THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 vs. M/S FINE LINE CIRCUITS COMPANY

C/TAXAP/460/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 460 of 2019 With R/TAX APPEAL NO. 461 of 2019 With R/TAX APPEAL NO. 462 of 2019 With R/TAX APPEAL NO. 463 of 2019 With R/TAX APPEAL NO. 464 of 2019

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/-

and HONOURABLE MR.JUSTICE A.C. RAO Sd/-

========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 Versus M/S FINE LINE CIRCUITS COMPANY ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 RULE NOT RECD BACK(63) for the Opponent(s) No. 1 ========================================================== Page 1 of 33

C/TAXAP/460/2019 JUDGMENT CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO

Date : 16/09/2019

COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. As the substantial questions of law in all the captioned tax appeals are the same and the assessee is also the same, those were heard analogously and are being disposed of by this common judgment and order. 2. For the sake of convenience, the Tax Appeal No.460 of 2019 is treated as the lead matter. 3. This tax appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal “C” Bench dated 29th November, 2018 in the ITA No.2183/Ahd/2015 for the A.Y.2004-05. 4. This tax appeal was ordered to be admitted on the following substantial questions of law; “(A) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in allowing the deduction u/s.10B of the Act r.w.t. Export of Copper Cladded Glass expoxy Laminate (CCGL) even though the assessee had not carried out any manufacturing activities qua the said product i.e. CCGL? (B) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in allowing the deduction claimed by the assessee u/s. Page 2 of 33

C/TAXAP/460/2019 JUDGMENT 10B of the Act without appreciating the fact that there was no manufacturing activities carried out by the assessee which made it eligible to claim deduction u/s.10B?” 5. The facts giving rise to this appeal may be summarized as under; 5.1 The assessee is a hundred percent export oriented undertaking, having its place of business at Plot No.E-8, GIDC, Manjusar, Savli, District: Vadodara. The assessee has been registered as the EOU in the Kandla Free Trade Zone, State of Gujarat. The return of income was filed by the assessee on 30th October, 2004, declaring the total income of Rs.19,04,308/- along with the audit report in then Form No.3CB and the report under Section 10B of the Act in the Form No.56G. The assessee claimed deduction of Rs.2,83,46,239/- under Section 10B of the Act. 5.2 The assessment under Section 143(3) of the Act was finalized on 29th December, 2006 at the assessed income of Rs.34,49,503/-. While finalizing the assessment proceedings, the claim of the assessee under Section 10B of the Act was restricted to Rs.2,69,73,700/- as against the original claim of Rs.2,83,46,239/-. 5.3 Being aggrieved with the order passed under Section 143(3) of the Act, the assessee preferred an appeal before the CIT (A). The CIT (A)-II, Vadodara, vide order dated 1st February, 2008, affirmed the action of the Assessing Officer and the same was further affirmed by the ITAT vide order passed in the ITA No.1144/Ahd/2008 dated 15th April, 2011. Page 3 of 33

C/TAXAP/460/2019 JUDGMENT 5.4 The survey action under Section 133A(1)(b) of the Act was carried out on 25th March, 2010. In the course of the survey, it was noticed that the assessee was claiming deduction under Section 10B of the Act on the export of the CCGL (Copper Cladded Glass Epoxy Laminate) without undertaking any manufacturing process. It was noticed that the CCGL sheets were being exported, and after cutting them into smaller sheets, those were being repacked and exported. According to the Revenue, the same cannot be termed as any manufacturing process and, in such circumstances, the assessee is not liable to claim deduction under Section 10B of the Act. 5.5 In such circumstances, referred to above, the case was reopened under Section 147 of the Act by issue of notice under Section 148 of the Act dated 8th March, 2011. The assessment under Section 143(3) read with Section 147 was finalized on 14th December, 2011 at a total income of Rs.82,63,600/- restricting the deduction under Section 10B of the Act at Rs.2,21,19,603/- as against Rs.2,83,46,239/- claimed by the assessee in his return of income. 5.6 The assessee preferred an appeal before the CIT (A)-II, Vadodara. The appeal came to be dismissed by the CIT (A) vide order dated 16th August, 2012. 5.7 The assessee went in appeal before the ITAT. The ITAT passed a common order dated 25th June, 2013 for the A.Y.2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. The ITAT restored the issue of sale of CCGL to the file of the Assessing Officer for being examined afresh keeping in mind Page 4 of 33

C/TAXAP/460/2019 JUDGMENT the stance of the Excise Department in respect of the export of the CCGL. It appears that the Assessing Officer passed a fresh assessment order under Section 143(3) read with Section 254 of the Act on 12th May, 2014 at Rs.1,73,72,867/-, thereby disallowing the claim of deduction under Section 10B on the deemed export as well as on the export of the CCGL. 5.8 The assessee went in appeal before the CIT(A). The appeal of the assessee with regard to deduction under Section 10B of the Act came to be allowed by the CIT(A). The Revenue, being dissatisfied with the order passed by the CIT(A), preferred appeal before the ITAT. The ITAT dismissed the appeals preferred by the Revenue and thought fit to grant the deduction under Section 10B of the Act with regard to the export of the CCGL. 5.9 Being dissatisfied with the order passed by the ITAT, the Revenue is here before this Court with this appeal. Submissions on behalf of the Appellant-Revenue: 6. Mr. Varun K. Patel, the learned counsel appearing for the Revenue vehemently submitted that the term “manufacture” implies a change, and every change is not “manufacture”. According to Mr. Patel, all that the assessee is doing is to import the CCGL sheets cut them to a particular size, repack those sheets and, thereafter, export it at a particular place in accordance with the order. According to Mr. Patel, by doing so, it cannot be said that a new and different article having a distinct name, character or use has emerged. According to Mr. Patel, the CCGL sheets retain a continuing substantial identity through the process stage and it cannot be said that the CCGL Page 5 of 33

