Case Law Details
CIT Kota Vs World Wide Stone (Rajasthan High Court)
The Rajasthan High Court recently delivered a significant judgment in the case of CIT Kota vs World Wide Stone. This case centered around whether certain activities, such as mining, cutting, and polishing of stones, qualify for deductions under Section 80 IB of the Income Tax Act. The court’s decision sheds light on the intricate definitions of ‘manufacture’ and ‘production’ in the context of tax law.
The appeals consolidated in this judgment involved common questions of law and fact, focusing on the eligibility for tax deductions under Section 80 IB. The primary question was whether the activities performed by the assessee—mining, cutting stones into tiles, and polishing—constitute manufacturing, thus qualifying for tax benefits.
Background and Appeals
- Appeal No. 287/2009: The main question was whether the assessee’s activities of mining blocks, cutting them into tiles, and polishing, without additional manufacturing processes, entitle them to deductions under Section 80 IB.
- Appeal No. 631/09: This appeal questioned whether the Income Tax Appellate Tribunal (ITAT) was justified in granting deductions despite the assessee not being involved in manufacturing.
Counsel Arguments and References
The counsel for the appellant relied heavily on the Supreme Court’s decision in Additional Commissioner of Commercial Taxes, Bangalore vs. Ayili Stone Industries, which clarified that mere cutting of marble blocks into slabs does not constitute manufacturing. They argued that similarly, the assessee’s activities should not be considered manufacturing.
The appellant also cited provisions of Section 10(B)(A) of the Income Tax Act and several decisions from the Rajasthan High Court, including cases like Arihant Tiles and Marbles Pvt. Ltd. vs. Union of India, which supported the view that cutting and polishing did not amount to manufacturing.
Tribunal and Court’s Observations
In response, the Tribunal had previously ruled that the activities undertaken by the assessee did involve a degree of processing and transformation that qualifies as manufacturing. This perspective was supported by a detailed analysis of the stages involved in converting marble blocks into polished slabs and tiles, emphasizing the multiple processes that add value and create a new product.
The respondent’s counsel also referred to several Supreme Court judgments, including Income Tax Officer, Udaipur Vs. Arihant Tiles and Marbles (P) Ltd., which reinforced that the term ‘production’ has a broader scope than ‘manufacture’ and includes activities that result in new products.
Conclusion
The Rajasthan High Court, after considering all arguments and precedents, upheld the Tribunal’s decision, ruling in favor of the assessee. The court affirmed that the processes undertaken by the assessee—mining, cutting, and polishing—constitute ‘production’ under Section 80 IB, thus making them eligible for the tax deductions.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. Since both these appeals involve common question of law and fact, they are decided by this common judgment.
2. By way of these appeals, the appellants have assailed the judgment and order of the Tribunal whereby Tribunal has dismissed appeal of the department and partly allowed the appeal of the assessee modifying the order of CIT(A).
3. While admitting the appeals, this court has framed following substantial question of law:-
Appeal No. 287/2009
1. “whether in the facts and circumstances of the case, the assessee is entitled for benefit of deductions under Sec. 80 IB when assessee is not involved in any manufacturing activity and is only engaged in mining blocks and cutting them into tiles and polishing them?”
Appeal No. 631/09
1. “Whether in the facts and circumstances of the case the ITAT was justified in law in granting the benefit of deduction u/s. 80IB to the assessee despite of the facts that the assessee is not involved in manufacturing activity?”
4. At the outset, counsel for the appellant has strongly relied upon the decision of the Supreme Court in Additional Commissioner of Commercial Taxes, Bangalore vs. Ayili Stone Industries Etc. Civil Appeal No.1983-2039/2016 decided on 18. 10.2016 wherein it has been held as under:-
“24. After so analysing, the Court observed the said decision had no application to the facts of the case, for only activity which came up for consideration in Rajasthan SEB case was the activity of pumping out water from a mine in order to make the mine functional. The Court opined that the controversy it was dealing with, the said activity was not required to be considered. Thereafter, the three-Judge Bench adverted to the principle stated in Aman Marble (supra). The Court distinguished the same by holding that the word “production” was not under consideration before the Court in the said case and thereafter noted that in the said case it had been held that cutting of marble blocks into slabs did not amount to manufacture. Explaining the dictum in the said case, the Court observed:
In our view, the judgment of this Court in Aman Marble Industries (P) Ltd. also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an Assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture.
