Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income Tax & Ors. vs Apollo Vikas Steels (P) Ltd. & Ors on 30 September, 1997
ORDER
B.L. Chhibber, A.M.
1. The common issue brought before us by the Revenue for adjudication is whether the activity of ship-breaking is an industrial undertaking, involving the activity of manufacture or production of articles or things so as to be eligible for deduction under ss. 80-HH and 80-I of the IT Act, 1961.
2. All the assessees are engaged in the business of breaking or dismantling of damaged or unserviceable ships and selling the goods obtained therefrom to various parties. In the returns of income for the assessment years under consideration, deductions under ss. 80HH and 80-I were claimed, but the AO rejected the claim on the following grounds :
(i) The assessees have not been considered as industrial undertaking within the meaning of ss. 80HH and 80-I.
(ii) They do not fulfil any of the conditions of the said sections, that there is nothing like a process of manufacturing done by the assessees, that they merely break the ships into various sizes of pieces and do not change the character of the materials used from the beginning to the end of the process.
He, accordingly, disallowed the claims of the assessees.
3. On appeal, the CITs(A) following the decision of Bombay Bench of the Tribunal in ITO vs. Rama Ship Breaking Yard and the decision of Ahmedabad Bench of the Tribunal in Gujarat Ship Trading Corpn. [sic-Chandu Lal Venichand vs. ITO (1991) 40 TTJ (Ahd) 358 : (1991) 38 ITD 138 (Ahd)] held that ship-breaking was an industrial undertaking and, accordingly, the assessees were eligible for deductions under ss. 80HH and 80-I. The Revenue, in all these appeals, has challenged the above finding of the learned CITs(A).
4. Shri R. K. Choudhary, the learned Departmental Representative vehemently opposed the orders of the CITs(A) and filed elaborate written submissions before us. His preliminary contention is that various ship-breaking units are claiming the deductions under the various sections not only in the State of Gujarat but also in the States of Maharashtra, etc., wherever such ship-breaking activities are going on; that the quantum of deduction with reference to the gross total income determined, which is as high as 45 per cent. in company cases is quite substantial, that such claim of deductions under ss. 80HH and 80-I has been pressed in several cases of Bhavnagar in Gujarat and that considerable revenue aggregating to over 100 of crores of rupees is at stake for several assessment years taken together. He then went on to explain that the ship-breaking activity involves buying of damaged and unserviceable ship or ships, which are otherwise uneconomical to run, for the purposes of breaking and scrapping, and sale of various goods and scrap obtained from such breaking and dismantling of old and used ships; that though various units are engaged in the activity of ship-breaking, the simple operation carried out by all the units is taking away all the items of furniture, etc., fitted in such ships and the oil lying unused and realising money from sale thereof; that in effect the activity means to carry out the manufacturing process in a reverse order as originally the ship is built from iron sheets and iron bars and other materials and by process of breaking, the same is recovered into iron scrap and other materials. According to the learned Departmental Representative, the mere appraisal of the activity can by no stretch of imagination be regarded as manufacturing activity and the process of breaking the old ship and selling the scrap materials obtained therefrom does not in any way amount to manufacture or production of goods. Though the Ahmedabad Benches of the Tribunal have been holding the ship-breaking units to be entitled to deductions under the aforesaid sections by following the decision of the Bombay Bench of the Tribunal in the case of Rama Ship Breaking Yard; rendered in the context of provisions of s. 80J; it was worth noting that the said Bombay Bench decision was based on a judgment of the Bombay High Court in the case of CST vs. Indian Metal Traders 41 STC 169, which judgment was in the context of liability of the ship-breaking units to purchase tax under the Bombay ST Act whereas in a recent judgment, the Bombay Bench Tribunal in the case of Asstt. CIT vs. Virendra & Co. (1995) 55 ITD 309 (Bom) took a contrary view that activity of breaking or dismantling of a ship cannot be considered to be an industrial undertaking which manufactures or produces articles so as to be entitled to get deductions under the aforesaid sections. The learned Departmental Representative has