; OPPOSITE NA YABAZAR, 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 T HE TAXPAYER. BOTH THE LEARNED 3 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES DEPARTMENTAL REPRESENTATIVES ARE VERY FAIR IN INFOR MING US AT THIS STAGE THAT THE REVENUE'S GRIEVANCE IS CONFINED TO ASSESSEE'S SECTION 80IC DEDUCTION CLAIM ONLY. WE KEEP IN MIND THE SAME TO NOTICE THAT THE ASSESSEE'S REPLY DATED 16.0 3.2015; 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. DURING THE RELEVANT PREVIOUS YEAR O NLY. ITS CASE WAS STATED TO BE COVERED UNDER ITEM SEVEN PART-B OF THE FOURTEENTH SCHEDULE OF THE ACT COMPRISING OF A POSITIVE LIST OF ARTICLES OR THINGS TO BE 'FOOD PROCESSING INCLUDING AGRO BAS ED INDUSTRIES, PROCESSING, PRESERVATION AND PACKING OF FRUITS AND VEGETABLES (EXCLUDING CONVENT IONAL GRINDING / EXTRACTION UNITS. CASE FILE SUGGESTS THAT ALL THIS FAILED TO EVOKE ASSESSING OF FICER'S CONCURRENCE. HE OBSERVED FIRST OF ALL THAT ASSESSEE'S GRINDING ACTIVITY IN SO-CALLED MANU FACTURING OF 'PAN MASALA' STOOD EXCLUDED IN THE ABOVE 'ITEM 7 (SUPRA). HE THEN REFERRED TO CENT RAL EXCISE DEPARTMENT'S NOTIFICATION DATED 25.04.2007 PROHIBITING 'PAN MASALA' MANUFACTURING I N 'SIKKIM' VIDE ITS NOTIFICATION DATED 25.04.2007 WITH EFFECT FROM 01.04.2007. THE ASSESSI NG OFFICER FURTHER HELD THAT 'PAN MASALA' COULD NOT BE TREATED AS A FOOD ITEM IN VIEW OF NATI ONAL FOOD PROCESSING POLICY SPECIFYING VARIOUS PROJECTS NAMELY FRUITS AND VEGETABLES, FISH ERIES, MEAT AND POULTRY PRODUCTS MILK, DIARY, BREWESY ITEMS, CONSUMER INDUSTRY'S MAJOR PRO DUCTS & PLANTATION MAJOR PRODUCTS. HE TOOK NOTE OF THE LEGISLATIVE DEVELOPMENTS INCORPORA TING SECTION 80IE OF THE ACT WITH EFFECT FROM 01.04.2007 SPECIFICALLY EXCLUDING THE ABOVE CO RRESPONDING MANUFACTURED ITEMS IN THE RELEVANT 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 G IVING SUCH MATERIAL OF NEW FORM, QUALITY, PROPERTIES BY APPLYING PROCESS UPON THE SAID RAW MA TERIAL, MATERIAL CONCERNED TO HAVE UNDERGONE TRANSFORMATION INTO A NEW AND DIFFERENT A RTICLE COMMERCIALLY DIFFERENT FROM THE INITIAL RAW MATERIAL AND THAT THE RELEVANT PROCESS MUST BE CONNECTED WITH THE ULTIMATE PRODUCTION OF GOODS ONLY. THE ASSESSING AUTHORITY F URTHER WAS OF THE VIEW THAT ASSESSEE'S FORM 3CD CONTAINING CAPITAL ASSETS NOWHERE INDICATED ANY FACTORY BUILDING AS WELL AND THEREFORE, IT WAS NOT CLEAR AS TO HOW IT COULD BE HELD TO HAVE BE EN MANUFACTURING ITS SPECIFIED PRODUCTS. ITS PLANT AND MACHINERY DETAILS ALSO REVEALED MIXER EQU IPMENT OF 35,000/- PURCHASED FROM M/S BHARGAUA ENTERPRISE FOLLOWED BY BATCH COADING ELECT RONICS, WET PAVER GRINDER WITH ELECTRIC MOTOR, 3 SEAL MACHINES WITH PHOTO ELECTRIC CONTROL TO PACK MOUTH FRESHNER AND OVEN WITH STRUCTURE ONLY INVOLVING ALL LATTER ITEMS GROSS VAL UE OF 5,56,005/- TO CONCLUDE THAT ITS MAIN ACTIVITY WAS THAT OF MERE PACKING MOUTH FRESHNER'S POUCHES ONLY INSTEAD OF HAVING CARRIED OUT ANY MANUFACTURING AS PER THE DEDUCTION PROVISION IN QUESTION. HE NOTICED FLUCTUATION IN CONSUMPTION OF RAW MATERIAL PURCHASES AS WELL. NEXT CAME ASSESSEE'S POWER AND FUEL CONSUMPTION OF 9,116/- ONLY UNREASONABLY HIGH GROSS PROFIT RATIO, PURCHASE SUPPLIERS TO HAVE EITHER CLOSED DOWN THEIR BUSINESS OR SUSPICIOUS RES ULTING ITS DISALLOWANCE OF DEDUCTION CLAIM OF 4,36,98,608/-. THIS FOLLOWED DISALLOWANCE OF PAR TNERS' REMUNERATION OF 47,250/- AND TREATMENT OF FIXED DEPOSIT INTEREST INCOME AND EXCI SE INCENTIVE RECEIPTS OF 1,300/- AND 295,28,821/-AS INCOME FROM OTHER SOURCES. 8. THE CIT(A) HAS REVERSED ASSESSMENT FINDINGS AS F OLLOWS:- 'A. I FIND THAT EFFECTIVE FROM 01.04.2007, THE GOVT OF INDIA HAS NOTIFIED THAT NEW UNIT WHICH MANUFACTURE PAN MASALA FROM 01.04.2007 WILL NOT BE ELIGIBLE FOR EXEMPTION AS PAN MASALA WAS SHIFTED TO NEGATIVE LIST. I ALSO THEREFORE CONC LUDE THAT THE CONVERSE IS EQUALLY TRUE. I FIND THAT MANUFACTURE OF PAN MASALA WAS COVERED AS AN EX EMPTION PRIOR TO 01.04.2007. I FIND THAT SINCE THE APPELLANT STARTED MANUFACTURING PAN MASAL A FROM 2006 THE APPELLANT SQUARELY FALLS UNDER THE EXEMPTION FROM 2006. I FIND THAT THE LEAR NED AO HAS TOTALLY MISDIRECTED HIMSELF IN APPRECIATING THIS SIMPLE EVIDENCE AND BASICALLY DIG RESSED 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 WRIST 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 NOT ONLY TO THE AO BUT ALSO TO THE APPELLATE AUTHORITY. BASED ON THE RECORDS I FIND THAT THE APPELLANT FIRM IS HA VING VALID REGISTRATIONS WITH A. CENTRAL EXCISE DEPARTMENT B. SALES TAX AND VAT DEPARTMENT O F THE GOVT OF SIKKIM. C. REGISTRATION UNDER THE RELEVANT PROVISIONS OF TH E INDUSTRIES ACT (DIC) OF THE GOVT OF SIKKIM D. SERVICE TAX REGISTRATION ALL THE ABOVE REGISTRAT IONS ARE VALID AND ARE EFFECTIVE FORM THE DATE / YEAR OF MANUFACTURE VIZ 2006. 4 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES C. I FIND THAT GAZETTED OFFICERS OF THE MINISTRY OF FINANCE, CENTRAL BOARD OF EXCISE AND CUSTOMS HAVE MADE SWORN AFFIDAVITS BEFORE THE HON'BLE HIGH COURT OF SIKKIM CERTIFYING AND CONFIRMING THAT THE APPELLANT FIRM WAS ENGAGED IN THE MANUFACT URE OF PAN MASALA AND WRIST WATCHES FROM THE INCEPTION OF THE FIRM AND ALSO IN THE AY I N 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 BENCH 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, NAMELY THAT THEE ACTI VITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUFACTURE, THEN, IT WOULD HAVE SERIOUS R EVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDENT IS PAYING EXCISE DUTY, SOME OF TH E RESPONDENTS ARE JOB WORKS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGNISED BY VARIOUS G OVERNMENT AUTHORITIES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFAC TURE OR PRODUCTION UNDER SECTION 80IA WILL HAVE DISASTROUS CONSEQUENCES, PARTICULARLY 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 ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABO VE FACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF T HE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND, THEREFORE, THEY WOULD BE ENTITLED T O THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961.' 9. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RE VENUE'S CONTENTIONS INTER ALIA PLEADING THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING SECTION 80IC DEDUCTION DISALLOWANCE IN QUESTION AFTER HOLDING THAT THE ASSESSEE HAD MAN UFACTURED OR PRODUCED IT 'PAN MASALA' WITHIN THE SCHEME OF THE ACT. IT IS VEHEMENTLY CONT ENDED THAT THIS 'PAN MASALA' IS AN ARTICLE OR THING SPECIFICALLY INCLUDED IN THE THIRTEEN SCHEDUL E 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 REVENUE'S FIRST ARGUMENT. LEARN ED DEPARTMENTAL REPRESENTATIVE(S) ARE FAIR ENOUGH 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 THAT THE BOTH THE PA RTIES HAD ALSO BEEN ENTANGLED IN YET ANOTHER LITIGATION BEFORE HON'BLE JURISDICTIONAL HI GH COURT (SIKKIM) WHEREIN THE MINISTRY OF FINANCE HAD ITSELF FILED ITS AFFIDAVIT ACCEPTING TH E ASSESSEE TO BE A MANUFACTURER. THESE CLINCHING FACTS HAVE GONE UNREBUTTED FROM THE REVEN UE SIDE. WE THUS HOLD THAT ASSESSEE HAS INDEED MANUFACTURE 'PAN MASALA'. THIS TRIBUNAL'S CO -ORDINATE BENCH DECISION IN DCIT VS. M/S KHUSHBU INDUSTRIES ITA 371/LKW/2016 DECIDED ON 19.1 0.2016 HAS DECLINED REVENUE'S SIMILAR ARGUMENT IN IDENTICAL FACT AS FOLLOWS:- '4. THE SECOND GROUND TAKEN BY THE REVENUE RELATES TO THE CLAIM OF THE ASSESSEE U/S 80IC, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER