DCIT, C.C.-XXVII, Kolkata, Kolkata V. N.V. Exports Private Limited, Kolkata

ITA 708/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54708 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K PODDA R
• Assessee Lawyers: P S DUTTA
• Keywords: Depreciation; Additional depreciation
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND , . !' . ) [BEFORE SRI MAHAVIR SINGH, JM & SHRI C. D. RAO, AM] # # # # / I.T.A NO. 708/KOL/2010 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR : 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. N. V. EXPOR TS PVT. LTD. CENTRAL CIRCLE-XXVII, KOLKATA. (PAN AAACN 8018 J) ()* /APPELLANT ) (+,)*/ RESPONDENT ) DATE OF HEARING: 14.10.2011 DATE OF PRONOUNCEMENT: 25.11.2011 FOR THE ASSESSEE: SHRI P. S. DUTTA, SR. DR. FOR THE REVENUE: SHRI N. K. PODDAR - / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-V, HYDERABAD IN APPEAL NO 142/DC-16(1)/CIT(A)-V/08-09 DATED 27.01.2010. ASSES SMENT WAS FRAMED BY DCIT, CIRCLE- 16(1), HYDERABAD U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2006-07 VIDE DATED 28.11.2008. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AG AINST THE ORDER OF CIT(A) DELETING THE ADDITION OF ADDITIONAL DEPRECIATION ADDED BY ASSESS ING OFFICER BY HOLDING THAT THE MACHINERY IS NOT USED FOR ANY MANUFACTURING OR PRODUCTION ACTIVI TY. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NOS. 1 AND 2: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ADDITIONAL DEPRECIATION TO THE TUNE OF RS.17,64,905/- WITHOUT APPRECIATING THAT THE MACHINERY ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED WAS NOT USED FOR ANY MANUFACTURING OR PRODUCTION ACTIVITY A ND NO NEW PRODUCT CAME INTO EXISTENCE, THEREFORE ADDITIONAL DEPRECIATION IS NOT ALLOWABLE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE WAS ENGAGED IN THE PROCES S OF MANUFACTURING ACTIVITY AND HENCE THE ADDITIONAL MACHINERIES PURCHASED AND USED FOR P ACKAGING WERE ENTITLED FOR ADDITIONAL DEPRECIATION U/S. 32(I)(IIA) OF THE I. T. ACT. 3. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENG AGED IN THE BUSINESS OF EXPORTING OF SAFETY RAZOR BLADES AND TWIN TRACK SHAVING SYSTEM. THE ASSESSEE FILED RETURN FOR ASSESSMENT YEAR 2006-07 ON 28.11.2006, WHICH WAS PROCESSED U/S . 143(1) ON 13.11.2007. SUBSEQUENTLY, THE ASSESSMENT OF ASSESSEE WAS MADE UNDER SCRUTINY BY ISSUING NOTICE U/S. 143(2) OF THE ACT ON 19.11.2007. THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS NOTED THAT IT 2 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 HAD CLAIMED ADDITIONAL DEPRECIATION U/S. 32(I)(IIA) OF THE ACT AT 20% OF ACTUAL COST OF MACHINERY AND PLANT ACQUIRED AND INSTALLED AFTER 31.03.2005. THE ASSESSEE CLAIMED THAT IT IS PURCHASING SEMI FINISHED GROUND BLADES, WHICH ARE NOT SUITABLE FOR SHAVING AND THEN THESE ARE TAKEN THROUGH VARIOUS STAGES OF MANUFACTURING BUT THE AS SESSING OFFICER REJECTED THE CLAIM OF ASSESSEE DUE TO FOLLOWING EIGHT REASONS: I. AN OVERVIEW OF THE MACHINERY PURCHASED ON WHICH ADDITIONAL DEPRECIATION IS CLAIMED SHOWS THAT THE ENTIRE MACHINERY CONSISTS OF WRAPPING AND PACKING AND CARTONUNG MACHINES. II. THE MACHINERY PURCHASED AND CLAIMED TO HAVE BEE N PUT TO USE IN MANUFACTURE/PRODUCTION IS NOT CAPABLE OF