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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned orders dated 12/11/2012 (Assessment Year 2009-10) and 17/10/2013 (Assessment Year 2010-11) of the ld. First Appellate Authority, Mumbai. The only ground raised in both the appeals pertains to allowing deduction u/s 80IC of the Income Tax Act, 1961 (hereinafter the Act).
2. During hearing, the ld. DR, Ms. Lata Sundar advanced her arguments, which are identical to the ground raised by contending that the ld. First Appellate Authority, while granting relief to the assessee, overlooked the conditions enshrined in section 80IC, which were not fulfilled by the assessee. On the other hand, Shri Deepak P Tikekar, ld. counsel for the assessee, defended the conclusion arrived at in the impugned order.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee, an individual, is a proprietor of M/s. Organochem Products (HP) at Parwanoo in the state of Himachal Pradesh. The concern of the assessee is engaged in manufacturing and sale of nutritional food supplements, agro products and veterinary feed supplements, etc. The assessee claimed Rs.2,55,90,230/- as deduction u/s 80IC of the Act, in 3 Shri Ulhas Gopal Karle respect of profit earned from manufacturing activities. The ld. Assessing Officer disallowed the claimed deduction on following grounds:-
(a) That there is no manufacturing activity carried out by the assessee as the assessee is merely mixing up the ingredients/raw material.
(b) The enterprise is formed by splitting up or reconstruction of an existing business and thus, has not fulfilled the conditions provided for claiming deduction u/s 80IC of the Act.
In view of the above, the ld. Assessing Officer disallowed the claimed deduction u/s 80IC of the Act by observing that the assessee is merely mixes various ingredients, required for final products, with the help of machineries and the final product/finish product is filled in pouches, thus, no manufacturing process in involved, thereby the assessee is not entitled for the claimed deduction.
2.2. On appeal before the ld. Commissioner of Income Tax (Appeals), the claim of the assessee was allowed and the whole process was held to be manufacturing, against which the Revenue is aggrieved and is in appeal before this Tribunal.
Since, identical issues are involved in both the appeals, therefore, these can be disposed off by this common and consolidated order. Before coming to any conclusion, we are 4 Shri Ulhas Gopal Karle expected to analyze the process adopted by the assessee, which is reproduced/summarized hereunder:-
5 Shri Ulhas Gopal Karle ITA No.973/Mum/2014 The above process of the assessee needs analysis which is further elaborated as under:- 1) "Naturamore Protein supplement (Vanilla Flavour)"
"These materials are charged in the ribbon blender and mixed thoroughly for about 30 minutes to get a uniform Premix. " "Excipients like maltodextrin, soya protein isolate, premix, sugar are weighed using blalance, as per the formula. "
6 Shri Ulhas Gopal Karle ITA No.973/Mum/2014 "Weighed Excipients are charged in the blender and mixed thoroughly, 15 minutes in each direction (total 30 minutes)." "Sieved blend is then sent to packaging line where it is filled manually in pouches and weighed as per requirement. "
2) "Gayatri 's Aloevera Juice (non fibrous) Manufacturing process no.1 " "The mixture is mixed thoroughly for 20 mins with a homogenizer so that the powders dissolve completely in the water" "1 kg of Aloevera 200 x powder ie. Spray dried aloevera extract is added to the vessel and stirred well with the homogenizer for 20 mins" "The Aloevera juice is then filled manually in plastic bottles, foiled by heat sealing labelled manually, shrinkwrapped in the shrink tunnel, put in master cartons. Cartons are then strapped with nylon tapes and Bopp tapes. " 3) "Gayatri's Aloevera Juice (fibrous) Manufacturing process no.2" "The mixture is mixed thoroughly for 20 mins with a homogenizer so that the powders dissolve completely in the water" "The mixture is then heated for 20 mins at 70 degree C to kill microbes. It is then allowed to cool and then 200g of citric acid are added to it. The mixture is then mixed with a homogenizerfor 20 minutes. " "The fibrous Aloevera juice is then filled manually in plastic bottles, foiled by heat sealing labelled manually, shrinkwrapped in the shrink tunnel, put in master cartons. Cartons are then strapped with nylon tapes and Bopp tapes. " 4) "Herbomineral powder for pets" "The mixture is mixed thoroughly for 20 mins in a ribbon blender" "The blended mixture is then sieved for eliminating any foreign particles and collected in a storage vessel. " "The pouches are ,filled in plastic jars which are labeled manually, shrinkwrapped in the shrink tunnel, put in shipper cartons which are finally strapped with nylon tapes and bopp tapes manually " 5) "Biofit Bio-95 adjuvant" "The mixture is mixed thoroughly for 30 mins with a homogenizer so that the material gets dissolve completely so as to get a uniform blend" "The blended material is then filled in plastic bottles with a liquid filling machine. The bottles are capped manually and labeled manually"
