The Principal Commissioner Of Income Tax, Puducherry-3 v. M/S.dxn Herbal Manufacturingindia Pvt. Ltd., Pondicherry.pin

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 03.6.2019 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.287 of 2019 The Principal Commissioner of Income Tax, Puducherry-3. ...Appellant/Respondent Vs M/s.DXN Herbal ManufacturingIndia Pvt. Ltd., Pondicherry.PIN : 605102. ...Respondent/Appellant APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 13.12.2018 in ITA No.2438/Chny/2014 onthe file of the Income Tax Appellate Tribunal Chennai 'A' Benchfor the assessment year 2010-11 against the Appellate orderpassed by the The Commissioner of Income Tax, (A) (VI), Chennai-34, and against the Assessment order passed by the Asst.Commissioner of Income Tax, pondicherry, dated 27.12.2012 madein PA/GINo.AABCD4141M1A-16. For Appellant : Mrs.K.G.UsharaniFor Respondent : Mr.K.Ravi Judgment was delivered by T.S.SIVAGNANAM,J Heard the learned Standing Counsel for the appellant. 2. This appeal, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act), is directedagainst the order dated 13.12.2018 passed by the Income TaxAppellate Tribunal, Chennai 'A' Bench (for brevity, theTribunal) in ITA No.2438/Chny/2014 for the assessment year2010-11. 3. The Revenue has filed this appeal by raising thefollowing substantial question of law : “Whether the Appellate Tribunal iscorrect in following the High Court'sjudgment of the assessee's own case inTCA.Nos.341 and 342 of 2007 without going https://hcservices.ecourts.gov.in/hcservices/ into the merits where the Department hasfiled SLP(C) Nos.4047 and 5220 of 2019pending before the Hon'ble Supreme Court ?” 4. The Tribunal, by the impugned order, allowed the appealfiled by the respondent – assessee by taking note of the earlierdecision in the case assessee's own case for the assessmentyears 2003-04 and 2004-05 in TCA. Nos.341 and 342 of 2007 dated21.6.2018. In those appeals, the assessee was on appeal beforethis Court as against the orders passed by the Tribunal and thefollowing substantial question of law arose for consideration inthose appeals : “1. In the facts and circumstances ofthe case, whether the Appellate Tribunal wasright in holding that the appellant is notentitled to the claim under u/s. 80IB? 2. In the facts and circumstances ofthe case, whether the Appellate Tribunal wasright in denying the claim made u/s.43B whenin fact the question of the payment itselfwas not disputed ? And 3. In the facts and circumstances ofthe case, whether the Appellate Tribunal wasright in holding that the violation of theprinciples of the natural justice by thelower authorities has not resulting a injuryto the appellant ?” 5. By judgment dated 21.6.2018, a Division Bench of thisCourt, to which, one of us (TSSJ) was a party, allowed theappeals filed by the assessee and the substantial questions oflaw framed for consideration were decided in favour of theassessee. The relevant portions of the said judgment read thus : “16. In our considered view, thedecision of the Division Bench in TCA.No.730of 2015 is an answer to question No.1, whichhas been framed for consideration. In otherwords, unless there is a manufacturing unit,the question of payment of excise duty doesnot arise. For the subsequent years, theassessees claim has been accepted and theRevenues appeals have been dismissed.Therefore,thepetitionersearlierassessment order cannot be sustained. Wesupport this finding with some moreadditional reasons. In the assessment year,the Assessing Officer has culled out theadmitted facts. On perusal of the order, itis seen that the Assessing Officer hasaccepted that the petitioner has obtained “16. In our considered view, thedecision of the Division Bench in TCA.No.730of 2015 is an answer to question No.1, whichhas been framed for consideration. In otherwords, unless there is a manufacturing unit,the question of payment of excise duty doesnot arise. For the subsequent years, theassessees claim has been accepted and theRevenues appeals have been dismissed.Therefore,thepetitionersearlierassessment order cannot be sustained. Wesupport this finding with some moreadditional reasons. In the assessment year,the Assessing Officer has culled out theadmitted facts. On perusal of the order, itis seen that the Assessing Officer hasaccepted that the petitioner has obtained the Central Excise Registration Certificatedated 23.02.2004 for manufacturing ofexcisable goods. Further, it is admittedthat a copy of the return dated 07.12.2005for excisable goods and availment of CENVATcredit for the month of November 2005, tothe Superintendent of Central Excise, RangeII-B was produced. Further the AssessingOfficer states that the return shows that itclassifiedthegoodsunderCETSHNo.3004.90.11, on which excise duty was paidalong with necessary description of receiptsand consumption of principle inputs andfinished products were cleared and waste andscrap arising during process were notcleared, but destroyed. 17. The above factual finding which hasbeen recorded in the Assessment Order andtermed to be a admitted fact is sufficientto hold that the petitioner was engaged inthe manufacturing process and there is alsoproof to show that payment of excise dutywas made by the assessee and consequently,the finding of the Tribunal has to be heldunsustainable. 