Income Tax Appellate Tribunal - Mumbai
Aakash Stone Industries Ltd. vs Assistant Commissioner Of Income Tax on 9 August, 2006
Equivalent citations: (2007)106TTJ(MUM)128
ORDER
Shailendra K. Yadav, J.M.
1. Both these appeals have been filed by the assessee against the respective orders of CIT(A). As common issue is involved in both the appeals, they were heard together and are being disposed of by this common order for the sake of convenience.
ITA No. 2968/Mum/20042. The assessee is a limited company engaged in the business of manufacture of polished and finished marble slabs, tiles, table tops etc. from imported and indigenous rough marble blocks. The factory of the assessee-company is located at Silvasa. For the year under consideration, the assessee filed its return of income on 30th Nov., 2000 declaring total income at 'nil' after claiming deduction under Section 80-IB of the Act to the tune of Rs. 1,54,33,566. The said deduction was claimed in respect of industrial undertaking located in an area specified in the Eighth Schedule, i.e., Silvasa. The return was processed under Section 143(1) of the Act on 5th Feb., 2002. Subsequently, the notice under Section 148 of the Act was issued to the assessee on 8th July, 2002 proposing to reopen the assessment of the assessee-company under Section 147 of the Act. The assessment under Section 143(3) r/w Section 147 of the Act was finally completed on 26th Sept., 2003 disallowing deduction under Section 80-IB of the Act. The CIT(A) confirmed the same which has been agitated before us. The learned Authorised Representative of the assessee reiterated the submission made before and oppose the order of the CIT(A).
3. The relevant section under which deduction has been claimed by the assessee is reproduced as hereunder:
Section 80-IB(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in Section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(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:
Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in Sub-section (4) shall apply as if the words 'not being any article or thing specified in the list in the Eleventh Schedule' had been omitted.
Explanation 1.For the purposes of Clause (ii)...
Explanation 2. Where in the case of an industrial undertaking....
(iv) in a case where the industrial undertaking manufacturers or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
Section 80-IB(4) reads as under:
The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking:
Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 2002.
4. The basic issue before us is whether or not the assessee was engaged in manufacturing or producing an article or thing in terms of Section 80-IB(2)(iii) of the Act. The assessee claims that it is engaged in the business of manufacturing polished marble slabs, tiles, table tops etc. from imported and indigenous rough marble block. A rough marble block is a solid piece of hard material especially of stone or a portion of land excavated from mountains and/or quarries, which is covered with mud, cavities and other particles. The said raw block is used by the assessee as raw material and subjected to various processes with the help of machines and manual labour to produce finished products like polished marble slabs, tiles, table tops, etc.
5. The various processes involved in this regard have been mentioned by the assessee, which are summarised as under:
(i) Blocks of similar appearances and quality are identified;
(ii) Rough marble block is cleaned with water;
(iii) To give marble block cubical and dimensional form, it is peeled and dressed manually and mechanically;
(iv) The dressed marble block is then inspected by an expert to find out natural flaws in the marble block such as hairline cracks, holes etc.;
(v) The natural flaws are corrected by applying GP Resin and other chemicals, catalyst etc. which penetrate inside the blocks and settle in the holes and cracks;
(vi) The blocks are kept for drying for minimum 24 hours;
(vii) Once the dressed block is dried, pieces of indigenous marble are pasted manually on four sides of the block with the use of GP Resin and again kept, in open space for drying;
(viii) The dressed marble block is put into cutting machine for the purpose of cutting into slab. The machine is fitted with high quality blade attached with export quality of diamond segments. Continuous water supply is required for cutting block and for this shower system is attached and arrangement is done to recycle the water. Normally, it takes minimum 8 to 10 hours to cut a dressed block into standard uniform marble slab. Sometimes if the nature of the marble block is very hard then it takes 20 to 22 hours to cut a block. Similar looking marble blocks are cut into slabs. A proper detailed designing plan is involved in undertaking cutting and polishing of marketable marble slabs. Cutting is done n such a way that the quality, appearance of the marble slabs, can easily be identified.