7 Shri Ulhas Gopal Karle ITA No.973/Mum/2014 "The bottles are then passed through shrink tunnel and packed in cartons. The Cartons are then strapped manually with nylon tapes and Bopp tapes. " 6) "Biofit cattle feed concentrate (Biofit CFC) " "These materials are charged in a ribbon blender and mixed thoroughly for about 30 mins to get uniform premix" "Excipients like dicalcium phosphate, herbs, talc and soya powder and premix are weighed using balance, as per formula" "Weighed Excipients and the premix are charged in the blender and mixed thoroughly, 15 minutes in each direction (total 30 minutes). " "The final resultant blend is then collected in storage vessel and sent Jor sieving to eliminating any foreign particles. " "Sieved blend is then sent to packaging line where it is filled manually in printed pouches and weighed as per requirement. " The pouches are then put in shipper cartons which are finally strapped with nylon tapes and bopp tapes manually"
The appellant in response to this disallowance has filed detailed submissions on the manufacturing process undertaken by him. Extracts of the submissions are reproduced as under- Input- Manufacturing Process- Output After setting up the manufacturing unit as aforesaid, the assessee actually carried out manufacture/production of items by employing a process which is given in detail (summarized above) Note on Manufacturing Activities 1. The above mentioned finished products are scientifically well balanced formulations and have been widely accepted by several customers as branded products as they have shown excellent results.
Most of the raw materials are not easily consumable or they are not meant for direct consumption in isolation whereas resultant finished products mentioned in Sr.1 and Sr.2 are meant for direct consumption by human beings. Whereas finished products mentioned in Sr. No. 4 and 5 is specifically meant for veterinary use though some of the raw materials from which it is produced may be consumed by human being. Sr. no. 3 is an Agro-additive. This would emphasize that raw materials used in manufacturing of finished products are totally different and distinct from resultant finished products.
8 Shri Ulhas Gopal Karle ITA No.973/Mum/2014
The raw materials mentioned above are generic in nature having different properties such as particle sizes, colour, odour, bulk density, PH value etc. They also have different chemical structures. Whereas the finished products are proprietary formulae having altogether different and distinct properties.
The raw materials once blended cannot be brought back to the original shape or original character from the finished products by applying any process whatsoever. 5. The usage of the final product is comprehensive and no single ingredient can give this comprehensive broad spectrum of results which the final product is intended to give. 6. The manufacturing process involves use of labour, machinery and power. 7. The machineries used in manufacturing process are namely Ribbon Blenders, S.S. Reaction Vessels, Electronic balance, Shrink Tunnel, Sieving Plates, Homogenizers, Heating Equipments, Heat Sealing Machines, Carton Strapping Machines. 8. The factory employs around 8 to 10 semi-skilled workers who carry out manufacturing activities. The production is supervised by proprietor himself assisted by Manager Mr. Virender Singh. The list of employees with designation for Oct.2009 (as a sample) 9. The production is carried out with the aid of power and copies of electricity bills for the period April 2009 to March 2010 The manufacturing steps involved in nutshell are as under- a) The raw materials are analyzed for physical properties b) The appropriately weighed materials are charger! in Ribbon Blender or Reaction Vessel, as applicable for specified time, both clock wise and anti clock wise direction, to get uniform blend through multiple dry blending process. In case of product Sr. No. 2, heating process is also involved. c) The resultant blend is sieved or filtered using sieving plates or filter cloth to remove unwanted particles. d) The resultant blend is then packed in pouches, bottles, and jars, labeled appropriately and finally packed in shipper cartons.”