C/TAXAP/460/2019 JUDGMENT sheets have been manufactured. Mr. Patel, in support of his aforesaid submissions, has placed reliance on the following decisions; “(I) In the case of Deepkiran Foods (P.) Ltd. vs. ACIT, reported in (2014) 361 ITR 437; (II) In the case of Hindustan Poles Corporation vs. Commissioner of C. Ex., Calcutta, reported in 2006 (196) E.L.T 400; (III) In the case of Commissioner of Commercial Tax vs. A.R. Thermosets (Pvt.) Ltd., reported in 2016 (339) E.L.T. 500; (IV) In the case of Nishant Export vs. ACIT, reported in (2018) 401 ITR 401; (V) In the case of Lucky Minerals (P.) Ltd. vs. Commissioner of Income Tax, reported in (2000) 245 ITR 830; (VI) In the case of Aman Marble Industries Pvt. Ltd. vs. Collector of C. Ex. Jaipur, reported in 2003 (157) E.L.T 393; 7. In such circumstances, referred to above, Mr. Patel prays that there being merit in this appeal, the same be allowed and the substantial questions of law, formulated by this Court, may be answered in favour of the Revenue and against the assessee. Submissions on behalf of the Respondent-Assessee 8. On the other hand, this appeal and the connected Page 6 of 33

C/TAXAP/460/2019 JUDGMENT appeals have been vehemently opposed by Mr. B.S. Soparkar, the learned senior counsel appearing for the assessee. Mr. Soparkar would submit that no error, not to speak of any error of law, could be said to have been committed by the ITAT in passing the impugned order. 9. Mr. Soparkar gave us a fair idea as regards the process of manufacture of CCGL. According to Mr. Soparkar, the CCGL sheets undergoes the following process; “(i) Receipt of purchase order from the customers; (ii) Issuance of Job Travel Card for manufacturing, which would include instructions for manufacture as per the specific design and the production process to be deployed. (iii) Job Card goes to the Store Department for identity and issuance of required material to the production department viz. Copper Gladded Glass Epoxy Laminates. (iv) Raw Material is sent to the Shearing Department. (v) The shearing machine is set for the desired size and the laminates are cut into specified sizes decided by the customer. (vi) After shearing, production inspection takes place where laminates are checked for oxidation effect. (vii) A thorough surface clearing is done to remove the oxidation. (viii) The cut pieces of laminates are checked by the Quality Control Department for final inspection. This department verifies various quality parameters like the thickness of material, thickness of copper using Alco Meter (Copper thickness guage), Micrometer, Measuring Tape, Verifier Caliper and Magnifying glass. (ix) Such inspected laminates are packed by the Packing Department. At this stage, the product is called Page 7 of 33

C/TAXAP/460/2019 JUDGMENT as CCGL. The same is registered under the Excise and Kandla

Economic

Zone

as “Sorting/Checking/Clearing/Packing/repacking of Copper Gladded Laminates.” 10. Mr. Soparkar further submitted that his client is paying excise on the manufacturing of the CCGL on domestic sales. He would submit that if it is the case of the Revenue that the activity, referred to above, does not amount to manufacture or production for the purpose of Section 10B of the Act, then the assessee would be free to plead that he is not liable to pay excise duty etc. because the activity does not constitute manufacture. 11. Mr. Soparkar submits that, by process of manufacture, something is produced and brought into existence which is different from that, out of which, it is made, in the sense that the thing produced is, by itself, a commercial commodity capable of being sold or supplied. He would submit that manufacture is the end result of one or more process through which the original commodities are made to pass. The essence of manufacture is the change from one object to another for the purpose of making it marketable. According to Mr. Soparkar, the process through which the CCGL undergoes is a clear indicator that at the end of the process, a new and different commodity could be said to emerge. 12. In such circumstances, referred to above, Mr. Soparkar prays that there being no merit in the appeals preferred by the Revenue, those be dismissed. 13. Mr. Soparkar, in support of his submissions, has placed reliance on the following decisions; Page 8 of 33

C/TAXAP/460/2019 JUDGMENT (I) In the case of Mrs. Delna Rushtam Boyce, (2009) 318 ITR 455;185 Taxman 180 (AAR) New Delhi, wherein the assessee was deriving profit from business of squeezing of juice from fruits and vegetables and etc. was eligible for deduction u/s.80IB of the Act to be holding the same to be manufacturing. (II) In the case of CIT vs. Esquire Translam Industries, (2012) 344 ITR 308; 25 Taxmann.com 98 (Mad.), wherein conversion of electric steel into lamination was held to be manufacturing for the purpose of section 80IB of the Act. (III) In the case of CIT vs. Innovative Industries, (2012) 207 taxman 189 (Mag.); 19 taxmann.com 140 (Guj.), wherein this Court has held that the process undertaken by the assessee in producing air freshner would amount to manufacturing. (IV) In the case of CIT vs. Business Information Processing Services, (2012) 345 ITR 548; (2013) 33 taxmann.com 549 (Raj.), wherein the Rajasthan High Court took the view that the computer data processing and sale of computer stationary amounts to manufacturing. (V) The Punjab & Harayan High Court, in the case of CIT vs. HSED Corporation Ltd., has held that the activity of manufacturing of voter identity card amounts to manufacture. (VI) In the case of CIT vs. Zainab Trading (P.) Ltd., (2011) 333 ITR 144; 200 Taxmann.com 91 (Mag.); 11 taxmann.com 355 (Mad.), the Madras High Court has held that the conversion of paper corrugated sheets into paper boxes was Page 9 of 33