BUT A LLOWED BY THE CIT(A). THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSING OFFICER FOUND TH AT THERE HAD BEEN SEARCH IN THE CASE OF THE ASSESSEE AND DURING THE COURSE OF SEARCH CONDUCTED AT THE RESIDENTIAL AND BUSINESS PREMISES, THE STATEMENT OF THE EMPLOYEE OF THE ASSESSEE WAS R ECORDED. THE ASSESSING OFFICER, ON THE BASIS OF THE STATEMENT, TOOK THE VIEW THAT THE ASSESSEE W AS NOT DOING ANY MANUFACTURING OR PROCESSING ACTIVITY. IT WAS ONLY MIXING AND REPACKI NG 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 THAT THE ASSESSEE HAS NOT COMPLIED WITH PRIMARY CONDITION AS GIVEN U/S 80IC OF BEING ENGAGED IN MANUFACTURING OR PROCESSING. TH E 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 PROCESS AND THE RELEVANT EVIDENCE AND CAME TO CONCLUSION THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING PROCESS WHEREAS FINISHED P RODUCT IS DISTINCT 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 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 CLA IM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE 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 5 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES THE UNIT IS REGISTERED AS A SSI. THE REGISTRATION HAS BEEN GRANTED TO THE APPELLANT UNDER THE CATEGORY OF A 'SMALL' UNIT ENGAGED IN 'MANUFACTURIN G' 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 LE VY BY VIRTUE OF EXEMPTION NOTIFICATION NO.50/2003-CE DATED 10.06.2003. THE APPELLANT HAS OBTAINED AN NOC FROM THE POLLUT ION CONTROL BOARD, OWING TO EFFLUENT DISCHARGE FROM THE MANUFACTURING PROCESS UNDERTAKEN BY THE APPELLANT. THE APPELLANT IS ALSO REGISTERED UNDER THE FACTORIES ACT . THE APPELLANT WAS PAYING VAT ON THE PRODUCTS DEPE NDING ON THE ITEM PRODUCED AND THE VAT RATES WERE DIFFERENT FOR DIFFERENT PRODUCTS AND ALS O FOR DIFFERENT RAW MATERIALS. (6)(6)(I) THE APPELLANT IS ENGAGED IN MANUFACTURE OF 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 MANUFACTURED BY THE APPELLANT ARE USED IN VARIOUS INDUSTRIES WHICH INCL UDE SKIN CARE PRODUCTS, DETERGENTS AND TOILET SOAPS, CONSUMER EDIBLES, INCENSE STICKS AND ROOM FRESHENERS ETC, INDUSTRIAL PERFUMES AND FLAVORS USED BY PAN MASALA AND OTHER INDUSTRIES . THE MANUFACTURING ACTIVITY CARRIED ON BY THE APPELLANT IS EXPLAINED AS UNDER - THE PROCES S OF MANUFACTURE INVOLVES, MELTING, GRINDING, MIXING, STIRRING AT OPTIMAL TEMPERATURE T O PRODUCE A DISTINCT PRODUCT. THERE IS A PROPER REACTION AMONGST THE PRODUCTS TO PRODUCE A D ISTINCT FLAVOR OR FRAGRANCE. IT MAY BE SUBMITTED THAT A PERFUME OR A FLAVOR MAY INVOLVE FR OM 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 HAVE TO BE ADDED IN A PROPER CHRONOLOGICAL MANNER AND A PROPER FORMULATION WITHO UT WHICH THE FINISHED GOODS CANNOT BE PRODUCED. 6(6)(II) SOME OF THE FEATURES EXPLAINED B Y THE APPELLANT 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 RESULT 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 S CIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WI TH SUCH MATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE REMOVED ARE USED BY THE AP PELLANT. 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 VARIOUS TYPES OF INDUST RIES AND APPLICATIONS. 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 CHEMICALS REACT OVER A PERIOD OF TIME, WHILE IN SOME CASES REACTIONS ARE INSTANT. TESTING IS DONE AT EACH STAGE, BY AGAIN REACTING THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANCES, AT VARIOUS TEMPERATURES DEPENDING O N 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 MANUFACTURE. THE PRICE LIST OF RAW MATERIALS AND FINISHED GOODS IS ALSO TOTALLY DIFFER ENT. 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 S OME RAW MATERIALS ARE RECEIVED IN SOLID STATE, SOME LIQUID AND SUM IN LUMPS. SOME ARE ESSEN TIAL 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 FINISHED GOOD S. IT MAY BE SUBMITTED THAT THESE RAW MATERIALS FALL UNDER 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 INHALATION OR APPLICATION, THE FINIS HED GOODS WERE USED FOR ALL THESE PURPOSES. THEREFORE THE FINISHED GOODS HAD A DISTINCT CHEMICA L COMPOSITION, PROPERTIES AND USAGE, WHICH CAN ONLY BE ACHIEVED THROUGH MANUFACTURE WHIC H INTER ALIA INCLUDED STUDIED AND CONTROLLED CHEMICAL REACTIONS, MULTIPLE STAGES OF T ESTING, FORMULATIONS, R & D ETC. 6(8) THE FACTS AND EVIDENCES BROUGHT ON RECORD THEREFORE CLE ARLY ESTABLISH THAT THE ACTIVITY CARRIED ON 6 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES BY THE APPELLANT IS MANUFACTURING PROCESS WHERE A F INISHED PRODUCT DISTINCT FROM THE RAW MATERIAL HAS COME INTO EXISTENCE. THE APPELLANT IS REGISTERED WITH EXCISE DEPARTMENT. THE HON'BLE SUPREME COURT IN THE CASE OF ARIHANT TILES & MARBLES PVT. LTD. 320 ITR 79 (SC) HAS OBSERVED THAT WHEN THE ACTIVITY UNDERTAKEN BY THE A SSESSEE INVOLVES LEVY OF EXCISE DUTY THEN TO SAY THAT THE SAID ACTIVITY DOES NOT AMOUNT TO MANUF ACTURE OR PRODUCTION UNDER SECTION 80IA OF THE ACT WILL HAVE DISASTROUS CONSEQUENCES. THE A PPELLANT HAS DEMONSTRATED THAT IT 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 DED UCTION 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 MANUFACTUR ING 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 UNDERTAKING TO BE ELIGIBLE FOR DEDUCTION U/S 80IC(3) OF THE ACT BUT THE REVENUE DID NOT RAISE ANY OBJECTION IN THIS REGARD EXCEPT THAT THE ASSESSEE IS 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 ASSESSEE 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 THE A RGUMENT WAS THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING OR PRODUCTION OF AN ARTICL E. HE WAS SIMPLY MIXING THE VARIOUS CHEMICALS AND ON THAT BASIS HE WAS CLAIMING AS IF H E 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 THE ASSESSEE IS VERY MUCH ENGAGED IN MANUFACTURING/PRODUCTION OF AN ARTICLE. HE WAS CARR YING ON THE MANUFACTURING OPERATION. HE HAS SUBMITTED VARIOUS DOCUMENTS AND EVIDENCES BEFOR E THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE ASSESSING OFFICER COULD NOT APPRECI ATE THIS FACT WHILE THE CIT(A) WAS ABLE TO APPRECIATE THE LINE OF THE INDUSTRIES IN WHICH THE ASSESSEE IS ENGAGED. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF ODORIFEROUS SUBSTANCE. THERE ARE MORE THAN 1,500 RAW MATERIALS WHICH ARE BEING USED FOR MANUFACTURING. THE FINISHED GOODS PR ODUCED ARE ALSO MORE THAN 500 ALL OF WHICH ARE DIFFERENT FROM EACH OTHER. THE FINISHED G OODS MANUFACTURED 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 I NDUSTRIES. 