Income Tax Appellate Tribunal - Mumbai
Crystal Oil (P.) Ltd. vs Income-Tax Officer on 6 September, 1991
Equivalent citations: [1992]40ITD15(MUM)
ORDER
R.D. Agrawala, Judicial Member
1. The business of the assessee-company is that of processing of deteriorated lubricating oil, refining the same and making it marketable once again.
2. The ITO granted investment allowance to the assessee.
3. Considering it to be erroneous in so far as it was prejudicial to the interest of the Revenue, the learned Commissioner of Income-tax (in short 'CIT') initiated action under Section 263 of the Income-tax Act, 1961.
4. In response to the notice it was contended by the assessee before the CIT that their activity of refining of waste lubricating oil amounted to manufacture of a new marketable product, which was different than mere processing. Explaining, it was submitted that the waste raw material was called "black oil", which had lost its quality of serving as an affecting lubricant. It had absorbed in it certain impurities. This raw material by the process of dehydration, treatment with acids, distillation and filtration was converted into an efficient lubricant again. It required the use of plant and machinery like kettle, meter, acid tank, compressor, pressure pumps, furnace, boiler and cooking tank etc.
5. The plea of the assessee did not find favour with the learned CIT. He took the view that as per the settled norms an application of manual or mechanical force in the operations is not the deciding consideration but it is the effect of the operation on the particular commodity to come to a conclusion whether or not a particular activity amounts to manufacture. It appears appropriate to quote the reasoning advanced by the learned CIT in negating the assessee's plea :
I am unable to accept the contentions of the assessee. It is well settled that the application of manual or mechanical force in the operations is not the deciding consideration but it is the effect of the operation on the commodity that is material processing has a wider connotation than manufacturing so that all operations amounting to processing would not necessarily amount to manufacturing the basic material the assessee acquired as a raw was lubricating oil having a particular chemical composition. That substance remains as the final product of the assessee. It is not that lubricating oil was not available in the raw material or that the finished product has a different chemical composition. The two are basically the same commodity with the difference in the degree of impurity or foreign matter. The induction or removal of foreign matter from the same basic substance does not bring about the transaction required to constitute manufacture.
6. Before us challenging the view taken by the CIT, the learned authorised representative for the assessee in the first instance invited our attention to the details of the work done by the assessee in making the lubricant oil usable once again. The first of these is a process chart, available at page 6 of the paper book which gives the details of the various stages, before the waste oil becomes efficient and workable oil i.e., in a finished form. These stages are as under :--
Feed Stock Settling and Decantation Dehydration Acid Treatment and Neutralisation Clay Treatment Filtration Additive Blending Finished Oil
7. Page 7 gives the list of various machineries such as, kettle, Furnace, Chimney etc., required in the entire processing. Page 8 describes the manner in which the process takes place with application of acid etc.
8. After placing before us the aforesaid facts reliance was placed on a decision of the Bombay High Court in the case of Burmah Shell Refineries Ltd. v. G.B. Chand, ITO [1966] 61 ITR 493. Reliance was also placed on few other cases in Kilmarnock Equitable Co-operative Society Ltd. v. IRC 42 TC 675 wherein it was held that when the coal was cleaned and then packed into containers of a convenient size it was subjected to a process. In Addl. CIT v. Farrukhabad Cold Storage (P.) Ltd. [1977] 107 ITR 816 (All.) it was held that preservation of goods in cold storage amounts to processing. Lastly reliance was placed on a decision of the Apex Court in CIT v. Kalsi Tyre (P.) Ltd., [SLP (Civil) No. 6867 of 1981] wherein their Lordships of the Supreme Court dismissed a SLP by the department against a Delhi High Court judgment whereby the High Court on a reference held that the assessee-company was engaged in the business of retreading tyres carried on "manufacture of processing of goods" and was, therefore, an "industrial company" eligible for the lesser rate of tax. It was also submitted on behalf of the assessee that they were registered with the Director of Small Scale Industries as was evident from a copy of the certificate available at page 5 of the paper book.