TRANSFORMI NG A PRODUCT TO THE EXTENT THAT IT BECOMES A COMMERCIALLY DIFFERENT COMMODITY HAVING I TS OWN CHARACTER, USE AND NAME. THE PRODUCT BOUGHT FROM THE SISTER CONCERNS ARE NOT HING BUT BLADES WHICH ARE THEREAFTER WRAPPED AND CARTONUNED IN DIFFERENT KIND S OF PACKETS AND THEN, SOLD. NO NEW COMMERCIAL PRODUCT IS COMING INTO EXISTENCE BY THE USAGE OF THE MACHINERY PURCHASED. IT WAS HELD IN THE CASE OF CIT VS. NEYVELI LIGNITE CORPORATION LIMITED (2001) 118 TAXMAN 230 AS UNDER: IT CANNOT BE SAID THAT ANY NEW ARTICLE COMES INTO EXISTENCE WHEN THE OLD BELT IS RECONDITIONED AND MADE FIT FOR USE FOR SOME MORE TIME. THE LIFE OF A RECONDITIONED BELT IS NOT THE SAME AS THAT OF A NEW BELT. THE PURPOSE WHICH A RECONDITIONED BELT IS TO SERVE IS THE SAME AS THE PURPOSE THAT THE BELT BEFORE RECONDITIONING WAS SERVING. A NEW ARTICLE DO ES NOT COME INTO EXISTENCE AS A RESULT OF RECONDITIONING OF THE OLD BELT. SIMILARLY, IT CANNOT BE SAID THAT ANY NEW PRODUCT H AS COME INTO EXISTENCE BY WRAPPING OR NEATLY PACKING THE OLD PRODUCT. III. IT CANNOT BE SAID THAT ANY NEW ARTICLE COMES INTO EXISTENCE WHEN THE OLD PRODUCT IS MERELY RE-CONDITIONED. IV. ALL THE PURCHASES OF THE SEMI-FINISHED GOODS AR E ALL FROM SISTER CONCERNS BELONGING TO THE SAME GROUP. V. THERE IS NO MANUFACTURING ACTIVITY INVOLVED IN THE WHOLE PROCESS. VI. PRE-HEATING AND SPRAYING, SINTERING AND COOLING OF THE BLADES ARE SAID TO TAKE PLACE BEFORE OILING THE BLADES. THE ASSESSEE DOES N OT HAVE ANY MACHINERY THROUGH WHICH THE PROCESS OF HEATING AND SPRAYING, ETC. CAN BE DONE AS SEEN FROM THE LIST OF MACHINERY PURCHASED BY IT. NEITHER THE EXPENDITURE INCURRED IN THE P & L ACCOUNT SHOWS ANY PAYMENT TOWARDS ANY SUCH CHARGES PAID/PAY ABLE TO ANY OUTSIDE PARTY FOR THE WORK OF HEATING, ETC. VII. ALL THE MACHINERY PURCHASED IS USEFUL FOR PAC KING INTO NEW CARTONS, IT CANNOT BE SAID THAT ANY NEW PRODUCT HAS COME INTO EXISTENCE O R MANUFACTURING HAS TAKEN PLACE. VIII. THE COMPANY IS EXPORTING ITS PRODUCTS AND HE NCE, THE PRODUCTS SHOULD NATURALLY BE OF GOOD STANDARDS. THE KIND OF ACTIVITY UNDERTA KEN BY THE ASSESSEE DOES NOT CREATE ANY EXPORTABLE COMMODITY. AND DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY GIVING FOLLOWING FINDING IN PARAS 5.6 TO 5.8 OF HIS APPELLATE ORDER: 3 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 5.6. KEEPING IN VIEW THE ABOVE RATIOS AND THE PRI NCIPLES WHICH EMERGE FROM THEM, THE FACTS OF THE CASE OF THE APPELLANT ARE NOW EXAMINED . THE RAW MATERIAL USED BY THE APPELLANT IS PRIMARILY IS SEMI MANUFACTURED BLADES. THESE BLADES ARE NOT BY THEMSELVES USABLE FOR THE PURPOSES OF SHAVING AS TH EY ARE MERELY SMALL PIECES OF SHARPENED BLADE WITHOUT ANY HANDLE OR COATING. THR OUGH VARIOUS PROCESSES THESE ARE TRANSFORMED INTO USABLE BLADES. FURTHER, IT IS TO BE NOTED THAT EVEN USABLE BLADES WITH A HANDLE CANNOT BE SOLD IN THE MARKET IN THAT FORM. THERE IS A DEFINITE REQUIREMENT OF PACKAGING THE SAME. THE SUM AND SUBSTANCE OF THESE FACTS IS THAT THE APPELLANT IS APPLYING CERTAIN PROCESSES TO PRODUCE A COMMODITY IN THE FORM OF TUCKS. THESE ARE DISTINCTLY DIFFERENT COMMERCIAL COMMODITY AS COMPAR ED TO UNFINISHED BLADES PURCHASED AS RAW MATERIAL. THEREFORE, THE APPELLANT IS DEFIN ITELY UNDERTAKING THE PROCESS OF MANUFACTURING ACTIVITY. 