C/TAXAP/460/2019 JUDGMENT held to be manufacturing. (VII) The Supreme Court, in the case of CIT vs. Vinbros & Co., (2012) 210 Taxman 252; 25 taxmann.com 367, has held that blending and bottling Indian manufacture foreign liquor would amount to manufacturing. (VIII) In the case of CIT vs. Emptee PolyYarn (P.) Ltd., (2010) 188 Taxman 188; the Apex Court has held that twisting of yarn amounts to manufacturing. (IX) The Madras High Court, in the case of CIT vs. Balaji Hotels & Enterprises Ltd. (2009) 311 ITR 389; has held that printing of paper labels constitute manufacturing. (X) In the case of India Cine Agencies vs. Dy. CIT, (2012) 210 taxman 253; 25 taxman.com 366; the Supreme Court has held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing. (XI) The Allahbad High Court, in the case of CIT vs. Shiv Oil & Dal Mill, (2006) 281 ITR 221; 153 Taxman 27; has held that refining of oil amounts to manufacturing. (XII) This High Court, in the case of CIT vs. Prabhudas Kishordas Tobacco Products (P.) Ltd., (2006) 282 ITR 568; 154 taxman 404 (Guj.), took the view that even buying tendu lives and tobacco and thereafter making bid amounts to manufacturing. (XIII) The Madras High Court, in the case of CIT vs. Premier Tobacco Packets (P.) Ltd., (2006) 284 ITR 222 (Mad.); has held that Tobacco curing was held to be manufacturing. Page 10 of 33

C/TAXAP/460/2019 JUDGMENT (XIV) The Madras High Court, in the case of CIT vs. P. Damodaran, (2006) 282 ITR 466; has held that cable joining kit is manufacturing. (XV) The Supreme Court, in the case of Vijay Ship Breacking Corpon. vs. CIT, (2009) 314 ITR 309;175 Taxman 77; has held that even ship breaking activity would entitle to deduction u/s.80HH & 80IA of the Act. (XVI) The Karnataka High Court, in the case of CIT vs. Darshak Ltd., (2001) 247 ITR 489; 118 Taxman 863; has held that conversion of plain glass ware into decorative glass were amounts to manufacture. (XVII) The Calcutta High Court, in the case of Addl. CIT vs. A. Mukherjee & Co. (P.) Ltd., (1978) 113 ITR 718; has held that the book publishing activity amounts to manufacturing. (XVIII) The Bombay High Court, in the case of CIT vs. Tata Locomotive & Engg. Co. Ltd. (1968) 68 ITR 325 (Bom.); has held that assembling works amounts to manufacturing. (XIX) In the case of CIT vs. Kanam Latex Industries (P.) Ltd., (1996) 221 ITR 1; 86 Taxman 466 (Ker.), the Court has held that conversion of natural latex into preserved latex amounts to manufacturing. (XX) The Allahbad High Court, in the case of CIT vs. Tarai Development Corpn., (1979) 120 ITR 342; 2 Taxman 359; has held that processing of seeds is a process which amounts to manufacture or production. Page 11 of 33

C/TAXAP/460/2019 JUDGMENT (XXI) The Supreme Court, in the case of ITO vs. Arihant Tiles & Marbels (P.) Ltd., (2010) 320 ITR 79; 186 Taxman 439; has held that conversion of marvels blocks into slabs and tiles amounts to manufacturing. (XXII) The Himachal Pradesh High Court, in the case of CIT vs. Janakraj Bansal, (2010) 329 ITR 417 (HP); has held that conversion of lime stone into lime powder was held to be manufacturing activity. (XXIII) The Madras High Court, in the case of CIT vs. M.R. Gopal, (1965) 58 ITR 598 (Mad.); has held that the conversion of boulders into stones is a manufacturing. (XXIV) The Rajasthan High Court, in the case of Poonam Chand Prem Raj vs. CIT, (1994) 207 ITR 895; 74 Taxman 521 (Raj.) has held that ginning of cotton is process, thus entitled to deduction. ANALYSIS 14. We have already given a fair idea of the process through which the CCGL undergoes. The Supreme Court in India Cine Agencies vs. Commissioner of Income-Tax, Madras, (2009) 308 ITR 98 (SC) has, in details, clarified the position of law on the subject. In the case before the Supreme Court, the assessee was carrying on business of conversion of jumbo Rolls of photographic films into small flats and rolls in the desired sizes. The assessee claimed deductions under Section 32AB, 80HH and 80-I of the Act. The lower authorities disallowed the claim of the assessee on the ground that the Page 12 of 33

C/TAXAP/460/2019 JUDGMENT activity undertaken by it was neither manufacture nor production. The High Court of Madras also held that in any event because of Item 10 of the Eleventh Schedule of the Act, no deduction was permissible. The Supreme Court has observed as under; “3. In Black's Law Dictionary, (5th Edition), the word `manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Coco Fibres (1992 Supp. (1) SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in Page 13 of 33