18. We may note that even as perstatement given by the employee of thepetitioner to the officials of theDepartment when they inspected the unit, theprocess involved in the production activitywas described. The same has been quoted inparagraph No.6 of the order passed by theTribunal, which would clearly show that thebulk powders are filled in the power hopperand the empty gelatine capsules are filledin capsules hopper of semi-automatic fillingmachine, and the filling machine would beoperated by machine operators and it will beset in such a manner to achieve the weightrequired for filing each capsules, that theprescribed weight for RG capsule is 270 mgand GL capasule is 450 mg. During productionprocess, it should be ensured that thetemperature and humidity are within thelimits and the weight of the filled capsulesare within the limit. Simultaneously,quality control would carry out necessarytestslikedisintegrationtest,microbiological test, moisture content test,stability test, weight test parameters and specification test etc, of the filledcapsules, for which, separate records aremaintained in the production department.Thereafter, the capsules are polished andquality check was done in Polishing Section,which also maintains a separate job record.Thereafter sorting and inspection is done,followed by a Quality Check Inspector andpersonnel, who would reject and remove thedefective capsules, after which, theproduct, the sorted out capsules are sent toCounting and Bottling Section, then toLabelling Section, Batch Printing Section,Shrink Pack Section and Packing Section.Further it is stated that all the abovemanufacturing process of each section inproduction shall be done in the specifiedtemperature and humidity as well as qualitycontrol and testing and manufactures as perschedule T of Drugs and Cosmetics Rules,1945. In our view, the statement given bythe employee of the assessee, would in factsubstantiate the stand taken by the assesseewith regard to the manufacturing processadopted by them. Therefore, for such reasonsalso, we hold that no prejudice was causedto the assessee on account of not makingavailable his former employee for cross-examination. 19. We agree that the submissions ofthe learned counsel for the assessee thatthe end product is not the same productwhich was fed into the machines at the firstinstance as it paced in a gelatine capsule,which is consumed by the user. InCommissioner of Income-tax Vs. N.C.Budharaja& Co., reported in [(1993) 70 Taxman 312SC], it was held that the word productionhas wider connotation than the wordmanufacture, while every manufacture can becharacterisedasproduction,everyproduction need not amount to manufacture.It was pointed out that the word productionor produce when used in juxtaposition withthe word manufacture takes in bringing intoexistence new good by a process which may ormay not amount to manufacture. It also takesin all the byproducts, intermediate productsand residual products, which emerge in thecourse of manufacture of goods. In the absence of definition for the word articleas is not defined in the Act or the Rules,it must be understood in its normalconnotation in the sense in which it isunderstood in the commercial world. 20. The assessee specifically contendedbefore the Tribunal that the bulk powdercannot be consumed directly as it may leadto inaccurate intake and the dose may beinfluenced by many factors such as size ofspoon, density of the powder, humidity,degree of setting fluffiness due toagitation and processing pattern. Hence,administration of drug in capsule form isrequired. The assessee also demonstrated thevarious advantages of putting the drug incapsule form and thus submitted, thepreparation of capsule is very importantactivity of the manufacturing process. 21. The Department stated that theassessee was importing bulk mushroom powderand putting it in gelatine capsules. As perthe agreement with the foreign company, theforeign company has exclusive expertise andknow how in respect of the product and theforeign company is fully guarded itself inthe product said to be manufactured by theassessee. 22. Upon hearing all these submissions,the Tribunal came to the conclusion that theactivity does not bring any new article orproduct and the mushroom powder even aftercapsulation remains the same and if it isremoved from the capsule, the mushroompowder emerges out of it. It is not known asto how the Tribunal rendered such a findingas there was no material available beforethe Tribunal that there is no change in thecomposition of the drug on capsulation. Asalready pointed out, the Tribunal gave afinding wholly unsubstantiated by anymaterial that the bulk form of the drug canbe nakedly consume without putting them inan enclosure such as gelatine capsule. It isrelevant to note that the agreement betweenthe assessee and the International parentcompany dated 26.4.2004 states that theIndian Company (assessee) has set up afactory at Pondicherry with an intent to manufacture similar products and hasrequested the foreign company to makeavailable the know-how to the Indian Companyand after negotiations, the foreign companyhas agreed to make available the know how onthe terms and conditions set out in theagreement. The agreement specifically statesthat the foreign company shall supply to theIndian company all materials such as knowhow of materials, such as process sheets,calculation sheets, standards and otherinformation as is necessary to understandthe utilisation of the said know how and toimplement the same in the manufacture of thesaid product. 