9. Opposing, it was contended by the learned departmental representative that the process undergone by the assessee in making the waste oil usable again did not amount to manufacturing. It was only a "process", which did not amount either to manufacturing or production of an article. In this connection reference was invited to a decision of the Allahabad High Court in Singh Engg. Works (P.) Ltd. v. CIT wherein their Lordships, drawing a distinction between manufacture and processing held as under :--
The broad distinction between 'manufacture' and 'processing' is that manufacture involves bringing into existence of a new product: a product which is of a different chemical composition or whose integral structure is different from the raw materials. Processing, on the other hand, is doing specific acts to the raw material in order to change its shape or size, etc.
10. In the case of Koshy's (P.) Ltd. v. CIT [1985] 154 ITR 53 it was held by the Karnataka High Court that the processing has in one sense a wider meaning than the term 'manufacture'. At some point, 'processing' and 'manufacturing' may merge, but where the commodity retains a substantial identity through the processing stage, it will be said to have been processed and not manufactured. Further, in the case of Kamal Biscuit Factory v. CST [1985] 60 STC 344 the Allahabad High Court held that manufacture is the result of one or more processing but processing does not include manufacture always and everywhere.
11. Considering the matter carefully we are unable to agree with the assessee's stand. All processes cannot be manufacture. Only that process which has the effect of changing or transferring from an old item into a new goods, changing the identity, use and purpose of goods undergone by the process can amount to manufacture. In the case of Jayant Oil Mills (P.) Ltd. [1989] 3 SCC 343, the Supreme Court held that by the process which can be considered to be manufacture a new identifiable goods in the sense known in the market as such must come into being.
12. As far as the cases as relied on by the learned counsel for the assessee are concerned in Burmah Shell s case (supra), the view taken by the Bombay High Court was only provisional. Moreover, their situation was different inasmuch as the controversy was as to whether refining crude oil amounted to manufacture or production of mineral oil or not. Crude oil is in a very different situation as it requires extensive processing to make it a normal usable oil. In the case in hand even as per the assessee' s own version they were mainly taking out the impurities absorbed in the waste oil to render it as an efficient oil once again. As far as the process of dehydration and use of acids is concerned it is a part of that process but it cannot be said that it amounted to manufacturing a new identifiable goods known in the market coming into being, as held by the Supreme Court in the case of Jayant Oil Mills (P.) Ltd. (supra).
13. As held by the Allahabad High Court in the case of Kamal Biscuit Factory (supra) manufacture is the result of one or more processing but processing does not include manufacture always and everywhere.
14. One of the acid test in determining as to whether a particular process amounts to manufacturing or not is that where the commodity retains its substantial identity through processing stage, it will be said to have been processed and not manufactured, as held by the Karnataka High Court in Koshy (P.) Ltd.'s case (supra). In the case in hand, the assessee by basically taking out the impurities from the waste lubricating oil makes it usable once again. In our considered opinion, it will amount to a purifying process. It does not and cannot be said to manufacture or production of anything.
15. The fact that the assessee is registered with the Director of Small Scale Industries can also not be any avail as the registration by itself does not mean that they are engaged in any manufacturing activity.
16. We will now take up the Kalsi Tyre (P.) Ltd.'s case (supra) on which strong reliance was placed on behalf of the assessee. In this case the Supreme Court has dismissed a SLP against the judgment of the Delhi High Court wherein it was held that the assessee who were engaged in the business of retreading tyres carried on manufacture or processing of goods. In the first instance the dismissal of a SLP as is well settled does not necessarily mean the approval of the impugned view by the Apex Court. A SLP under Article 136 of the Constitution is granted by the Supreme Court when there are some special or extraordinary feature in the case requiring its attention. Apart from this, we have a clear decision of the Supreme Court in the case of Jayant Oil Mills (P.) Ltd. (supra) wherein their Lordships have clearly held that all processes need not to manufacture and it must be such a process which transforms old articles into goods and change the identity, use and purpose of use of the goods undergone by the process. It was further held that by the process which can be considered to be manufacture a new identifiable goods in the sense known in the market as such must come into being. In our considered opinion, the assessee's case does not answer these specific requirements of law. Last but not the least, even on facts the ratio of Kalsi Tyres (P.) Ltd.'s case (supra) docs not come to assessee's rescue. Retreading of tyres would be requiring several processes including a process by which grooves on the tyre are re-created to catch grip on the road. While this may amount to manufacturing, merely taking out certain impurities from the waste oil and making it usable once again may not. In our opinion, it is a mere process. As a result we do not find any infirmity in the view taken by the learned CIT.
17. In the result, the appeal is dismissed.