5.7. COMING TO THE SECOND QUESTION WITH REGARD TO THE ADDITIONAL MACHINE PURCHASED, THE ASSESSING OFFICER CANNOT ARBITRARILY BREAK UP T HE ENTIRE MANUFACTURING PROCESS INTO SMALL PARTS AND CONCLUDE THAT A CERTAIN PART IS MAN UFACTURE WHILE OTHER IS NOT. THE ACTIVITY CARRIED ON BY THE APPELLANT IS ONE INTEGRA TED PROCESS, ALBEIT ON DIFFERENT MACHINES. MOREOVER, EVEN PACKAGING ACTIVITY ITSELF TRANSFORMS THE PRODUCT INTO A DIFFERENT COMMERCIAL PRODUCT. 5.8. THEREFORE, IT IS CLEAR THAT THE ADDITIONAL MA CHINERY PURCHASED BY THE APPELLANT IS ALSO A PART OF A MANUFACTURING PROCESS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE APPELLANT IS CARRYING ON THE A CTIVITY OF MANUFACTURING AND IS ELIGIBLE FOR ADDITIONAL DEPRECIATION AS CLAIMED BY IT ON THE ACTUAL COST OF PLANT & MACHINERY INSTALLED AND PUT TO USE BY IT DURING THE RELEVANT FINANCIAL YEAR. THE ADDITION MADE BY THE ASSESSING OFFICER IS ACCORDINGLY ORDERED TO BE DELETED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US LD. SR. DR SHRI P. S. DUTTA HEAVILY RE LIED ON ASSESSMENT ORDER AND FINDINGS OF THE ASSESSING OFFICER WHEREBY HE HAS REJECTED THE E XPLANATION OF THE ASSESSEE. LD. SR. DR STATED THAT ENTIRE MACHINERY IS USEFUL FOR THE PURP OSE OF PACKING OF THE PRODUCE/MANUFACTURED ITEMS BUT THIS MACHINERY BY ITSELF DOES NOT ENABLE THE ASSESSEE TO MANUFACTURE ANY NEW ARTICLE. HE STATED THAT AT BEST, IT CAN BE CALLED A PROCESSI NG AND NOT A MANUFACTURING OR PRODUCTION AS ENVISAGED UNDER SECTION 32(I)(IIA) OF THE ACT. 5. ON THE OTHER HAND, LD. SR. COUNSEL SHRI N. K. PO DDAR, FIRST OF ALL, DEMONSTRATED BEFORE US THE PROCESS OF MANUFACTURING, WHICH IS AS UNDER: MANUFACTURING PROCESS WE ARE PURCHASING SEMI FINISHED GROUND BLADES NOT S UITABLE FOR SHAVING AND THE SAID UNFINISHED BLADES ARE BEING PROCESSED FURTHER IN OU R FACTORY FROM GRINDING TILL THE FINAL PACKING. ALL THE MANUFACTURING PROCESS INVOLVE SPEC IALIZED SOPHISTICATED TECHNOLOGY WHICH IS OF PRECISION NATURE. THE DETAILS OF THE PROCESS INVOLVED ARE MENTIONED HERE UNDER: GRINDING: EDGES OF SEMI FINISHED GROUND BLADES ARE NOT SUITAB LE FOR SHAVING THEREFORE SEMI FINISHED BLADES ARE GO THROUGH THE GRINDING PROCESS WHERE TH E EDGES ARE SHARPENED. COATING: 4 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 SEMI FINISHED BLADES AFTER GRINDING ARE NOT SUITABL E FOR SHAVING ARE GO THROUGH THE HEATING PROCESS WITHIN THE LIMITED TEMPERATURE FOR COATING OF THE BLADES. PRE HEATING AND SPRAYING: THE BLADES ALONG WITH THE BIO-NET CHARGER ARE ALLOW ED TO GO THROUGH INSIDE THE PREHEATING FURNACE UP TO THE REQUIRED TEMPERATURE OF 150 DEGRE E CENTIGRADE FOR THE ADMISSIBLE TIME, REMOVED BACK FOR SPRAYING WHILE IN HOT CONDITION WI TH THE COATING SOLUTION LW-1200 WITH THE HELP OF SPRAYING MACHINE. SINTERING AND COOLING AFTER THE SPRAY PROCESS IS OVER, AGAIN THESE BLADES ALONG WITH THE CHARGER KEPT INSIDE THE SINTERING FURNACE MAXIMUM TEMPERATURE OF 370 DEGREE CENTIGRADE FOR MELTING THE COATING SOLUTION AND ALLOW IT TO SPREAD OVER THE EDGES. TH EN THE BLADES ALONG WITH THE CHARGER TAKE OUT OF THE SINTERING FURNACE AND THE SAME TO C OOLED UP TO THE TEMPERATURE OF 100 DEGREE CENTIGRADE IN THE