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 PR ODUCT REQUIRE THE DIFFERENT CHEMICAL COMPOSITIONS AND PROPERTIES. FOR EXAMPLE, AN ESSENC E OF ROSE HAS TO HAVE DIFFERENT INGREDIENTS WHEN IT IS USED IN A TOILET SOAP, AS AN AGARBATTI C OMPOUND, AS A FOOD FLAVOR AND AS A PERFUME SPRAY ETC. HE SUBMITTED A FLOW CHART IN THIS REGARD AND POINTED OUT THAT THE PROCESS OF MANUFACTURE INVOLVES MELTING, GRINDING, MIXING, STI RRING AT OPTIMAL TEMPERATURE TO PRODUCE A DISTINCT PRODUCT. THERE IS PROPER REACTION AMONGST THE PRODUCTS 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 PRODUCT . FURTHERMORE, A RAW MATERIAL MAY HAVE 0.1% TO EVEN 50% OF THE CONSTITUTION OF FINISH ED 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 DESIRED CHEMICAL REACTION. THE FINISHED GOODS ARE T HEMSELVES A RESULT OF CHEMICAL REACTIONS ONLY. SEVERAL RAW MATERIALS USED BY THE ASSESSEE AR E HAZARDOUS CHEMICALS, WHICH ARE NOT PER SE FIT FOR HUMAN CONSUMPTION OR APPLICATION. HOWEVE R, SCIENTIFICALLY DERIVED FORMULATIONS, WHEREBY OTHER CHEMICALS AND SUBSTANCES ARE MIXED WI TH THE MATERIAL, SUCH THAT THE HAZARDOUS PROPERTIES ARE REMOVED, ARE USED BY THE A SSESSEE. SEVERAL 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 CHEMI CALS ETC. SO AS TO RENDER THEM USABLE IN VARIOUS TYPE OF INDUSTRIES AND APPLICATIONS. MIXING CANNOT BE DONE WITHOUT PROPER LAB TESTING TECHNIQUES AND WITHOUT STUDYING THE BEHAVIORAL PATT ERN OF VARIOUS BLENDS OVER A PERIOD OF TIME, WHICH MAY RANGE FROM ONE HOUR TO 15 DAYS. THE BLENDED MIXTURES' PROPERTIES CHANGE AS SOME CHEMICALS REACT OVER A PERIOD OF TIME, WHILE I N SOME CASES REACTIONS ARE INSTANT. IT WAS 7 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES FURTHER SUBMITTED THAT THE TESTING IS DONE AT EACH STAGE BY AGAIN REACTING THE FINISHED PRODUCTS WITH OTHER CHEMICALS AND SUBSTANCES, AT VA RIOUS TEMPERATURES DEPENDING ON THE INTENDED USE OF THE FINISHED PRODUCT. THUS, IT WAS EXPRESSED THAT THE INDUSTRY REQUIRES 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 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 DIFFERENT FOR DIFFERENT 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 O N 04/10/2006 IN A NOTIFIED AREA AS PER NOTIFICATION NO.SO741(E) DATED 28/06/2004. THE ASSE SSEE 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 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 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 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 323 (SC) 5.3 LEARNED COUNSEL FOR TH E ASSESSEE VEHEMENTLY CONTENDED 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 MATERI AL, 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 PRO CESS OF THE ASSESSEE IN RESPECT OF ONE OF THE ITEM AND THEREFORE, THE CASE WHEN IT WAS INITIA LLY FIXED FOR 14/09/2016 WHEN THE DETAILED ARGUMENT HAS TAKEN PLACE, ADJOURNED THE CASE FOR 15 /09/2016 TO SEE THE DEMONSTRATION OF TWO OF THE PRODUCTS OF THE ASSESSEE I.E. SWEET GULA B 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 DIFFERENT CHEMICALS IN SMALL BOTTLES ALONG WITH THE INDUCTION AND GLASS JARS. THE ASSESSEE FIRST DEMONS TRATED HOW THE SWEET GULAB IS MANUFACTURED. THE CHEMICAL ENGINEER SHOWED US 15 IT EMS OUT OF WHICH TWO WERE IN SOLID FORM WHILE 13 WERE IN LIQUID FORM. HE POINTED OUT THAT T HE ITEMS BROUGHT BY HIM FOR MANUFACTURING 100 GMS OF SWEET 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. 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 APPEAR ED IN THE LIST. IF THESE ITEMS ARE MIXED UP IN 8 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES DIFFERENT ORDER, THE DESIRED SWEET GULAB WILL NOT C OME AND THE PRODUCT WILL BE JUST A WASTE. TWO ITEMS NAMELY BENZOPHENONE AND ROSE CRYSTALS BEI NG SOLID WERE PUT IN A JAR AND HE APPLIED HEATING PROCESS SO THAT THEY CAN BE CONVERT ED BEFORE US AND BEFORE LEARNED D. R., THE CHEMICAL ENGINEER MIXED UP ALL THESE ITEMS IN A GLA SS JAR IN THE SAME SERIATIM AND ULTIMATELY BROUGHT US THE SMELL OF THE PRODUCT MANUFACTURED CA LLED SWEET GULAB, WHICH WAS IN LIQUID FORM. WHEN WE ASKED HIM TO MIX UP THESE PRODUCTS IN A DIFFERENT ORDER, 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 BENZ YL 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 INDOL E 2.5 12 LINALOOL 6.1 13 METHYL ANTHRANILATE 2.8 14 FOLIONE 0.015 15 PHENYL ETHYL A LCOHOL 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 LEAR NED D. R. ON THE BASIS OF THE DEMONSTRATION HELD BEFORE US, WE NOTED THAT THE PRO DUCT BEING PRODUCED BY MIXING THE VARIOUS CHEMICALS IS ENTIRELY DIFFERENT FROM THE RA W MATERIAL. ITS USAGE AS WELL AS THE UTILITY IS DIFFERENT. IT CANNOT BE CONVERTED AGAIN IN THE SAME FORM OF THE RAW MATERIAL. IT HAS RESULTED IN THE TRANSFORMATION OF THE OBJECT OR THE ARTICLE WHI CH IS ENTIRELY NEW AND DISTINCT HAVING A DIFFERENT NAME, CHARACTER AND USE. WE NOTED THAT TH E PROVISION OF SECTION 80IC WAS INSERTED IN THE STATUTE BY THE FINANCE ACT , 2003 WITH EFFECT FROM 2004. SECTION 80IC NOWHERE DEFINES THE WORD 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE. W E NOTED THAT THE WORD 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE OR THING HAS ALSO BEEN U SED 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 TO INCLUDE ANY - (A) PROCESS OR (B) ASSEMBLING OR (C) RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THUS, 'PROCESS ' WAS INCLUDED WITHIN THE WORD MANUFACTURE FOR THE PURPOSE OF SEC. 10B. EXPLANATIO N (IV) OF THE SAID SEC. 10B FURTHER PROVIDED THAT THE WORD 'PRODUCE' FOR THE PURPOSE OF SAID SEC TION, IN RELATION TO ANY ARTICLE OR THING SHALL INCLUDE PRODUCTION OF COMPUTER PROGRAMME. CBDT VIDE ITS CIRCULAR NO. 528 DATED 16/12/1988 176 ITR ST. 154 EXPLAINED THE [PROVISIONS ENACTED B Y THE FINANCE ACT , 1988 UNDER PARA 8.2 OF THE CIRCULAR. IN THIS CIRCULAR, CBDT HAD CLEARLY EX PLAINED 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 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 SECTION WAS SIMIL AR TO THE ONE PROVIDED UNDER SEC. 10 A OF THE ACT TO INDUSTRIAL UNDERTAKING OPERATING UNDER THE FREE - TRADE ZONE. IT WAS ALSO CLARIFIED THEREIN THAT THE EXPRESSION 'MANUFACTURE' FOR THE P URPOSE OF BOTH SECTIONS 10A AND 10B OF THE SAID ACT WOULD INCLUDE ANY PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMME ON DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. 5.7 THIS DEFINITION OF 'MANUFACTURE' WAS REMOVED WHEN SEC. 10A AND 10B OF THE ACT WERE A MENDED BY THE FINANCE ACT , 2001 W.E.F. 01/04/2001. SECTIONS 10A AND 10B OF THE ACT WERE FURTHER AMENDED BY THE FINANCE ACT , 2003 W.E.F. 01/04/2004 AND THE DEFINITION OF 'MANUFACTUR E' 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 'MANUFACTURE' 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, SPECIAL ECONOMIC ZONE ACT , 2005 WAS PASSED BY THE PARLIAMENT IN MAY, 2005, WHICH WAS BROUGHT I NTO 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 PRODUCT HAVING A DISTI NCT NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, P OLISHING, BLENDING, REPAIR, REMAKING, RE- ENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, 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 9 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 10AA OF THE ACT WHICH READS AS UNDER:- (III) 'MANUFACTU RE' 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 1.4.2009, CLAUSE (29BA) WAS INSERTED I N SECTION 2 OF THE INCOME TAX ACT, 1961DEFINING THE EXPRESSION 'MANUFACTURE' AS U NDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON-LIV ING PHYSICAL OBJECT OR ARTICLE OR THING,- (A)RESULTING IN TRANSFORMATION OF THE OBJECT OR ART ICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARAC TER 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 PASTEURIZING, FRUITS AND VEGETABLES BY SORT ING AND REPACKING.' WHERE THEREFORE ANY COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WI TH A VIEW TO ITS 'DEVELOPMENT OR PREPARATION FOR THE MARKET', AS, FOR EXAMPLE, BY SO RTING AND REPACKING FRUITS AND VEGETABLES, IT WOULD AMOUNT TO PROCESSING OF THE COMMODITY WITH IN THE MEANING OF SECTION 8(3)(B) AND RULE 13. THE NATURE AND EXTENT OF PROCESSING MAY VA RY 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 PERFORMED ON IT OR IN REGA RD 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 HEL D BY THE CALCUTTA HIGH COURT IN OM PRAKASH GUPTA VS COMMISSIONER OF COMMERCIAL TAXES [ 16 