quoted extensively from the said decision in Virendra & Co. and pointed out that the Bombay Bench of the Tribunal again considered a miscellaneous application filed by that assessee and reaffirmed the decision in Virendra & Co. and dismissed the miscellaneous application as reported in as Virendra & Co. vs. Asstt. CIT (1997) 60 ITD 463 (Mumbai). In the said miscellaneous application, the assessee had taken objections regarding the Bombay Bench not following the earlier judgment on the issue, which was in favour of the assessee, which objection was overruled by the Bombay Bench. The Learned Departmental Representative has reproduced certain portions from the said order in miscellaneous application in his written submissions and contended that since the later decision of the Bombay Bench in favour of the Revenue was based on the decision of the Hon'ble Supreme Court in CIT vs. N. C. Budharaja & Co. (1993) 204 ITR 412 (SC) as well as the later judgment of the Bombay High Court in CIT vs. Sterling Foods (Goa) (1995) 213 ITR 851 (Bom); the later judgment was binding on other Benches of the Tribunal. The learned Departmental Representative further relied upon decision in Mittal Ice & Cold Storage vs. CIT (1986) 159 ITR 18 (MP), V. M. Salgaokar Bros. (P) Ltd. vs. CIT (1996) 217 ITR 849 (Kar), Singh Engg. Works P. Ltd. vs. CIT (1979) 119 ITR 891 (All), CIT vs. Lucky Mineral (P) Ltd. (1996) 86 Taxman 215 (Raj) and submitted that in the process of manufacture or production, the thrust was on 'making a thing' and it involves carrying on certain processes on the raw materials to result in a separate marketable commodity of general consumption. Such process of manufacturing was not there at all in the activities carried out by the different ship-breaking units, because once the old ship was sold to the ship-breaking units for dismantling and breaking and selling the scrap, substantial part of items namely, crockery, furniture and fixtures, fridges, etc., fitted in the ship and oil contained in tankers were sold in the same form without carrying out any further act, except removal of the same from the ship and the remaining ship made of mainly iron and steel is then broken into different pieces of different sizes and shapes and sold by weight. According to him, what results from breaking of the ship is waste or scrap which is sold in the form of raw-material and in fact, this is the raw material from which the ship itself is built and by common parlance, it cannot be said that any process which results into bringing back the form of raw-materials from the finished product itself by breaking and dismantling can be treated as 'manufacture' or 'production'. In the opinion of the learned Departmental Representative even if for the sake of argument it is conceded that ship-breaking activity is manufacturing, then it would have to be argued that even the scrap dealers, who dismantle and break bigger items of scrap for selling to various M.S. rolling units and furnace owners will also have to be treated as manufacturers. The learned Departmental Representative then cited a judgment of the Bombay High Court in CST vs. Delhi Iron & Steel Co. Pvt. Ltd. 98 STC 202, which directly related to the ship breaking activity, wherein it was held that the condemned and unserviceable ship purchased by the dealer was not a ship, but rerollable scrap in the form of an old ship for dismantling and in fact the dealer acquired only the old materials and articles contained therein, which was sold by it in the form in which they were acquired and, therefore, no process whatsoever was applied to the goods, much less any process of manufacture. According to the learned Departmental Representative, this decision has a direct bearing on the issue involved in the instant cases and this decision was in fact not brought to the notice of the Tribunal Bench in the case of Virendra & Co. (supra), but this decision further fortifies the conclusion drawn by the Tribunal, Bombay. The learned Departmental Representative also pointed out that the above decision of the Bombay High Court was arrived at in spite of a very wide and extended definition to the term "manufacture" given in s. 2(17) of Bombay ST Act, 1959, and further that the Hon'ble Bombay High Court drew support from the decision of the Hon'ble Madras High Court in State of Madras vs. Raman & Co. & Ors. 33 STC 1, which was later affirmed by the Hon'ble Supreme Court as reported in 93 STC 185. On the basis of the above submissions, the learned Departmental Representative concluded that the assessees were not entitled to deductions under ss. 80HH and 80-I and, accordingly, the orders of the learned CITs(A) deserve to be reversed.