COOLING CHAMBER. OILING: AFTER THE COOLING THE BLADES REMOVED FROM THE CHARG ER AND SHIFTED TO STANDS FOR DIP IT INTO THE LIQUID PARAFFIN OIL IN TANK KEPT SEPARATELY FOR OILING. NAKED BLADE WAX PAPER COVERING: THEN THE NAKED OIL BLADES ARE OVER WRAPPED WITH THE WAX PAPER AT ONE POINT OF THE WRAPPING MACHINE TO PREVENT THE BLADE FROM MOISTURE . SINGLE BLADE WRAPPING: AT THE OTHER POINT OF THE WRAPPING MACHINE THE WAX PAPER WRAPPED BLADES WILL FULLY COVERED WITH OUTER WRAPPER BY FOLDING AND GUM FIXING OPERATION TO GET THE SINGLE BLADE. TUCK FILLING: HERE IS THE PROCESS WHERE 5, 6 OR 10 SINGLE BLADES CAN BE FILLED INSIDE A SMALL PACKET AS DESIRED ACCORDING TO THE REQUIREMENT CAN BE MANUFAC TURED FROM THE SPECIFIC FLAT PRINTED CARD BOARD MATERIAL INTO THE FORM NAMED AS TUCKS WI TH THE HELP OF CARTOONING MACHINE MEANT FOR THE SPECIAL PURPOSE. CELLOPHANGING OF EACH TUCK: THE EACH MANUFACTURED TUCKS IS REQUIRED TO COVER WI TH A THIN BOPP MATERIAL FOR EXTRA CARE OF THE PRODUCT, TO PREVENT THE BLADES FROM MOI STURE WITH THE HELP OF CELLOPHNING MACHINE. DISPLAY BOX PACKING: THIS IS A PROCESS OF FILLING 10 NOS OF CELLOPHANED TUCKS PACKED INTO A PRINTED DISPLAY BOXES. POLY BAG SHRINK WRAPPING: AFTER THE DISPLAY BOX PACKING THESE BOXES IN 10 NO S INSERTED INSIDE THE POLY BAGS ARE PASSED INTO THE SINK WRAPPING MACHINE AFTER DULY HE AT SEALING THE POLY BAG FOR SHRINK WRAPPING. BULK PACKING IN CORRUGATED BOXES: 5 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 FINALLY 20 NOS SHRINK WRAPPED PACKET OF 10 DISPLAY BOXES EACH ARE TO BE PACKED IN OUTER CORRUGATED BOX DULY STROPPED WITH GUM TAPE AND STRO PPING ROPE THROUGH STROPPING MACHINE FOR DISPOSAL OF PRODUCTS. HE ARGUED IN VIEW OF THIS MANUFACTURING PROCESS, TH AT THE ASSESSEE PURCHASES SEMI FINISHED GROUND BLADES NOT SUITABLE FOR SHAVING AND THEN PRO CESSES THEM IN LIQUID PARAFFIN OIL TANK AND THESE NAKED OIL BLADES SO OBTAINED ARE OVER WRAPPED WITH THE WAX PAPER TO PREVENT THEM FROM MOISTURE. HE STATED THAT WAX WRAPPED BLADES ARE CO VERED WITH OUTER WRAPPER BY FOLDING AND GUM FIXING OPERATIONS TO GET THE SINGLE BLADES AND THEN FIVE OR TEN SINGLE BLADES ARE FILLED INSIDE A SMALL PACKET MADE FROM SPECIFIC FLAT PRINTED CARD BOARD MATERIAL INTO FORM NAMED AS TUCKS WITH THE HELP OF CARTOONING MACHINES MEANT FOR THIS PURPOSE. FURTHER, HE STATED THAT EACH MANUFACTURED TUCK IS THEN COVERED WITH THIN BOPP MA TERIAL TO PREVENT THE BLADES FROM MOISTURE WITH THE HELP OF CELLO PHONING MACHINE AND THESE TU CKS ARE KEPT IN TINS/HANGING CARDS AND THEN PUT IN CARTOONS AND SOLD. IN VIEW OF THIS PROCESS, HE ARGUED THAT WHEN ASSESSEE PURCHASES UNUSABLE SEMI FINISHED BLADES AND MAKE THEM USABLE FOR SHAVING BY CONVERTING THEM INTO TUCKS, IN COMMERCIAL PARLANCE THE COMMODITY IS KNOWN AS DI FFERENT FROM UNUSABLE BLADES TO MARKETABLE BLADES. ACCORDING TO HIM, ONCE IN COM MERCIAL PARLANCE THE COMMODITY CHANGES ITS CHARACTER, THE ENTIRE PROCESS EMPLOYED BY ASSES SEE IS CALLED MANUFACTURING. LD. COUNSEL FOR THE ASSESSEE ALSO DISPLAYED BEFORE US SAMPLES AND P ROCESS OF MANUFACTURE ADOPTED BY FILING RAW MATERIAL AS WELL AS FINISHED PRODUCT. LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE DEFINITION OF MANUFACTURE ADOPTED