STC 935 (CAL)]. WHAT IS NECESSARY IN ORDER TO CHARACTERIZE AN OPERATION AS 'PROCESSIN G' IS THAT 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 COMPOSIT IONS 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 E XPERIENCE CHANGE IN THEIR RESPECTIVE CHEMICAL AND PHYSICAL COMPOSITION, BECAUSE WHAT IS PRODUCED BY SUCH BLENDING IS ORE OF A DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS. WHEN THE CHEMICAL AND PHYSICAL COMPOSITION OF EACH KIND OF ORE WHICH GOES INTO THE BLENDING IS CH ANGED, 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 DON E AND WHAT PROCESS IS UTILIZED FOR THE PURPOSE OF BLENDING. WHAT IS MATERIAL TO CONSIDER I S WHETHER THE DIFFERENT QUANTITIES OF ORE WHICH ARE BLENDED TOGETHER IN THE COURSE OF LOADING THROUGH THE MECHANICAL ORE HANDLING PLANT UNDERGO ANY CHANGE IN THEIR PHYSICAL AND CHEM ICAL COMPOSITION IS A RESULT OF BLENDING AND SO FAR AS THIS ASPECT OF THE QUESTION IS CONCER NED, IT IS IMPOSSIBLE 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 DEC ISION OF THE APEX COURT, IT IS APPARENT THAT HON'BLE APEX COURT HELD EVEN BLENDING OF IRON ORE F OR 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 MIXIN G VARIOUS CHEMICALS EITHER IN LIQUID OR SOLID FORM BY APPLYING A PREDETERMINED PROCESS AND MIXING THEM IN A PREDETERMINED MANNER SO THAT OUT OF THE MIXING, ENTIRELY A NEW PRODUCT COME AND ITS FINISHED 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 PRODUCT IN A DIF FERENT PROPORTION IN A PREDETERMINED ORDER OF THE MIXING, AS SHOWN TO US DURING THE COURSE OF HEARING AND DURING THE COURSE OF DEMONSTRATION OF TWO ITEMS, AS GIVEN BY US IN THE P RECEDING PARAGRAPH, BOTH THE PRODUCTS MANUFACTURED ARE ENTIRELY DIFFERENT FROM THE VARIOU S CHEMICALS AND THE ITEMS USED BY THE ASSESSEE. THESE ITEMS SO PRODUCED HAVE A DIFFERENT NAME, DIFFERENT UTILITY AND THEY ARE BEING USED FOR DIFFERENT PURPOSES IN SOAPS, DETERGENTS, E DIBLE ITEMS, JUICES ETC. ACCORDING TO THE FRAGRANCES AND TASTE TO BE GIVEN TO THESE ITEMS. TH ESE ITEMS SO PRODUCED ARE DIFFERENT IN PHYSICAL APPEARANCE AND CHEMICAL COMPOSITION. WE DO NOT AGREE WITH LEARNED D. R. THAT 10 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 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 ASSESSEE. IF WE GO TO SECTION 2 SUB-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 INTEGRAL STRUCTURE, TANTAMOUNT TO MA NUFACTURE. EVEN THOUGH THEY REMAIN IN LIQUID FORM BUT IT IS NOT A CASE THAT ALL THE INGRE DIENTS WHICH ARE BEING MIXED ARE IN LIQUID FORMS. THE TASTE AS WELL AS THE SMELL AND THE UTILI TY OF THE INPUT AND THE OUTPUT WHICH WE HAVE SEEN DURING THE COURSE OF DEMONSTRATION IN THE COUR T, ARE ENTIRELY DIFFERENT. IN OUR OPINION, IN VIEW OF THIS CLAUSE AND THE DECISION OF HON'BLE SUP REME COURT IN THE CASE OF 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), HON'BLE SUPREME COURT FURTHER OBSERVED THAT THE WORD '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 CHARACTERIZED AS PRODUCTION, EVE RY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE... THE WORD 'PRODUCTION' OR 'PRODUCE' W HEN USED IN JUXTAPOSITION 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 PRODUCTS AND RESIDUAL PRODUCTS WHICH EMERGE IN THE COURSE OF MAN UFACTURE OF GOODS.' 5.14 IN CHRISTIAN MICA INDUSTRIES LTD. VS. STATE OF BIHAR (1961) 12 STC 150 (SC), HON'BLE SUPREME COURT DEFINED THE WORD 'PRODUCTION', ALBEIT , IN CONNECTION WITH THE BIHAR SALES TAX ACT, 1947. THE DEFINITION WAS ADOPTED FROM THE MEAN ING ASCRIBED TO THE WORD 'PRODUCTION' IN THE OXFORD ENGLISH DICTIONARY, AS MEANING 'AMONGST OTHER THINGS THAT WHICH 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 'PRODU CTION', IT HAS TO FOLLOW THAT MINING ACTIVITY FOR THE PURPOSE OF PRODUCTION OF MINERAL ORES WOULD COME WITHIN THE AMBIT OF THE WORD 'PRODUCTION' SINCE ORE IS 'A THING', WHICH IS THE R ESULT OF HUMAN ACTIVITY OR EFFORT. 5.15 ACCORDING TO WEBSTER INTERNATIONAL ENGLISH DIC TIONARY, THE VERB 'PRODUCE' MEANS TO BRING FORWARD, BEGET, ETC. THE JUXTAPOSITION OF THE WORD 'MANUFACTURE' WITH 'AGRICULTURE' AND 'HORTICULTURE' IS SIGNIFICANT AND CANNOT BE LOST SI GHT OF. THE INTENTION IN EMPLOYING THE WORD 'PRODUCED' OBVIOUSLY WAS TO INTRODUCE AN ELEMENT OF VOLITION AND EFFORT INVOLVING THE EMPLOYMENT OF SOME PROCESS FOR BRINGING INTO EXISTE NCE SOME GOODS. 5.16 IN PARAGRAPH 7 OF ITS IN THE CASE OF CHOWGULE & C0 (P) LTD. VS. UOI ( SUPRA), HON'BLE APEX COURT ALSO CONSIDERED THE QUESTION WHETHER THE DIFFERENT BRANDS OF TEA PU RCHASED 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 PRECLUDE 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 OBSERVATION S MADE BY THE HON'BLE SUPREME 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 BOMBAY [10 STC 500 ( BOM HC)]. THE ASSESSEES IN THIS CASE WERE REGISTERED DEALERS IN TEA UNDER THE BOMBAY SALES TA X ACT, 1953 AND THEY PURCHASED IN BULK DIVERSE BRANDS OF TEA AND WITHOUT THE APPLICATION O F ANY MECHANICAL OR CHEMICAL PROCESS BLENDED THESE BRANDS OF DIFFERENT QUALITIES ACCORDI NG TO A CERTAIN FORMULA EVOLVED BY THEM AND SOLD THE TEA MIXTURE IN THE MARKET. THE QUESTIO N AROSE BEFORE THE SALES TAX AUTHORITIES WHETHER THE DIFFERENT BRANDS OF TEA PURCHASED AND B LENDED BY THE ASSESSEE FOR THE PURPOSE OF PRODUCING THE TEA MIXTURE COULD BE SAID TO HAVE BEE N 'PROCESSED' AFTER THE PURCHASE WITHIN THE MEANING OF THE PROVISO TO SECTION 8(A) , SO AS TO PRECLUDE THE ASSESSES FROM BEING ENTITLE D 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 BE REGARDED AS 'PROCESSED' WITHIN THE MEANING OF THE P ROVISO 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, DEVELOPMENT OR PREPARATION' A ND 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 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 'PROCESSING' OF TEA, EQUAL LY ON A PARITY OF REASONING, BLENDING OF ORE 11 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES OF DIFFERENT CHEMICAL AND PHYSICAL COMPOSITIONS COU LD NOT BE HELD TO CONSTITUTE 'PROCESSING' OF THE ORE. NOW UNDOUBTEDLY THERE IS A CLOSE ANALOGY B ETWEEN THE FACTS OF NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AND THE FACTS OF THE PRE SENT CASE, BUT WE DO NOT THINK WE CAN ACCEPT THE DECISION OF THE BOMBAY HIGH COURT IN THE NILGIRI TEA COMPANY CASE [10 STC 500 (BOM HC)] AS LAYING DOWN THE CORRECT LAW. WHEN DIFF ERENT BRANDS OF TEA WERE MIXED BY THE ASSESSEE IN NILGIRI TEA COMPANY CASE [10 STC 500 (B OM HC)] FOR THE PURPOSE OF PRODUCING A TEA MIXTURE OF A DIFFERENT KIND AND QUALITY ACCORDI NG TO 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 RESULT OF MIXING, QUALITATIVE CHA NGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF DIFFERENT QUALITY AND FLAVOR THAN THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. THERE ARE, IT IS TRUE, SOME OBSERVATIO NS IN THE JUDGMENT 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 C ONCLUSION AND THESE OBSERVATIONS WERE RELIED UPON BY THE ASSESSEE, SINCE IN THE PRESENT C ASE THE BLENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT WE DO NOT THINK THAT IS THE C ORRECT 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 APPLICATION OF ME CHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR THE PURPOSE OF CARRYING OUT THE OPERAT ION, IT IS THE EFFECT OF THE OPERATION ON THE COMMODITY THAT IS MATERIAL FOR THE PURPOSE OF DETER MINING WHETHER THE OPERATION CONSTITUTES 'PROCESSING' WE ARE CLEARLY OF VIEW THAT THE BLENDI NG OF