JHAVERI COATERS (P) LTD. vs. ASSTT. C.I.T.

TAXAP/96/2000HC GujaratGJHC24022616200019 June 2012Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MS. JUSTICE HARSHA DEVANI12 pages
AI SummaryAllowed

What were the facts?

The assessee, Jhaveri Coaters (P) Ltd., filed an appeal against the Income Tax Appellate Tribunal's order dated March 10, 2000. The appeal pertains to assessment year 1995-1996. The assessee claimed deduction under Section 80IA of the Income Tax Act, 1961, on the grounds that it was a small-scale industrial undertaking located in a backward area and engaged in the manufacturing of laminated sacks. The assessee's process involved laminating woven sacks using chemicals, resulting in a new product, laminated HDPE bags, which were suitable for storing chemicals and fertilizers, unlike unlaminated woven sacks. The Assessing Officer and CIT(Appeals) disallowed the claim, holding that the assessee was not manufacturing an article or thing as the raw material did not undergo a substantial change in identity or character.

What did the High Court hold?

The High Court held that the process undertaken by the assessee amounted to manufacturing an article or thing. The Court observed that the semi-finished HDPE woven bags and the laminated HDPE bags were entirely distinct and different products with different uses and market identities. There was a considerable difference in price and quality, with laminated bags being double the cost per kilogram of raw bags. The lamination process insulated the stored materials from adverse effects like porosity and atmospheric influence, making the laminated bags suitable for specific industrial uses, unlike the unlaminated ones. The Court relied on the Apex Court's observations in India Cine Agencies and Emptee Poly-Yarn P. Ltd., which defined manufacture as a transformation of an article into something commercially different, or an operation that renders a commodity fit for a use for which it was otherwise not fit. The Court concluded that the process brought about a structural change in the bags, creating a new product with a different kind of use, and therefore, the assessee was entitled to the deduction under Section 80IA. The orders of the Revenue Authorities and the Tribunal were set aside.

What were the issues?

1. Whether the assessee was manufacturing an article or thing, thereby entitling it to deduction under Section 80IA of the Income Tax Act, 1961? Assessee's Contentions: The assessee argued that the process of laminating woven sacks with chemicals resulted in a new product, laminated HDPE bags, which had a different identity, character, and use compared to the original woven sacks. They emphasized that the laminated bags were suitable for the chemical and fertilizer industry, unlike the porous unlaminated sacks. The assessee relied on expert opinion and judicial pronouncements, including India Cine Agencies v. CIT, Titanor Components Ltd. v. CIT, and CIT v. Emptee Poly-Yarn P. Ltd., to support its claim that the process amounted to manufacturing. They also contended that beneficial provisions like Section 80IA should be liberally construed. Revenue's Contentions: The revenue authorities, including the Assessing Officer and CIT(Appeals), contended that the assessee was not engaged in manufacturing or production of an article or thing. They were of the opinion that the raw material purchased by the assessee did not undergo any substantial change in identity or character, and there was no significant value addition between the raw material and the final product.

Which sections of the Income-tax Act were involved?

Section 80IA,Section 33B

AI-generated summary — verify with the full judgment below

TAXAP/96/2000 1/12 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 96 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI HONOURABLE MS.JUSTICE HARSHA DEVANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= JHAVERI COATERS (P) LTD. - Appellant(s) Versus ASSTT. C.I.T. - Opponent(s) ========================================================= Appearance : MR JP SHAH WITH MR MANISH SHAH for Appellant(s) : 1, MR KM PARIKH for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS.JUSTICE HARSHA DEVANI Date : 19/06/2012 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE AKIL KURESHI)

TAXAP/96/2000 2/12 JUDGMENT

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