BY THE ACT BY INSERTING SECT ION 29BA IN SECTION 2 BY THE FINANCE NO. 2 ACT, 2009, W.R.E.F 01.04.2009 AND ACCORDING TO HIM, THIS IN CONFORMITY WITH THE MANUFACTURING PROCESS OF THE ASSESSEE CHANGING THE CHARACTER OF I TS PRODUCT AND BRINGING A NEW COMMERCIALLY KNOWN PRODUCT BY BRINGING A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW OR DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE. HE ALS O STATED THAT THE ASSESSEE IS REGISTERED UNDER CENTRAL EXCISE ACT BUT BY VIRTUE OF NOTIFICATION NO . 50/2003-CE 10.06.2003 IT IS CLAIMING EXEMPTION FROM PAYMENT OF CENTRAL EXCISE DUTIES. HE ALSO STATED THAT THE ASSESSEE HAS EXERCISED OPTION FOR EXEMPTION AVAILED UNDER NOTIFI CATION 49/50/2003 CE DT. 10.06.03 AS AMENDED BY N/F 76/2003 CE, DT. 05.11.03 AND FURTHER AMENDED BY N/F 27/2004 CE, DT.09.07.2004 WHEREBY ASSESSEE HAS DESCRIBED THE RA W MATERIAL AND FINISHED PRODUCT AS UNDER: TABLE HE ALSO RELIED ON VARIOUS CASE LAWS, WHICH WE WILL DISCUSS IN OUR FINDINGS. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS PURCHASING SEMI FINISHED GROUND BLADES NOT SUITABLE FOR SHAVING AND THE SAID UNFINISHED BLADES ARE PROCESSE D FURTHER IN THEIR FACTORY FROM GRINDING 6 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 TILL THE FINAL PACKING. ALL THE MANUFACTURING PROCE SSES INVOLVE SPECIALIZED SOPHISTICATED TECHNOLOGY AND DETAILS OF PROCESS INVOLVED ARE THAT EDGES OF SEMI FINISHED GROUND BLADES ARE NOT SUITABLE FOR SHAVING, THEREFORE, SEMI FINIS HED BLADES ARE GOING THROUGH GRINDING PROCESS WHERE EDGES ARE SHARPENED. SEMI FINISHED BL ADES AFTER GRINDING ARE NOT SUITABLE FOR SHAVING ARE GOING THROUGH HEATING PROCESS WITHIN TH E LIMITED TEMPERATURE FOR COATING OF BLADES. THE BLADES ALONG WITH THE BIO-NET CHARGER A RE ALLOWED TO GO THROUGH PREHEATING FURNACE UP TO REQUIRED TEMPERATURE OF 150 DEGREE CE NTIGRADE FOR THE ADMISSIBLE TIME, REMOVED BACK FOR SPRAYING WHILE IN HOT CONDITION WI TH COATING SOLUTION LW-1200 WITH THE HELP OF SPRAYING MACHINE. AFTER SPRAY PROCESS IS OV ER, AGAIN THESE BLADES ALONG WITH THE CHARGER KEPT INSIDE SINTERING FURNACE AT MAXIMUM TE MPERATURE OF 370 DEGREE CENTIGRADE FOR MELTING COATING SOLUTION AND ALLOW IT TO SPREAD OVER THE EDGES. THEN BLADES ALONG WITH THE CHARGER ARE TAKEN OUT OF THE SINTERING FURNACE, SAME TO BE COOLED UP TO THE TEMPERATURE OF 100 DEGREE CENTIGRADE IN THE COOLING CHAMBER. AF TER THE COOLING, BLADES ARE REMOVED FROM THE CHARGER AND SHIFTED TO STANDS FOR DIPPING INTO LIQUID PARAFFIN OIL TANK AND KEPT SEPARATELY FOR OILING. THEN NAKED OILED BLADES ARE OVER WRAPPED WITH WAX PAPER AT ONE POINT OF WRAPPING MACHINE TO PREVENT BLADES FROM MO ISTURE. AT OTHER POINT, THE WRAPPING MACHINE WRAPPED BLADES INTO WAX PAPER AND FULLY COV ERED WITH OUTER WRAPPER BY FOLDING AND GUM FIXING OPERATION TO GET THE SINGLE BLADE. H ERE IS THE PROCESS WHERE 5, 6 OR 10 SINGLE BLADES CAN BE FILLED INSIDE A SMALL PACKET A S DESIRED ACCORDING TO THE REQUIREMENT, CAN BE MANUFACTURED FROM THE SPECIFIC FLAT PRINTED CARD BOARD MATERIAL INTO THE FORM NAMED AS TUCKS WITH THE HELP OF CARTOONING MACHINE MEANT FOR THE SPECIAL PURPOSE. THE EACH MANUFACTURED TUCKS IS REQUIRED TO COVER WITH A THIN BOPP MATERIAL FOR EXTRA CARE OF THE PRODUCT