IMPORTANT POINT
The test for determining whether “manufacture” can be said to have taken place is 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.

Headnote:Income Tax Act, 1961 – Section 80IA – Conversion of marble blocks by sawing into slabs and tiles and polishing – Whether amounts to “manufacture or production of article or thing” so as to make respondent(s) – assessee(s) entitled to the benefit of Section 80IA of Income Tax Act, 1961 – Held blocks converted into polished slabs and tiles after undergoing the process involved 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 was manufacture but also an activity which was something beyond manufacture and which brings a new product into existence – Hence on the facts of these cases, held that High Court was right in coming to conclusion that the activity undertaken by respondents – assessees did constitute manufacture or production in terms of Section 80IA of the Act, 1961 – If the contention of the Department was to be accepted, namely that the activity undertaken by respondents was not a manufacture, then, it would have serious revenue consequences – Each of the respondents was paying excise duty, some of the respondents were job workers and the activity undertaken by them had 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 view said factors, held 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 – Appeals filed by Department dismissed. (Paras 19 to 22)
       Facts of the Case :
        A common question of law which arose for determination in present appeals was whether conversion of marble blocks by sawing into slabs and tiles and polishing amounts to “manufacture or production of article or thing” so as to make the respondent(s)-assessee(s) entitled to the benefit of Section 80IA of the Income Tax Act, 1961.
       Findings of the Court :
        Held blocks converted into polished slabs and tiles after undergoing the process involved 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 was manufacture but also an activity which was something beyond manufacture and which brings a new product into existence. Hence on the facts of these cases, held that High Court was right in coming to conclusion that the activity undertaken by respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Act, 1961.If the contention of the Department was to be accepted, namely that the activity undertaken by respondents was not a manufacture, then, it would have serious revenue consequences . Each of the respondents was paying excise duty, some of the respondents were job workers and the activity undertaken by them had 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 view said factors, held 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. Appeals filed by Department were dismissed.

JUDGMENT

S.H. Kapadia, J. —

Leave granted.

2. In this batch of Civil Appeals, a common question of law which arises for determination is: whether conversion of marble blocks by sawing into slabs and tiles and polishing amounts to “manufacture or production of article or thing” so as to make the respondent(s)-assessee(s) entitled to the benefit of Section 80IA of the Income Tax Act, 1961, as it stood at the material time.

3. The lead matter is Civil Appeal arising out of S.L.P.(C) No.9812/2008 in the case of Income Tax Officer, Udaipur Vs. M/s. Arihant Tiles & Marbles (P) Ltd.

4. The assessee, during the relevant Assessment Year 2001-2002, was engaged in the business of manufacture/production of polished slabs and tiles which the assessee exported (partly). The prime condition for allowing deduction under Section 80IA, as it stood at the material time, was that industrial undertakings should manufacture or produce any article or thing, not being any article or thing specified in the list in Eleventh Schedule of the Income Tax Act, 1961.

5. The question before us is: whether on facts and circumstances of the case(s) the activities undertaken by the respondent(s) herein would fall within the meaning of the words “manufacture or production” in Section 80IA of the 1961 Act?

6. To answer the above issue, it is necessary to reproduce the details of stepwise activities undertaken by the assessee(s) which read as follows:-

“i) Marble blocks excavated/extracted by the mine owners being in raw uneven shapes have to be properly sorted out and marked;

ii) Such blocks are then processed on single blade/wire saw machines using advanced technology to square them by separating waster material;

iii) Squared up blocks are sawed for making slabs by using the gang saw machine or single/multi block cutter machine;

iv) The sawn slabs are further reinforced by way of filling cracks by epoxy resins and fibre netting;

v) The slabs are polished on polishing machine; the slabs are further edge cut into required dimensions/tiles as per market requirement in prefect angles by edge cutting machine and multi disc cutter machines;

vi) Polished slabs and tiles are buffed by shiner.”

In addition to the above activities, it may also be noted that the assessee(s) has been consistently regarded as a manufacturer/producer by various Government Departments and Agencies. The above processes undertaken by the respondent(s) have been treated as manufacture under the Excise Act and allied tax laws.

7. At the outset, we may point out that in numerous judgments of this Court, it has been consistently held that the word “production” is wider in its scope as compared to the word “manufacture”. Further, Parliament itself has taken note of the ground reality and has amended the provisions of the Income Tax Act, 1961 by inserting Section 2(29BA) vide Finance Act, 2009, with effect from 1st April, 2009.

8. We quote herein-below the relevant provisions of Section 2(29BA) as also the relevant provisions of Section 80IA(2)(iii) of the Income Tax Act, 1961. “2(29BA) “manufacture” with its grammatical variations, means a change in a non-living physical object or article or thing,-

(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;”

“80IA(2) (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India.”

9. The Authorities below rejected the contention of the assessee(s) that its activities of polishing slabs and making of tiles from marble blocks constituted “manufacture” or “production” under Section 80IA of the Income Tax Act. There was difference of opinion in this connection between the Members

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2009 Supreme(SC) 1788

2009(8) Supreme 337SUPREME COURT OF INDIAS.H. Kapadia, J.M. Panchal and H.L. Dattu, JJ. Income Tax Officer, Udaipur — AppellantversusM/s Arihant Tiles & Marbles (P) Ltd. — RespondentCivil Appeal No. 8036 of 2009(Arising out of S.L.P.(C) No.9812/2008)Decided on : 02-12-2009

IMPORTANT POINT The test for determining whether “manufacture” can be said to have taken place is 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.

Cases Referred (3)

2009(8) Supreme 337
SUPREME COURT OF INDIA
S.H. Kapadia, J.M. Panchal and H.L. Dattu, JJ.
Income Tax Officer, Udaipur — Appellant
versus
M/s Arihant Tiles & Marbles (P) Ltd. — Respondent
Civil Appeal No. 8036 of 2009
(Arising out of S.L.P.(C) No.9812/2008)
Decided on : 02-12-2009

IMPORTANT POINT
The test for determining whether “manufacture” can be said to have taken place is 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.