2005 Supreme(Raj) 3112

RAJASTHAN HIGH COURT
Rajesh Balia, Dinesh Maheshwari, JJ.
D.D. Shah and Bros. - Appellant
Versus
Union of India And Another - Respondent
D.B. Civil Special Appeal No. 296 of 2004 in S.B. Civil Writ Petition No. 161 of 2004.
Decided On : 18-07-2005

Headnote:

Whether blending of different types of tea by the assessee amounts to production of a thing or an article by an industrial undertaking within the meaning of the expression as used in section 80-IB of the Income-tax Act, 1961, though it may not amount to manufacture of goods in the sense of bringing into existence altogether a new and different thing as known differently in the commercial parlance in the market where tea is transacted.

Fact of the Case:

The assessee purchased tea leaves powder/granules and these tea leaves are collected by marking the name of the garden and lot number. The samples of available quality are dispatched to the “blend master” who after going through his own process, suggests the mixing ratio and process of mixing for making the perfect blend of tea. The activity of blending of different types of leaves obtained from different gardens in a definite ratio results in production of a commodity having its own identity and though may not amount to manufacture, it amounts to production, which is a word of wider connotation. Therefore, it being an industrial undertaking set up in the backward industrial area and fulfilling all other conditions, is entitled to avail of the benefit of deduction equal to 100 per cent. of its profits derived from its business of producing and trading of in blended tea under the specific brand name of “Maa Betee Tea”.

Finding of the Court:

Blending of different grades and qualities of manufactured or made tea purchased by him from the auction house or from the dealer of tea, therefore, he is not a person who has directly purchased green tea leaves from the grower of tea and then applied to it the process of manufacture within the terms of the Tea Act where the grower and manufacturer of tea have been classified differently and he remains a trader in tea, who markets his merchandise in loose or packed form under the brand name.

Issues: Whether the blending of different types of tea by the assessee amounts to production of a thing or an article by an industrial undertaking within the meaning of the expression as used in section 80-IB of the Income-tax Act, 1961, though it may not amount to manufacture of goods in the sense of bringing into existence altogether a new and different thing as known differently in the commercial parlance in the market where tea is transacted.

Ratio Decidendi: The expression “produce” or “production” has a wider connotation than the term “manufacture”. The expression “article or thing” has been assigned its meaning in the Oxford Dictionary as under: 3b. Of an animal or plant ; To generate, bring forth, give birth to, bear, yield (offspring, seed, fruit, etc.) ; d. To work up from raw materials, fabricate, make, manufacture (material objects) ; e. To produce the goods, money, results. Thus, production not only includes expression manufacture of articles or things by applying labour or process on the existing raw material but also bringing to surface a natural produce of soil like agricultural product, horticultural product, production of fruits and vegetables and excavation of minerals and mineral oil from the product of plants which are grown by the cultivators, agriculturists through labours and other plant products as well as exploitation of other natural resources like mines. Thus, learned counsel for the assessee is right when he says that the word “produce” or “production” has a wider connotation than the term “manufacture”. However, the question still arises whether the expression “produce” is wide enough to cover even a process which though makes the commodity more marketable does not result in bringing into existence any article or thing which did not earlier exist or brought out as a commercial commodity which may amount to production. In Pio Food Packers [1980] 46 STC 63, the Supreme Court was considering the expression “manufacture” used in the Kerala General Sales Tax Act, 1963. The question has arisen in the context of an activity carried on by Pio Food Packers of processing the fruit pineapple into slices for the purpose of being sold in sealed cans. The provision with which the Supreme Court was concerned related to charge of purchase tax. The contention of the dealer before the Supreme Court was that the tinned fruit and fresh fruit are two different commodities and, therefore, the petitioner was engaged in manufacturing of tinned fruits, therefore, on purchase of pineapple he was not liable to pay purchase tax. The Supreme Court dealt with the meaning of “manufacture” and quoted with approval the following passage from Anheuser-Busch Brewing Association v. United States [1907] 52 L. Ed. 336, 338 (page 66) : “Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary . . . There must be transformation ; a new and different article must emerge, “having a distinctive name, character or use”.” The court further held that in processing the raw pineapple into slices by pealing off its kernel, the fruit was not consumed as was the requirement of the Kerala Act. The ratio of the decision is primarily in the context of the provision of the Kerala Act which required consumption of the fruit in the process before it could be termed as manufacture. The court said (page 66) : “There is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reason of being canned, it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit.” In coming to this conclusion, the court referred to yet another decision from the United States in East Texas Motor Freight Lines v. Forzen Food Express [1995] 100 L Ed 917 where the United States Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out (page 66) : “killing, dressing and freezing a chicken is certainly a change in the commodity. But, it is no more drastic a change than the change which takes place in milk from pasteurizing, homogenizing, adding vitamin concentrates, standardising, and, bottling . . . . There is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cottonseed in the field and cottonseed at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cottonseed, as well as the dressed chicken, have gone through a processing stage. But, neither has been ‘manufactured’ in the normal sense of the word.” In a recent case of Aman Marble Industries (P.) Ltd. v. CCE [2005] 1 SCC 279 ; [2003] 58 RLT 595 (SC), the Supreme Court has held that cutting of marble block into marble slabs or tiles does not amount to manufacture as in both the forms marble remains marble. However, for the present context, the principle which emerged from the Supreme Court case is that the manufacture is essentially the process applied to existing raw material which transforms the raw material into a commercially distinct article.

Final Decision: Appeal dismissed.