ORE IN THE COURSE OF LOADING 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 DESCRIPTION OF 'MACHINERY, PLANT, EQUIPMENT' USED IN THE PROCES SING OF ORE FOR SALE...... ' 5.17 IN DECIDING THE SAID QUESTION, THE HON'BLE SUP REME COURT AFTER CONSIDERING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN NILGIRI CEYLON TEA SUPPLYING CO. VS. STATE OF BOMBAY [1959] 10 STC 500 (BOM), INTER ALIA, OBSERVED AS FO LLOWS: (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 O F A DIFFERENT KIND AND QUALITY ACCORDING TO A FORMULA EVOLVED BY THEM, THERE WAS PLAINLY AND IN DUBITABLY PROCESSING FOR THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIEN CED, AS A RESULT OF MIXING, A QUALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXI STENCE 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 THE JUDGMENT OF THE BOMBAY HIGH COU RT WHICH SEEM TO SUGGEST THAT IF INSTEAD OF MANUAL APPLICATION OF ENERGY IN MIXING THE DIFFE RENT BRANDS OF TEA, THERE HAD BEEN APPLICATION OF MECHANICAL FORCE IN PRODUCING THE TE A MIXTURE, THE COURT MIGHT HAVE COME TO A DIFFERENT CONCLUSION AND THESE OBSERVATIONS WERE RE LIED UPON BY THE ASSESSEE, SINCE, IN THE PRESENT CASE, THE BLENDING WAS DONE BY APPLICATION OF MECHANICAL FORCE, BUT THAT IS NOT THE CORRECT TEST TO BE APPLIED FOR THE PURPOSE OF DETER MINING WHETHER THE OPERATION CONSTITUTES IS 'PROCESSING'. (III) THE QUESTION IS NOT WHETHER THE RE IS ANY MANUAL APPLICATION OF ENERGY OR THERE IS APPLICATION OF MECHANICAL FORCE. WHATEVER BE THE MEANS EMPLOYED FOR 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 OPERATIO N CONSTITUTES 'PROCESSING'. 5.18 THEREFORE, HON'BLE 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 COMMODITY IS SUBJECTED TO A PROCESS OR TREATMENT WI TH A VIEW TO ITS 'DEVELOPMENT OR PREPARATION FOR THE MARKET' IT WOULD AMOUNT TO PROC ESSING OF THE COMMODITY WITHIN THE MEANING OF CENTRAL SALES TAX ACT , 1956. HON'BLE SUPREME COURT, IN THE SAID JUDGMENT , DID NOT CONSIDER THE EXPRESSION 'MANUFACTURE' SINCE THE QUE STION WAS DECIDED ONLY ON THE EXPRESSION 'PROCESSING'. HOWEVER, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF NILGIRI TEA CO. [1959] 10 STC 500, HON'BLE SUPREME COURT OBSERVED THAT, 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 PROCESSING OF THE DIFFERENT BRANDS OF TEA, BECAUSE THESE BRANDS OF TEA EXPERIENCED, AS A RESULT OF A Q UALITATIVE CHANGE, IN THAT THE TEA MIXTURE WHICH CAME INTO EXISTENCE WAS OF A QUALITY AND FLAV OR FROM THE DIFFERENT BRANDS OF TEA WHICH WENT INTO THE MIXTURE. 12 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 5.19 HON'BLE KERALA HIGH COURT HAD THE OCCASION TO CONSIDER WHETHER ASSESSEE IS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THIN G 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. HON'BLE HIGH CO URT NOTED IN THAT CASE THAT THE REVENUE'S STAND IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DELETION WHICH COVERS EVEN PR OCESSING AND, THEREFORE, BLENDING AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUALIFYING FOR EXEMPTION . HON'BLE KERALA HIGH COURT CONSIDERED THE CONTENTION OF THE ASSESSEE THAT THE SCHEME OF INCOM E TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S 10 A 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 SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE. HON'BLE 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 FOR THE REV ENUE, WHEREIN HON'BLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT T O 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE OR THING, BUT IS ONLY PROCESSING. HON'BLE H IGH COURT ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN B LENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICL E OR THING. IT WAS RECOGNIZED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE THAT TH E ASSESSEE'S UNIT ENGAGED 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 ASSESSEE'S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTION 10B OF THE ACT. (SIMILAR TO ASSESSEE'S CASE). FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VER Y SAME ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FRE E 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 ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. HON'BLE HIG H COURT HELD AS UNDER: 'THE FINDING OF THIS COURT IS THAT THE PURPOSE OF INCORPORATION OF SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005, INTO SECTION 10AA OF THE INCOME-TAX ACT IS TO PROVIDE A LIBERAL MEAN ING TO THE WORD 'MANUFACTURE' WHICH TAKES IN EVEN BLENDING, REFRIGE RATION, ETC. IT 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 DEFINITION OF 'M ANUFACTURE' FROM SECTION 10B WAS NOT TO PROVIDE A RESTRICTED MEANING FOR THAT TERM CONTAINE D IN THE MAIN SECTION BECAUSE IF THAT WAS SO, THEN THE LEGISLATURE WOULD HAVE ONLY MODIFIED T HE DEFINITION CLAUSE. FURTHER, THE DEFINITION OF 100 PER CENT EXPORT ORIENTED UNIT EVEN AFTER THE AMENDMENT IS RETAINED IN THE SAID SECTION, WHICH DEFINES IT AS AN UNDERTAKING WHICH HAS BEEN A PPROVED AS A 100 PER CENT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF B Y THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED BY SECTION 40 OF THE INDUSTRIES (DEVELOPMENT & REGULATION) ACT , 1951, AND THE RULES MADE UNDER THAT ACT. IT IS PERTINENT TO N OTE THE PRODUCTS FOR WHICH THE ASSESSEE'S UNIT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTE D 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 AND IS NOT MANUFACTURING OR PRODUCING ANY OT HER ARTICLE OR THING. STILL IT IS RECOGNIZED AS A 100 PER CENT EXPORT ORIENTED UNIT BY THE CONCE RNED 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 ASSESSEE'S UNIT ENG AGED IN EXPORT OF TEA BAGS AND TEA PACKETS IS NOT A 100 PER CENT EXPORT ORIENTED UNIT. SO MUCH SO, IN OUR VIEW, IF EXEMPTION IS DENIED ON THE GROUND THAT PRODUCTS EXPORTED ARE NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEE'S 100 PER CENT EXPORT ORIENTED UNIT, T HE SAME WOULD DEFEAT THE VERY OBJECT OF SECTION 10B . FURTHER, INDUSTRIAL UNITS ENGAGED IN THE VERY SAM E ACTIVITY, I.E., BLENDING, PACKING AND EXPORT OF TEA IN THE SPECIAL ECONOMIC ZONES AND FREE TRADE ZONES, WILL CONTINUE TO ENJOY TAX EXEMPTION UNDER SECTION 10A AND SECTION 10AA RESPECTIVELY. THE STILL WORSE POSITION IS THAT THE APPELLANT WOULD BE DENIED OF EXPORT EXEMPT ION AVAILABLE UNDER SECTION 80HHC EVEN TO A MERCHANT EXPORTER. IN OUR VIEW, THE DECISION O F 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 TRA DE ZONES AND TO 100 PER CENT EXPORT ORIENTED UNITS COVERED BY SECTIONS 10A , 10AA AND 10B OF THE INCOME TAX ACT. THEREFORE, FOLLOWING THE 13 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 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 ORIEN TED UNIT ENGAGED IN BLENDING, PACKING AND EXPORT OF TEA BAGS AND TEA PACKETS. CONSEQUENTLY, W E ALLOW THE APPEALS BY REVERSING THE ORDERS OF THE TRIBUNAL AND BY RESTORING THE ORDERS 'MANUFACTURE/PRODUCER' OF THE TEA FOR THE PURPOSE OF 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 PARTICULAR LY TEA, COFFEE, JUTE, PEPPER, CHILLIES, CARDAMOM, TURMERIC AND SIMILAR OTHER SPICES, ETC. T HE ASSESSEE, AS PER THE CLAIM IS A 100% EOU WITHIN THE MEANING OF SECTION 10B OF THE I.T. ACT, 1961 AND CLAIMED EXEMPTION UNDER THAT SECTION. THE ASSESSEE BUYS TEA FROM AUCTIONS HELD I N TEA BOARD RECOGNIZED 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 THA T IT DOES NOT GROW OR MANUFACTURE ANY TEA. ACCORDING TO THE ASSESSEE, TEA SO BOUGHT IN DIFFERE NT AUCTIONS IS PROCESSED WITH A VIEW TO REMOVE ALL DUST AND FOREIGN SUBSTANCES AND THEREAFT ER IT BLENDS DIFFERENT VARIETIES OF TEA TO MAKE IT OF 'UNIFORM AND CONSISTENT' QUALITY THROUGH OUT THE YEAR. 