Conversion of Un-garbled Pepper to garbled Pepper is not manufacture

Nishant Export Vs. ACIT (Kerala High Court)

The assessee was engaged in the procurement and export of pepper. The assessee procured un-garbled pepper, which by a process got garbled; making it fit for human consumption and was exported. The assessee had been claiming allowance under Section 80HHC for its export turnover as computed under sub-section (3); when it also had sale in the domestic market. In the relevant assessment year the assessee turned out to be a hundred per cent export-oriented unit, which is one of the conditions for claiming the benefit under Section 10B.

The assessee’s claim for allowance under Section 10B was rejected, on two counts. One of that was that the process involving conversion into garbled pepper was not a “manufacture” or “production”

The issue in Sheth Brothers was whether un-garbled and garbled pepper are two different commercial commodities under the Kerala General Sales Tax Act, 1963 [for brevity “KGST Act”]. The Court categorically held that ‘whatever it be, as a matter of fact, un garbled pepper and garbled pepper cannot be two different commercial commodities’. In the context of a precedent on identical facts, we are inclined to answer the questions of law framed against the assessee and in favour of the Revenue.

The learned Counsel appearing for the assessee argued that the decision in Sheth Brothers was in the context of the KGST Act which may not have application under the IT Act. We are unable to countenance such a contention, especially since the finding that un-garbled and garbled pepper are not two distinct commodities was not based on any specific provision in the statute. Yet again we notice that under Section 80HHC the benefit is to any industrial undertaking carrying on ‘manufacture’ or ‘processing’. The benefit under Section 10B is to any undertaking carrying on ‘manufacture’ or ‘production’. Hence the statute itself recognizes the distinction between “manufacture”, “production” and “processing”. A manufacture or production necessarily has to lead to a different commodity while a processing may not result in a new commodity being brought out. We, hence, decline to entertain the contention as raised by the learned Counsel.

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