D.b. Income Tax Appeal v. Shri Goverdhan Prasad Singhal, Cash Credit

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 200 / 2010COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR. ----Appellant Versus SHRI GOVERDHAN PRASAD SINGHAL, CASH CREDIT-229, GOLE MARKET, JAWAHAR NAGAR, JAIPUR. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat on behalf of Mr. R.B. Mathur For Respondent(s) : Mr. Mahendra Gargieya _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment Per Hon’ble Jhaveri, J. 12/04/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department confirming the order ofthe CIT(A) and dismissing the appeal of the department.Considering the matter the Tribunal has followed the decision ofthe earlier year. 2.This Court while admitting the appeal on 12.07.2010 hasframed the following substantial question of law: “Whether in the facts and in circumstancesof law, the ITAT was justified in holding thatthe assessee was eligible for exemption u/s10BA of the Income Tax Act in spite of the fact that the assessee was not fulfilling therequired conditions which was provedduring the course of survey proceedingsand was evident from the purchases madethrough Form No.17 of sales tax?” 3.However, same issue came up before this Court in the case of Commissioner of Income Tax vs. Goverdhan Prasad in DBIncome Tax Appeal No.299/2009, decided on 02.03.2017,wherein the Division Bench of this Court has observed as under: “4. Counsel for the appellant has contendedthat tribunal has committed serious error inreversing the finding of the CIT (A) which isbased on the factual matrix and benefit wasgiven after actual calculation and that hasbeen reversed by the tribunal without anyvalid analogy. 5. Counsel for the respondent Mr. Gargiyahas taken us to the order of the tribunalwhich reads as under:- “A perusal of the rule 23 (1) (b) show thatthere is no prohibition on the buyer exporterdebarring it from making changes in theproducts to be exported. A combinedreading of the Rule along with the said Formexempt a buyer exporter from the levy ofthe sales tax, to the extent an exportermakes purchases and exports the same. Theonly condition being exports and in absenceof specific prohibition, the appellant exporteris all entitled to carry out certain workingand changes therein, with a view to makevalue addition therein and to make itexportable. The buyer gives a categoricalcertificate in Form ST 17B certifying that thegoods so supplied to it have been sold.Thus, a combined reading of Rule 23(1)(b)with Form ST17B makes it clear that toclaim exemption one has to obtain adeclaration and to ensure that the buyershall use such goods for export sale only.The spirit of the law thus, is very clear thatif the purchase is meant for a further exportsale, the dealer (seller) is entitled not tomake payment of sale tax on such goods.The use of such goods is simply to identifythe goods sold by the dealer (seller) and theone exported by the buyer–appellant are the same. There is no requirement as such inthe Rule and Form that the goods sopurchased by the buyer appellant has to beexported as such i.e. in the same conditionin which it was purchased without anychange. Such goods can not he read as thesame. The certificate page 14 given by thebuyer appellant in Form ST 17B alsosupports this interpretation wherein thegoods purchased by the buyer appellant hasto be identified with reference to purchaseorder no., challan no. Etc. Otherwise also,instead of drawing inference to reach to theconclusion whether the activities tantamountto manufacturing/production, the bettercourse for the authorities below was, toconsider the various activates undertaken bythe appellant after the purchases of the rawmaterial, which has been discussed in detailin the earlier part. There was no warrant tojump to the provisions of the Sales Tax lawswhich otherwise do not support the case ofthe Revenue. We find the contention of theld. CIT DR contradictory in as much as withregard to the certification by the customauthorities as to the nature of the export ofthe disputed articles of being of artisticvalue, whereas by drawing inferences only,it is argued that no activity was carried outand it was a matter of simple purchases.Such an approach of to Revenue isdisapproved. We further agree with thecontention of the ld. Counsel that the use ofthe machinery is only to prepare the woodpurchased by the appellant with a view tomake it fit for further technical steps to becarried out by artisions. It is nothing but aprepatory stage, before handwork iscommenced. The machine work is confinedto seasoning of wood which normallycontains moisture, thickness planning andcutting. Further the objection as regards theshort fall of workers the required numberi.e. 20 u/s 10BA (2) (e) is also is notfactually incorrect. A perusal of copies of thewages registers submitted to AO (PB 23-72)clearly show that there more than 20workers in any case