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 GMS. ETC., AS THE CASE MAY BE. THE A SSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT IN RESPECT OF ITS 100% EOU FOR EXPORT OF MANUFA CTURED 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 EXEMPTION U/S 10B WAS CONFIRMED BY THE CIT(A). WHEN THE MATTER WENT BEFORE THE SPECIAL BENCH, SPECIAL BENCH AFTER DISCUSSION THE RELEVANT PROVISIONS AS WELL AS THE VARIOUS DECISIONS OF HIGH COURT AND THE SUPREME COURT HELD AS UNDER:- THE PROVISIONS OF SECTION 10AA OF THE ACT WAS INSERTED ON THE STATUTE BOOK BY THE SPECIAL ECONOMIC ZONES ACT , 2005 W.E.F. 10.02.2006. EVEN PRIOR TO THE ENACTME NT OF THE SAID SEZ ACT, SPECIAL ECONOMIC ZONES (INCLUDING UNITS THEREIN) WE RE ALL ALONG TREATED LIKE EQU / FTZ / EPZ FOR ALL PURPOSES WHATSOEVER AND WERE DEALT WITHIN T HE EXIM POLICY ACCORDINGLY. SECTION 2(K) OF THE SPECIAL ECONOMIC ZONE ACT, 2005 DEFINES THE EXP RESSION 'EXISTING SPECIAL ECONOMIC ZONE' TO MEAN EVERY SPECIAL ECONOMIC ZONE WHICH IS IN EXI STENCE ON OR BEFORE THE COMMENCEMENT OF THE SAID ACT. SECTION 2(E) DEFINES THE EXPRESSION 'EXISTING UNIT' TO MEAN EVE RY 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, ADMITTEDLY ALL SPECIAL ECONOM IC 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 MEANING AS ASSIGNED TO IT IN SECTION 2(R) OF THE SPECIAL ECONOMIC ZONES ACT, 2005, WHICH DEF INITION IS AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FABRICATE, AS SEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTI NCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, CUTTING, P OLISHING, BLENDING, REPAIR, REMAKING, RE- ENGINEERING AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDLY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, V ITICULTURE 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, FABRICATE, ASSEMBLE, PROCESS OR B RING INTO EXISTENCE, BY HAND OR BY MACHINE, A NEW PRODUCT HAVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUCH AS REFRIGERATION, REPACKING, POLISHING AND LABELING. M ANUFACTURE, FOR THE PURPOSE OF THIS POLICY, SHALL ALSO INCLUDE AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING.' BUT THE ONLY DIFFERENCE BETWEEN THE EXIM POLICY OF 2002-07 AND OF 2000 IS THAT WORDS 'A ND SEGREGATION' WHICH WERE APPEARING IN THE DEFINITION OF THE EXPRESSION 'MANUFACTURE' IN T HE 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 'TEA USED IN THE MANUFA CTURE OF FLAVOURED TEA SHALL CONFORM TO THE STANDARDS OF TEA. THE FLAVOURED TEA : MANUFACTURERS SHALL REGISTER THEMSELVES WITH THE TEA BOARD BEFORE MAKING FLAVOUR TEA IN THE TEA (DISTRIB UTION & EXPORT) CONTROL ORDER, 1957 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMM ERCE & INDUSTRY (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 14 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES TEA (MARKETING) CONTROL 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 'MANUFACTURE R', 'BUYER', 'PACKET TEA', 'TEA BAG',- 'GREEN TEA', 'QU ICK BREWING BLACK TEA', 'INSTANT TEA' AND 'MADE TEA' HAVE ALSO BEEN DISTINCTLY AND SEPARATELY DEFINED. CLAUSE (29BA) WAS INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961 BY THE FINANCE (NO.2) ACT , 2009 W.E.F. 01.04.2009 TO DEFINE THE EXPRESSION ' MANUFACTURE' AS UNDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - (A) RESULTING IN TRANSFORMATION OF THE OBJ ECT 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 O R THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; THE AFORESAID DEFINITION OF THE EXPRESSION 'MANUFACTURE', ALTHOUGH BROUGHT INTO THE STATUTE BOOK W.E.F. 01.04.2009, WA S 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 PARLIAMENT HAD T AKEN NOTE OF GROUND REALITY IN INSERTING SECTION 2(29BA) IN THE INCOME TAX LAW. THE SAID DEFINITION WAS AGA IN APPLIED BY THE HON'BLE SUPREME COURT IN CIT V. EMPTEE POLY-YARN PVT. LTD . (2010) 'GREEN TEA' MEANS THE VARIETY OF MANUFACTURED TEA COMMERCIALLY KNOWN AS GREEN TEA; 3 20 ITR 665,667 (SC). 33. THE ASSESSEE COMPANY CARRIES OUT ITS OPERATIONS OF BLENDING, PAC KAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS IN ITS MODERN FACTORY, WELL EQUI PPED WITH ALL IMPORTED AND SOPHISTICATED AUTOMATIC PLANT AND MACHINERIES WITH THE HELP OF OV ER 100 WORKMEN ENGAGED ON CONTRACT BASIS THROUGH M/S. TROT PVT. LTD. THE MANUFACTURING '. OPERATIONS ARE CARRIED IN ITS SAID FACTORY SITUATED AT 19/4A, MUNSHIGANJ ROAD (UNDER F ALTA EXPORT PROCESSING ZONE), KOLKATA. WE FIND FROM FACTS OF THE CASE THAT THE DETAILS OF TURNOVER OF THE ASSESSEE SHOWS BULK TEA (0.94%), PACKET TEA AND TEA BAGS .(99.06%),. AS. PE R DIFFERENT 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, DEPARTME NT OF INDUSTRIAL 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 WITH ANNUAL CAPACI TY 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 ITS 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, AS COMPARED TO THE UNBLENDED BLACK TEA IN GRANULE AND DUST FORM NORMALLY AVAILABLE FOR SALE IN THE OPEN RETAIL MARKET THROUG HOUT INDIA. THE SUBJECT FOR CONSIDERATION UNDER SECTIONS 10A AND/OR 10B OF THE SAID ACT IS MANUFACTURE / PRODUC TION OF TEA ; THE OBJECT BEING GRANT OF BENEFITS OF TAX EXEMPTION TO EXPORTE RS CARRYING OUT THEIR OPERATIONS IN FTZ, EOU, EPZ & SEZ AREAS IN ACCORDANCE WITH THE EXIM PO LICY DECLARED BY THE GOVERNMENT 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, THE PREVENTION OF FOOD ADULTERATION ACT , 1953 READ WITH PREVENTION OF FOOD ADULTERATION RULES, 1955. THE TEA (MARKETING) CONTROL 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 ASSOCIA TION FROM TIME TO TIME AS DISCUSSED ABOVE. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANC ES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PACKS. THE ASSESSEE'S DIVI SION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, M INISTRY OF COMMERCE & INDUSTRY, GOVT. OF INDIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B O F THE ACT FOR AYS 2000-01 ONWARDS, WHICH WAS GRANTED UPTO THE AY 2003-04. HOWEVER, FOR THE A Y 2004-05, EXEMPTION WAS DECLINED FOR THE REASONS THAT BY THE FINANCE ACT , 2000, THE DEFINITION OF `MANUFACTURE' WHICH INCLU DED 'PROCESSING' CONTAINED IN SECTION 1OB OF THE ACT WAS DELETED W.E.F. 01.04.2001. THE ARGU MENT OF THE DEPARTMENT IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DELETION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING 'AND PACKAGING OF TEA FOR EXPORT WAS TREATED AS 'MANUFACTURE' OR 'PRODUCTION' OF AN ARTICLE QUALIFY ING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSESSEE THAT THE S CHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. TOA OF THE ACT AND UNITS IN T HE FREE TRADE ZONE PROVIDED U/S, 10AA OF THE ACT AND THE EXEMPTION AVAILABLE TO 100% EOU U/S. 1O B OF THE ACT ARE VERY SIMILAR IN NATURE 15 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SI MILAR IN NATURE IS CORRECT. WE FIND THAT HON'BLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGM ENT IN-THE DECISION OF SUPREME COURT IN TARA AGENCIES, SUPRA RELIED ON BY THE LD. CIT, DR, WHEREIN HON'BLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AMOUNT TO 'MANUFACTUR E' OR 'PRODUCTION' OF AN ARTICLE, 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 A NY OTHER ARTICLE OR THING. 