25. Thereafter, the Court proceeded to deal with the process undertaken by the Assessee and in that context stated:
In the present case, we are not concerned only with cutting of marble blocks into slabs. In the present case we are also concerned with the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated hereinabove is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of “manufacture” or “production” Under Section 80-IA of the Income Tax Act.”
5. Taking into consideration the above, it is contended that it is not a manufacturing activity. In support of her submissions, she has relied upon provisions of Section 10(B)(A) of the Income Tax Act which reads as under:-
“10BA. Special provisions in respect of export of certain articles or things.- (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export out of India of eligible articles or things, shall be allowed from the total income of the assessee :
Provided that where in computing the total income of the undertaking for any assessment year, deduction under section 10A or section 10B has been claimed, the undertaking shall not be entitled to the deduction under this section :
Provided further that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years.
(2) This section applies to any undertaking which fulfils the following conditions, namely :—
(a) it manufactures or produces the eligible articles or things without the use of imported raw materials;
(b) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(c) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
6. She has also relied upon the decision of this court in Arihant Tiles and Marbles Pvt. Ltd. vs. Union of India 2012 (281) ELT 692 (Raj.) wherein it has been held as under:-
“In view of the aforesaid, we find that it was not open to the petitioner to avail Cenvat credit and there is no question of taking away any vested right in view of the aforesaid finding with respect to stock positions as on 18-9-2003.
Coming to next submission made by Mr. M.S. Singhvi, learned Sr. Advocate, based on the Cenvat Credit Rules, 2004, we are of the considered opinion that in view of the pronouncement of the Apex Court in Aman Marble’s case (supra) after 18-9-2003, the Rule 4 of the Cenvat Credit Rules cannot come to the rescue of the petitioner, as the process in question itself does not amount to process of manufacture within the purview of Excise Law and Cenvat Credit Rules, 2004, the Rule 4 is inapplicable. Thus, the reliance upon Rule 4 of the Rules of 2004 is of no avail.
It was also submitted on behalf of the petitioner that Cenvat credit was to be utilized because the excise duty was recovered even after decision in Aman Marble’s case (supra) on marble slabs. We are of the considered opinion that in view of the decision of the Apex Court in Aman Marble (supra), since the process does not amount to process of manufacture, the aforesaid action cannot clothe the entitlement to the petitioner to claim the Cenvat credit, that would amount to violating the mandate of the Apex Court.
It was lastly submitted on behalf of the petitioner relying upon the decision of the Assistant Commissioner, Central Excise Division dated 12-5-2005 that benefit had been granted of Cenvat credit considering decision in Aman Marble (supra). The submission has no legs to stand, as the period in question was before the decision rendered in Aman Marble (supra) as noted in our order itself. Moreover, order cannot be cited as a precedent. Apart from that the decision related to the period before the decision in Aman Marble’s case. Thus, it renders no help and does not at all espouse the cause of the petitioner.”
7. And another decision of this court in Amruthsheele vs. Union of India (1995) (80) ELT 13 (Raj.) holding as under:-
“7. Consequently we hereby allow the writ petition; and declare that no manufacturing process is involved in cutting marble blocks into slabs and, excise duty is not payable under the Act. The impugned notices dated 20- 9-1982 (Annexure 5), 15-6-1982 (Annexure 6) and 15- 3-1983 (Annexure 7) are hereby quashed. No order as to costs.”