throughout the yearengaged in the manufacturing activities.There apart the other kargirs being paid onpiece rate bases are also the personengaged and deserves consideration for thispurposes. Even the ld. CIT(A) has also nowrecorded a finding that the assessee had employed more than 20 workers as requiredu/s 10BA. The heavy reliance placed by theRevenue on the decision of Kwal Pro Export(supra) is also misplaced in as much as inpara 13, the ITAT placed reliance upon theThird Member decision in case of ArihantTiles & Marbles 104 TTJ 149(JD). However,the same now stands reversed in the case ofM/s Arihant Marble Tiles Pvt Ltd vsITO(2007) 295 ITR 148(Raj.). Moreover,there is a specific definition of the eligiblearticle u/s 10BA, which is not the case u/s10B with which Kwal Pro Export (supra) wasconcerned. Therefore, the said decision can’tbe applied being totally distinguishable. Ithas been held that an incentive provisionhas to be construed liberally as held in BajajTempo Ltd. v/s CIT 188 ITR 196 (SC). Thepresent case also helps achieving theavowed object. Once the underlying purposeof an enactment is served, there is noreason why the deduction should berestricted on one pretence or other. Recentlyin CIT vs Baby Marine Exports 160 Taxman160 (SC), the Hon’ble Supreme Courtstronglyadvocatedforaliberalinterpretation at pg 168 & 169 vide paras 26& 27. It was held that Section 80HHC wasincorporated with the object of grantingincentive to earners of foreign exchange.This court is Sea Pearl Industries vs CIT(2001)2 SCC 33 also observed that theobject of selection 80HHC is to grantincentive to earners of foreign exchange. InIPCA Laboratory Ltd vs Dy. CIT(2004) 12SCC 742 this court has taken the same view.This court in the said judgment observedthat S.80 HHC has been incorporated with aview to provide incentive to export houseand this section must receive liberalinterpretation. The totality of facts andcircumstances and in view of the factualposition and evidences, we are fully satisfiedthat the appellant was engaged in themanufacturing and production of the eligiblearticles under the provision of 10BA andhence the appellant is fully to entitled to getthe deductions. The AO is therefore directedto allow the same. Thus Ground No. 2 of theassessee is allowed.” 6. He further contended that in view of thedecision of this court in D.B. Income TaxAppeal No.25/2009 & other connected cases(Commissioner of Income Tax, Jaipur-II vs. M/s Manglam Arts ), decided on 14.2.2017wherein it has been held as under:- “In view of the observations made by theSupreme court in the case of Income TaxOfficer, Udaipur Vs. Arihant Tiles andMarbles (P) Ltd. (supra), we are of theopinion that the process which has beenprescribed by the Tribunal in para 10 clearlycovers the process and will cover undersection 10BA. Therefore, in our view, theview taken by the Tribunal is just and properand no interference in the judgment of theTribunal is called for. The issue is answeredin favour of the assessee and against thedepartment.” 7. He also relied upon the followingdecisions:- (i) In Income Tax Officer vs. Arihant Tiles &Marbles (P) Ltd. reported in (2010) 320 ITR0079 (SC) holding as under:- “At the outset, we may point out that innumerous judgments of this Court, it hasbeen consistently held that the word“production” is wider in its scope ascompared to the word “manufacture”.Further, Parliament itself has taken note ofthe ground reality and has amended theprovisions of the IT Act, 1961 by inserting s.2(29BA) vide Finance Act, 2009, w.e.f. 1[st]April, 2009. 7. He also relied upon the followingdecisions:- (i) In Income Tax Officer vs. Arihant Tiles &Marbles (P) Ltd. reported in (2010) 320 ITR0079 (SC) holding as under:- “At the outset, we may point out that innumerous judgments of this Court, it hasbeen consistently held that the word“production” is wider in its scope ascompared to the word “manufacture”.Further, Parliament itself has taken note ofthe ground reality and has amended theprovisions of the IT Act, 1961 by inserting s.2(29BA) vide Finance Act, 2009, w.e.f. 1[st]April, 2009. In the case of Aman Marble Industries Pvt.Ltd. v. Collector of Central Excise reported in157 ELT 393(SC), the question that arose forconsideration was whether cutting of marbleblocks into marble slabs amounted tomanufacture for the purposes of CentralExcise Act. At the outset, we may point outthat in the present case, we are not onlyconcerned with the word "manufacture", butwe are also concerned with the connotationof the word "production" in Section 80IA ofthe Income Tax Act, 1961, which, as statedhereinabove, has a wider meaning ascompared to the word "manufacture". Further, when one refers to the word"production", it means manufacture plussomething in addition thereto. The word"production" was not under considerationbefore this Court in the case of Aman MarbleIndustries Pvt. Ltd. (supra). Be that as itmay, in that case, it