Itta/283/2015 Of The Commissioner Of Income Tax v. Laila Nutraceuticals

INTHEHIGHCOURTOFANDHRAPRADESH::AMARAVATI THURSDAY.THETWENTYFIFTHDAYOFAUGUSTTWOTHOUSANDANDTWENTYTWO 0^SB PRESENT HONOURABLESRIJUSTICEC.PRAVEENKUMAR.ANDHONOURABLESRIJUSTICEAVRAVINDRABABU ITTANOs:259,283,&330OF2015.45&106OF2016&25.121&192OF 2017r ITTANO:259OF2015 (AppealUnderSection260(A)ofthe.IncomeTaxAct,1961preferredagainsttheorderoftheIncometaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.464AZ/12fortheAssessmentYear2008-09,dated30-07-2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.345/CIT(A)A/JA/10-11.dated30.08.2012preferredagainsttheorderoftheAssistantCommissionerofIncomeTax,CentralCircle-2(t),VijayawadainPANNo.AACFL3855A,dated31-12-2010)Between: ■T...APPELLANTI TheCommissionerOfInocmeTax,Vijayawada. ANO M/SLailaNutraceuticals,40-15-14,SudarshanApartments.BrindavanColony,Labbipet,Vijayawada. ...RESPONDENTSS ITTANO:283OF2015 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferredagainstthisorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.401A//12fortheAssessmentYear2009-10,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadaihAppealNo.420/CiT(A)/VJA/11-12,dated30.08.2012preferredagainsttheorderoftheCommissionerof.IncomeTax,Ward2(2),.VijayawadainPANNo.AACFL3855A,dated30-12-2011)! !.■i r X Between: TheCommissionerOfIncomeTax,Vijayawada. ...APPELLANT ANDI LailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada. ...RESPONDENT ITTANO:330OF2015 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferred,againstthe.orderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.398/V/I2fortheAssessmentYear2006-07,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.343/CIT(A),VJA/10-11dated30.08.2012preferredagainsttheorderoftheAssistantCommissionerofIncomeTax,,Circle-2(1),VijayawadainPANNo.AACFL3855A,dated17-12-2008) Between: TheCommissionerOfIncomeTax,Vijayawada ...APPELLANT AND M/SLailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada ...RESPONDENTS ITTANO:45OF2016 (AppealUnderSection260(A)oftheIncome.TaxAct,1961preferredagainsttheorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.463/V/12fortheAssessmentYear2007-08,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.344/CIT(A),VJA/10-11dated30.08.2012preferredagainsttheorderoftheAssistantCommissionerofIncomeTax,Circle-2(1),.VijayawadainPANNo.AACFL3855A,dated31-12-2010) ,! Between: TheCommissionerOfIncomeTax,Vijayawada,KrishnaDistrict. ...APPELLANT AND 'i1 M/S.LailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada,KrishnaDistrict. ...RESPONDENTS . ITTANO:106OF2016 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferred,againsttheorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.400/V/12fortheAssessmentYear2008-09,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.345/CIT(A),VJA/10-11dated30.08.2012preferredagainsttheorderof:theAssistantCommissionerofIncomeTax,Circle-2(1),VijayawadainPANNo.)AACFL3855A,dated31-12-2010)_______ Between: :| TheCommissionerOfIncomeTax,Vijayawada. ...APPELLANT AND M/S.LailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada. ...RESPONDENTS ITTANO:25OF2017 'i1 M/S.LailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada,KrishnaDistrict. ...RESPONDENTS . ITTANO:106OF2016 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferred,againsttheorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.400/V/12fortheAssessmentYear2008-09,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.345/CIT(A),VJA/10-11dated30.08.2012preferredagainsttheorderof:theAssistantCommissionerofIncomeTax,Circle-2(1),VijayawadainPANNo.)AACFL3855A,dated31-12-2010)_______ Between: :| TheCommissionerOfIncomeTax,Vijayawada. ...APPELLANT AND M/S.LailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony,Labbipet,Vijayawada. ...RESPONDENTS ITTANO:25OF2017 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferredagainst!theorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.399A//12fortheAssessmentYear2007-08,dated!30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.344/CIT(A),VJA/10-11dated30.08.2012preferredagainsttheorderoftheAssistantCommissionerofIncomeTax,Circle-^(1),VijayawadainPANNo.AACFL3855A,dated31-12-2010) I i A Between: TheCommissionerOfIncomeTax,Vijayawada ...APPELLANT AND M/SLailaNutraceuticals,40-15-14,SudarshanApartments,BrindavanColony.Labbipet,Vijayawada. ...RESPONDENTS ITTANO:121OF2017 Between: i (AppealUnderSection260(A)oftheIncomeTaxAct.1961preferredagainsttheorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,.VisakhapatnamiriITA.No.462/V/I2fortheAssessmentYear2006-07,dated30.07.