5. Shri K. C. Patel, the learned counsel, appearing for Appolo Vikas Steel Pvt. Ltd., M/s. Mahalaxmi Ship-breaking Corpn. Madhav Industrial Corpn. & Malvi Ship-breaking Co. strongly supported the orders of the CIT(A). According to him, the CITs(A) rightly followed the decision of the Bombay Bench of the Tribunal in Rama Ship-breaking Yard which in turn followed the judgment of the Hon'ble Bombay High Court in the case of STC vs. Indian Metal Traders (supra) and urged that the Tribunal should uphold the orders of the CITs(A) not only because of the aforementioned Bombay Bench decision and the Bombay High Court decision, but also in view of the following authorities :
I. TRIBUNAL JUDGMENTS (1) Appolo Vikas Steel. Ltd. vs. Asstt. CIT ITA Nos. 4191 & 4572/Ahd/89, and ITA No. 4744 & 5001/Ahd/1989, dt. 8th June, 1994;
(2) International Steel Corpn. ITA Nos. 961 & 962/Ahd/1988 dt. 16th May, 1994 (3) Arya Steel ITA Nos. 269 to 271/Bom/93, dt. 6th May, 199 (sic) (4) IAC vs. Vasishtha Udyog Ltd. (1990) 34 ITD 10(Del) (Twisting of yarn) (5) Ram Panjwani & Co. vs. IAC (1991) 39 ITD 21 (Del) (Manufacturing of slippers from forest trees) (6) Vora Food Specialities (P) Ltd. (1995) 54 ITD 324 (Bom) (Converting potatoes into potato chips) (7) Degremond India Ltd. vs. Dy. CIT (1996) 59 ITD 423 (Del) (Business of designing, supply etc. of Effluent Treatment Plant - N. C. Budharaja) II. HIGH COURT JUDGMENTS (1) 41 STC 169 (Bom)(Ship breaking) (2) 1986 (25) ELT 14 (Cal)(Dismantling of ship breaking) (3) CIT vs. M. R. Gopal (1965) 58 ITR 598 (Mad)(Converting boulders into small stones) (4) Burmah Shell Refineries Ltd. vs. G. B. Chand, ITO (1966) 61 ITR 493 (Bom) (Refining Crude Oil) (5) CIT vs. Tata Locomotive & Engg. Co. Ltd. (1968) 68 ITR 325 (Bom) (Assembling motor vehicles) (6) CIT vs. Lakhtar Cotton Press Co. (P) Ltd. (1983) 142 ITR 503 (Guj) (Ginning and Pressing of cotton) (7) CIT vs. Kutch Oil & Allied Ind. (P) Ltd. (1987) 163 ITR 237 (Guj)(Pulverizing of raw lumps of minerals) (8) CIT vs. J. B. Kharwar & Sons (1987) 163 ITR 394 (Guj) (Process of dyeing) (9) CIT vs. Industrial Ancillaries (P) Ltd. (1993) 200 ITR 514 (Del) (Converting moulds & reshaping & polishing) (10) CIT vs. Best Chem Lime Stone Ind (P) Ltd. (1994) 210 ITR 883 (Raj) (11) CIT vs. Ashwin Kumar Gordhanbhai & Bros P. Ltd. (1994) 212 ITR 614 (Guj)(Cutting tobacco leafs into small pieces) (12) CIT vs. Hindustan Marbles Ltd. (1996) 219 ITR 655 (Guj)(Cutting & processing of marbles) (13) CIT vs. Kanam Latex Industries (P) Ltd. (1996) 221 ITR 1 (Ker)(Making centrifugal slates from rubber) (14) B. S. Bajaj & Sons vs. CIT (1996) 222 ITR 418 (P&H) (Extracting timber from forest) (15) CIT vs. R. C. Construction (1996) 222 ITR 658 (Gau)(Making chips out of big boulders) (16) V. M. Solgaokar Bros. (P) Ltd. vs. CIT (1996) 217 ITR 849 (Kar) (17) CIT vs. S. L. Agarwala & Co. (1992) 197 ITR 239 (Ori) III. SUPREME COURT JUDGMENTS (1) Empire Industries Ltd. & Anr. vs. Union of India & Ors. (1986) 162 ITR 846 (SC) (Process of bleaching etc. of cloth) (2) Ujagar Prints vs. Union of India (1987) 167 ITR 904 (SC) (Process of bleaching amounted to manufacture) (3) Ujagar Prints vs. Union of India & Ors. (1989) 179 ITR 317 (SC) (Process of bleaching amounted to manufacture) (4) Bajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188 (SC) (Provision in taxing statute-incentive) (5) CIT vs. Kiran Tobacco Products (1993) 201 ITR (St) 56 (SLP) (SLP rejected against Karnataka H.C.) (6) CIT vs. N. C. Budharaja & Co. & Anr. (1993) 204 ITR 412 (SC)(Expressions manufacture or produce) (7) Chillies Exports House Ltd. vs. CIT (1997) 225 ITR 314 (SC) (The word 'processing' must be interpreted according to its plain natural meaning) He further relied upon a study entitled, "Ship-breaking Industry in India" brought out by the Ministry of Industry, Govt. of