was held that "cutting"of marble blocks into slabs per se did not amount to "manufacture". This conclusionwas based on the observations made by thisCourt in the case of RajasthanStateElectricity Board (supra). In our view,the judgment of this Court in Aman MarbleIndustries Pvt. Ltd. (supra) also has noapplication to the facts of the present case.One of the most important reasons forsaying so is that in all such cases,particularly under the Excise law, the Courthas to go by the facts of each case. In eachcase one has to examine the nature of theactivity undertaken by an assessee. Mereextraction of stones may not constitutemanufacture. Similarly, after extraction, ifmarble blocks are cut into slabs per se willnot amount to the activity of manufacture.” In the present case, we have extracted indetail the process undertaken by each of therespondents before us. In the present case,we are not concerned only with cutting ofmarble blocks into slabs. In the present casewe are also concerned with the activity ofpolishing and ultimate conversion of blocksinto polished slabs and tiles. What we findfrom the process indicated hereinabove isthat there are various stages through whichthe blocks have to go through before theybecome polished slabs and tiles. In thecircumstances, we are of the view that onthe facts of the cases in hand, there iscertainly an activity which will come in thecategory of "manufacture" or "production"under Section 80IA ofthe Income Tax Act. Asstated herein- above, the judgment of thisCourt in Aman Marble Industries Pvt. Ltd.was not required to construe the word"production" in addition to the word"manufacture". One has to examine thescheme of the Act also while deciding thequestion as to whether the activityconstitutes manufacture or production.Therefore, looking to the nature of theactivity stepwise, we are of the view that thesubject activity certainly constitutes"manufacture or production" in terms ofSection 80IA. In this connection, our view isalso fortified by the following judgments ofthis Court which have been fairly pointed outto us by learned Counsel appearing for theDepartment. Applying the above tests laiddown by this Court in Budharaja's case(supra) to the facts of the present cases, weare of the view that blocks converted into polished slabs and tiles after undergoing theprocess indicated above certainly results inemergence of a new and distinct commodity.The original block does not remain themarble block, it becomes a slab or tile. Inthe circumstances, not only there ismanufacture but also an activity which issomething beyond manufacture and whichbrings a new product into existence and,therefore, on the facts of these cases, weare of the view that the High Court was rightin coming to the conclusion that the activityundertaken by the respondents-assesseesdid constitute manufacture or production interms of Section 80IA of the Income TaxAct, 1961.“ (ii) In Arihant Tiles & Marbles (P) Ltd. vs.ITO (2007) 295 ITR 0148 (Raj.) holding asunder:- “We also find that even under the IncomeTax Rules, 1962 assessee under Section44AB read with Rule 6G is required tofurnish report of audit of his accounts andalso required to furnish statement ofparticulars in form No. 3CD provided underthe Rules which include furnishinginformation about the nature of businesscarried on by the assessee in Part B of theAnnexure to be appended to the statementof particulars in which the 'marble & granite'has been classified under the manufacturingindustry sector. Thus, for the purpose ofincome tax, under the rules, marble &granite industry has been considered to bemanufacturing industry. Under the rulesgoverning the compulsory audit in respect ofvarious businesses also, marble and graniteindustry has been included in the sector ofmanufacturing industry. This goes to showthat so far as the authorities under theIncome Tax entrusted with the task of itsimplementation are concerned and theframers of the Rules have considered thecutting of marble and granite blocks intoslabs and polishing them for bringing themto the stage of usability as an activity ofindustrialundertakingengagedinmanufacture and production of articles orthings. Rules framed under the Act arestatutory and became part of Statute. Thusunder the Scheme of Income Tax Act andRules framed thereunder for the purpose ofsaid Act cutting and polishing of marble and granite blocks have been held to be anindustrial activity of manufacture. As ablock, it is not of any use and has been heldto be a manufacturing industry for thepurpose of Income Tax Act. It may bepertinent to notice that even as per itscircular, the Central Board of Direct Taxes(vide Circular No. 729 dt: 1st November,1995) has considered granite as a mineral,and any process applied makes it valuablemarketable commodity. Board has clarifiedthat: The Board is, therefore, of the view thatwhite granite can alone be considered asmineral, any process applied to