Case Law Details
High Court held In the case of CIT vs. Ms Megha Dadoo that the product (Route Marker) produced by the assessee was commercially different from its raw material and also a commercially different product known in the market. The assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IC of the Income tax act.
Facts of the Case
The ITO during assessment disallowed deduction under Section 80IC, claimed by the assessee. The assessee took the matter before the CIT (A) which affirmed the findings recorded by the ITO. Assessee preferred an appeal before the ITAT, which in turn reversed the findings recorded by the authorities below, holding the assessee to be entitled for deductions under Section 80IC.
The primary issue is as to whether manufacturing of “Route Markers” falls within the definition of “manufacture”, entitling him to the deductions, under Section 80IC of the Income Tax Act.
Contention of the Revenue
The ld counsel of the revenue referred the decisions rendered by Apex court in M/s Bharat Forge and Press Industries (P) Ltd. V. Collector of Central Excise, Baroda, Gujarat, (1990) 1 SCC 532 and in Union of India and others v. J.G. Glass Industries and others , (1998) 2 SCC 32 in support of their contention.
Held by CIT (A)
CIT (A) affirmed the findings recorded by the Income Tax Officer.
Held by ITAT
ITAT held that the raw material procured and the finished products produced by the assessee are not known in the market by the same name. In fact, there are different brand names and different uses/applications. Even though main component of the end product would be stainless steel pipe, however, only when other components are used in the manufacturing process, the final product, so manufactured and marketed by the assessee, is produced. Without the use of other raw products, the finished product cannot be produced or marketed. Also, with the consumption of the raw material, the end product cannot be put back in the same original condition. Even in terms of its value, combined price of raw materials used to produce the finished product, is lower than the price of the finished product.
Held by High Court
The question as to what amounts to manufacture, is no more res integra. Here are numerous case laws to clarify what amount to manufacture, some are discussed below:
It is a settled principle of law that the word “manufacture” is generally understood to mean bringing into existence a new substance and not some change in the substance. ( Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791).
It is also a settled principle of law that “manufacture” implies a change, though every change may not be a manufacture, even though article is a result of treatment, labour and manipulation. (Deputy Commissioner of Sales Tax v. Pio Food Packer s, (1980) Supp1 SCC 174).
The test to be applied is; does the processing of original commodity bring into existence a commercial different and distinct commodity. ( Chowgule and Co. Pvt. Ltd. V. Union of India, (1981) 1 SCC 653).
It is a settled principle of law that manufacture is complete as soon as the raw material undergoes some change and a new substance or article is brought into existence, have a definite name, character or use. The new commodity must be commercially separate and distinct commodity having its own character and use. (Aditya Mills Ltd. V. Union of India (1988) 4 SCC 315).
It is also a settled principle of law that the prevalent and generally accepted test to ascertain that there is ‘manufacture’ is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. { M/s Ujagar Prints and Others (II) v. Union of India and others , (1989) 3 SCC 488 (Constitution Bench)}
It is a settled principle of law that in the absence of definition of the word “manufacture”, it has to be given a meaning, as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared articles, like giving such materials new forms, qualities or combinations, whether by hand, labour or machines. If the change made in the article results in new and different article, it would amount to manufacturing activity. ( Aspinwall and Co. Ltd. V. Commissioner, Income Tax, Ernakulam, (2001) 7 SCC 525).
In a case where the assessee was involved in the activity of conversion of jumbo rolls of photographic films into small flats and rolls of different sizes, the Apex Court held the activity carried out by the assessee to be manufacturing. ( India Cine Agencies v. Commissioner of Income Tax, Madras, (2008) 17 SCC 385).
It is also a settled principle of law that while interpreting a statute, Court has to examine the scheme of the Act, vis-à-vis nature of activity undertaken by an assessee. The Hon’ble Supreme Court of India, in Income Tax Officer, Udaipur v. Arihant Tiles and Marbles Private Limited, (2010) 2 SCC 699, after taking into account its earlier decisions rendered in Aman Marble Industries (P) Ltd . V. CCE, (2005) 1 SCC 279; CIT v. Sesa Goa Ltd. , (2004) 13 SCC 548; Lucky Minmat (P) Ltd. V. CIT, (2001) 9 SCC 669; Rajasthan SEB v. Associated Stone Industries, (2000) 6 SCC 141; and CIT v. N.C. Budharaja & Co., 1994 Supp (1) SCC 280, held that in a case where the assessee was involved in the business of converting blocks of marble into polished slabs and tiles, by applying the principle that the product can no longer be regarded as original commodity, but recognized in trade as a distinct and new commodity, he was entitled to the exemptions under the provisions of the Income Tax Act.
To similar effect is the principle laid down by the Hon’ble Supreme Court of India in Mamta Surgical Cotton Industries , Rajasthan v . Assistant Commissioner (Anti – Evasion), Bhilwara, Rajasthan, (2014) 4 SCC 87.
It is also a settled principle of law that by process of manufacture something is produced and brought into existence which is different from that, out of which it is made, in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties.
It is also a settled principle of law, as to whether an activity is manufacturing or not, is dependent upon several factors and no straight jacket formula or principle can be applied.
In view of the above decisions, it is clear that the Appellate Tribunal was justified in concluding that the product (Route Marker) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. The assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IC of the Income Tax Act.
Accordingly, appeal of the revenue dismissed.