C/TAXAP/460/2019 JUDGMENT manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works,

Deedwana, Rajasthan

(1991 (4) SCC 473). 5. `Manufacture' is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that, in manufacture something is brought into existence, which is different from that, which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. (See M/s. Saraswati Sugar Mills and others v. Haryana State Board and others (1992 (1) SCC 418). 6. The prevalent and generally accepted test to ascertain that there is `manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between `processing and manufacture', results in an oversimplification of both and tends to blur their interdependence. (See Ujagar Prints v. Union of India (1989 (3) SCC 488). 7. To put it differently, the test to determine whether a particular activity amounts to `manufacture' or not is: Does a new and different good emerge having distinctive Page 14 of 33

C/TAXAP/460/2019 JUDGMENT name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes `manufacture' takes place and liability to duty is attracted. Etymologically the word `manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India (1985 (3) SCC 314). 8. The aforesaid aspects were highlighted in Kores India Ltd., Chennai v. Commissioner of Central Excise, Chennai (2005 (1) SCC 385) in the background of Central Excise Act, 1944 (in short the `Excise Act') and Central Excise Rules, 1944 (in short the `Excise Rules') and Central Excise Tariff Act, 1985 (in short the `Tariff Act'). The stand of the revenue was that it amounted to "manufacture", contrary to what has been pleaded in these cases. This Court held that it amounted to manufacture. 9. The matter can be looked at from another angle. In Commissioner of Income Tax v. Sesa Goa Ltd. (2004 (271) ITR 331) this Court considered the meaning of word `production'. The issue in that case was whether the extraction and processing of iron ore amounted to manufacture or not in view of the various processes involved and the various processes would involve production within the meaning of Section 32A of the Act. It was inter alia observed as under: "There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after March 31, 1976, in the assessee's industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. -The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to Page 15 of 33

C/TAXAP/460/2019 JUDGMENT "production" and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996) 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 TTR 185 and CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P.) Ltd, [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word "Production", albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". From the wide definition of the word "production", it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word "production" since ore is "a thing", which is the result of human activity or effort. It has also been held by this court in CIT v. N.C. Budharaja and Co. [1993] 204 ITR 412 that the word "production" is much wider than the word "manufacture". It was said (page 423) : "The word `production' has a wider connotation than the word `manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture . The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and reside rodeos which emerge in the course of manufacture of goods." 10. In "Words and Phrases" 2nd Edn. by Justice R. P. Sethi the expressions `produce' and `production' are described as under: Page 16 of 33

C/TAXAP/460/2019 JUDGMENT "In Webster's New International Dictionary, the word "produce" means something that is brought forth either naturally or as a result of effort and work; a result produced. In Black's Law Dictionary, the meaning of the word `produce' is to `bring into view or notice; to bring to surface'. A reading of the aforesaid dictionary meanings of the word `produce' does indicate that if a living creature is brought forth, it can be said that it is produced. (See Commissioner of Income Tax v. Venkateswara Hatcheries (P) Ltd. (1999 (3) SCC 632), Commissioner of Income Tax, Orissa and Ors. v. M/s N.C. Budharaja and Company and Ors. (1994 Supp 1 SCC 280). Production or produce- The word `production' or `produce' when used in juxtaposition with the word `manufacture' takes in bringing into existence new goods by a process, which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products, which emerge in the course of manufacture of goods. The expressions `manufacture' and `produce' are normally associated with movables articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road and a building. (See Moti Laminates Pvt. Ltd. and Anr. v. Collector of Central Excise, Ahmedabad (1995 (3) SCC 23). “ 11. In Advanced Law Lexicon, 3rd Edn. by P. Ramanatha Aiyar, the expressions `production' and `manufacture' are described as under: "'Production' with its grammatical variations and cognate expressions; includes- (i) packing, labeling, relabelling of containers. (ii) re-packing from bulk packages to retail packages, and (iii) the adoption of any other method to render the product marketable. `Production' in relation to a feature film, includes any of the activities in respect of the making thereof. (Cine Workers and Cinema Theatre Workers (Regulations of Employment) Act (50 of 1981) S.2(i). The word `production' may designate as well a thing produced as the operation of producing; (as) production Page 17 of 33

C/TAXAP/460/2019 JUDGMENT of commodities or the production of a witness. `Manufacture' includes any art, process or manner of producing, preparing or making an article and also any article prepared or produced by manufacture. (Patent and Designs Act (2 of 1911), S.2(10). `Manufacture' includes any process- (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, or, and the word `manufacturer' shall be constructed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacturer on his own account. (iii) which is specified in relation to any goods by the Central Government by notification in the Official Gazette as amounting to manufacture. (Central Excise Act (1 of 1944) S.2(f)) 12. The matter can yet be looked from another angle. If there was no manufacturing activity, then the question of referring to Item 10 of the Eleventh Schedule for the purpose of exclusion does not arise. The Eleventh Schedule, which was inserted by Finance (No.2) Act, 1977 w.e.f. 1.4.1978 has reference to Sections 32A, 32AB, 80CC (3)(a)(i), 80-I(2), 80J(4) and 88A (3)(a)(i) of the Act.“ 15. The aforesaid decision of the Supreme Court is a complete answer to the principal argument of Mr. Patel, the learned counsel appearing on behalf of the Revenue. The essence of manufacture is the change of one object to another for the purpose of making it marketable. As held by the Supreme Court in India Cine Agencies (supra) that the essential point is that, in manufacture, something is brought into existence which is different from that which originally Page 18 of 33