granitewould deprive the quality of rough mineralfrom the dimensional blocks of granite,which is a value added marketablecommodity. granite blocks have been held to be anindustrial activity of manufacture. As ablock, it is not of any use and has been heldto be a manufacturing industry for thepurpose of Income Tax Act. It may bepertinent to notice that even as per itscircular, the Central Board of Direct Taxes(vide Circular No. 729 dt: 1st November,1995) has considered granite as a mineral,and any process applied makes it valuablemarketable commodity. Board has clarifiedthat: The Board is, therefore, of the view thatwhite granite can alone be considered asmineral, any process applied to granitewould deprive the quality of rough mineralfrom the dimensional blocks of granite,which is a value added marketablecommodity. As we have already noticed that theinterpretation given under Excise Act cannotipso facto be brought here while interpretingthe expression under the Income Tax Act.Apart from that, we find that even under theCentral Excise Act, the Legislature quicklyintervened and inserted in Chapter XXV Note6 declaring that process of cutting, sawing,sizing or polishing or any other process ofconverting block into slabs and tiles shallamount to manufacture. Thus, the activity ofcutting marble blocks into slabs under theCentral Excise Act too now governed byStatutory provisions, and amounts tomanufacturing. The principle aptly applies topresent case. Here also, the originalcommodity namely marble block could notbe used for building purposes as such until itis cut into different sizes to be used asbuilding material. It is only by the process ofcutting the marble block into slabs and tilesthat it is made marketable. The marbleblock cannot be used for the same purposeas the marble slab or tile can be used andafter the marble bock has been cut intodifferent sizes, the end product by putting itsimultaneously cannot be used as a block.The principle in Kores India Ltd., casesupports the contention of appellant. Onparity of reasoning, this principle can beextended to the facts of present case.Marble blocks as a mineral produced fromearth by itself is not usable for any purpose,therefore, to make it usable, various processes which could be applied to bring itto that stage would amount tomanufacturing. After it has been brought tothat stage, further processing it merely forthe purpose of making it marketability easyor smooth would not amount tomanufacturing process. Accordingly, appealsare allowed and we hold that in the factsand circumstances of the case, conversion ofmarble blocks into slabs and tiles amountsto manufacture of thing or article within themeaning of Section 80IA/80I B of theIncome Tax Act and appellant is entitled toclaim deduction thereunder.” (iii) In Grace Exports vs. ITO (2012) 254CTR 0449 (Raj.) wherein it has been held asunder:- processes which could be applied to bring itto that stage would amount tomanufacturing. After it has been brought tothat stage, further processing it merely forthe purpose of making it marketability easyor smooth would not amount tomanufacturing process. Accordingly, appealsare allowed and we hold that in the factsand circumstances of the case, conversion ofmarble blocks into slabs and tiles amountsto manufacture of thing or article within themeaning of Section 80IA/80I B of theIncome Tax Act and appellant is entitled toclaim deduction thereunder.” (iii) In Grace Exports vs. ITO (2012) 254CTR 0449 (Raj.) wherein it has been held asunder:- “The counsel for the appellant-assessee hassubmitted that the view as taken by theITAT cannot be sustained for theauthoritative pronouncement of the Hon’bleSupreme Court in the case of Income-TaxOfficer Vs. Arihant Tiles and Marbles P. Ltd.:(2010) 320 ITR 79 (SC) holding, inter alia,that step-wise activity of cutting marbleblocks and converting into the polished slaband titles constitute manufacture orproduction in terms of Section 80-IA of theAct. The learned counsel for the revenue isnot in a position to controvert thesubmissions so made on behalf of theassessee-appellant. Having gone throughthe decision of the Hon’ble Supreme Court inArihant Tiles and Marbles (Supra), the viewas taken by the ITAT cannot be sustained.Accordingly, the Tribunal was not justified indisallowing the benefit available to theassessee under Section 10-B of the IncomeTax Act; and the view as taken by theTribunal does not stand in conformity withthe law declared by the Hon’ble SurpemeCourt in the case of Income Tax Officer Vs.M/s Arihant Tiles & Marbles P. Ltd. (2010)320 ITR 79. Accordingly, the appeal as filedby the revenue before ITAT (ITANo.357/JU/2008) for the assessment year2004-05 shall stand dismissed as regardsthe claim under Section 10-B of the Act.” 4.In that view of the matter, the issue is answered in favour of the assessee and against the department. 5.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/94