India, and emphasised that ship-breaking was an industry recognised by the Govt. of India. Relying upon the above, Shri K. C. Patel submitted that the commodity produced by the assessee from the activity of breaking ship undergoes a change from the ship itself and, therefore, it is a commercially different commodity within the meaning of the words 'manufacture' or 'produce'. According to the learned counsel, if conversion of a boulder into small pieces of stone is considered as manufacturing, conversion of a whole ship into pieces of iron, steel, etc., is also definitely manufacturing. Shri K. C. Patel also contended that if this Tribunal takes the view that the activities of the assessee in breaking the ship and producing pieces of iron, steel, etc., in different shapes and sizes would not amount to manufacture or produce, then the scores of decisions of the apex Court, the various High Courts and the various Tribunal Benches, holding innumerable activities as amounting to manufacture or production would become obsolete and it would cause denial of the incentives provided to such assessees by the legislature, which is a factor to be given more weithtage than the submissions of the learned Departmental Representative; that such claim of deductions under ss. 80HH and 80-I has been pressed in several cases of Bhavnagar in Gujarat and that considerable revenue in excess of hundreds of crores was at stake for several assessment years". Shri Patel further submitted that the ship-breaking industry was labour-intensive and was governed by the Factories Act and even the commercial institutions like banks have treated ship-breaking units as an industrial undertaking. The learned counsel, accordingly, concluded that the orders of the CITs(A) be confirmed.
6. Shri G. C. Pipara, the learned counsel for the assessee appearing for Anupam Steel Co. fully supported the arguments put forth by Shri K. C. Patel. He also filed a paper book. His first submission is that the reliance placed by the learned Departmental Representative on the decision of the Bombay Tribunal in Virendra & Co. (supra) was not proper and for this, he relied upon the observations of the Delhi Bench of the Tribunal in the case of Degrimont India Ltd. vs. Dy. CIT (supra). According to Shri Pipara, the process of breaking up of the ships, boat and other floating structure amounted to 'manufacture' for the purpose and within the meaning of s. 2(f) of the Central Excise and Salt Act, 1944, which defined 'manufacture' in its well accepted legal sense (sic) jurist and not with reference to an artificial and statutorily extended import, as argued by the learned Departmental Representative. He brought to our notice the fact that during the year under appeal his client had paid excise duty of Rs. 3,44,561 which had been debited under the head excise on ship material consumed. Based on the observations of the various Courts, Mr. Pipara summarised the ingredients required in an activity to fall within the ambit of 'manufacture' or 'produces' as under :
(a) There must be something called 'raw material';
(b) such raw material should be put to some 'process'
(c) such process should be 'organised, scientific or systematic; and
(d) such new item should be 'commercially different' from the commodity out of which it has been produced.
Applying the above tests to the activity of ship-breaking, Mr. Pipara contended that :
(a) discarded/uneconomical ships are the 'raw material';
(b) the breaking of such ship is the 'process';
(c) the process of breaking the ship is 'organised, scientific and systematic' and the ship is not broken in a haphazard way;
(d) the 'new items' which emerge are iron sheets, bars, angles, iron scrap, copper, zinc, etc.,; and
(e) such new items of iron, copper, zinc, etc., are 'commercially different' than the ship.