C/TAXAP/460/2019 JUDGMENT existed, in the sense that the thing produced is, by itself, a commercially different commodity, whereas in the case of processing, it is not necessary to produce a commercially different article. It is the cumulative effect of the various processes, to which, the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. 16. It appears that in the case on hand, the raw material is first sent to the shearing department. The shearing machine is set for the desired size and the laminates are cut into the specified sizes as required by the customer. The laminates are, thereafter, checked for the oxidation effect. A thorough surface clearing is done to remove the oxidation. The Quality Control Department, thereafter, would verify the quality parameters like the thickness of the material, thickness of copper using Alco Meter etc.. At the end of the entire process, the final product is called as CCGL. 17. At this stage, we may also look into the findings recorded by the ITAT in its impugned order. “The facts of the case ITAT, Ahmedabad vide combined order dated 25.06.2013 for A.Y.2004-05, 2005-06, 2006- 07, 2007-08 & 2008-09 discussed the issue of 'manufacture' at length and has restored the issue of sale of CCGL to the file AO to examine afresh the exact position of the Excise Department in respect of CCGL Export. The relevant portion of the ITAT order is reproduced under: We have heard both the sides. We have also perused the material place before us. According to us, this technical Page 19 of 33

C/TAXAP/460/2019 JUDGMENT question about the manufacturing activity cannot be decided merely on the basis of certain documentation. To appreciate the correct factual position, it is always advisable to personally watch the process of manufacturing, if possible. Due to certain procedural duplicates as also paucity of time, it is not possible for a Revenue Officer to personally visit and in respect the manufacturing unit so as to understand the manufacturing activity. Therefore, this type of issue remains a matter of controversy, however, while looking at the second stage of appeal we have to depend the factual findings of the lower authorities as also the document place before us. In the present case on analyzing all these materials. We have noticed that CCGL has been purchased by the assessee stated to be in long sheet. The CCGL sheets were cleaned by removing the Oxidization effect. Upto this stage mere cleaning process thus can not be termed as manufacturing activity, therefore, we are with the argument of learned DR that the removing of the oxidation effect was nothing but 'processing'. Therefore, as per the assessee's claim, those CCGL sheets have been cut into various small sizes. That fact has not been clearly established even through documents provided by the assessee. The reason of ambiguity is the description mentioned in the sales invoices. The sale invoices have mentioned the product sold as “Copper Clodded Glass Epoxy Laminates”. Simultaneously the finding of the A0 on inquiry was that the raw material was also the same i.e.. “Copper Clodded Glass Epoxy Laminates”. The A0 has also examined the description of the alleged raw material purchased by the assessee. He has found that the purchases were made from ISOLA Laminate System Co. Ltd., China and Nauya Plastic Co,, Taiwan. The CCGL was, therefore, imported and as per the description, as also, as per the allegation of the A0, there was no change in the product purchased and thereafter sold. 0n the other hand, the assessee has vehemently contested that after the manufacturing process the said product was subjected to excise duty. In respect of this contention now before us-Form A.R.E-I is placed. This is an application or removal of excisable goods for export. The AR has therefore contested that because of the manufacturing activity the excise was levied on the goods exported. However, the basis on which the excise was levied on the product exported has not been Page 20 of 33

C/TAXAP/460/2019 JUDGMENT clarified. In fact, the assessee is required to clearly specify the specification of the CCGL sheets purchased. The specification such as size of the sheets surface of the sheets and thickness of the sheets are the subject matter of scrutiny. In this regard, an Inspection report can also be procured from a specialized person. The Inspection report which is not part at the matter book only mentioned that oxidation was done on the sheet. Meaning thereby the product in question has only passed the test of cleanliness As we have opined, the process of oxidization can only be held as “processing” and not “manufacturing”. an another argument has been raised that, a Central Excise Department has given a registration certificate to the assessee. It has also been mentioned that a certificate has been issued by Kandla Special Zone, Gandhinagar. In this regard, we have noted that there is no denial of fact that the assessee as a whole in a manufacturing unit because a deduction was claimed in respect of the items manufactured of Rs. 1,67,47,045/-. But the dispute is only in respect of those sale which have not undergone manufacturing process. Even this argument is not very convincing that the product in question was an intermediary product manufactured by the assessee. In this regard, the Hon’ble Kerala High Court (supra) has examined the process of Lyre manufacturing and then arrived at the finding of fact that the said intermediary was manufactured from which the lyres were manufactured. As far as the present factual position is concerned we are unable to give such a finding unless and until the correct factual position in respect of the assessee, is placed on record. Even in the case of National Laminate Industries (supra), the respected third member has identified the original commodity and the commodity found to be manufactured by the said appellant. A clear cut finding was given that there was a transformation into a new commodity which was commercially known as distinct and separate commodity having its own character, use and name, rather, the respected third member has given a finding that the identity of the original commodity had ceased to exist. It was also held that the commodity which was manufactured and came into existence had meant for a separate purpose. As per the said judgment; in the manufacturing procedure, certain changes take place and the original commodity thus no longer be regarded as a manufacture commodity. 0n the other Page 21 of 33