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.343/CiT(A),VJA!10-11dated30.08.2012preferredagainsttheorderoftheAssistantCommissionerofIncomeTax,Circle-2.(1),VijayawadainPANNo.AACFL3855A.dated31-12-2010) TheCommissionerOfIncomeTax.Vijayawada. ...APPELLANT AND M/SLailaNutraceuticals,40-15-14.sudarshanApartments,BrindavanColony.Labbipet,Vijayawada. ...RESPONDENT ITTANO:192OF2017 (AppealUnderSection260(A)oftheIncomeTaxAct,1961preferredagainsttheorderoftheIncomeTaxAppellateTribunal,VisakhapatnamBench,VisakhapatnaminITA.No.465/V/I2fortheAssessmentYear2009-10,dated30.07-.2014preferredagainsttheorderoftheCommissionerofIncomeTax(Appeals),VijayawadainAppealNo.420/CIT(A),VJA/11-12dated'30.08.2012joreferredagainsttheorderoftheAssistantCommissionerofIncomeTax,Circle-2(2),VijayawadainPANNo,.AACFL3855A,dated-30-12-2011) HON'BLESRIJUSTICEC.PRAVEENKUMARANDHON'BLESRIJUSTICEA.V.RAVINDRABABU I.T.T.A.Nos.259,283as330OF2015,45&106OR2016AND25,121&192OF2017 COMMONJUDGMENT;(PerHon’bleSriJusticeC.PraveenKumar) HeardMs.M.Kiranmayee,learnedStandingCounselforIncomeTax,appearingfortheappellant,andSriK.VasantKumar,learnedcounselfortheresjpondent-assessee,inalltheAppeals,,andperusedtherecords. 2.Inallthe8AppealsfiledbytheRevenue,I.T.T.ANos.121&■192.of-2017,259of2015and45of2016areagainsttheordersin.I.T.ANos.462/V/12,465/V/12,464/V/12&463/V/12,dated30.07.2014,filedbytheRevenuebeforetheIncomeTaxAppellateTribunalBenchatVisakhapatnam(forshort,‘theTribunal’)relatingtoForeignTrade.PolicyandincorporationofSection10-BoftheIncomeTaxAct,1961(forshort,‘theITAct*)andI.T.T.An6s.33O8b283of2015,106of2016and25of2017areagainsttheordersinI.T.ANOS.398/V/12,401/V/12,400/V/128b399/V/12,dated&■192.of-2017,259of2015and45of2016areagainsttheordersin.I.T.ANos.462/V/12,465/V/12,464/V/12&463/V/12,dated30.07.2014,filedbytheRevenuebeforetheIncomeTaxAppellateTribunalBenchatVisakhapatnam(forshort,‘theTribunal’)relatingtoForeignTrade.PolicyandincorporationofSection10-BoftheIncomeTaxAct,1961(forshort,‘theITAct*)andI.T.T.An6s.33O8b283of2015,106of2016and25of2017areagainsttheordersinI.T.ANOS.398/V/12,401/V/12,400/V/128b399/V/12,dated 30.07.2014,filedbytheAssesseebeforetheTribunalwhereintheTribunalheldthatprofitattributedtotheturnoveronjob workshouldnotbeexcludedwhilecalculatingthedeductionunderSection10-BoftheITAct. 30.07.2014,filedbytheAssesseebeforetheTribunalwhereintheTribunalheldthatprofitattributedtotheturnoveronjob workshouldnotbeexcludedwhilecalculatingthedeductionunderSection10-BoftheITAct. 3.AlltheseAppealsaretakenupfordisposalbywayofthiscommonjudgment,astheissueinvolvedandthepartybeingoneandthesame,takingI.T.T.A.No.330of2015asaleadcase.commonjudgment,astheissueinvolvedandthepartybeingoneandthesame,takingI.T.T.A.No.330of2015asaleadcase. 4.Thebrieffacts,whichledtofilingoftheseAppeals,areasunder: Therespondent-assesseeisaregistered100%ExportOrientedUndertaking(EOU)engagedinthebusinessof.manufacturingandtradingofbiological,pharmaceuticalandayurvedicproductsandherbalextracts.Theassesseefirmfileditsincometaxreturnfortheassessmentyear2006-07on31.10.2005admittingthetotalincomeasnilafterclaimingdeductionunderSection10-BoftheITAct,whichistoatuneofRs.23,03,43,847/-.TheincometaxreturnwasprocessedunderSection143(1)ofthe-ITActandsubsequentlyitwasselectedforscrutiny,whichwascompletedon17.12.2008byacceptingthereturnofincome.Whilethingsstoodthus,thesurveyoperationunderSection133-AoftheITActwascarriedoutinthebusinesspremisesoftheassesseeon17.09.2009bytheDeputyDirectorofIncomeTax(Investigation),Vijayawada.Duringthe 'Ii'i 'I V■■■■ courseofsurvey,certaindefectswerenoticedwhich,ifaccepted.wouldmaketheassesseeineligibletoclaimdeductionunderSection10-BoftheITAct.Sincetheincomechargeabletotaxescapedtheassessment,anoticeunderSection148oftheITActwasissuedon08.03.2010.Inreply,therespondent-assesseesubmittedaletter,dated23.03.2010,statingthatthereturnfiledoriginallyon27.10.2007maybetreatedasareturnfiledinresponsetothenoticeunderSection148oftheITActaswell.Thereafter,anopportunityofpersonalhearingwasgivenandtheAssessingAuthoritypassedanassessmentorderon31.12.2010,imposingatotaltaxofRs.12,17,27,950/-ontaxableincomeofRs.6,91,03,155/-.Challengingtheorderofassessment,therespondent-assesseepreferredanAppealvideAppealNo.343/CIT{A)/VJA/10-11beforetheCommissionerofIncomeTax(Appeals),Vijayawada.Byanorder,dated30.08.2012,theAppellateAuthorityallowedtheAppealinpartonboththecountsnamelyForeignTradePolicycoversthecaseoftherespondent-assesseeandheldthattheassesseehasinstalledmachineryandcommenceditsoperation^duringthepreviousyeartotheassessmentandconductedmanufacturingactivityinitsunitthoughnotoneveryaspectandassuchmakingliabletopaytaxfornotviolatingtheForeignTrade