If the whole process is analyzed, we find that the end product is outcome of combination of employment of man and 9 Shri Ulhas Gopal Karle machine and definitely the end product is different from raw material. The raw material which is in a specified percentage of quantity is mixed thoroughly for a specified period with a homogenizer and after adding, the dried aloevera extract, the composition is stirred well again for a specified period and then filled up in the required pouches/bottles and heat sealing labeling is done. The assessee is paying electricity charges for the whole process though some of the processes are done manually also. So far as, the contention of the ld. DR that the assessee is merely mixing various ingredients, is concerned, it is not a mixing simplicitor rather the raw material goes through various processes and the end product is known commercially different article/thing/product. Thus, it can be safely concluded that it is a manufacturing activity carried out by the firm of the assessee.
2.3. So far as, the contention of ld. DR and also objection of the ld. Assessing Officer that there was no new enterprise was set up by the assessee and old machinery was used is concerned, as mentioned earlier, we are not agreeing with this assertion of the ld. DR, as explained by the ld. counsel for the assessee that earlier product was limited and the assessee was carrying out manufacturing only in one product i.e. nutramore by manually blending and employing two or three workers at a rented factory premises at Badlapur and used to produce 80 Kgs of finished product per day. That unit was closed down in the year 2006 and all the assets were scraped, possession of the factory premises was handed 10 Shri Ulhas Gopal Karle over to the landlord and thereafter new unit was set up on an industrial plot at Parwanoo (Himachal Pradesh) after obtaining necessary fresh licence form the State Government. The entire staff was newly recruited and neither any staff/machinery from the old unit was transferred to the new unit at Parwanoo. It was explained that in the new unit, the final product is produced around 600 kg per day. Except for arguing that old machinery was used, no evidence was produced either before the ld. Commissioner of Income Tax (Appeals) or before this Tribunal by the Revenue evidencing that any old machinery was used, therefore, we find no substance in the assertion of the ld. Assessing Officer/DR, thus, from this angle also, the Revenue has no case at all.
2.4. So far as, the general tests for manufacture/ production are concerned, we find that manufacturing and processing are not clearly demarcated field. The test of manufacture lies in the answer to the question whether what is processed or produced as end product is commercially known as a different product from the material out of which it was so produced. Therefore, if the product has a different name and identified by the buyers and seller as a different product and is sold as a different product from its raw material one can say that it is a manufactured product. The case of the assessee find support from the ratio laid down in the case of R.M. Chemicals Pvt. Ltd. (ITA No.111/Indore/2012) (Assessment Year 2003-04) order dated 11/05/2012 (wherein, one of us i.e., Judicial Member, is 11 Shri Ulhas Gopal Karle signatory to the order). The relevant portion from the aforesaid order is reproduced hereunder for ready reference:-
“3.5 For claiming deduction u/s 80IB of the Act, as per subsection (2), the any industrial undertaking has to fulfil the conditions mentioned in the section. As per sub-clause (iii) the article so manufactured should not be in the list of the Eleventh Schedule and the product should be from a small scale industrial undertaking or an industrial undertaking referred to in subsection (4). On Perusal of record, undisputedly, from the inception stage itself, the assessee was registered as a small scale industry by the Director of Industries on 26.6.1995 (page 32 of the paper book) and continued as such as is evident from acknowledgment dated 15.4.2010 (paper book page 52), therefore, this condition of the section is also satisfied by the assessee.
3.6 The dictionary meaning of the two terms i.e. soaps and detergent are also different items. There is a generic unity in these terms and the distinct genus or category present in these terms in their application. Therefore, it can be said that soaps and detergent are two different items and more so detergent is not included in Schedule 11, consequently, deduction should not have been denied to the assessee. Our view is fortified by the ratio laid down in the case of General Marketing & Mfg. Co. Vs. State of Tamil Nadu; 86 SCT 434 (Mad.), Amar Polyfab Pvt. Ltd. V.ACIT(2003) 1 SOT 426 (Chd.). It is pertinent to mention here that the word synthetic detergent was omitted from the 11th Schedule w.e.f.1982. In view of these facts, the assessee is eligible for deduction u/s 80IB of the Act. The appeal of the assessee is allowed.”