(ix) The finished product i.e. marble slab is of thickness ranging from 20 mm. to 17 mm. The manufactured slabs are required to be padded on its backside. The padding is undertaken on each slab by applying fibreglass mat pasted on the slab with the help of GP Resin, catalyst, and is, therefore, kept for drying;
(x) After sorting and grading of the slabs and in order to remove the natural flaws, hair cracks etc. the GP Resin mixed with other catalyst and pigment in the prescribed ratio is applied on the front side of each slab. The uniform shapes and quality of the marble slabs are derived after padding, filling the cracks, removing cavities etc. Again the slabs are kept for drying;
(xi) The slabs are cut from its edges to get square or rectangular shapes. The slabs are given rectangular, square or particular shape as per the requirement of the customer;
(xii) The polishing is also done to get fine finish on one side. The slabs are polished mechanically by using high quality abrasives and tin oxide powder to give the slabs its maximum beauty and strength;
(xiii) The slabs are again cut into specific sizes for the purpose of making assorted slabs, tiles etc.;
(xiv) During the above processes, slurry, cupchi are generated which have no use like a marble slab.
6. From the above, it is claimed that the assessee is engaged in manufacturing/production of polished marble slabs, tiles etc., and for the same it obtained permission/approval from different Government authorities and registered itself as manufacturer with the following authorities:
(i) Sales-tax Department of Dadra & Nagar Haveli;
(ii) Administration of Dadra & Nagar Haveli (Directorate of Industries);
(iii) Administration of Dadra & Nagar Haveli (Electricity Department);
(iv) Pollution Control Committee (Daman & Diu and Dadra & Nagar Haveli);
(v) Administration of Dadra & Nagar Haveli (Town and Country Planning Department) ;
(vi) Central Excise Department; and
(vii) Director General of Foreign Trade (Issuing authority for actual user license).
7. In support of the aforesaid, copies of various registration certificates were enclosed in the paper book of the assessee:
(i) Factory license;
(ii) Permanent SSI registration;
(iii) Central Excise registration;
(iv) Sales-tax registration;
(v) Pollution Control Board; and
(vi) Electricity bill.
8. From the above, it was submitted that the excise duty is chargeable in respect of product of the assessee-company. Under the Central Excise Act, duty is attracted on production or manufacture of excisable goods. The fact is not disputed that the assessee was engaged in manufacture and production of excisable goods under the Central Excise Act, 1944. In the IT Act, 1961, the words 'manufacture and production1 per se have not been defined under the IT Act. However, the Hon'ble Kamataka High Court in the case of CIT v. Mysore Minerals Ltd. , wherein the assessee-company was engaged in extracting granite from quarry, converting the same to slabs, polishing and cutting before effecting the sale of the same. It was held (i) that the original assessment granting the relief under Sections 32A and 80-1 of the Act to the assessee was not erroneous and the order of the CIT under Section 263 withdrawing the relief was not proper; (ii) that extracting granite from quarry and cutting it to various sizes and polishing was manufacture or production of any article or thing and the assessee's business activity was an industrial undertaking for the purpose of granting reliefs under Sections 32A and 80-1. The Hon'ble Supreme Court dismissed the Special Leave Petition filed by the Revenue against the above judgment, reported in (2002) 254 LTR (St) 278. The Hon'ble Court in the case of CIT v. Sesa Goa Ltd. (2004) 192 CTR (SC) 577 : (2004) 271 ITR 331 (SC) affirming the decision of Mysore Minerals (supra) held that excavating and processing ores amounts to production within the meaning of Section 80-I of the Act and would qualify for special deduction.
9. The Hon'ble Bombay High Court in the case of CIT v. Supreme Graphics Creations (P) Ltd. , wherein the assessee was using paperboard corrugative sheets as raw material for manufacturing printed laminated cartons. The final product was printed paperboard container, plain and varnished, laminated, foil embossed and waxed cartons, printed e-flute corrugated board cartons and printed catch covers. The characteristics of finished goods had totally changed after laminating, corrugating, printing, punching and pasting. The final product was specific. The operations carried out by the assessee were manufacturing process. The assessee was held entitled to special deduction under Section 80-IB of the Act. In the case of Supreme Graphics Creations (supra), the Hon'ble jurisdictional High Court has followed the decision of Empire Industries Ltd. v. Union of India .