Policyisincorrect.Comingtotheissuerelatingto10-BoftheITAct,theAppellateAuthoritydealtwiththesameandheldthataplainreadingofSection10-BoftheITActdoesnotprecludeoutsourcingapartofmanufacturingactivityonjobworkbasis,whichwasheldtohavebeendoneintheinstantcase.ThesecondaspectwhichwasdealtwithbytheAppellateAuthorityintheAppealwaswithregardtodeductionsunderSection10-BoftheITActtotheextentofjobworkdoneandtheAppellateAuthorityheldthattheturnovertotheextentof21.27%representingthepercentageofjobworkchargesintotalmanufacturingexpenses,includingrawmaterial,chemicals,packingmaterialsetc.,shouldbeexcludedfromthetotalturnover,eligiblefordeductionunderSection10-BoftheITAct.Hence,theAssessingOfficerwasdirectedtocomputenetprofitonthesaidpercentageof21.27%ofthetotalturnoverandbringthesametotax,adoptingthesamepercentageofprofitasshownbytheassesseeinrespectoftotalturnover. 5.AggrievedbytheorderoftheAppellateAuthority,theappellant-Revenueandtherespondent-assessee,separately,filedAppealsbeforetheTribunalfortheassessmentyear2006-07.TheRevenuefiledtheAppealagainsttheorderoftheAppellateAuthorityinholdingthattheassesseeiseligiblefor •*:r’ deductionunderSection10-BoftheITAct,whereastheassesseefiledtheAppealagainsttheordersoftheAppellateAuthorityinholdingthatprofiton21.27%ofthetotalturnoverbeingjobworkshouldbecomputedandexcludedfromcomputationoftheeligibleprofitfordeductionunderSection 10-BoftheITAct.Byorder,dated30.07.2014,theTribunalallowedtheAppealpreferredbytherespondent-assesseeanddismissed'theAppealpreferredbytheappellant-Revenue. 6..Furtheraggrieved,theappellant-RevenuepreferredtheIncomeTaxTribunalAppealNo.330of2015.IncomeTaxTribunalAppealNo.330of2015. 5.AggrievedbytheorderoftheAppellateAuthority,theappellant-Revenueandtherespondent-assessee,separately,filedAppealsbeforetheTribunalfortheassessmentyear2006-07.TheRevenuefiledtheAppealagainsttheorderoftheAppellateAuthorityinholdingthattheassesseeiseligiblefor •*:r’ deductionunderSection10-BoftheITAct,whereastheassesseefiledtheAppealagainsttheordersoftheAppellateAuthorityinholdingthatprofiton21.27%ofthetotalturnoverbeingjobworkshouldbecomputedandexcludedfromcomputationoftheeligibleprofitfordeductionunderSection 10-BoftheITAct.Byorder,dated30.07.2014,theTribunalallowedtheAppealpreferredbytherespondent-assesseeanddismissed'theAppealpreferredbytheappellant-Revenue. 6..Furtheraggrieved,theappellant-RevenuepreferredtheIncomeTaxTribunalAppealNo.330of2015.IncomeTaxTribunalAppealNo.330of2015. 7.Ms.M.Kiranmayee,learnedStandingCounselfortheIncomeTax,appearingfortheappellant-Revenue,fairlysubmitsthatinviewofClause6.14(a)(ii)oftheForeignTradePolicy,therespondent-assesseeshallsub-contractproductionprocesstoDomesticTariffArea(DTA)throughjobworkbutthesaidsub­contractshallnotbeabove50%oftheoverallproductionofthepreviousyearinvaluetermsinDTAwithpermissionofCustomsAuthorities.ShetookusthroughtheForeignTradePolicy,moreparticularly,toClause6.14(a)(ii)oftheprovisions,insupportofherplea.Shefurthercontendsthat,inordertoclaimexemptionfrompaymentoftaxintermsofSection10-BoftheITAct,there hastobeamanufacturingprocessi.e.,therespondent-assessee,whichisa100%ExportOrientedUndertaking,hastocarrytheentiremanufacturingactivityinitsunitandmerelybecausetheentiremanufacturingprocesswasgivenonoutsourcingbasisnoreliefcanbegivenunderSection10-BoftheITAct.Shefurther contendsthatthefindingoftheAssessingAuthorityclearlyindicatesthatnomachinerywasestablishedintheunitoftherespondent-assesseeandentiremanufacturingwasbeingdonebyitssisterconcernnamelyM/s.LailaImpex,whichisalsoa100%ExportOrientedUndertakingunit.Itishercasethatnooldmachinerycanbeusedformanufacturingaproductwhichissubjectmatterofexportand,incase,iftherespondent-assesseeintendstoclaimanybenefitunderSection10-BoftheITAct,thetermsofSection10-Bhavetobestrictlycompliedwith. 