8. Counsel for the respondent Mr. Gargeiya has taken us to the order passed for assessment year 2003-2004 in Appeal No. 631/2009, and relied upon the following decisions:-
(1). In Grace Exports vs. ITO (2012) 79 DTR 361 (Raj.) wherein it has been held as under:-
“Accordingly, the answer to question No. 1 is that the Tribunal was not justified in disallowing the benefit available to the assessee under s. 10B of the IT Act; and the view as taken by the Tribunal does not stand in conformity with the law declared by the Hon’ble Supreme Court in the case of ITO vs. Arihant Tiles & Marbles (P) Ltd. (supra). Accordingly, the appeal as filed by the Revenue before Tribunal (ITA No. 357/Ju/2008) for the asst. yr. 2004-05 shall stand dismissed as regards the claim under s. 10B of the Act and the benefit is available for a block of 10 years, it cannot, ordinarily, be withdrawn when the nature of work and benefits remains the same. So far as the benefit under s. 80HHC is concerned, the learned counsel for the appellant has rightly not pressed on the same for the meagre financial implications and further for the fact that the Revenue has not filed any appeal in this particular matter on the other part of the issue. The order of the Tribunal in this regard is therefore, not disturbed.”
(2) He contended that taking into consideration the observations made by the Supreme Court in the case of Income Tax Officer, Udaipur Vs. Arihant Tiles and Marbles (P) Ltd.- (2010) 320 ITR 79 (SC), the Supreme Court has observed as under:
4. He has contended that the word which has been used in the section ‘manufacturing or process’ is to be construed very strictly and since it is an exemption, it should be equated with the provisions of Section 80I which has been interpreted by the Supreme Court in the case of Commissioner of Income-Tax Vs. Gem India Manufacturing Co.-(2001) 249 ITR 307, wherein it has been held as under:
4. The Tribunal took the view that it did because in “common parlance and commercial sense raw diamonds are not the same thing as polished and cut diamonds. The two are different entities in the commercial world. Though the chemical composition remains the same the physical characteristics of shape and class, etc., are substantially different”. It would appear that no material had been placed on the record before the Tribunal upon which it could have reached the conclusions that, either in common or in commercial parlance, raw diamonds were not the same thing as polished and cut diamonds, and that they were different entities in the commercial world. An ipse dixit of the Tribunal is not the best foundation for a decision.
“5. The High Court, as aforestated, concluded that the case was covered by its decision in the case of CIT v. London Star Diamond Co. (I.) Ltd.: [1995]213ITR517(Bom) . It was not pointed out to the High Court that the question in that case was whether the assessee was an industrial company within the meaning of Section 2(8) of the Finance Act, 1975, and that, in answering that question, the High Court had held that raw diamonds and cut and polished diamonds were different and distinct marketable commodities having different uses ; Therefore, a company engaged in cutting and polishing raw diamonds for the purpose of export was engaged in the “processing of goods” to convert them into marketable form. The question that the High Court and we are here concerned with is whether, in cutting and polishing diamonds, the assessee manufactures or produces articles or things.
6. There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a new article or thing which is the result of manufacture or production. There is no material on the record upon which such a conclusion can be reached.
7. The appeal is, therefore, allowed. The order under challenge is sot aside. The question quoted above is answered in the negative and in favour of the Revenue. The assessee shall pay to the Revenue the costs of the appeal.”
5. He has contended that the view taken by the Tribunal is required to be reversed in view of the observations made by the Supreme Court.
6. Mr. Jhanwar, counsel for the respondent has taken us to the judgment of the Tribunal and contended that while considering the process which has been undertaken by the assessee, the Tribunal has observed as under:
“The various activities carried out by the appellant, are as under:-
(i) Firstly, the appellant purchases wood, semi finished material which requires further wood and other work of beautification and of artistic value. There apart, the other raw material, the wooden out of which is the main, and others i.e. grass, nails etc. are purchased.
(ii) Thereafter various other items are added depending upon the designs, size, quality of the subjected item to be exported,
(iii) After purchasing the semi finished goods and raw material, as stated above, the very first step is to assemble the same, if so required. Some time the semi finished furniture is required to be given further shape as per the desired exportable designs.
