The Commissioner Of Income Tax v. M/S. Esquire Translam Industries B-125, Pipdic Industrial Estate, Estate

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 12.07.2010 THE HON'BLE MR.JUSTICE F.M.IBRAHIM KALIFULLAANDTHE HON'BLE MR.JUSTICE M.M.SUNDRESH The Commissioner of Income Tax.. Appellant in bothPondicherry. the appeals/Appellantvs. M/s. Esquire Translam IndustriesB-125, PIPDIC Industrial Estate, Estate .. Respondent in Mettupalayam, Puducherry-605 111. T.C.A.No.546/2010/Respondent M/s. Nexus Transcore IndustriesNo.58, PIPDIC Industrial Estate, EstateMettupalayam, Puducherry-605 009 .. Respondent in T.C.A.No.547/2010/Respondent Prayer: Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961, against the common order of the Income Tax AppellateTribunal, Madras 'B' Bench, dated 26.06.2009 passed in I.T.A.Nos.1940and 1942/Mds/2008 against the order of the Commissioner of Income Tax(Appeals)-XII, 121, Mahatma Gandhi Road, Chennai - 600 034 dated30.6.2008 and made in ITA.Nos.413 and 414 of 2007-08 for theassessment year 2000-01 (T.C.No.546 of 2010) ITA.No.412/07-08 for theassessment year 2005-2006 (T.C.547/2010), and against the order ofJoint Commissioner of Income Tax, Puducherry Range, Puducherry dated31.12.2007 in P.A.No./G.I.No.AAAFE 3510H/4341-E for the assessmentyear 2000-01 (T.C.546/2010) P.A.No/G.I.No.AADFN3406A/N-5195 for theassessment year 2005-2006 respectively (T.C.547 of 2010) (Judgment of the Court was delivered by M.M.SUNDRESH,J.) In view of the common questions of law involved in both theappeals, they have been taken up together for disposal. T.C.(A)No.546 of 2010 pertains to the assessment *year 2000–2001* and T.C. https://hcservices.ecourts.gov.in/hcservices/ (A) No.547 of 2010 pertains to the assessment year 2005–2006respectively. 2. The orders passed by the Assessing Authority holding that thegoods manufactured by the assessees would not cover the entitlementof exemption under Section 80-IB of the Income-tax Act, have beenreversed by the Commissioner of Income Tax (Appeals). Challengingthe same, the Revenue has filed a further appeal to the Tribunal andthe Tribunal, in turn, has confirmed the said orders passed by theCommissioner of Income Tax (Appeals) and hence the present appeals. 3. The Revenue has filed these appeals by formulating thefollowing substantial question of law: "Whether on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in law in holding that the assessee isentitled deduction under Section 80IB of the Act,in respect of CRGO Laminations shall amount toManufacture for the purpose of Section 80IB of theAct, is valid?" 4. It is seen that the assessees were involved in a job work byreceiving the raw materials CRGO Electrical Steel owned by thecustomer and converted them into laminations. The process of the saidmanufacturing operation is extracted hereunder:"5.14.3. ... "We receive raw material CRGO Electrical Steel orsemi-finished CRGO Laminations owned by our customerfor job work purposes. On receipt of such material, itundergoes any of the following manufacturing processesin our factory: 1. Assorting the raw materials as per theirgrade, size, thickness, shapes, electrical properties,etc.2. Slitting/Shearing the Strips/Sheets/Coils tothewidthsrequiredaspercustomer'sSpecifications/Design. 3. Shearing them into various shapes/sizes as percustomer's Specifications/Design.4. Hole-punching/"V" Notching as per the desireddesign.5. Deburring the Edges/Holes/V-Notch.6.Testing/Inspecting the finished materials forits Electrical as well as Physical properties. 7. Stacking/Packing them as per theirShapes/Sizes and Weight as per Customer'sspecifications. In this manner, the raw material/semi finishedmaterial undergoes any of the above processes and thensuch processed material is sent to the customer alongwith the scrap generated during such process. Sincethe raw material is owned by the customer only theabove manufacturing process, comprises our SalesValue". 3. Shearing them into various shapes/sizes as percustomer's Specifications/Design.4. Hole-punching/"V" Notching as per the desireddesign.5. Deburring the Edges/Holes/V-Notch.6.Testing/Inspecting the finished materials forits Electrical as well as Physical properties. 7. Stacking/Packing them as per theirShapes/Sizes and Weight as per Customer'sspecifications. In this manner, the raw material/semi finishedmaterial undergoes any of the above processes and thensuch processed material is sent to the customer alongwith the scrap generated during such process. Sincethe raw material is owned by the customer only theabove manufacturing process, comprises our SalesValue". 5. The Assessing Officer has rejected the claim of the assesseesfor deduction under Section 80-IB of the Act, by holding thatinasmuch as the very same raw material is used for the final productand in view of the admitted position that there is no change in theproduct, it cannot be termed as a new product and therefore, in theabsence of any manufacturing process, the assessees' claim cannot beconsidered. However, the Commissioner of Income Tax (Appeals),considering the above observed process involved in the conversion ofthe raw materials CRGO Electrical Steel into lamination, which is adistinct commercial product, marketable separately from the rawmaterial, has allowed the appeals. 