23. The factual matrix clearlydemonstrates that what has been done by theassessee is manufacture. The decision reliedon by the Revenue in the case of Sacs EaglesChicory Vs. Commissioner of Income Taxreported in [(2003) 255 ITR 178 SC] isdistinguishable on facts as the activitywhich was the subject matter of the saidcase was making powder from chicory rootsand the appeal by the assessee was dismissedas the assessee failed to satisfy the testlaid down in Aspinwall & Co. Ltd., case. Thelearned counsel for the Revenue relied uponthe decision of the Division Bench of thisCourt in Commissioner of Income-tax Vs.Madurai Pandian Engg. Corpn. Ltd., reportedin [(1999) 239 ITR 375 (Madras)]. Thequestion was whether the business of tyreretreading done by the assessee amounts toproduction of a new article and whether theassesseewasentitledtoreliefunder Sections 80J and 80HH of the Act. 24. This Court held that the commonthread which runs in all the decisions isthat only when a new distinct commoditycommercially accepted as such, comes intoexistence as a result of processing, that acommodity can be said to have beenmanufactured and in the said context,retreading of tyres did not result in theproduction of an articles for the purposeof Section 80HH of the Act. The saiddecision is clearly distinguishable onfacts. In the assessees case, the productwhich emerges after the process of manufacture is commercially a distinctcommodity, can be of consumption as suchcontaining a requisite amount of ingredientsin the appropriate percentage, preserved inproper form as contained in the licenceissued under the authorised enactments aswell as the technical logo shared by theforeign company. 25. For the above reasons, the QuestionNo.1 is in favour of the assessee andagainst the Revenue. manufacture is commercially a distinctcommodity, can be of consumption as suchcontaining a requisite amount of ingredientsin the appropriate percentage, preserved inproper form as contained in the licenceissued under the authorised enactments aswell as the technical logo shared by theforeign company. 25. For the above reasons, the QuestionNo.1 is in favour of the assessee andagainst the Revenue. 26. Question No.2 is framed by theorder dated 20.03.2007, is to the effectthat whether ITAT was right in denying theclaim under Section 43B, in fact, thequestion of payment itself was not disputed.The Assessing Officer rejected the claim onthe ground that the payment was not made atthe time of filing the return, but was madeonly during the course of assessment andthat such step could not have taken unlessthe revised return had been filed. To thateffect, the Assessing Officer, referred tothe decision of the Supreme Court in Goetze(India) Ltd., Vs. Commissioner of Income Taxreported in [(2006) 157 Taxman 1 (SC)] andsame was the view taken by CIT(A). However,ITAT proceeded on a slightly differentangle, not on the ground that the petitionerhad not filed the revised return that beingentitled to the claim of the benefitunder Section 43B, i.e., to say, on theground that while the assessee is not in aposition to spell out the nature of theliability, and it was making only verbalargument without stating the nature ofexpenditure and that the assessee has notproduced any order of the Excise Department,through which the liability stated to haveemerged and it also opined that, to availdeduction, the payments are required to beactually paid within the time stipulated tothe proviso to Section 43B of the Act. Inthe previous paragraphs, we have noted theadmitted facts recorded by the AssessingOfficer, which clearly shows the assesseehas availed the CENVAT credit and paid theexcise duty. That apart, the assessee won the case for the subsequent year 2009-2010in T.C.A.No.730 of 2015, which was filed bythe Revenue against the assessee. Thus, thesubstantial question of law No.2 is answeredin favour of the assessee and against theRevenue. 27. This leaves us with only onequestion whether the Appellate Tribunal wasright in holding that violation ofprinciples of the natural justice by thelower authorities has not resulted an injuryto the appellant. The settled legal positionis that every lack of opportunity cannot beconstrued as to be a violation of principleof natural justice. The aggrieved person hasto establish before the court or the forumthat on account of not providing anopportunity to him, he was put to prejudice.In fact, though the assessee took a standthat its former employee should be madeavailable for cross-examination,he contestedthe matter before the Assessing Officer byplacing facts to substantiate their casethat they are engaged in the process ofmanufacturing and excise duty has been paid. 28. Thus, in the absence of any proofproduced to show that the statement obtainedfrom the employee has caused prejudice tothe assessee, the Tribunal has to onlyjustify the decision taken by the AssessingOfficer and CIT(A). We further hold at bestthat the statement given by the formeremployee of the assessee is not conclusiveand it would not bind the assessee.Furthermore, the statement is stated to havebeen recorded at the time of inspection andone can easily perceive the mood in whichthe employee would have been. 29. For the reasons stated in theprevious paragraph, we are of the view thatthe question of law No.3 is answered infavour of the Revenue and against theassessee. 30. Accordingly, these tax case appealsare allowed in part. No costs.” 28. Thus, in the absence of any proofproduced to show that the statement obtainedfrom the employee has caused prejudice tothe assessee, the Tribunal has to onlyjustify the decision taken by the AssessingOfficer and CIT(A). We further hold at bestthat the statement given by the formeremployee of the assessee is not conclusiveand it would not bind the assessee.Furthermore, the statement is stated to havebeen recorded at the time of inspection andone can easily perceive the mood in whichthe employee would have been. 29. For the reasons stated in theprevious paragraph, we are of the view thatthe question of law No.3 is answered infavour of the Revenue and against theassessee. 30. Accordingly, these tax case appealsare allowed in part. No costs.” 6. In the light of the above, this appeal filed by theRevenue is dismissed as being covered by the earlier decisionand the substantial question of law is answered against theRevenue. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'A' Bench.2. The Commissioner of Income Tax, (Appeals-VI,Chennai. 3. The Assistant Commissioner of Income Tax, Pondicherry. +1cc to Mr.T.R.Senthil Kumar, Advocate, SR.No.45016+1cc to Mr.K.Ravi Advocate, SR.No.44840TCA.No.287 of 2019 Kak(11/07/2019)