AND TO PREVENT BLADES FROM MOISTURE WIT H THE HELP OF CELL PHONING MACHINE. THIS IS A PROCESS OF FILLING 10 NOS OF CELL PHONED TUCKS PACKED INTO A PRINTED DISPLAY BOXES. AFTER DISPLAY BOX PACKING, THESE BOXES IN 10 NOS INSERTED INSIDE POLY BAGS AND PASSED INTO THE SINK WRAPPING MACHINE AFTER DULY HE ATING AND SEALING THE POLY BAG FOR SHRINK WRAPPING. FINALLY 20 NOS SHRINK WRAPPED PAC KET OF 10 DISPLAY BOXES EACH ARE TO BE PACKED IN OUTER CORRUGATED BOX DULY STROPPED WITH G UM TAPE AND STROPPING ROPE THROUGH STROPPING MACHINE FOR DISPOSAL OF PRODUCTS. IN VIEW OF THIS ENTIRE MANUFACTURING PROCESS THE SEMI FINISHED GROUND BLADES COME INTO A NAKED B LADE WRAPPED IN WAX PAPER AND THEN PACKAGING IS DONE AND THAT COMES INTO COMMERCIALLY EXISTENT NEW PRODUCT. WE FIND THAT THE ASSESSEE HAS EMPLOYED SOPHISTICATED TECHNIQUES OF PACKING IN VIEW OF DELICATE ITEMS INVOLVED IN HANDLING. EVEN THE SAMPLES AND PHOTOGR APHS SUPPLIED BY ASSESSEE BEARS TESTIMONY TO ASSESSEES CLAIM. SEVERAL PROCESSES A RE DONE AT EACH STAGE FROM THE STAGE OF SEMI FINISHED GROUND BLADES TO THE FINAL STAGE OF R ELEASE OF GOODS AFTER PACKING. THE ASSESSEE HAS A FACTORY, LABOUR AND MACHINERY, WHICH IS USED FOR THE PURPOSES OF THIS WHOLE 7 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 PROCESS. FURTHER, ASSESSEE IS REGISTERED WITH CENTR AL EXCISE AUTHORITIES AND IS ELIGIBLE TO PAY CENTRAL EXCISE DUTY ON THE PRODUCT BUT, HOWEVER , DUE TO EXEMPTION CLAUSE THE ASSESSEE IS EXEMPTED FROM PAYING CENTRAL EXCISE DUT Y AS ASSESSEES FACTORY FALLS IN NOTIFIED AREAS. NOW, IN VIEW OF THE ABOVE FACTS, WE HAVE TO READ THROUGH THE CASE LAWS REFERRED BY LD. COUNSEL FOR THE ASSESSEE. 7. LD. COUNSEL FOR THE ASSESSEE, FIRST OF ALL, REFE RRED TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF UJAGAR PRINTS VS. UNION OF IND IA & ORS. (1989) 179 ITR 317 (SC), WHEREIN HONBLE APEX COURT HAS DEALT WITH THE ISSUE OF PROCESS BY CONSIDERING THAT PROCESSES OF BLEACHING, DYEING, PRINTING, SIZING, S HRINK-PROOFING, WATER-PROOFING, RUBBERISING AND ORGANDIE PROCESSING CARRIED ON IN R ESPECT OF COTTON OR MAN-MADE GREY FABRIC AMOUNT TO 'MANUFACTURE' FOR THE PURPOSE AND WITHIN THE MEANING OF SECTION 2(F) OF THE CENTRAL EXCISES AND SALT ACT, 1944, EVEN PRIOR TO AMENDMENT OF SECTION BY SECTION 2 OF THE CENTRAL EXCISES AND SALT AND ADDITIONAL DUTIES OF EXCISE (AMENDMENT) ACT, 1980. HONBLE APEX COURT FOLLOWED ITS VIEW EXPRESSED IN EMPIRE INDUSTRIES LTD. V. UNION OF INDIA [1986] 162 ITR 846 (SC) THAT SUCH PROCESSES W ERE NOT SO ALIEN OR FOREIGN TO THE CONCEPT OF ' MANUFACTURE' THAT THEY COULD NOT COME WITHIN THAT CONCEPT IS CORRECT AND ALSO CONSIDERED, WHAT APPLIES TO MAIN LEVY OF EXCISE DUT Y UNDER THE CENTRAL EXCISES AND SALT ACT, 1944, APPLIES TO ADDITIONAL DUTIES OF EXCISE U NDER THE ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL IMPORTANCE) ACT, 1957. LD. COUNSE L FOR ASSESSEE STATED THAT HONBLE APEX COURT HAS CONSIDERED THAT THERE IS NO NEED FOR ENLARGEMENT OF DEFINITION OF 'MANUFACTURE' IN THE ADDITIONAL DUTIES ACT AS WELL AND SECTION 3(3) OF THE ADDITIONAL DUTIES ACT PROVIDES FOR THE APPLICATION OF PROVISIO NS OF THE CENTRAL EXCISES AND SALT ACT, 1944, FOR LEVY AND COLLECTION OF ADDITIONAL DUTIES AS