12 Shri Ulhas Gopal Karle 2.5. Now, we shall deal with the issue of manufacturing with the help of certain cases which are analyzed hereunder:- i. Ms Delna Rushtam Boyce (2009) 318 ITR 455 (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. Identically Esquire Transland Industries 344 ITR 308 (Mad.), wherein, conversion of electric steel in to lamination was held to be manufacturing for the purposes of section 80IB of the Act. iii. Likewise, Hon’ble Gujarat High Court in Innovative Industries (2012) 207 taxman 189 (Guj.) held that process undertaken by assessee in producing air freshener would amount to manufacturing. iv. In CIT vs Business information processing services (2012) 345 ITR 548 (Raj.) held that computer data processing and sale of computer stationery amounts to manufacturing. v. The Hon’ble Punjab & Haryana High Court in CIT vs HSED Corporation Ltd. held that activity of manufacturing of voter identity card amounts to manufacture. vi. Likewise, in CIT vs Zainav Trading pvt. Ltd. 333 ITR 144 (Mad.) conversion of paper corrugated sheets into paper boxes was held to be manufacturing. vii. Likewise, the Hon’ble Apex Court in CIT vs Vinbros & Company (2012) 210 taxman 252 (SC) held that blending 13 Shri Ulhas Gopal Karle ITA No.973/Mum/2014 and bottling Indian manufacture foreign liquor would amount to manufacturing. viii. Identically, Hon’ble Apex Court, in CIT vs Emptee Poly Yarn (P.) Ltd. held that twisting of yarn amounts to manufacturing. ix. Hon’ble Madras High Court in CIT vs Balaji Hotels & Enterprises Ltd. 311 ITR 389 held that printing of paper labeles constitutes manufacturing. x. The Hon’ble Apex Court in India Cine Agencies vs DCIT 210 taxman 253 (SC) held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing. xi. Hon’ble Allahabad High Court in CIT vs Shiv Oil & Dal Mill 153 taxman 127 held that refining of oil amounts to manufacturing. xii. Even, buying tendu lives and tobacco and thereafter making bidi amounts to manufacturing (CIT vs Prabhudas Kishoredas Tobacco Products) 154 taxman 404 (Guj.). xiii. Tobacco curing was held to be manufacturing in CIT vs Premier Tobacco Packers Pvt. Ltd. 284 ITR 222 (Mad.).
14 Shri Ulhas Gopal Karle xiv. Hon’ble Madras High Court in CIT vs P Damodaran (2006) 282 ITR 466 (Mad.) held that cable joining kit is manufacturing. xv. Hon’ble Apex Court in Vijay Ship Breaking Corporation vs CIT 175 taxman 77 held that even ship breaking activity would entitle to deduction u/s 80 HH & 80IA of the Act. xvi. The Hon’ble Karnataka High Court in CIT vs Darshak Ltd. 247 ITR 489 held that conversion of plain glass ware into decorative glass ware amounts to manufacture. xvii. Hon’ble Calcutta High Court in Addl. CIT vs A Mukherjee & Company Ltd.113 ITR 718 even held that book publishing activity amounts to manufacturing. xviii. In CIT vs Tata Locomotive and Engineering Company Ltd. (1968) 68 ITR 325 (Bom.) held that assembling works amounts to manufacturing. xix. In CIT vs Kanam Letex Industries Pvt. Ltd. 221 ITR 1 held that conversion of natural latex into preserved latex amounts to manufacturing. xx. In Tarai Development Corporation 120 ITR 342 Hon’ble Allahabad High Court even held that processing of seeds 15 Shri Ulhas Gopal Karle ITA No.973/Mum/2014 is a process which amounts to manufacture or production. xxi. Hon’ble Apex Court in ITO vs Arihant Tiles & Marvels Pvt. Ltd. (2010) 186 taxman 439 held that conversion of marvels blocks into slabs and tiles amounts to manufacturing. xxii. Likewise, in CIT vs Janakraj Bansal 229 CTR (HP) 89 conversion of lime stone into lime powder was held to be manufacturing activity. xxiii. In CIT vs M R Gopal 58 ITR 598 (Mad.) held that conversion of boulders into stones is a manufacturing. xxiv. Even in Punam Chandra Prem Raj vs CIT 207 ITR 895 (Raj.) High Court held that ginning of cotton is process, thus entitled to deduction.