10. The Hon'ble Punjab & Haryana High Court in the case of East Indian Cotton Manufacturing Co. (P) Ltd. v. Assessing Authority-cum-Excise & Taxation Officer (1972) 30 STC 489 (P&H) while dealing with the provision of Central Sales-tax Act, 1956, held that bleaching, sizing and dyeing of grey cloth terms into a commercially different marketable commodity and it as such amounted to "manufacture" of new commercial product. The ratio of East India Cotton Manufacturing Co. (P) Ltd. (supra) was impliedly affirmed in Assessing Authority v. East India Cotton Manufacturing Co. Ltd. (1981) 48 STC 239 (SC), Empire Industries Ltd. v. Union of India (supra) and Ujagai Prints v. Union of India .
11. In the instant case also, the assessee transforms rough raw marble blocks into finished polished slabs by subjecting the raw blocks to several processes like peeling, dressing, correcting natural flaws, padding, sorting, grading, shaping, sizing, polishing etc. The resultant finished product is a commercially distinct commodity having distinctive name and use. This is evident from the bill of entry of purchase of raw blocks wherein the said item has been defined as "rough marble blocks" whereas in the sales invoice, the finished product has been described as "marble slabs polished". The units of measurement are also different i.e. the rough blocks are measured in metric tons whereas the polished marble slabs are measured in square feet or square meters. It is clear from the sample copies of purchase bills enclosed at pp. 10 to 15 of the assessee's paper book and the copies of sales bills enclosed at pp. 16 to 18 of the assessee's paper book. Accordingly, the processes undertaken by the assessee fulfil all the criteria/tests for constitution 'manufacture' as discussed above.
12. The AO, while disallowing the claim of the assessee, mainly relied on the judgment of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. v. CIT . In the said case, the activity undertaken by the concerned assessee was limited to mining of limestone and marble blocks and, thereafter, cutting and sizing the same before being sold in the market. The cutting and sizing marble blocks etc. are carried out only for the case of handling and transportation. Even after being cut into smaller blocks, the cut blocks retain the same characteristics as existing at the mining stage. The cut blocks remain in the same raw form as the uncut marble blocks. However, in the case before us, as a result of various processes carried out by the assessee, the raw materials and the finished products are different commercial commodities having distinct identity and usage. As such, the ratio of Lucky Minmat (supra) is not applicable to the facts of the present case of the assessee.
13. Out attention was invited to the circular of CBDT, bearing No. 729 dt. 1st Nov., 1995 (1995) 129 CTR (St) 1 : (1995) 216 LTR (St) 141B. The said circular is reproduced as under:
Benefit of Section 80HHC for export of processed mineralsClarification regarding export of cut and polished dimensional blocks, granite or other rocks.
The deduction under Section 80HHC is available, as at present, in respect of 'cut and polished materials and rocks including cut and polished granites' w.e.f. 1st April, 1991 by virtue of insertion of item (x) in the Twelfth Schedule to the IT Act, 1961. The export of dimensional blocks of granite is presently ineligible for the benefit of Section 80HHC, in view of the CBDT Circular No. 693, dt. 17th Nov., 1994 (1994) 122 CTR (St) 8 : (1995) 211 ITR (St) 25.
2. On the representation made by the Granite Association and CAPEXIL, the issue has been reconsidered. The representation basically brings to light that rough granite is cut to dimensional blocks in uniform colour and dimension and export proceeds are realised on volume and dimensional basis. Thus, the dimensional blocks of granite are exported only after going through a mechanical process, involving substantial value addition to rough granite.