8.Ontheotherhand,SriK.VasantKumar,learnedcounselappearingfortherespondent-assessee,wouldcontendthattwo.authoritiesnamelyAppellateAuthorityaswellastheTribunalhaveconcurrentlyheldthefindingsagainsttheRevenue,whichappearingfortherespondent-assessee,wouldcontendthattwo.authoritiesnamelyAppellateAuthorityaswellastheTribunalhaveconcurrentlyheldthefindingsagainsttheRevenue,which findingsdonotwarrantinterferenceby.thisCourt.Inotherwords,hisargumentappearstobethatwhenthefactfindingauthoritieshaveconcurrentlyheldagainsttheRevenue,this IiI IIII Ij Ii'1 I Court,intheseAppeals,cannotgointotheformalaspectsandthatitcanonlylookintothesubstantial questionsoflawraised.Inanyevent,hewouldcontendthatthestandoftherespondent-assesseefromthebeginningisunderClause6.14(b)(iii)oftheForeignTradePolicy,whereasClause.6.14(a)(ii)wasurgedbeforetheAssessingAuthoritybytheappellant-Revenue.According,tohim,areadingofClause6.14(b)(iii)oftheForeignTradePolicywouldmakeitclearthatsubcontractirigofbothproductionandproduction'processesmayalsobeundertakenwithoutanylimit.throughotherEOU/EHTP/STP/SEZ/BTPunits,onthebasisofrecordsmaintainedintheunit.Thatbeingsothereisnoillegalityor violationofsaidclausestipulatedundertheForeignTradePolicybytherespondent-assessee. 9.ComingtoSection10-BoftheIncomeTaxAct,herelieduponthejudgmentsofHon’bleApexCourtandvariousHighCourtstocontendthatmanufacturingprocesscanbedoneonjobworkbasisoutsidetheunitoftherespondent-assessee.ItissufficientifthereissomemanufacturingprocessintheunitofuponthejudgmentsofHon’bleApexCourtandvariousHighCourtstocontendthatmanufacturingprocesscanbedoneonjobworkbasisoutsidetheunitoftherespondent-assessee.Itissufficientifthereissomemanufacturingprocessintheunitof theassesseeforclaimingdeductionunderSection10-BoftheITAct.Accordingtohim,itisnotnecessarythattheentireproduct'producedshouldbemanufactured/processedintheunitofthe 8 respondent-assesseeseekingbenefitunderSection10-BoftheITAct. 9.ComingtoSection10-BoftheIncomeTaxAct,herelieduponthejudgmentsofHon’bleApexCourtandvariousHighCourtstocontendthatmanufacturingprocesscanbedoneonjobworkbasisoutsidetheunitoftherespondent-assessee.ItissufficientifthereissomemanufacturingprocessintheunitofuponthejudgmentsofHon’bleApexCourtandvariousHighCourtstocontendthatmanufacturingprocesscanbedoneonjobworkbasisoutsidetheunitoftherespondent-assessee.Itissufficientifthereissomemanufacturingprocessintheunitof theassesseeforclaimingdeductionunderSection10-BoftheITAct.Accordingtohim,itisnotnecessarythattheentireproduct'producedshouldbemanufactured/processedintheunitofthe 8 respondent-assesseeseekingbenefitunderSection10-BoftheITAct. 10.Insofarastheargumentthatthereisnomachineryestablished'intheunitoftherespondent-assesseeorthatoldmachineryhasbeenused,hewouldcontendthatthereisnoevidencetothateffect.Inotherwords,hewouldcontendthattherewasnoindependentevidencebeforetheAssessingAuthoritytoshowthattherewasnomachineryorthatoldestablished'intheunitoftherespondent-assesseeorthatoldmachineryhasbeenused,hewouldcontendthatthereisnoevidencetothateffect.Inotherwords,hewouldcontendthattherewasnoindependentevidencebeforetheAssessingAuthoritytoshowthattherewasnomachineryorthatold machinerywasbeingusedbytherespondent-assesseeinitsunit.Accordingtohim,theselfservingstatementoftheAssessingAuthoritycannotbeacceptedintheabsenceofanyindependentmaterialtothateffect.Hewouldsubmitthatinvoicesofthenewmachinerypurchasedandmaterialonrecordiridicateinstallationofnewmachineryandwhatevermanufacturingprocessisbeingdonewaswiththenewmachineryonly. 11.LearnedcounselfurthersubmitsthatthisbenefitunderSection10-BoftheITActcanbeavailedforaperiodof10yearsfromthedateofitsinstallation,whichithasdone.theargumentoflearnedStandingCounselfortheIncomeTaxappearingfortheappellant-Revenuethattherespondent- 1 assesseeisanoldunitdisentitledfromseekingexemptionmaynotbecorrect.Insofarasitrelatestooutsourcingthejobwork,hewouldcontendthatthefindingoftheAppellateAuthoritywhichwasconfirmedbytheTribunalonthisaspectcannotbefoundfaultwith.Hence,pleadsthattheseAppealsareliabletobedismissed. 12.Thepointthatarises-forconsiderationintheseAppealsiswhethertheorderspassedbytheAppellateAuthority,whichwereconfirmedinAppeal'sbytheTribunal,requiresanywhethertheorderspassedbytheAppellateAuthority,whichwereconfirmedinAppeal'sbytheTribunal,requiresany interference? 13.Asseenfromtherecord,eachassessmentorderwasset-asidebytheCommissionerofIncomeTax(Appeals),whichwasconfirmedbytheTribunalmeaningtherebythatthetwofactfindingauthoritiesconcurredwitheachotherdifferingwiththeviewexpressedbytheAssessingAuthority.Asseenfromtheargumentsadvancedbylearnedstandingcounseltwogroundssoughttoberaisedarewhethertherespondent-asses'seefulfilledthetermsoftheForeignTradePolicyandwhetheritisentitledforexemptionunderSection10-BoftheITAct.Inorder toanswerthefirstpointnamelyastowhethertherewasanyviolationoradherencetotheForeignTradePolicy,sincethe respondent-assesseebeinganExportOrientedUndertaking,itwouldbejustandpropertoextractClause6.14oftheForeignTradePolicy,whichreadsasunder: .