2.6. There are certain contra decisions also, which are discussed hereunder:- a) Addl. CIT vs Southern Structural Ltd. 110 ITR 164 (mad.) wherein it was held that production of proto type will not amount to manufacturing. b) Hon’ble Apex Court in Tamilnadu State Transport Corporation Ltd. vs CIT 252 ITR 883 (SC) held that tyre retreading is not manufacturing.
16 Shri Ulhas Gopal Karle c) In Appeejy Pvt. Ltd. vs CIT 77 taxman 208 (Cal.) it was held that packing of tea is not manufacturing thus not entitle to relief. d) Foundation work was not held to be characterized as production or manufacture in CIT vs N.C. Buddha Raja and Company 204 ITR 412 (SC) e) In CIT vs Hindustan metal refining works Pvt. Ltd. 128 ITR 472 (Cal.) it was held that galvanization is not covered within the meaning of manufacturing and thus not entitled to the deduction. f) Rearing of Chicks was not held to be industrial undertaking and thus not entitled to deduction in CIT vs Venkateshawara Hatcheries Pvt. Ltd 237 ITR 174 (SC), Indian Poultry vs CIT 116 Taxman 493 (SC) and CIT vs JD Farms (2010) 187 taxman 151 (Del.) g) In CIT vs Relish Foods 237 ITR 59 (SC) held that processing of Shrimps could not be said to be manufacturing or production. h) Likewise in Bhatsons Acquatic Products vs ACIT 329 ITR 67 (Ker.) held that fish processing does not amount to manufacture or production. i) Likewise in CIT vs Gitwako Pharma (I.)(P) Ltd. (2011) 10 taxman.com 261 (Del.) held that converting raw fish into tinned fish does not amount to manufacturing. j) Likewise preparation of food stuffs/food packet by hotel does not amount to manufacture in India Hotels Company Ltd. vs ITO 245 ITR 538 (SC).
17 Shri Ulhas Gopal Karle k) Likewise conversion of Chicory Roots into Chicory powder was held to be not manufacturing in Sacs Eagles Chicory vs CIT 255 ITR 178 (SC).
If the aforementioned judicial pronouncements and the facts available on record are kept in juxtaposition and analyzed with the processing activity done by the assessee, we find that the resultant end product is commercially known differently in the trading world, therefore, certainly it can be said that the activity of the assessee amounts to manufacture, consequently, entitled to deduction u/s 80IC of the Act, because, mixing various ingredients in a specified manner and the net result come into nutritional food supplement, agro products and veterinary food supplement amounts, which is used by the public at large for different purposes and is commercially known differently, therefore, it amounts to manufacturing. The resultant end product is outcome of combination of efforts with the help of men and machine using homogenizer. Likewise, Aloevera juice is extracted from the aloevera leaves with the help of machines and men and the end product is aloevera juice, which is outcome of various processes, therefore, whole activity of the assessee routs through various processes, thus, certainly amounts to manufacturing. The case of the assessee further find support from the decision in the case of Ramit Kumar Sharma vs DIT (IT) (2009) 309 ITR 344 (AAR-New Delhi) wherein the assessee intend to start a tractor manufacturing industry in the state of Himachal Pradesh, wherein, the primary job was to provide, 18 Shri Ulhas Gopal Karle milling, tooling and grinding of surface of rear cover etc, which are important part of tractor, it was held that the activities amounts to manufacture or production of an article difference from raw castings, thus, entitled to deduction u/s 80IC of the Act. As mentioned earlier in Mrs. Delna Rustom Boyce (supra) processing, packaging and packing of fruits and vegetables were held to be eligible for deduction u/s 80IB of the Act, therefore, it can be concluded that the end product is commercially known differently, therefore, the assessee is involved in manufacturing, consequently, we find no infirmity in the conclusion drawn by the ld. First Appellate Authority, resultantly, both the appeals of the Revenue are dismissed. Finally, the appeals of the Revenue are dismissed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 08/10/2015.