3. The Board is, therefore, of the view that while 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. When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting, but also, a certain amount of dressing and polishing is involved to remove various natural flaws such as colour variations, grain variations, joints, fissures, (holes, patches, hair line cracks, etc. The profits derived from the export of such granite dimensional blocks would, accordingly, be eligible for deduction under Section 80HHC of the Act.
(Sd.) Dr. Dheeraj Bhatnagar, Under Secretary to the Government of India.
In this background, the stand of the assessee is that the apex IT authority has clarified that when rough granite is cut and polished into dimensional blocks of uniform colour and size, there is substantial value addition to rough granite; that while granite alone is 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. Cutting granite blocks into size, pressing and polishing them would constitute manufacture in the context of relief under Section 80HHC. It, thus, follows that production of cut and polished marble tiles, slabs etc. entails carrying out of several manufacturing processes on rough raw marble block, at the end of which a distinguishable value added marketable commodity emerges. A rough marble block is only a portion of land excavated from mountains and/or quarries which is known as such in the market, whereas a polished marble slab or tile is the finished product emerging after carrying out of several mechanical and manual processes, fit for final usage by the end user. By no stretch of imagination can the rough marble block be regarded as the same commercial commodity as polished finished marble slabs, tiles or table tops etc. Accordingly, we agree with the contention of the assessee that rough raw marble blocks have the different usage than as polished marble slabs, tiles and table tops.
14. The extent of value addition involved when a rough mineral is polished has also been clarified by the CBDT vide Circular No. 693, dt. 17th Nov., 1994 (1994) 122 CTR (St) 8 : (1995) 211 ITR (St) 25. In the said circular, the CBDT has taken a view that "for availing of the benefit under Section 80HHC, it is necessary that the rock is not only cut into blocks but also polished before it is exported. This is in the line with Government's policy to encourage export of polished granite and other rocks where value addition before export is high and to discourage export of raw blocks where value addition is low". As such, as distinguished from the case of Lucky Minmat (P) Ltd. (supra) relied upon by the AO, wherein there was negligible or insignificant value addition to raw marble blocks. In the instant case, the assessee is producing a high value added marketable commodity having a distinctive name, character and use. In view of the above, we agree with the contention of the learned Authorised Representative on behalf of the assessee that it has carried out manufacturing process on raw blocks. This view is fortified by the judgments and CBDT circular as discussed above. Accordingly, we hold that the assessee is engaged in manufacture/production of polished marble slabs, tiles, table tops, etc. in terms of Section 80-IB(2)(iii) of the Act. The compliance with other conditions under Section 80-IB has not been disputed by the Revenue authorities. As such, we agree with the contention of the assessee that it is entitled for deduction under the provisions of Section 80-IB of the IT Act, 1961.
15. Without prejudice to the above, we find that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT highlighted that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it.
16. Regarding alternative ground that in case the assessee is allowed deduction under Section 80-IA of the IT Act, 1961, at the appellate stage, interest income of the assessee amounting to Rs. 3,88,616 should not be considered as eligible for deduction under Section 80-IA of the Act. In this regard, it was submitted that the fixed deposits were made out of business compulsion and the interest earned thereon was having direct and immediate nexus with the business of industrial undertaking of the assessee, the assessee was eligible for deduction under Section 80-IB of the Act (erstwhile Section 80-IA) on the interest earnings. Accordingly, the order of the lower authorities disallowing the claim of the assessee-company under Section 80-IA in respect of interest on fixed deposits was requested to be quashed. In the interest of justice, we restore this issue to the AO with the direction to decide whether fixed deposits were made out of business compulsion so as to decide the issue whether interest earned thereon was having direct nexus with the business of industrial undertaking of the assessee. Accordingly, the assessee is eligible for deduction under Section 80-IB of the IT Act, 1961 on this count be decided after providing due opportunity of hearing to the assessee.
17. The issue of interest under Sections 234A, 234B and 234C is consequential to the main issue, which is also directed to be decided accordingly. The issue of penalty is premature. Moreover, no argument on this account was raised. So the same is dismissed.
18. As a result, both the appeals of the assessee are partly allowed.