Shri Pipara, the learned counsel for the assessee, concluded that the activity will certainly fall within the ambit of 'manufactures' or 'produces'. He also referred to and relied on Circular No. 329, dt. 22nd February, 1982, of CBDT on the subject of "Deductions under ss. 80HH and 80-J in the case of forest lessees" wherein, based on the opinion of the Law Ministry, the CBDT has clarified that 'if the process involved was not merely conversion of standing trees into firewood but also manufacture of new saleable commodities, the benefit of deduction under ss. 80J and 80HH would be available". According to the learned counsel, the said circular equally forcefully applies to the case of ship-breaking.
7. Shri K. C. Thakker appearing for Gujarat Ship-breaking, relied upon the arguments of Sarva Shri K. C. Patel and G. C. Pipara, further submitted that in the cases under appeal the original commodities/items used as raw-material are condemned ships. At the end of the processes what was acquired were iron bars, plates, rods, and other different and distinct articles marketable as commercial commodities. All these items put together in a heap is not a 'ship'. The processes whether of 'breaking' or of 'joining' brings about a distinct article which is the 'finished product' and not the 'scrap' in the hands of the respondents.
According to Shri K. C. Thakker, it is to bring about these articles that these units are carrying on business, and not for breaking ships. He drew our attention to the observations of the Hon'ble Supreme Court in the case of N. C. Budharaja & Co. (supra) at page 243 and submitted that the Hon'ble Supreme Court has adopted the same interpretation of the word 'manufacture' and the emphasis is not so much on the processes employed, but on the changes brought about in the commodity that has undergone the processes. In short, if the end product could be regarded as a different article as compared to the original commodity then 'manufacture' can be said to have taken place. He, therefore, strongly supported the orders of the learned CITs(A).
8. Shri N. B. Shah, the learned counsel appearing for International Steel Corpn. and Shri N. R. Divatia, the learned counsel appearing for Crown Steel Corpn., fully supported and subscribed to the submissions made in the course of hearing by Shri K. C. Patel, the learned senior counsel.
9. In the rejoinder submitted by the learned Departmental Representative Shri R. K. Choudhary, he referred to page Nos. 2 and 9 of the paper book filed by Shri K. C. Patel, wherein it was mentioned that ship-breaking was an important arm of processed ferrous scrap industry, that ship-breaking is treated as an industry, being labour intensive, and regarding items being obtained from the ship and the end use thereof, that ship-breaking unit is treated as factory and need, apart from waste cutting equipment, other equipments like crane, winches, etc., that the items obtained are segregated into copper, brass, bronze, gun metal, etc., and contended that the equipment needed was basically for cutting only and the other equipments like crane and winches are for lifting the broken pieces from the ship and no other sophisticated machines are being used in the breaking process. According to the learned Departmental Representative, how the items obtained in the form of scrap from ship are ultimately used is not much of consequence as what is immediately obtained by breaking of ship admittedly is rerollable steel scrap and non-ferrous items/scrap only, the process of segregation of non-ferrous items does not in any way amount to manufacturing activity. According to the learned Departmental Representative, every industry cannot be treated as engaged in manufacturing, and even if ship-breaking is held to be a process, it cannot be held to be entitled to deductions under the respective sections, because the words used in the provisions are manufacture and production and not processing. On the same analogy, it is immaterial whether the ship-breaking units are governed by Industrial Disputes Act, 1947, or for that matter, these units are treated as industrial units by banks. He, therefore, concluded that the orders of the CITs(A) deserve to be reversed.