(iv) Thereafter, punching is done by hammering nails by hand. It is pure labour work which can be done by experts only. It may be noted that the nails are of special type having artistic and antique look.
(v) Fitting of brass and iron items again
with a view to give artistic and antique look.
(vi) Filling and filing with a view to smoothen the surface.
(vii) Sanding
(viii) Carving with a view to bring the artistic value and to show that these are antique items.
(ix) And lastly polishing
(x) Thereafter, various wooden items are fitted according to the need and design of the exportable wooden article, i.e. wooden moulding is fitted Inlay is done.”
7. He contended that taking into consideration the observations made by the Supreme Court in the case of Income Tax Officer, Udaipur Vs. Arihant Tiles and Marbles (P) Ltd.- (2010) 320 ITR 79 (SC), the Supreme Court has observed as under:
“16. In the case of Aman Marble Industries Pvt. Ltd. v. Collector of Central Excise reported in 157 ELT 393(SC), the question that arose for consideration was whether cutting of marble blocks into marble slabs amounted to manufacture for the purposes of Central Excise Act. At the outset, we may point out that in the present case, we are not only concerned with the word “manufacture”, but we are also concerned with the connotation of the word “production” in Section 80IA of the Income Tax Act, 1961, which, as stated herein-above, has a wider meaning as compared to the word “manufacture”. Further, when one refers to the word “production”, it means manufacture plus something in addition thereto. The word “production” was not under consideration before this Court in the case of Aman Marble Industries Pvt. Ltd. (supra). Be that as it may, in that case, it was held that “cutting” of marble blocks into slabs per se did not amount to “manufacture”. This conclusion was based on the observations made by this Court in the case of Rajasthan State Electricity Board (supra). In our view, the judgment of this Court in Aman Marble Industries Pvt. Ltd. (supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the Excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture.
17. In the present case, we have extracted in detail the process undertaken by each of the respondents before us. In the present case, we are not concerned only with cutting of marble blocks into slabs. In the present case we are also concerned with the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated herein-above is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of “manufacture” or “production” under Section 80IA of the Income Tax Act. As stated herein- above, the judgment of this Court in Aman Marble Industries Pvt. Ltd. was not required to construe the word “production” in addition to the word “manufacture”. One has to examine the scheme of the Act also while deciding the question as to whether the activity constitutes manufacture or production. Therefore, looking to the nature of the activity stepwise, we are of the view that the subject activity certainly constitutes “manufacture or production” in terms of Section 80IA. In this connection, our view is also fortified by the following judgments of this Court which have been fairly pointed out to us by learned Counsel appearing for the Department.
18. In the case of Commissioner of Income Tax v. Sesa Goa Ltd. reported in 271 ITR 331 (SC), the meaning of the word “production” came up for consideration. The question which came before this Court was whether the ITAT was justified in holding that the assessee was entitled to deduction under Section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee was engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing. The High Court in that case, while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore did not amount to “manufacture”. However, it came to the conclusion that extraction of iron ore and the various processes would involve “production” within the meaning of Section 32A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product. The view expressed by the High Court that the activity in question constituted “production” has been affirmed by this Court in Sesa Goa’s case saying that the High Court’s opinion was unimpeachable. It was held by this Court that the word “production” is wider in ambit and it has a wider connotation than the word “manufacture”. It was held that while every manufacture can constitute production, every production did not amount to manufacture.”
8. He has contended that the word ‘production’ is to be construed as a wider meaning than ‘manufacture’ and in view of the observations made by the Supreme Court, the view taken by the Tribunal is just and proper.
9. In CIT vs. Goverdhan Prasad D.B. Income Tax Appeal 299/2009 decided on 2.3.2017 similar view was taken.
10. Taking into consideration the activity which is carried out, in view of the above, we are in complete agreement with the view taken by the Tribunal.
11. The issues are answered in favour of the assessee and against the department.
The appeals stand dismissed.
A copy of this judgment be placed in each file.
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