THEY APPLY IN RELATION TO DUTIES OF EXCISE UNDER THE MAIN ACT. IT IS PLAIN THAT THE STA TUTE EXPRESSLY MAKES PROVISIONS IN THE MAIN ACT APPLY IN RELATION TO 'LEVY AND COLLECTION' OF THE ADDITIONAL DUTIES. THE TERM 'LEVY' IS AN EXPRESSION OF WIDE IMPORT: IT INCLUDES BOTH IMPOSITION OF A TAX AS WELL AS ITS QUANTIFICATION AND ASSESSMENT. THAT APART, SECTION 4 OF THE AMENDMENT ACT OF 1980 HAS AMENDED THE RELEVANT ITEMS IN THE SCHEDULES TO THE ADDITIONAL DUTIES ACT. THE EXPRESSIONS IN SECTION 3(1) OF THE ADDITIONAL DUTIES ACT MUST B E READ ALONG WITH THE SCHEDULES. 8. WE FURTHER FIND THAT HONBLE APEX COURT IN UJAGA R PRINTS (SUPRA) HAS CONSIDERED FOLLOWING PASSAGE OF PERMANENT EDITION OF WORDS AND PHRASES REFERRED TO WITH APPROVAL IN DELHI CLOTH AND GENERAL MILLS' CASE [1963] SUPP. 1 SCR 586 ; AIR 1963 SC 791 AT 795, WAS REFERRED TO : , 8 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 'MANUFACTURE IMPLIES A CHANGE, BUT EVERY CHANGE IS NOT MANUFACTURE AND YET EVERY CHANGE OF AN ARTICLE IS THE RESULT OF TREATMENT, LA BOUR AND MANIPULATION. BUT SOMETHING MORE IS NECESSARY AND THERE MUST BE TRANSFORMATION; A NEW AND DIFFERENT ARTICLE MUST EMERGE HAVING A DISTINCTIVE NAME, CHARACTER OR USE. ' EVEN INSERTION OF SUB-SECTION 29BA OF SECTION 2 OF THE ACT BY THE FINANCE NO.2 ACT, 2009, W.R.E.F. 01.04.2009 IN THE ACT CLARIFIES THE DEFINITION OF MANUFACTURE. THE RELEVANT SUB- SECTION 29BA OF SECTION 2 OF THE ACT READS AS UNDER : 2(29BA) MANUFACTURE, WITH ITS GRAMMATICAL VARIAT IONS, MEANS A CHANGE IN A NON- LIVING PHYSICAL OBJECT OR ARTICLE OR THING (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARAC TER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; FROM THE ABOVE DEFINITION, THE CONCEPT OF MANUFACTU RE ADOPTED, HAS A WELL ACCEPTED LEGAL CONNOTATION AND THE PRECISE CONNOTATION WHICH IT PO SSESSES AND CONVEYS IN LAW MUST BE KEPT IN MIND WHILE DECIDING THE ISSUE. THERE IS IN LAW NO MANUFACTURE UNLESS AS A RESULT OF SOME PROCESSES, A NEW AND COMMERCIALLY DISTINCT PRODUCT WITH DISTINCT USE EMERGES. WE FIND THAT EVEN THE PRE-AMENDMENT I.E. IN SECTION 2(29BA) OF T HE ACT, THAT THERE WAS NOTHING TO SHOW THAT THE LEGISLATURE HAD INTENDED TO MAKE ANY CHANGE OR THAT THE RULE AGAINST A PRESUMPTION OF IMPLICIT ALTERATION OF LAW SHOULD BE INVOKED IN THE CONTEXT. IT WAS CONSIDERED NOT NECESSARY OR POSSIBLE TO STRETCH THE LANGUAGE OF THE DEFINITION AS INSERTED IN SUB-SECTION 29BA OF SECTION 2 OF THE ACT BEYOND THE AMBIT OF THE PROVISION AS DELINE ATED IN THE EARLIER DECISIONS. THE QUESTION IS ANSWERED THAT THE LEGISLATURE DID NOT MAKE ANY RADI CAL CHANGE IN THE DEFINITION OF MANUFACTURE AS BORNE OUT BY HONBLE APEX COURT IN THE CASE OF U JAGAR PRINTS (SUPRA) AND ALSO OTHERS. IN OUR VIEW, THE DEFINITION INTRODUCED IS SUPPORTING ASSES SEES CASE. THE PROCESS CARRIED OUT BY THE ASSESSEE ON RAW GROUNDED BLADES PURCHASED FROM MARK ET AND MADE THE SAME READY TO USE IN COMMERCIAL MARKET OR CONSUMERS, CERTAINLY CALLED MA NUFACTURING DONE BY ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. THE RAW GROUN DED BLADES CANNOT BE USED FOR THE PURPOSE OF SHAVING AND CANNOT BE CALLED A COMMERCIALLY VIAB LE PRODUCT, WHICH IS SELLABLE IN THE MARKET. THE FINAL PRODUCT