-“6.14Sub-Contracting; {a)(i)EOU/EHTP/STP/BTPunits,includinggem andjewelleryunits,mayonthebasisofannualpermissionfromCustomsauthorities,subcontractproductionprocessestoDTAthroughjobworkwhich.mayalsoinvolvechangeofformornatureofgoods,throughjobworkbyunitsinDTA. (ii)Theseunitsmaysubcontractupto50%ofoverallproductionofpreviousyearinvaluetermsinDTAwithpermissionofCustomsauthorities. (b)(1)EOUmay,withannualpermissionfromCustomsauthorities,undertakejobworkforexport,on behalfofDTAexporter,providedthatgoodsareexporteddirectlyfromEOUandexportdocumentshalljointlybeinnameofDTA/EOU.Forsuchexports,DTAunitswiUbeentitledforrefundofdutypaidoninputsbywayofBrandRateofdutydrawback. (ii)DutyfreeimportofgoodsforexecutionofexportorderplacedinEOUbyForeignSupplieronjob­workbasis,wouldbeallowedsubjecttoconditionthatnoDTAclearanceshaUbeallowed. {a)(i)EOU/EHTP/STP/BTPunits,includinggem andjewelleryunits,mayonthebasisofannualpermissionfromCustomsauthorities,subcontractproductionprocessestoDTAthroughjobworkwhich.mayalsoinvolvechangeofformornatureofgoods,throughjobworkbyunitsinDTA. (ii)Theseunitsmaysubcontractupto50%ofoverallproductionofpreviousyearinvaluetermsinDTAwithpermissionofCustomsauthorities. (b)(1)EOUmay,withannualpermissionfromCustomsauthorities,undertakejobworkforexport,on behalfofDTAexporter,providedthatgoodsareexporteddirectlyfromEOUandexportdocumentshalljointlybeinnameofDTA/EOU.Forsuchexports,DTAunitswiUbeentitledforrefundofdutypaidoninputsbywayofBrandRateofdutydrawback. (ii)DutyfreeimportofgoodsforexecutionofexportorderplacedinEOUbyForeignSupplieronjob­workbasis,wouldbeallowedsubjecttoconditionthatnoDTAclearanceshaUbeallowed. (iii)SubcontractingofbothproductionandproductionprocessesmayalsobeundertakenwithoutanylimitthroughotherEOU/EHTP/STP/SEZ/BTPunits,onthebasisofrecordsmaintainedinunit.” as<«s» 'II ;; ■i i if I i 14.Areadingofclause6.14(a)(i)oftheForeignTradePolicywouldmakeitclearthatanExportOrientedUndertaking,mayonthebasisofannualpermissionfromtheCustomsAuthorities,subcontractproductionprocessestoDTAthroughjobworkwhichmayalsoinvolvechangeofformornatureofgoods,throughjobworkbyunitsinDTA.Secondly,italsopostulatesthattheEOUmaysub-contractupto50%ofoverallproductionofpreviousyearinvaluetermsinDTAwithpermissionofCustomsAuthorities. 15.Asstatedbyusearlier,learnedStandingCounselmainlyrelieduponthisclausetosaythatsub-contractofproductionprocesscanonlybetoDTAthroughjobworkandsubcontractmaybeuptoupto50%oftheoverallproductionofpreviousyear.Atfirst.thesaidargumentappearedtobecorrect/impressivebutafteraperusalof(b)(iii)ofClause6.14'ofForeignTradePolicy,itprovedtobeotherwise.Areadingof(b)(iii)ofClause6.14ofForeignTradePolicywouldshowthat.subcontractingofbothproductionandproduction-processesmayalsobeundertakenwithoutanylimitthroughotherEOUunitsonthebasisoftherecordsmaintainedinit.Therefore,anExportOrientedUndertakingunitcanalsoseektheassistanceofanotherEOUunitforbothproductionandproduction processeswithoutanylimit.Hence,theargumentof.learnedStandingCounselfortheIncomeTaxthatoutsourcingofproductionprocessshouldbeonlythroughDTAandthatsubcontractingofproductionprocessupto50%oftheoverallproductionofthepreviousyearmaynotbecorrect.Infact,the AppellateAuthorityaswellastheTribunaldealtwiththesaidaspect. 16.Atthisstageitisalsotobenoticedthattheproduction processwasin6stages.TheAssessingAuthoritycategoricallyheldthatthefirststageofproductionprocesswasinthesisterconcernoftherespondent-assessee,whiletheotherstageswereintheunitoftherespondent-assesseeitself.ItwouldbeappropriatetoextractthefindingoftheAssessingAuthorityatthisstage,whichisasunder: “InthereplyduringthecourseofsurveyproceedingsasevidentfromtheSurveyReport,theassesseesub-dividedthemanufacturingprocessinto6stages.Aperusalofthese6stageswouldrevealthatmanufacturingactivityisinvolvedonlyinthefirsttwostages,whileintheremaining4stagesonlyprocessingactivitylikedrying,powdering,sievingandpackingis undertaken.Hence,themanufacturing&tradingaccountgivestheexpenditureincurredonallthe6stages(whichincludes2manufacturingstagesand4non-manufacturing.