10. We have considered the rival submissions and perused the facts on record. In order to qualify for deductions under ss. 80HH and 80-I, an assessee must be an industrial undertaking and must 'manufacture' or 'produce articles or things' as held by the Hon'ble Bombay High Court in the case of CIT vs. Sterling Foods (Goa) (supra). The three expression 'processing', 'manufacture' and 'production' used in various taxing statutes, are not interchangeable expressions. Though often used in juxtaposition, they convey different concepts and refer to different activities.'Processing' is a much wider concept. The nature and extent of processing may very from case to case. Every process does not tantamount to 'manufacture'. It is only when the 'process' results in the emergence of a new and different articles having a distinctive name, character or use, that 'manufacture' can be said to have taken place. Similarly, 'production' is wider than 'manufacture'. As a result, every production need not amount to manufacture though every manufacture can be characterised as 'production'. On a careful reading of s. 80HH of the IT Act, 1961, in the light of the scheme thereof and other provisions of the Act, it is clear that the legislature intended to extend the benefit of deduction under s. 80HH only to the industrial undertakings which manufacture or produce articles. This section was not intended to be applied to industrial undertakings which are engaged in 'processing of goods' not amounting to manufacture or production of articles. The ship-breaking activity involves buying of damaged and unserviceable ships which are otherwise uneconomic to run for the purpose of breaking and scrapping and sale of various goods and scrap obtained from such breaking and dismantling of old and used ships.'Process' is employed for breaking ship for dismantling and selling the scrap, and substantial part of the items namely, crockery, furniture and fixtures, fridges, etc., fitted in the ship and the oil contained in the tankers are sold in the same form without carrying out any further act, except removal of the same from the ship and the remaining ship made mainly of iron and steel is then broken into different pieces of different sizes and shapes and sold by weight. Therefore, at the end of the process employed by the assessees, what was acquired were iron bars, plates, rods, brass, bronze, gun-metal, copper and non-ferrous metals which though marketable and commercial commodities, cannot be said to be manufactured or produced articles or things. For all practical purposes it is 'scrap' which has been defined by Chambers Dictionary 1923 Edn. at page 1163 as "a small fragment, a piece of leftover food, a remnant, a punched out picture, cutting or the like intended or suited for preservation in a scrap book : residue after extraction of oil from blubber, fish, etc., metal clippings or other waste, anything discarded as worn-out, out of date, or useless".
The scrap cannot be called a manufactured product or produced article, because they are no new commodities, but parts of the old and discarded ship. For this proposition, we draw support from the judgment of the Hon'ble Bombay High Court in the case of CST vs. Delhi Iron & Steel Co. (P) Ltd. (supra). In this case, the respondent, a registered dealer, carried on the business, inter alia, of purchasing condemned and unserviceable ships, dismantling them, and selling the parts. It entered into an agreement with the Shipping Corporation of India for the purchase of a condemned and unserviceable cargo vessel with a stipulation therein that the purchase was "for breaking and scrapping proposes". The dealer dismantled the ship and sold the scrap obtained by paying tax. The STO levied purchase-tax under s. 13 of the Bombay ST Act, 1959, on the purchase price of the condemned ship on the ground that breaking of the ship amounted to manufacture. On a reference to the High Court, the High Court held that the ship was condemned and unserviceable at the time of sale which was under the agreement "for breaking and scrapping purposes". The condemned and unserviceable ship purchased by the dealer was not a ship but re-rollable scrap in the form of an old ship for dismantling. In effect, the dealer acquired only the old materials and articles contained therein which were sold by it in the form in which they were acquired. No process whatsoever was applied to the goods, much less any process of manufacture.
11. In State of Madras vs. Raman & Co. & Ors. (supra) decided by the Hon'ble Madras High Court, the assessee, a dealer in scrap iron, purchased in auction condemned railway coaches sold by railway department and also components of Nissen huts sold by the resultant timber and iron materials in bulk. The question for consideration before the High Court was whether the sale of scrap by the assessee was the first sale taxable under the provisions of the Madras General ST Act as contended by the Revenue or it was second sale exempted from tax as contended by the assessee. The assessee's contention was upheld by the Tribunal. On a revision, the Hon'ble High Court held that though the sales by the railways and the Director of Supplies and Disposals were not sales of scrap iron as such, the intention of the sellers and buyers could be taken to be to sell or buy condemned articles only for the purpose of acquiring the property in the old materials contained in those condemned articles and, therefore, what the assessee purchased in the auction was scrap and when he sold the scrap later, he was only a second seller. This judgment of the Hon'ble Madras High Court has been upheld by the Hon'ble Supreme Court in State of Tamil Nadu vs. Raman & Co. & Ors. and State of Tamil Nadu vs. Govindan & Co. (1994) 93 STC 185 (SC).
