C.I.T.1,JODHPUR vs. M/S KWAL PRO EXPORTS

Judgment / Order 25/01/2018

the appeal of the assessee for statistical purposes.

articles involving processes of grinding, surface smoothing, chemical dipping, drawing, polishing, packaging etc. amount to manufacture or production of an article so as to make the assessee eligible for exemption under Section 10B of the Income Tax Act, 1961?

one exported by the buyer – appellant are the same. There is no requirement as such in the Rule and Form that the goods so purchased by the buyer appellant has to be exported as such i.e. in the same condition in which it was purchased without any change. Such goods can not he read as the same. The certificate page 14 given by the buyer appellant in Form ST 17B also supports this interpretation wherein the goods purchased by the buyer appellant has to be identified with reference to purchase order no., challan no. Etc. Otherwise also, instead of drawing inference to reach to the conclusion whether the activities tantamount to manufacturing/production, the better course for the authorities below was, to consider the various activates undertaken by the appellant after the purchases of the raw material, which has been discussed in detail in the earlier part. There was no warrant to jump to the provisions of the Sales Tax laws which otherwise do not support the case of the Revenue. We find the contention of the ld. CIT DR contradictory in as much as with regard to the certification by the custom authorities as to the nature of the export of the disputed articles of being of artistic value, whereas by drawing inferences only, it is argued that no activity was carried out and it was a matter of simple purchases. Such an approach of the Revenue is disapproved. We further agree with the contention of the ld. Counsel that the use of the machinery is only to prepare the wood purchased by the appellant with a view to make it fit for further technical steps to be carried out by artisions. It is nothing but a prepatory stage, before handwork is commenced. The machine work is confined to seasoning of wood which normally contains moisture, thickness planning and cutting. Further the objection as regards the short fall of workers the required number i.e. 20 u/s 10BA (2) (e) is also is not factually incorrect. A perusal of copies of the wages registers submitted to AO (PB 23-72) clearly show that there more than 20 workers in any case throughout the year engaged in the manufacturing activities. There apart the other kargirs being paid on piece rate bases are also the person engaged and deserves consideration for this purposes. Even the ld. CIT(A) has also now recorded a finding that the assessee had employed more than 20 workers as required u/s 10BA. The heavy reliance placed by the Revenue on the decision of Kwal Pro Export (supra) is also misplaced in as much as in para 13, the ITAT placed reliance upon the Third Member decision in case of Arihant Tiles & Marbles 104 TTJ 149(JD). However, the same now stands reversed in the case of M/s (Uploaded on 07/08/2023 at 04:07:40 PM) (Downloaded on 28/10/2026 at 12:11:54 AM) (4 of 8)

eligible article u/s 10BA, which is not the case u/s 10B with which Kwal Pro Export (supra) was concerned. Therefore, the said decision can’t be applied being totally distinguishable. It has been held that an incentive provision has to be construed liberally as held in Bajaj Tempo Ltd. v/s CIT 188 ITR 196 (SC). The present case also helps achieving the avowed object. Once the underlying purpose of an enactment is served, there is no reason why the deduction should be restricted on one pretence or other. Recently in CIT vs Baby Marine Exports 160 Taxman 160 (SC), the Hon’ble Supreme Court strongly advocated for a liberal interpretation at pg 168 & 169 vide paras 26 & 27. It Ground No. 2 of the assessee is allowed.”

compared to the word “manufacture”. Further, Parliament itself has taken note of the ground reality and has amended the provisions of the IT Act, 1961 by inserting s. 2(29BA) vide Finance Act, 2009, w.e.f. 1st April, 2009. In the case of Aman Marble Industries Pvt. Ltd. v. 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 hereinabove, 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 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.” 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 hereinabove 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 (Uploaded on 07/08/2023 at 04:07:40 PM) (Downloaded on 28/10/2026 at 12:11:54 AM) (6 of 8)