-stages).Accordingtotheassessee. ,1 i! stage1isdonebyM/s.LailaImpexonjobworkbasiswhilestages2to6aredonebytheassesseeitself.Itshouldberecalledherethat96.56%of‘ManufacturingExpenses’and*91.1%of‘ManufacturingEstablishmentExpenses’arepaidtoM/s.LailaImpex.Asalreadymentionedabove,stages18b2alonecanberegardedasstageswheremanufacturingactivityiscarriedon.And'nowtheassesseestagedthatstage1isperformedbyM/s.LailaImpex.ItistobenotedherethattheassesseehadnocontroloverthatpartofactivityperformedbyM/s.LailaImpex.Noneoftheemployeesofassesseearepresentinthepremisesofjobworkerwhenitsworkisbeingdone.AUthatismeanttobesaidisthatthejobworkerundertookstage1ofthemanufacturingactivityindependently.” ,1 i! stage1isdonebyM/s.LailaImpexonjobworkbasiswhilestages2to6aredonebytheassesseeitself.Itshouldberecalledherethat96.56%of‘ManufacturingExpenses’and*91.1%of‘ManufacturingEstablishmentExpenses’arepaidtoM/s.LailaImpex.Asalreadymentionedabove,stages18b2alonecanberegardedasstageswheremanufacturingactivityiscarriedon.And'nowtheassesseestagedthatstage1isperformedbyM/s.LailaImpex.ItistobenotedherethattheassesseehadnocontroloverthatpartofactivityperformedbyM/s.LailaImpex.Noneoftheemployeesofassesseearepresentinthepremisesofjobworkerwhenitsworkisbeingdone.AUthatismeanttobesaidisthatthejobworkerundertookstage1ofthemanufacturingactivityindependently.” 17.ItappearsthattheAssessingAuthorityhasrelieduponclause6.14(a)(i)and(ii)ofForeignTradePolicytodiscreditthecontentionoftherespondent-assesseenamelythattheyarecoveredbyclause6.14{b)(iii)oftheForeignTradePolicybut,asobservedabove,clause6.14(b)(iii)categoricallypermitsbothproductionandproductionprocessescanbeundertaken withoutanylimitthroughotherEOU.Hence,thefindingoftheAssessingAuthoritythatthecaseoftherespondent-assesseefall'sunderclause6.14(a)(ii)oftheForeignTradePolicymaynotbecorrect,whichinfactwastheviewtakenbytheAppellateAuthorityaswellasbytheTribunal. 18.Further,atthisstage,itwouldbeappropriatetorefertothefindingsoftheAppellateAuthority,whichareasunder:thefindingsoftheAppellateAuthority,whichareasunder: “14.3.Incourseoftheappealproceedings,theappellanthasfiledcertificatesofbothitselfandM/s.LailaImpextotheeffectthattheyarerecognizedas100%EOUsandhasalsostated,thatcompleterecordsinbothunitsregardingthejobworkaremaintained,dulyverifiedbytheconcernedauthoritiesofCentralExcise/SEZ,fromtimetotime.Therefore,Iaminagreementwiththecontentionoftheappellantthatsub-clause(b)(iii)ofChapter6.14ofFTPareapplicableinitscase. 14.4.Themanufacturingprocessoftheappellantinvolvesthefollowingstages: a)ProcessofSolution b)ProcessofConcentration c)ProcessofDrying d)ProcessofPulverization e)ProcessofSieving f)ProcessofPacking 14.5.Eachoftheaboveprocesseshavebeendealtwithindetailinthewrittensubmissionsfiledbytheappellant,whichhavebeenreproducedintheprecedingparagraphs.ThefirststageofthemanufacturingprocessiscarriedoutbyM/s.LailaImpex,onjobworkbasis.Theremaining5stagesarecarriedoutbytheappellantinitspremises. 14.6.Unless,alltheactivitiesinthefirst5stagesarecarriedout,themanufactureofthefinishedproduct 1>!'i ■I I cannotbesaidtobecompletedintheappellant’scase.Eventhe6“*stageofpackingintheappellant’scaseisanecessaryadjuncttotheprocessofmanufacture,,inas.much,thepackingwouldhavetobespecializedkeepinginviewtheneedforlongpreservationandqualityrequirementsinexportprocessandtheattendantdisclosuresregardingproductasrequiredunderlocallawsinthecountrytowhichtheproductisexported.” 19.Itistobenotedhereinthattheproduct,whichissoughttobeexported,undergoes6stagesi.e.,thefirst,stagerelatestotheprocessofsolution;secondstageisprocessofconcentration;thirdstageisdrying;fourthstageispulverization;;fifthstageisSievingandsixthstageispacking.Unlessallthesestepsaredoneinthemannerrequired,itcannotbesaidthattheprocessofmanufacturingiscompletemaybeinexceptiontothelastonewhichrelates:topackingofpolythenebags.TheAssessingAuthoritywhiledealingwithmanufacturingprocessheldthat“themanufacturing&tradingaccountgivestheexpenditureincurredonallthe6stages(whichincludes2manufacturingstagesand4non-manufacturingstages).Accordingtotherespondent-assessee,stage1isdonebyM/s.LailaImpexonjobworkbasiswhilestages2to6aredone ’bytheassesseeitself. 'i 20.Fromtheabove,itisclearthattheAssessingAuthoritywasoftheviewthatonlystages1and2canberegardedasstageswheremanufacturingactivityiscarriedonandstage1isperformedbyM/s.LailaImpex.ItisthefindingoftheAssessingAuthoritythattherespondent-assesseehasnocontroloverthatwasoftheviewthatonlystages1and2canberegardedasstageswheremanufacturingactivityiscarriedonandstage1isperformedbyM/s.LailaImpex.ItisthefindingoftheAssessingAuthoritythattherespondent-assesseehasnocontroloverthat 'I ’bytheassesseeitself. 