C/TAXAP/460/2019 JUDGMENT hand, the main case of the Revenue Department is that allegedly no such change had taken place, therefore, the original commodity remain unchanged. However, a question has yet to be answered that how another Government Department has treated the sale of CCGL? For this limited purpose, we deem it proper, as also justifiable, to restore this issue back to the stage of AO to examine afresh the exact position of the Excise Department in respect of CCGL export.” 18. It goes without saying that the change or the series of changes brought about by the application of the process explained above, the commodity in the form of CCGL can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that is emerged as a result of the process. 19. The Supreme Court, in Income Tax Officer, Udaipur vs. Arihant Tiles & Marbles (P.) Ltd., (2010) 320 ITR 79 (SC), has observed as under; “13. In the case of Aman Marble Industries Pvt. Ltd. vs. Collector of Central Excise, reported in 157 ELT 393 (SC), the question that arose for consideration was whether cutting of marble blocks into marble slabs amounted to manufacture for the purposes of Central Excise Act. At the outset, we may point out that in the present case, we are not only concerned with the word "manufacture", but we are also concerned with the connotation of the word "production" in Section 80IA of the Income Tax Act, 1961, which, as stated herein-above, has a wider meaning as compared to the word "manufacture". Further, when one refers to the word "production", it means manufacture plus something in addition thereto. The word "production" was not under consideration before this Court in the case of Aman Marble Industries Pvt. Ltd. (supra). Be that as it may, in that case, it was held that "cutting" of marble blocks into slabs per se did not amount to "manufacture". This conclusion was based on the observations made by this court in the case of Rajasthan State Electricity Board (supra). In our view, the Page 22 of 33

C/TAXAP/460/2019 JUDGMENT judgment of this Court in Aman Marble Industries Pvt. Ltd. (supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the Excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture. 14. In the present case, we have extracted in detail the process undertaken by each of the respondents before us. In the present case, we are not concerned only with cutting of marble blocks into slabs. In the present case we are also concerned with the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated herein- above is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of "manufacture" or "production" under Section 80IA of the Income Tax Act. As stated herein- above, the judgment of this Court in Aman Marble Industries Pvt. Ltd. was not required to construe the word "production" in addition to the word "manufacture". One has to examine the scheme of the Act also while deciding the question as to whether the activity constitutes manufacture or production. Therefore, looking to the nature of the activity stepwise, we are of the view that the subject activity certainly constitutes "manufacture or production" in terms of Section 80IA. In this connection, our view is also fortified by the following judgments of this Court which have been fairly pointed out to us by learned counsel appearing for the Department. In the case of Commissioner of Income Tax vs. Sesa Goa Ltd., reported in (2004) 271 ITR 331 (SC), the meaning of the word "production" came up for consideration. The question which came before this Court was whether the ITAT was justified in holding that the assessee was entitled to deduction under Section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee was engaged in extraction and processing of iron ore, not amounting to Page 23 of 33

C/TAXAP/460/2019 JUDGMENT manufacture or production of any article or thing. The High Court in that case, while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore did not amount to "manufacture". However, it came to the conclusion that extraction of iron ore and the various processes would involve "production" within the meaning of Section 32A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product. The view expressed by the High Court that the activity in question constituted "production" has been affirmed by this Court in Sesa Goa's case saying that the High Court's opinion was unimpeachable. It was held by this Court that the word "production" is wider in ambit and it has a wider connotation than the word "manufacture". It was held that while every manufacture can constitute production, every production did not amount to manufacture. 16. In our view, applying the tests laid down by this Court in Sesa Goa's case (supra) and applying it to the activities undertaken by the respondents herein, reproduced herein-above), it is clear that the said activities would come within the meaning of the word "production". 17. One more aspect needs to be highlighted. By the said judgment, this Court affirmed the decision of the Karnataka High Court in the case of Commissioner of Income Tax vs. Mysore Minerals Ltd, (2001) 250 ITR 725 (Kar). 18. In the case of Commissioner of Income Tax Vs. N.C. Budharaja & Co., reported in (1993) 204 ITR 412 (SC), the question which arose for determination before this Court was whether construction of a dam to store water (reservoir) can be characterised as amounting to manufacturing or producing an article. It was held that the word "manufacture" and the word "production" have received extensive judicial attention both under the Income Tax as well as under the Central Excise and the Sales Tax laws. The test for determining whether "manufacture" can be said to have taken place is Page 24 of 33

C/TAXAP/460/2019 JUDGMENT whether the commodity, which is subjected to a process can no longer be regarded as the original commodity but is recognised in trade as a new and distinct commodity. The word "production", when used in juxtaposition with the word "manufacture", takes in bringing into existence new goods by a process which may or may not amount to manufacture. The word "production" takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. 19. Applying the above tests laid down by this Court in Budharaja's case (supra) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961. 20. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognised by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961. “ Page 25 of 33

C/TAXAP/460/2019 JUDGMENT 20. The Supreme Court in Aspinwall & Co. Ltd. vs. Commissioner of Income Tax, (2001) 251 ITR 323 (SC), has observed as under; “11. The short point for consideration is whether the High Court was right in coming to the conclusion that the assessee was not involved in any manufacturing or production activity in the process of curing the coffee. 12. The word manufacture has not been defined in the Act. In the absence of a definition of the word manufacture it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity. 13. This Court while determining as to what would amount to a manufacturing activity held in Deputy Commissioner of Sales Tax v. M/s. Pio Food Packers, 1980 Supp. SCC 174: that the test for determination whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognized in the trade as a new and distinct commodity. It was observed: “Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. “ 14. Adverting to facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee Page 26 of 33