MANUFACTURED BY ASSESSEE IS COMME RCIALLY NEW AND DIFFERENT ARTICLE HAVING A DISTINCTIVE NAME CHARACTER AND USE. ACCORDINGLY, T HE ASSESSEE IS MANUFACTURER AND IS ENTITLED FOR ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT ON ADDITIONAL MACHINERIES PURCHASED AND USED FOR PACKAGING. WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 9 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 9. NEXT ISSUE IN THIS APPEAL OF REVENUE RELATES TO THE ORDER OF CIT(A) DELETING ADDITION OF RS.28,27,662/- ON ACCOUNT OF WASTAGE IN THE PRODUCT ION PROCESS. FOR THIS, REVENUE HAS RAISED FOLLOWING TWO GROUNDS: 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.28,27,662/- ON ACCOUNT OF WASTAGE ON THE GROUND THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITY WITH OUT APPRECIATING THAT AS PER PROCESS EXPLAINED BY THE ASSESSEE IT WAS PROCESSING THE SEM I-FINISHED BLADES BY DIPPING THEM IN LIQUID PARAFFIN OIL TANK AND THEREAFTER PACKAGING T HEM AND IN THE PROCESS AS EXPLAINED THERE CANNOT BE ANY WASTAGE OF DIFFERENT SEMI-FINIS HED BLADES. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.28,27,662/- ON THE GROU ND THAT THE SAME WAS SHOWN AS CLOSING STOCK WITHOUT APPRECIATING THAT WASTAGE WAS CLAIMED OUT OF MATERIAL CONSUMED AND NOT FROM THE CLOSING STOCK AS DISCLOSED IN THE ACCOUNT WAS NOT IN RESPECT OF WASTAGES. 10. BRIEFLY STATED FACTS OF THE CASE ARE THAT DURIN G THE COURSE OF EXAMINATION, AO FOUND THAT ASSESSEE IS CLAIMING WASTAGE OF RS.28,27,662/- ON A CCOUNT OF THE ACTIVITY CARRIED ON BY ASSESSEE. AO ADDED THE SAID AMOUNT TO THE INCOME O F THE ASSESSEE SINCE THERE IS NO MANUFACTURING ACTIVITY AND THE CLAIM OF LOSS ON ACC OUNT OF PRODUCTION CANNOT BE ALLOWED. AGGRIEVED PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALLOWED THE CLAIM OF ASSESSEE FIRSTLY ON THE FACT THAT IT IS CARRYING ON MANUFACTURING ACTIV ITY. SECONDLY, THE ASSESSEE HAS ACCOUNTED FOR THE ALLEGED WASTAGE IN THE CLOSING STOCK AS RAW MAT ERIAL. WE CANNOT ACCEPT THE REVENUES CONTENTION FOR THE REASON THAT THE AMOUNT OF RS.28, 27,662/- ADDED BY ASSESSEE AS DEEMED WASTAGE, IN FACT, REPRESENTS THE VALUE OF CLOSING S TOCK OF RAW MATERIAL LYING IN THE STOCK. THIS AMOUNT HAS ALREADY BEEN CREDITED TO P&L ACCOUNT BY THE ASSESSEE IN ITS FINAL ACCOUNTS AND ALREADY OFFERED THIS AMOUNT FOR TAXATION AND SAME C ANNOT BE TAXED AGAIN. WE FURTHER ADD THAT WE HAVE ALREADY UPHELD THE FINDINGS OF CIT(A) UPHOL DING THE ACTIVITY OF THE ASSESSEE AS MANUFACTURING, HENCE ON THIS COUNT ALSO THE ASSESSE E SUCCEEDS. WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMIS SED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 12. ORDER PRONOUNCED IN OPEN COURT ON 25.11.2011 SD/- SD/- . !' !'!' !' . , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( ' ' ' ' ) )) ) DATED : 25 TH NOVEMBER, 2011 ./ $01 2 JD.(SR.P.S.) 10 ITA 708/K/2010 N.V. EXPORTS PVT. LTD.., A.Y.2006-07 - 3 +4 54&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT DCIT, C.C. XXVII, KOLKATA. 2 +,)* / RESPONDENT, N. V. EXPORTS PVT. LTD., P-12, NEW CI T ROAD, KOLKATA- 700 073. 3 . -$ ( )/ THE CIT(A), KOLKATA 4. -$ / CIT, KOLKATA 5 . => +$ / DR, KOLKATA BENCHES, KOLKATA ,4 +/ TRUE COPY, -$?/ BY ORDER, 1 /ASSTT. REGISTRAR .