'i 20.Fromtheabove,itisclearthattheAssessingAuthoritywasoftheviewthatonlystages1and2canberegardedasstageswheremanufacturingactivityiscarriedonandstage1isperformedbyM/s.LailaImpex.ItisthefindingoftheAssessingAuthoritythattherespondent-assesseehasnocontroloverthatwasoftheviewthatonlystages1and2canberegardedasstageswheremanufacturingactivityiscarriedonandstage1isperformedbyM/s.LailaImpex.ItisthefindingoftheAssessingAuthoritythattherespondent-assesseehasnocontroloverthat 'I partoftheactivityperformedbyM/s.LailaImpexasnoneofitsemployeeswerepresentinthepremisesofthejobwork,whenitisbeingdonebyM/s.LailaImpex.ButthisfactwasnegativedbytheAppellateAuthorityaswellastheTribunalholdingthatevenifstage1isdonebyM/s.LailaImpex,onjobworkbasis.theotherstagesofthemanufacturingprocessesi.e.,fromstage2weredoneintheunitoftherespondent-assesseeitself.Therefore,theargumentthattherewasnomanufacturingprocessatallmaynotbecorrect.Infact,eventheorderoftheAssessingAuthorityshowsthattherewasmanufacturingprocessintheunitoftherespondent-assessee. :f f 21.Atthisstage,learnedStandingCounselwouldcontendjthatthemanufacturingprocessescouldnothavebeendonein theunitoftherespondent-assesseebecausenomachinerywasinstalledandthefindingsoftheAssessingAuthorityshowthattherewasnoinstallationofthemachinery,andthatthe manufacturingprocesswasinsisterconcernoftherespondent-assesseei.e.,M/s.LailaImpex. 22.WearenotinagreementwiththeargumentadvancedbylearnedStandingCounselforthe appellant-RevenueandalsothefindingsgivenbytheAssessingAuthority.Aperusalofthematerialonrecord,moreparticularlytheorderspassedbythetwofactfindingbodiesnamelyCommissionerofIncometax(Appeals)aswellastheTribunal,wouldshowthatexcepttheselfservingstatementoftheAssessingAuthority,thereisnomaterialtoshowthatthemachinerywasnotinstalledorthattheworkwascarriedoutinitssisterconcerni.e.,M/s.LailaImpex.ThesefindingsoftheAssessingAuthority,inourview,runcontrarytohisownfindings.Ononehandhesaysthatthemachinerywasnotinstalledandontheotherhanditishiscasethatpartofthemanufacturingprocessdidtakeplaceintheunitoftherespondent-assessee.Bethatasitmay,thematerialonrecord,moreparticularlythetaxinvoiceswouldshowthepurchaseofthemachineryandcommencementofthemanufacturingprocessintheunitoftherespondent-assesseewiththeinstallationofnJwlniachinery.Hence,theargumentof thelearnedStandingCounselfortheIncomeTaxthattherewasnomanufacturingprocessatallmaynotbecorrect. 23.TheabovefindingofthisCourtwhichisinconformitywiththefindingsgivenbytheAppellateDeputyCommissionerandtheTribunalwouldshowthattherewassomemanufacturingprocessintheunitoftherespondent-assessee.Atthisstageanobjectioncametoberaisedsayingthatsomemanufacturingmaynotsatisfythe.requirementofSection10-BoftheITActbuttheCourtshaveheldthatitisnotnecessarythatthereshouldbeentiremanufacturingprocesstobedoneintheunitclaimingreliefunderSection10-BoftheITAct.Infact,somestageofmanufacturingprocessofalmostalltheproductstakesplaceoutside.HavingregardtothedecisionsoftheHonTileApexCourtinCITv.UPStateAgroIndustrialCorporationLimited^,MadhyaPradeshHighCourtinCWTv.PremlathaBai^,BombayHighCourtinCITv.PenwaitIndiaLimitetP,SunriseMetalIndustriesv.ITCP,CITv.NeoPharmaPrivateLimited^andthedecisionoftheDelhiHighCourtinCITv.ContinentalEnginesLimited^,itcannotbesaidthattherespondent-assesseeisnotentitledforthebenefit/exemptionunderSection10-BoftheITActandassuch ‘188ITR370(All) 2137ITR329(MP)’196ITR813(Bom)’196ITR813(Bom) 86TTJ298(Mum) 137ITR879(Mum) ®338ITR290(Delhi) 'I s’i thebenefit/exemptionunderSection10-BoftheITActcannotbedeniedtotherespondent-assesseeonthegroundthatentiremanufacturingdidnottakeplaceatitsunit. ‘188ITR370(All) 2137ITR329(MP)’196ITR813(Bom)’196ITR813(Bom) 86TTJ298(Mum) 137ITR879(Mum) ®338ITR290(Delhi) 'I s’i thebenefit/exemptionunderSection10-BoftheITActcannotbedeniedtotherespondent-assesseeonthegroundthatentiremanufacturingdidnottakeplaceatitsunit. 24.Thatbeingtheposition,theotherissueinvolvednamelysupervisionbytheemployeesoftherespondent-assesseeforthemanufacturingdoneintheunitofitssisterconcernM/s.LailaImpexpalesintoinsignificance.Atthisstage,learnedStandingCounselfortheIncomeTaxwouldcontendthatthefindingoftheAssessingAuthoritythatmorethan90%ofthemanufacturingactivity'iscarriedoutonjobworkbasisthroughsub-contractingviolatingtheprovisionsoftheForeignTradePolicywoulddisentitletherespondent-assesseetoanyclaim.moreparticularlyunderSection10-BoftheITAct.LearnedStandingCounselfortheIncomeTaxwouldcontendthattherespondent-assesseeusedthemachineryofM/s.LailaImpexandhasviolatedtheprovisionsofSection10-BoftheITAct,,asitcontemplatesuseofnewrhachineryattheunitoftherespondent-assessee.Exceptanassertionfromtheassessmentordernomaterialisbroughtonrecordtosubstantiatethis.OnthecontrarytheAppellateAuthoritieshav^verifiedthematerialonrecord,invoicesandalsothepaymentsmadeforpurchaseofnewmachinerythroughchequesandthecertificatesissuedbysupervisionbytheemployeesoftherespondent-assesseeforthemanufacturingdoneintheunitofitssisterconcernM/s.LailaImpexpalesintoinsignificance.Atthisstage,learnedStandingCounselfortheIncomeTaxwouldcontendthatthefindingoftheAssessingAuthoritythatmorethan90%ofthemanufacturingactivity'iscarriedoutonjobworkbasisthroughsub-contractingviolatingtheprovisionsoftheForeignTradePolicywoulddisentitletherespondent-assesseetoanyclaim.moreparticularlyunderSection10-BoftheITAct.LearnedStandingCounselfortheIncomeTaxwouldcontendthattherespondent-assesseeusedthemachineryofM/s.LailaImpexandhasviolatedtheprovisionsofSection10-BoftheITAct,,asitcontemplatesuseofnewrhachineryattheunitoftherespondent-assessee.Exceptanassertionfromtheassessmentordernomaterialisbroughtonrecordtosubstantiatethis.OnthecontrarytheAppellateAuthoritieshav^verifiedthematerialonrecord,invoicesandalsothepaymentsmadeforpurchaseofnewmachinerythroughchequesandthecertificatesissuedby theStatutoryauthoritiesevidencinginstallation ofthe machineryhasthuscometotheconclusionthatthe manufacturingprocessinrespectofstages2to6oftheproductdidtakeplaceintheunitoftherespondent-assessee. 25.LearnedStandingCounselfortheIncomeTax,appearingfortheappellant-Revenue,wouldcontendthatthebenefitunderSection10-BofITActismadeapplicableonlytothenewunitsmeaningtherebythatthebenefitunderSection10-BofITActfortheappellant-Revenue,wouldcontendthatthebenefitunderSection10-BofITActismadeapplicableonlytothenewunitsmeaningtherebythatthebenefitunderSection10-BofITAct canbeextendedforaperiodof10yearsfromthedateofitscommencement/institution/installationofmanufacturing.Thesaidfactisnotdisputedevenbylearnedcounselappearingfortherespondent-assessee.Infact,therecordshowsthatthebenefitclaimedwaswithinthefirstyearofitsinstallation.Therefore,wearenotinclinedtoacceptthattheclaimmadewasbeyondtheperiodof10yearsfromthedateofinstallation. 26.Inviewoftheabovecircumstances,I.T.T.ANos.121&192of2017,259of2015and45of2016aredismissed.of2017,259of2015and45of2016aredismissed. 27.InsofarastheotherfourAppealsi.e.,I.T.T.ANos.33086283of2015,106of2016and25of2017areconcerned,thedisputeintheseAppealswasrelatingtothejobworkchargeswherethejobworkchargesshouldbeexoneratedfromtotalil/283of2015,106of2016and25of2017areconcerned,thedisputeintheseAppealswasrelatingtothejobworkchargeswherethejobworkchargesshouldbeexoneratedfromtotalil/ 'I 'I 'I i I ;i 26.Inviewoftheabovecircumstances,I.T.T.ANos.121&192of2017,259of2015and45of2016aredismissed.of2017,259of2015and45of2016aredismissed. 27.InsofarastheotherfourAppealsi.e.,I.T.T.ANos.33086283of2015,106of2016and25of2017areconcerned,thedisputeintheseAppealswasrelatingtothejobworkchargeswherethejobworkchargesshouldbeexoneratedfromtotalil/283of2015,106of2016and25of2017areconcerned,thedisputeintheseAppealswasrelatingtothejobworkchargeswherethejobworkchargesshouldbeexoneratedfromtotalil/ 'I 'I 'I i I ;i turnovertherebymakingitliableforreturnsunderSection10-BoftheITAct.Itistobenotedhereinthatwhileworkingoutpercentageofjobworkwiththemanufacturingexpenses,itwouldincludeentiremanufacturingcostcomprisingoftherawmaterials,chemicalsetc.,moreso,whenentirerawmaterial.chemicalsandpackingmaterialcostisdirectlyincurredbytherespondent-assesseeherein.Inotherwords,theentirematerialispurchasedbytherespondentandgiventoathirdpartyonjobworkbasis.Therefore,whileworkingoutthepercentageofjobworktototalmanufacturingcosts,theentireextentshouldbetakenintoaccount.Asstatedearlieronlythefirststageofmanufacturingprocesswasgiventothesisterconcernoftherespondent-assesseei.e.,M/s.LailaImpex,whileotherstagesofmanufacturingprocessesweredoneinthe.unitoftherespondent-assesseeitself.Sincesub-contractingtheproduction,processonjobworkispermittedasperthejudgmentsreferredtoearlierandintheabsenceofanyspecificclausecontraiytoSection10-BoftheAct,apprehendingthe.outsourcingofthejobwork,wefeelthattherespondent-assesseeisentitledforthebenefiteveninrespectofthejobwork.Hence,thefindingsoftheCommissionerofIncome-Tax(Appeals)andtheTribunalonthisaspectwarrantsno interferenceandaccordinglytheITTANos.330&283of2015, 106of2016and25of2017aredismissed. Asasequel,MiscellaneousApplicationspending,ifany,in'J theseAppealsshallstandclosed. To, SD/-S.V.S.R.MURTHYJOINTREGISTRARSECTIONOFFICER //TRUECOPY// 1..TheIncomeTaxAppellateTribunal,VisakhapatnamBench,Visakhapatnam_T-/AI2.TheCommissionerofIncomeTax(Appeals),Vijayawada.3.TheCommissionerofIncomeTax,CentralCircle-2(1),Vijayawada.4.TheAssistantCommissionerofIncomeTax,Circle-2(2).Vijayawada.5.OneCCtoSmt.M.Kiranmayee,SCforIncomeTax 6.OneCCtoSriK.Vasantkumar,Advocate 7.TwoCDCopiesPsriCnr i^1j j