C/TAXAP/460/2019 JUDGMENT beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognized in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product. 15. Submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 16. For the reasons stated above, we are of the opinion that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans ready for consumption would not be a manufacturing activity disentitling the assessee to the investment allowance provided under Section 32A of the Act. “ 21. A Coordinate Bench of this Court in the case of Commissioner of Income Tax vs. Alfa Lamination, (2010) 329 ITR 348 (Guj.), has observed as under; “There is no dispute on facts, in as much as it is an accepted position between the parties that the assessee Company is engaged in making CRGO Core Lamination or Transformer Core, a vital component of various kinds and types of transformers used in power distribution. As already noted, the Core Lamination is made by using the raw material known as CRGO/CRNO. The majority has recorded the following processes as being involved in making of Core Lamination after purchasing CRGO/CRNO coils and/or sheets. Page 27 of 33

C/TAXAP/460/2019 JUDGMENT I SITTING : Slitting process a high precision computerized constitutes the first important manufacturing activity and fundamental in order to obtain the final product. The quality and accuracy of the process, largely determines the quality of the final product. The slitting is done on the slitting lines (machines) maintaining 'two loops' system which ensures that the grains are not strained or stretched during the process. The loop before and after slitting also ensure the paralleblity of the slits and minimum edge camber to prevent roughness on the edges. All the slitting blades are made of fully hardened and ground alloy steel to ensure sharpness and durability particularly to remove camber (waviness), is taken to keep the edge burr under control, within the specific tolerances. II SHEARING : The second stage of the process is Shearing at 45' or 90' as required by the customers. Strict tolerances are maintained and a unique three point location method to ensure accuracy in dimension in terms of angle and length. Burrs are controlled by ensuring the blades are always sharp. Continues line inspection exists to ensure that all parameter are strictly maintained within the acceptable limits. III-V NOTCHING : The third and important step of the manufacturing process is the requirement of V-Notch which is per the customer's design and position of centre limbs. Accuracy is of utmost importance during individual V-Notching operations. During step lap, the size and position of V-Notch will differ due to different sizes of plates. IV-PUNCHING AND HOLDING: The fourth step of the process is known as Punching and Holing of limbs and plates. As per customer's drawings and cutting instructions holes are punched on to the yoke plates. The yoke plates are kept under the holing power press machines to achieve the desired position of holes. The position of holes may even be off centre with respect to the longitudinal axis of the limb. During step lap, punching of holes varies according to different sizes of plates. These holes are utilized during bolting and assembling the core lamination. All Limbs/Plates or Laminations: After the above processes, physically all the limbs or plates are prepared, however every single and individual plate is yet to be further processed to restore or improve its quality characteristics. V-ANNEALING : The fifth and one of the most important step of the process is the annealing process. This process is undertaken to de-burr and relieve the stress and strains on Page 28 of 33

C/TAXAP/460/2019 JUDGMENT the limbs / plates through a roller hearth annealing furnace, CRGO electrical steel and core laminations develop stress, strains and burrs during shipment transit and processing which affects its quality. Annealing process is down as per the mill's specification at a temperature of 820' for 72 to 90 seconds depending upon the thickness and grade of material. This process of annealing is to restore and improve the magnetic and electrical properties of lamination. VI-TESTING OF LAMINATION : After annealing, the laminations are physically inspected for technical details. They are verified to ensure that they are as per customer's drawings and specifications. Key aspects like length, width, thickness, mitering, holing, notching and physical appearances are verified and examined during this process. The verification is done by experienced and skilled quality executives. To certify and verify that the annealing process has restored or improved the magnetic and electrical properties of the lamination, a test is conducted. The Franklin power supply unit measures the surface insulation of the lamination and the Epstein tester iron loss tester measures the core/iron loss in the lamination. The quality and technical staff ensures that the lamination is as per its technical details. Certificates are prepared and issued by quality department as per the results. VII-CORE STACKING : The core laminations are stacked as per customer's specification. The laminations are stacked in such a fashion that minimum manhandling is occurred while assembling / packaging or transporting the core. Due to the large sizes of core laminations of power transformers, they stacked and directly sent to packaging department for packaging and forwarding. VIII-CORE ASSEMBLY : The transformer laminations for distribution transformers are assembled and built to form an assembled transformer core. Drawings, specifications and details are provided by the customers. The supporting utilities to build the core lamination are also supplied by the customers which include iron channels, iron rods of various sizes, nuts and bolts, insulation tape, craft paper, resins etc. All the limbs/plates are interleaved in mitered joints in order to facilitate the passage of the magnetic/electrical flux and to avoid hot spots and reduce no load losses, no load current and low noise level. Highly experienced, professional and trained personnels are employed to assemble the transformer core. The personnels practice utmost care during building the core and ensure that stacking factor, building, window height, air gapping and other technical aspects are within technical limitations / details. Page 29 of 33