6. The said order of the Commissioner of Income Tax (Appeals)was also confirmed by the Tribunal. A perusal of the operationperformed by the assessees would show that the raw material wasproduced by the customer for job work. Admittedly, the saidmaterial has undergone several processes such as assorting the rawmaterials as per their grade, size, thickness, shapes, electricalproperties etc. and shearing them into various shapes. Apart fromthe same, the process is involved hole punching, testing and stackingthe materials as per their shapes. Therefore, a factual finding hasbeen given by the Commissioner of Income Tax (Appeals) as well asTribunal by holding that the said process of converting the rawmaterial into a new product would amount to manufacturing processentitling the assessee for deduction under Section 80IB of the Act. 7. The issue raised in the present appeals is covered by thejudgment of the Hon'ble Apex Court in India Cine Agencies (308 ITR98), wherein the Apex Court has observed as follows:"Where any particular process is so integrallyconnected with the ultimate production of goods thatbut for that process processing of goods would beimpossible or commercially inexpedient, that process isone in relation to the manufacture. (Collector ofCentral Excise V. Rajasthan State Chemical Works (1991)4 SCC 473)."Manufacture" is a transformation of an article,which is commercially different from the one, which isconverted. The essence of manufacture is the change ofone object to another for the purpose of making itmarketable. The essential point thus is that in 7. The issue raised in the present appeals is covered by thejudgment of the Hon'ble Apex Court in India Cine Agencies (308 ITR98), wherein the Apex Court has observed as follows:"Where any particular process is so integrallyconnected with the ultimate production of goods thatbut for that process processing of goods would beimpossible or commercially inexpedient, that process isone in relation to the manufacture. (Collector ofCentral Excise V. Rajasthan State Chemical Works (1991)4 SCC 473)."Manufacture" is a transformation of an article,which is commercially different from the one, which isconverted. The essence of manufacture is the change ofone object to another for the purpose of making itmarketable. The essential point thus is that in manufacture something is brought into existence, whichis different from that which originally existed in thesense that the thing produced is by itself acommercially different commodity whereas in the caseprocessing it is not necessary to produce acommercially different article. (see Saraswati SugarMills V. Haryana State Board (1992) 1 SCC 418).The prevalent and generally accepted test toascertain that there is "manufacture" is whether thechange or the series of changes brought about by theapplication of processes take the commodity to thepoint where, commercially, it can no longer be regardedas the original commodity but is, instead, recognizedas a distinct and new article that has emerged as aresult of the process. There might be borderline caseswhere either conclusion with equal justification can bereached. Insistence on any sharp or intrinsicdistinction between "processing and manufacture",results in an oversimplification of both and tends toblur their interdependence. (see Ujagar Prints V. Unionof India (1989) 3 SCC 488)." 8. A reading of the said judgment of the Hon'ble Apex Courtwould show that in order to define 'Manufacture', what is sufficientis to find out a different commodity, having distinct name used incharacter emerging from the raw material. In the present case onhand, admittedly, a different commodity has emerged from the rawmaterial supplied by the owner to the assessee. Therefore, applyingthe said ratio laid down by the Hon'ble Apex Court to the facts onhand, we are of the opinion that there is no error in the orderpassed by the Tribunal confirming the factual findings given by theCommissioner of the Income-tax (Appeals). Hence, the question of lawraised is answered against the Revenue and the appeals are dismissed.Consequently, connected M.P.No.1 of 2010 is also dismissed. Sd/Asst.RegistrarDated :26.07.2010 In corporate order to be issuedas per order of this Court dated 14.09.2010in T.C.(A).No.546 & 547/2010 Sd/-Asst. RegistrarDated : 17.09.2010 /true copy/ Sub Asst.Registrar ATR To 1. The Assistant Registrar Income Tax Appellate Tribunal 3rd Floor, Rajaji Bhavan, Besant Nagar, Madras - 90To be substituted2. The Commissioner of Income Tax (Appeals)-XII to the order No.121, Mahathma Gandhi Road, Chennai 600034. already despatchedon 04.08.20103. The Joint Commissioner of Income Tax Puducherry Range, Puducherry.4. The Commissioner of Income Tax, Pondicherry1 cc To Mr.J.Naresh Kumar, Advocate, SR.67681.TC (A) Nos.546 & 547 of 2010PKB(CO)sra 27/07/2010RVL 20.09.2010