12. After hearing the learned Departmental Representative, we are convinced that the issue stands squarely covered in favour of the Revenue and against the assessees by the decision of Bombay Bench of the Tribunal in the case of Virendra & Co. (supra), where our colleagues have followed the judgment of Hon'ble Supreme Court in the case of CIT vs. N. C. Budharaja (supra) and have held as under :
"After the decision of the Supreme Court in CIT vs. N. C. Bhdharaja & Co. (1993) 204 ITR 412 (SC), the concept of adopting a liberal interpretation has been reconsidered and now as per the Supreme Court the principles of adopting a liberal interpretation which advances the purpose and object of beneficial provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the Court to re-write the section or substitute words of its own for the actual words employed by the legislature in the name of giving effect to the supposed underlying object.
The meaning of 'manufacture' and 'production of articles or things' would have to be considered in their ordinary, plan and natural meaning. Breaking or dismantling a ship would perhaps be just the opposite of manufacturing or production of an article or a thing. When a ship is dismantled or broken what is obtained by the person or persons who are engaged in that process are those components by which the ship was constructed or manufactured and if it is possible to reassemble those pieces or parts, the ship may be manufactured or constructed. Hence, it would be doing violence to the language if it is said that while a ship is being dismantled or broken or destroyed, in effect an article or thing is being manufactured or produced. Hence, the activity of breaking or dismantling a ship could not be considered to be an industrial undertaking which manufactured or produced articles or things and, therefore, the assessee was not entitled to deductions under ss. 80HH and 80-I."
Coming to the contentions of the learned counsel for the assessee that the Govt. of India has recognised ship-breaking as industry and, hence, the assessees are entitled to deductions under ss. 80HH and 80-I, we are of the opinion that there is no presumption that every industry is engaged in 'manufacture' or 'production of articles or things'. Even if ship-breaking is considered as an industry in the light of the definition in s. 2(f) of the Industrial Disputes Act, 1947, it would not mean that it would amount to manufacture or production so as to entitle the assessees to claim deductions under the respective sections. The assessees being governed by the Factories Act also would not change the matter in any way, because that is broadly meant for welfare of labourers employed. The argument that the ship-breaking industry is labour intensive and that in the process, heavy machinery like cranes and winches are employed is not relevant in the absence of any manufacturing process involved. Mere application of systematic and sophisticated process would not turn an activity into manufacture. Once the ship is broken, the unit basically is a scrap dealer and nothing else. The Govt. Departments recognising the ship-breaking as an industry is also of no avail; so is the treatment given by the commercial banks, because such recognition/treatment have no bearing so far as the deductions under ss. 80HH and 80-I are concerned. In our considered opinion, ship-breaking activity amounts to carrying out the manufacturing process in a reverse order as originally the ship is built from iron sheets and iron bars and other materials and by process of breaking the same, ship is reconverted into iron scrap and other materials as enumerated in the preceding paragraphs.
13. Though a large number of Tribunal and some High Courts decisions were in favour of the assessee, they are no longer good law after the decision of the Hon'ble Supreme Court in the case of N. C. Budharaja (supra) and Raman & Co. (supra) and V. C. Govindan & Co. (supra).
14. In the light of the above discussion, we reverse the findings of the learned CITs(A) and restore those of the respective AOs.
ITA Nos. 926 & 92815. In ITR Nos. 926 and 927 in the case of Malvi Ship-breaking Co. the Revenue has raised yet another ground that the learned CIT(A) is not justified in deleting the addition under s. 43B of the IT Act, 1961. There were outstanding sales-tax liabilities amounting to Rs. 77,816 and Rs. 23,895 for asst. yrs. 1987-88 and 1989-90, respectively shown at the end of the financial years. The AO added the same under s. 43B. On appeal, the CIT(A) deleted the additions following the judgment of the Tribunal, Ahmedabad in the case of Rajesh Tea Co. and K. S. Lokhandwala.
15.1 After hearing both the sides, we hold that the issue stands covered in favour of the assessee by the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Chandulal Venichand & Ors. (1994) 209 ITR 7 (Guj) and the judgment of the Hon'ble Supreme Court in Allied Motors (P) Ltd. etc., vs. CIT (1997) 224 ITR 677 (SC). Accordingly, these grounds of the Revenue are dismissed.
16. In the result, ITA Nos. 926 and 927 are allowed in part; while rest of the appeals of the Revenue are allowed.