"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. 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.“ (ii) In Arihant Tiles & Marbles (P) Ltd. vs. ITO (2007) 295 ITR 0148 (Raj.) holding as under:- “We also find that even under the Income Tax Rules, 1962 assessee under Section 44AB read with Rule 6G is required to furnish report of audit of his accounts and also required to furnish statement of particulars in form No. 3CD provided under the Rules which include furnishing information about the nature of business carried on by the assessee in Part B of the Annexure to be appended to the statement of particulars in which the 'marble & granite' has been classified under the manufacturing industry sector. Thus, for the purpose of income tax, under the rules, marble & granite industry has been considered to be manufacturing industry. Under the rules governing the compulsory audit in respect of various businesses also, marble and granite industry has been included in the sector of manufacturing industry. This goes to show that so far as the authorities under the Income Tax entrusted with the task of its implementation are concerned and the framers of the Rules have considered the cutting of marble and granite blocks into slabs and polishing them for bringing them to the stage of usability as an activity of industrial undertaking engaged in manufacture and production of articles or things. Rules framed under the Act are statutory and became part of Statute. Thus (Uploaded on 07/08/2023 at 04:07:40 PM) (Downloaded on 28/10/2026 at 12:11:54 AM) (7 of 8)

under the Scheme of Income Tax Act and Rules framed thereunder for the purpose of said Act cutting and polishing of marble and granite blocks have been held to be an industrial activity of manufacture. As a block, it is not of any use and has been held to be a manufacturing industry for the purpose of Income Tax Act. It may be pertinent to notice that even as per its circular, the Central Board of Direct Taxes (vide Circular No. 729 dt: 1st November, 1995) has considered granite as a mineral, and any process applied makes it valuable marketable commodity. Board has clarified that: The Board is, therefore, of the view that white granite can alone be considered as mineral, any process applied to granite would deprive the quality of rough mineral from the dimensional blocks of granite, which is a value added marketable commodity. As we have already noticed that the interpretation given under Excise Act cannot ipso facto be brought here while interpreting the expression under the Income Tax Act. Apart from that, we find that even under the Central Excise Act, the Legislature quickly intervened and inserted in Chapter XXV Note 6 declaring that process of cutting, sawing, sizing or polishing or any other process of converting block into slabs and tiles shall amount to manufacture. Thus, the activity of cutting marble blocks into slabs under the Central Excise Act too now governed by Statutory provisions, and amounts to manufacturing. The principle aptly applies to present case. Here also, the original commodity namely marble block could not be used for building purposes as such until it is cut into different sizes to be used as building material. It is only by the process of cutting the marble block into slabs and tiles that it is made marketable. The marble block cannot be used for the same purpose as the marble slab or tile can be used and after the marble bock has been cut into different sizes, the end product by putting it simultaneously cannot be used as a block. The principle in Kores India Ltd., case supports the contention of appellant. On parity of reasoning, this principle can be extended to the facts of present case. Marble blocks as a mineral produced from earth by itself is not usable for any purpose, therefore, to make it usable, various processes which could be applied to bring it to that stage would amount to manufacturing. After it has been brought to that stage, further processing it merely for the purpose of making it marketability easy or smooth would not amount to manufacturing process. (Uploaded on 07/08/2023 at 04:07:40 PM) (Downloaded on 28/10/2026 at 12:11:54 AM) (8 of 8)

Accordingly, appeals are allowed and we hold that in the facts and circumstances of the case, conversion of marble blocks into slabs and tiles amounts to manufacture of thing or article within the meaning of Section 80IA/ 80IB of the Income Tax Act and appellant is entitled to claim deduction thereunder.” (iii) In Grace Exports vs. ITO (2012) 254 CTR 0449 (Raj.) wherein it has been held as under:- “The counsel for the appellant-assessee has submitted that the view as taken by the ITAT cannot be sustained for the authoritative pronouncement of the Hon’ble Supreme Court in the case of Income-Tax Officer Vs. Arihant Tiles and Marbles P. Ltd.: (2010) 320 ITR 79 (SC) holding, inter alia, that step-wise activity of cutting marble blocks and converting into the polished slab and titles constitute manufacture or production in terms of Section 80-IA of the Act. The learned counsel for the revenue is not in a position to controvert the submissions so made on behalf of the assessee appellant. Having gone through the decision of the Hon’ble Supreme Court in Arihant Tiles and Marbles (Supra), the view as taken by the ITAT cannot be sustained. Accordingly, the Tribunal was not justified in disallowing the benefit available to the assessee under Section 10- B of the Income Tax Act; and the view as taken by the Tribunal does not stand in conformity with the law declared by the Hon’ble Surpeme Court in the case of Income Tax Officer Vs. M/s Arihant Tiles & Marbles P. Ltd. (2010) 320 ITR 79. Accordingly, the appeal as filed by the revenue before ITAT (ITA No.357/JU/2008) for the assessment year 2004-05 shall stand dismissed as regards the claim under Section 10-B of the Act.”