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 N OT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WERE NOT PRODU CED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEE'S 100% EOU, IT WOULD DEFEAT TH E VERY OBJECT OF SECTIONS 10B OF THE ACT. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PRODUCTS F OR WHICH THE ASSESSEE'S 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 ARTICLE OR THING IN COMMON PA RLANCE. HOWEVER, FOR THE PURPOSE OF SECTION 10A , 10AA AND 10B , WE HAVE TO CONSIDER THE DEFINITION OF THE WORD 'M ANUFACTURE' AS DEFINED IN SECTION 2(R) OF SEZ ACT, EXIM POLICY, FO OD ADULTERATION RULES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEFINITION OF 'MANUFACTURE' AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED I N SECTION 10AA OF THE INCOME-TAX ACT WITH EFFECT FROM 10.02.2006. HON'BLE KERALA HIGH COURT I N THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT IN SECTION 10AA TO BE OF CLARIFICATORY IN NATURE. THE DEFINITION O F 'MANUFACTURE' UNDER THE SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH WIDER THAN WHAT IS THE MEANIN G 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 DECISION 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. SIMILARL Y, IN OUR VIEW, THE INDUSTRIAL UNITS ENGAGED IN THE VERY SAME ACTIV ITY I.E. BLENDING, PACKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL ALSO BE ENTITLED TO EN JOY TAX EXEMPTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED I N FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND P ROCESSING 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 T HE BUSINESS OF BLENDING AND PROCESSING OF TEA HI RESPECT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER OF TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10 A 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 OT HER APPEALS AND THAT OF THE INTERVENERS, 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. 10A OR 10B OF THE ACT IN ACCORDANCE WITH LAW.' 5.24 FROM THE READING OF P ARA 35 OF THE AFORESAID JUDGMENT WE NOTED THAT THE SPECIAL BENCH IN THIS CASE CLEARLY H ELD THAT THE ASSESSEE WAS ENGAGED ONLY IN PROCESSING AND WAS NOT ENGAGED IN THE MANUFACTURE O R PRODUCTION BUT HAD ULTIMATELY UNDER PARA 36 IT TOOK THE VIEW IN VIEW OF THE FACT THAT T HE 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 CO URT IN THE CASE OF GIRNAR INDUSTRIES AND TATA TEA LTD. (WHICH WAS DISCUSSED BY US IN THE PRE CEDING PARAGRAPHS) HELD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10B OF THE ACT ON ACC OUNT 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 QUESTI ON BEFORE THE HON'BLE SUPREME COURT WAS: WHEN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF CU TTING JUMBO ROLL FILMS INTO FLAT AND SMALL ROLLS IN DESIRED SIZES, WHETHER SUCH ACTIVITY UNDER TAKEN BY THE ASSESSEE WAS MANUFACTURE OR PRODUCTION? IN THIS CASE, THE HON'BLE SUPREME COURT AFTER DISCUSSING VARIOUS CASES, THE PROVISIONS OF DIFFERENT ACTS AND THE DICTIONARY MEA NING TOOK THE VIEW THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE / PRODUCTION. WHILE HOLDING SO UNDER PARA 12 OF ITS ORDER, HON'BLE 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 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 16 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES ACTIVITY, THEN THE QUESTION OF REFERRING TO ITEM 10 OF ELEVENTH SCHEDULE FOR THE PURPOSE OF EXCLUSION DOES NOT ARISE. FROM THIS JUDGMENT, THUS, IT IS APPARENT THAT THE HON'BLE 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 ACTIVITY OF CUTTING AND POLISHING OF MARBLE BLOCKS, THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE ACTIVITIES 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, HON'BLE SUPREME COURT, AFTER DI SCUSSING THE DEFINITION OF 'MANUFACTURE' GIVEN IN SECTION 2(29BA) OF THE INCOME-TAX ACT, 1961 AND ALSO DISCUSSING TH E PROVISIONS OF SECTION 80- IA(2)(III) AND AFTER GOING THROUGH VARI OUS DECISIONS, HELD AS UNDER: '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 SLABS AND TILES AFTER UNDERGOING THE PROCE SS INDICATED ABOVE CERTAINLY RESULTS IN EMERGENCE OF A NEW AND DISTINCT COMMODITY. THE ORIG INAL 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, THEREFORE, ON THE FACTS OF THESE CAS ES, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN COMING TO THE CONCLUSION THAT THE ACTI VITY UNDERTAKEN BY THE RESPONDENTS- ASSESSEES DID CONSTITUTE MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 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 MANUFACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDE NTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERT AKEN BY THEM HAS BEEN RECOGNIZED BY VARIOUS GOVERNMENT AUTHORITIES AS MANUFACTURE. TO S AY THAT THE ACTIVITY WILL NOT AMOUNT TO MANUFACTURE OR PRODUCTION UNDER SECTION 80IA WILL HAVE DISASTROUS 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. BECAU SE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE FACTORS, WE ARE OF THE VI EW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES M ANUFACTURE OR PRODUCTION AND, THEREFORE, THEY WOULD BE ENTITLED TO THE BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961.' 5.27 IN THIS CASE ALSO, HON'BLE SUPREME COURT TOOK THE VIEW THAT CUTTING AND POLISHING OF THE MARBLE BLOCKS IS THE ACTIVITY WHICH CONSTITUTES 'MA NUFACTURE OR PRODUCTION' AS AFTER PROCESSING MARBLE BLOCK NO MORE REMAINS AS MARBLE B LOCK. 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 THEREFORE, THE ASS ESSEE SHALL BE ENTITLED FOR THE DEDUCTION AVAILABLE U/S 80IC OF THE ACT. WE ACCORDINGLY CONFI RM THE ORDER OF CIT(A) AS IN OUR OPINION, NO ILLEGALITY OR INFIRMITY IS FOUND IN THE ORDER OF CI T(A).' WE ADOPT THE ABOVE DETAILED DISCUSSION MUTATIS MUTA NDIS TO DECLINE REVENUE'S FIRST AND FOREMOST PLEA QUA 'MANUFACTURING' ASPECT TO CONCLUD E THAT THE ASSESSEE CAN BE SAFELY HELD TO HAVE MANUFACTURED / PRODUCED ITS 'PAN MASALA' IN TH E SPECIFIED UNIT SITE IN SIKKIM. 10. NEXT COME THE REVENUE'S LATTER ARGUMENTS BASED ON INTER-PLAY OF IMPUGNED SECTION 80IC DEDUCTION PROVISION VIS--VIS OPERATION OF THE REST RICTIVE COVENANT ENSHRINED IN THIRTEEN SCHEDULE'S NEGATIVE LIST READ WITH POSITIVE LIST OF THE FOURTEENTH SCHEDULE (SUPRA) RELEVANT TO THE SPECIFIED LIST OF ARTICLE(S) OR THING(S) IN ISSUE. WE FIND FIRST OF ALL THAT HO N'BLE APEX COURT'S LATEST CONSTITUTIONAL BENCH'S DECISION IN COMMISSIONER OF CUSOMS VS. DILIP KUMAR ROY CIVIL APPEAL NO .3327 OF 2017 DECIDED ON 30.07.2018 HAS GONE INTO A VERY ELUCIDATE DISCUSSION ON THE ISSUE OF BASIC TENETS OF LITERAL OR STRICT INTE RPRETATION TO BE ADOPTED WITH REGARD TO A TAXING STATUTE, THEIR INTERPLAY, PURPOSIVE CONSTRUCTION (P ARA 25) AS WELL AS APPLICATION OF EQUITABLE PRINCIPLES TO INTER ALIA CONCLUDE THAT THERE IS NO ROOM FOR INTENDMENT IN SUCH A FISCAL STATUTE AND REGARD MUST BE HAD TO CLEAR MEANING OF THE WORD S AND THE MATTER SHOULD BE GOVERNED WHOLLY BY THE LANGUAGE INCORPORATED THEREIN. THEIR LORDSHIPS' MAKE IT CLEAR THAT ONE HAS TO STRICTLY LOOK TO THE LANGUAGE USED WITHOUT ANY SCOP E FOR SEARCHING INTENDMENT OR FOR DRAWING ANY PRESUMPTION HON'BLE HIGHEST COURT OF THE LAND T HEREAFTER CAME TO THE CORE ISSUE I.E. IN THE EVENT OF AMBIGUITY IN AN EXEMPTION NOTIFICATION, SH OULD THE BENEFITS FLOWING THEREFROM BE 17 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES CONSTRUED IN REVENUE'S OR TO THE SUBJECT / ASSESSEE FAVOUR. THEIR LORDSHIPS SUM UP ANSWER OF THE REFERENCE MADE IN PARA 51 THAT AN EXEMPTION PRO VISION IN A TAXING STATUTE IS TO BE INTERPRETED STRICTLY. IT IS THE ASSESSEE'S BURDEN T O 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 REVENUE'S 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 CARDI NAL PRINCIPLE OF INTERPRETATION OF A STATUTE THAT THE WORDS USED THEREIN BY THE LEGISLATIVE ARE TO BE UNDERSTOOD IN THEIR NATURAL, ORDINARY OR POPULAR SENSE AND CONSTRUED AS PER THEIR GRAMMAT ICAL MEANING UNLESS 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. THEIR LORDSHIPS FURTHER INVOKED 'GOLDEN RULE' OF INTERPRETATION THAT THE WORDS OF A STATUTE MUST PRI MA FACIE TO BE GIVEN THEIR ORDINARY MEANING. WE FIND IT VERY MUCH RELEVANT AT THIS STAG E 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 I S NO SCOPE FOR IMPORTING INTO THE STATUTE WORDS WHICH ARE NOT THERE, SUCH AN IMPORTANT WORD W OULD BE NOT TO CONSTRUE BUT TO AMEND THE STATUTE. AND ALSO THAT EVEN IF THERE IS ANY CAS US OMISUS, THE DEFECT CAN BE REMEDIED BY THE LEGISLATION ALONE AND NOT BY JUDICIAL INTERPRETATIO N. 12. WE KEEP IN MIND ALL THESE SETTLED LEGAL PRINCIP LES TO AVERT TO THE TAXPAYER'S IMPUGNED SECTION 80IC DEDUCTION CLAIM. THERE IS HARDLY ANY DISPUTE BY NO W THAT IT HAS MANUFACTURED 'PAN MASALA' IN ITS SPECIFIED UNIT SITUATED IN SIKK IM STATE. ITS CLAIM THROUGHOUT WAS THAT 'PAN MASALA' IS COVERED IN 7TH ITEM PART-B IN THE FOURTE ENTH SCHEDULE (APPLICABLE FOR THE STATE OF SIKKIM) TO BE 'FOOD PROCESSING INCLUDING AGRO-BASED INDUSTRIES, PROCESSING, PRESERVATION & FOOD PACKAGING OF FRUITS AND VEGETABLES (EXCLUDING CONVENTIONAL GRINDING / EXTRACTION UNITS). WE ARE OF THE VIEW THAT THE ABOVE ITEM IN THE POSIT IVE LIST IS MEANT TO PROMOTE FOOD PROCESSING INCLUDING OF AGRO- BASED INDUSTRIES, PROCESSING, PR ESERVATION & FOOD PACKAGING 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 THEREFORE. WE REPEAT THAT THE AS SESSING OFFICER THREW SUFFICIENT LIGHT AS PER SUITABLE REFERENCES; SECTOR-WISE, THAT 'PAN MASALA' DOES NOT FIND PLACE IN NATIONAL FOOD PROCESSING POLICY AS WELL. THE ASSESSEE'S SECTION 80IC DEDUCTION CLAIM THEREFORE FAILS TO SATISFY THE REQUISITE TEST OF ITS INCLUSION IN POSITIVE LIS T OF SPECIFIED ARTICLES OR THINGS PRESCRIBED IN ITEM NO.7, PART-B, FOURTEENTH SCHEDULE TO SECTION 80IC(2) OF THE ACT. IT THEREFORE FAILS TO DISCHARGE ITS BURDEN TO BE COVERED UNDER THE IMPUGN ED DEDUCTION PROVISION AS PER HON'BLE APEX COURT'S CONSTITUTIONAL BENCH'S RATIO HEREINABO VE. 13. IT FURTHER TRANSPIRES THAT THE ASSESSEE'S MANUF ACTURED ITEM 'PAN MASALA' FORMS PART OF THIRTEENTH SCHEDULE PART-A (FOR THE STATE OF SIKKIM ) COMPRISING OF A NEGATIVE LIST AT SERIAL NO.1 READING 'TOBACCO PRODUCTS (INCLUDING CIGARETTE S,, SIGMA AND GUTKA ETC.) RATHER. THE QUESTION AS TO WHETHER 'PAN MASALA' IS INCLUDED IN TOBACCO PRODUCTS OR NOT STANDS ANSWERED BY THE LEGISLATURE ITSELF IN PART-B IN THE SAME SCH EDULE VERY MUCH CONTAINING THE CRUCIAL EXPRESSION 'TOBACCO AND TOBACCO PRODUCTS INCLUDING CIGARETTES AND PAN MASALA. IT IS THUS CLEAR THAT LEGISLATURE'S CLINCHING EXPRESSION 'ETC' USED IN FORMER PART-A IS INCLUSIVE IN NATURE WHICH IS SUFFICIENTLY ANSWERED IN PART-B OF THE VER Y SCHEDULE WHEREIN THE TOBACCO PRODUCTS CATEGORY 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 MASALA FROM THE AMBIT OF SECTION 80IC OF THE ACT. WE APPLY NECESSARY IMPLICATION PRINCIPLE IN THESE FACT S AND CIRCUMSTANCES TO HOLD THAT 'PAN MASALA' DEFINITION USED IN PARA-B OF THE THIRTEENTH SCHEDULE IS INCLUDED IN TOBACCO PRODUCTS WOULD ALSO COVER PART- A THERETO DESCRIBING VERY CA TEGORIES OF TOBACCO PRODUCTS TO BE NOT ELIGIBLE FOR SECTION 80IC DEDUCTION. WE CONCLUDE IN THESE PECULIAR FACTS AND CIRCUMSTANCES THAT THE ASSESSEE'S IMPUGNED CLAIM FAILS TO CLEAR T HE RIGOR OF THE ABOVE NEGATIVE LIST IN THIRTEENTH SCHEDULE PART-1 ITEM NO. 1 APPLICABLE FO R SIKKIM. WE FURTHER ARE OF THE VIEW THAT AN ITEM COVERED IN THE NEGATIVE LIST CANNOT BE HELD TO HAVE BEEN SIMULTANEOUSLY INCLUDED IN THE POSITIVE LIST AS SUCH AN INTERPRETATION WOULD L EAD TO ABSURDITY IN INTERPRETATION OF THE TWO LIMBS OF SECTION 80IC DEDUCTION PROVISION. WE ACCORDINGLY RESTORE ASSESS ING OFFICER'S ACTION MAKING ASSESSEE'S DEDUCTION CLAIM OF 436,98,608/- I N LEAD ASSESSMENT YEAR 2007-08. 18 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES 4. MR. BANERJEE VEHEMENTLY CONTENDS DURING THE COUR SE OF HEARING THAT THE REVENUE HAS NOT FILED ITS APPEAL AFTER ANNEXING FORM NO. 35 AND STATEMENT OF FACTS. HIS FURTHER CASE IS THAT SECTION 80IC DEDUCTION ISSUE DOES NOT EMANATE FROM THE REVENUES GROUNDS. WE FIND NO MERIT IN THIS TECHNICAL OBJECTION AS BOT H FORM NO. 35 AS WELL AS STATEMENT OF FACTS FORM PART OF RECORD BEFORE US IN THE INSTANT CASE FILE. IT FURTHER TRANSPIRES THAT THE ABOVE STATED GROUND S SUFFICIENTLY SEEK TO REVIVE THE ASSESSING OFFICERS ACTION DISALLOWING ASSESSEES S ECTION 80IC DEDUCTION CLAIM OF RS.12,64,40,955/- RELATING TO PAN MASALA MANUFACTUR ING. WE THEREFORE ADOPT JUDICIAL CONSISTENCY TO REVIVE THE IMPUGNED SECTION 80IC DIS ALLOWANCE UNDER THIS SAID PARTICULAR IN TUNE WITH THE LEARNED CO-ORDINATE BENCHS DECISI ON. THE REVENUE SUCCEEDS IN ITS GRIEVANCE TO THIS EXTENT. 5. WE PROCEED FURTHER TO NOTICE THAT THE ASSESSEE H AD ALSO CLAIMED U/S 80IC DEDUCTION FROM PROFITS DERIVED FROM SALE OF 7190 WR IST WATCHES. LEARNED D/R FAILS TO DISPUTE DURING THE COURSE OF HEARING THAT THE REVEN UES STATEMENT OF FACTS IN THE INSTANT CASE FILE MAKES IT CLEAR THAT THE SAID WATCHES FORM ED PART OF ASSESSEES BROUGHT FORWARD STOCK WORTH RS.3,55,72,579/-. IT THEREFORE EMERGES THAT THE ASSESSEE HAD VERY WELL MANUFACTURED THE SAID WRIST WATCHES IN THE ELIGIBLE UNDERTAKING ONLY IN EARLIER ASSESSMENT YEARS AND DERIVED PROFITS FROM SALE IN T HE IMPUGNED ASSESSMENT YEAR. WE THUS FIND NO MERIT IN THE REVENUES GRIEVANCE REGAR DING THE ASSESSEES DEDUCTION CLAIM RELATING TO THIS LATTER ISSUE OF WRIST WATCHES. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO FINALISE CONSEQUENTIAL COMPUTATION OF ASSESSEES CLAIM U/S 80IC DEDUCTION DISALLOWANCE ONLY TO THE TUNE OF THE AMOUNT RELATIN G TO THE FORMER ISSUE OF PAN MASALA MANUFACTURING AS PER LAW. 6. THIS REVENUE APPEAL IS PARTLY ALLOWED IN ABOVE T ERMS. KOLKATA, THE 25 TH DAY OF JANUARY, 2019. SD/- SD/- [M. BALAGANESH] [S.S. GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25.01.2019 {SC SPS} 19 ITA NO. 48/KOL/2016 ASSESSMENT YEAR: 2010-11 M/S. UNICORN INDUSTRIES COPY OF THE ORDER FORWARDED TO: 1. M/S. UNICORN INDUSTRIES C/O VED PRAKASH WADHWANI B/H SANT KABIR SCHOOL DRIVE-IN-ROAD AHMEDABAD - 380054 2. DCIT/ACIT, CIRCLE-3(2), GANGTOK 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE CO PY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES
Other Referred Cases
-
Laws Referred To
-
1:1 Consultation on Legal Requirements
₹1
1:1 Consultation on Startup Compliance
₹1
1:1 Consultation on Tax Litigation
₹0
Declaration of Gift
Mehul₹500
Memorandum Amendment Resolution
₹0
Finance Bill, 2026: Key Direct Tax Amendments on Assessments and Appeals
Team Counselvise - February 06, 2026
SEBI Resets Mutual Fund Rules: A Structural Shift for Investors
Team Counselvise - March 13, 2026
Residency Rules: Income Tax Act, 1961 vs Income Tax Bill, 2025 — A Subtle Yet Significant Shift!
Team Counselvise - February 18, 2026