C/TAXAP/460/2019 JUDGMENT IX-TESTING OF ASSEMBLED CORE : After assembling and building the core, it is mandatory to test and certify the no load losses of the built core. EMCO no load tester measures and ensures that its technical results are within standard limits specified in customer's drawings. The technical staff and testing laboratory are fully equipped to detect and rectify any lapse in the built core. Certificates are prepared by quality department. X-PACKAGING AND FORWARDING : For packing the assembled cores, the whole core is horizontally laid down onto wooded skids then securely wrapped with jute cloth and plastic covers. The core is then strapped tightly to the skids/pallets with steel straps. For packing stacked core laminations, individual limbs/ laminations are packed separately with jute cloth and plastic wrappers, further they are strapped tightly onto wooden skids/pallets. Strapping the final product onto wooden skids ensures and prevents any damaged or disturbance to the material during transportation. Packing lists provided to customers. The Packaging department follows the Pyramid style of packing the laminations which is advantageous during core assembly. 9. Admittedly, the majority opinion has recorded that the aforesaid activities in cases of some assessees are without the process of annealing but the said fact by itself does not make any difference. The majority opinion, as expressed by the Third Member, in his order, reads as under: .... Looking to these facts, there cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes. I also find that there was no dispute that the raw material from which the core is made is called CRGO coils whereas the item which has emerged after various processes is called transformer core. It is also undisputed position that the CRGO coils even with few processes cannot be used in a transformer unless all the processes were complete. It is the transformer core only which is end product which could be used in the manufacturing of transformer. Thus there cannot be any dispute that due to various processes the product has distinct name, shape and uses. By these processes the raw material loses its identity and new product comes into existence which is commercially recognized as a new product. 45. I have, therefore, examined as to whether out of various processes performed by the assessees it could be said that the manufacture of transporter core has taken place. I find Page 30 of 33

C/TAXAP/460/2019 JUDGMENT that during the course of assessment proceedings as well as appellate proceedings, the experts opinion from SAIL, VJTI & ERDA was filed. These institutions are well recognized institutions in the technical fields. Once technical opinion from them was filed the same should have been considered on its merits. Though the opinion expressed by them was not sacrosanct yet once the same was filed, the same should be accepted or rejected on merits. I have also perused the opinion given by them in the forms of question and answer also. In their opinion they have confirmed that various activities performed by the assessees for making the transformer core was manufacturing activity. Nothing has been brought to my notice to take a different view in this regard. 10. Thus, the findings of facts, after appreciation of evidence on record, by the Tribunal are that CRGO coils even with a few processes, out of all the processes enumerated hereinabove, cannot be used in a transformer unless all the processes were completed. That after completion of all the processes, CRGO/CRNO coils get converted into transformer core which is the end product which can be used in manufacture of transformer. There is no dispute that due to various processes, the end product, which is an input for the purpose of manufacturing transformer, has a distinct name, shape and use. After the raw-material in the form of CRGO/CRNO Coils and/or sheets goes through all the aforesaid processes, the raw-material looses its identity and a new product comes into existence which is commercially distinct from raw-material on which the processes have been performed. The Tribunal has further referred to various opinions of different experts on the subject and recorded that such technical opinions should be considered on merits, and though not sacrosanct, either the same should be accepted or rejected on merits, but cannot be ignored. That the experts have opined that various activities performed by the assessee for making the transformer core amount to manufacturing activities and nothing was pointed out to take a different view, i.e. different from the view expressed by the experts. 11. In light of the aforesaid findings of facts recorded by majority of the members of the Tribunal, the Court is of the opinion that it cannot be said that any substantial question of law is involved. Whether a particular activity amounts to manufacture or not would always be a question dependent upon the facts and evidence on record and would be based on the facts of each case. The only issue which would call for an inquiry is as to whether correct tests have been applied after finding the facts on record. The tests to ascertain whether an Page 31 of 33

C/TAXAP/460/2019 JUDGMENT activity amounts to manufacture or production of an article or thing have been laid down and reiterated by various decisions of the Apex Court and this High Court. Broadly, the requirement is that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end-product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw material should go in as inputs in the process of manufacture and the result must be manufacture of other goods. The article produced must be regarded by the trade as a new and distinct article having an identity of its own, an independent market after the commodity is subjected to the process of manufacture. The nature and extent of the process would vary from case to case, and in a given case, there may be only one stage of processing, while in another case, there may be several stages of processing, and perhaps, a different kind of process at every stage. That with every process, the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, that it can be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final product does not retain the identity of the raw material after it has undergone the process or processes of manufacture. [(2006) 282 ITR 568 (Guj.). 12. Applying the aforesaid tests to the facts found by the Tribunal, it is not possible to come to the conclusion that any legal infirmity exists in the impugned order of the Tribunal so as to give rise to substantial question of law. The Court is also of the opinion that in a case where the subject matter involves technical issue and opinion of technical experts in the field have been placed on record, unless and until such opinion of an expert is dislodged by placing on record a contrary opinion and giving an opportunity to the expert to deal with such contrary opinion, and thereafter examining the expert on the said issue, it would not be correct to discard such an opinion summarily. In fact, the Court and the Tribunal, or any other forum for that matter, would be wholly ill-equipped to deal with such technical opinion on merits and should refrain from undertaking such an exercise without following the aforesaid procedure. The Tribunal has in the circumstances rightly, while recording majority opinion, given due credence to the opinion of the technical experts of the field.” 22. We have also looked into the six decisions relied upon on behalf of the Revenue. However, all the six decisions are Page 32 of 33

C/TAXAP/460/2019 JUDGMENT distinguishable on facts. In our opinion, they are of no avail to the Revenue. 23. Having regard to the concurrent findings of fact recorded by the two revenue authorities, and also in view of the aforesaid discussion, we are of the view that no error, not to speak of any error of law, could be said to have been committed by the Appellate Tribunal in passing the impugned order. We would not like to disturb the order passed by the ITAT. 24. In the result, all the appeals fail and are hereby dismissed. The questions of law, as framed, are answered against the Revenue and in favour of the assessee. (J. B. PARDIWALA, J) (A. C. RAO, J) Vahid Page 33 of 33