Income Tax Appellate Tribunal - Ahmedabad
Chandravadan K.Bagadia, Vapi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
Before Shri N.S. SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing: 21.10.09 Drafted on: 21.10.09
ITA No.835/AHD/2005
Assessment Year : 2001-2002
Assistant Commissioner Vs. Shri Chandravadan K. Bagadia,
of Income Tax, Block No.405, 4 t h Floor,
Vapi Circle, Vasundhara Co-op. Housing
Vapi Societ y, Chala,
Vapi.
PAN/GIR No. : AACPK0441M
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri C.K.Mishra, Sr. D.R.
Respondent by: None
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by Revenue against the order of the ld.CIT(Appeals)-III, Surat, dated 28.12.2004 on the sole ground that Learned Commissioner of Income Tax(Appeals) erred in holding that cutting of 'E&I' laminations from CRNGO and CRGO sheets by the assessee is a manufacturing activity and eligible for deduction under section 80IB of the Income Tax Act, 1961 and allowing deduction of Rs.29,48,780/- under section 80IB of the Income Tax Act, 1961.
2. The facts of the case leading to this appeal are that the assessee is engaged in the business of producing electrical laminations. The manufacturing process of the assessee consists of cutting 'E&I' laminations from CRNGO and CRGO sheets. The Learned Assessing Officer was of the view that the activity of cutting 'E&I' laminations from CRNGO and CRGO sheets for producing electrical laminations is not manufacture of any article or thing and therefore, the same was not eligible for deduction under section 80IB of the Act and disallowed ITA No.835/Ahd/2005 M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -2- the claim of deduction under section 80IB of Rs.29,48,780/-. In appeal, the Learned Commissioner of Income Tax(Appeals) allowed the claim of the assessee holding that the assessee was engaged in the manufacturing of electrical laminates from from CRNGO and CRGO sheets.
3. Aggrieved by the order of the Learned Commissioner of Income Tax(Appeals), the revenue is in appeal before us.
4. Notice for the hearing was sent to the respondent assessee by Regd. Post with A.D. on 6.08.2009 which was returned by the postal authority with the remark 'left'. Thus, none was present for the respondent when the case was called for hearing.
5. The Learned Departmental Representative very fairly conceded that the issue now stands covered by the decision of Hon'ble Gujarat High Court in the case of Commissioner of Income Tax vs. Alfa Lamination (2009) 22 DTR (Guj) 161 and therefore, the appeal of the revenue has to be dismissed.
6. We have heard the Learned Departmental Representative and perused the material on record. In the instant case, the assessee is engaged in the business of producing electrical laminations. The manufacturing process of the assessee consists of cutting 'E&I' laminations from CRNGO and CRGO sheets. The Learned Assessing Officer was of the view that the activity of cutting 'E&I' laminations from CRNGO and CRGO sheets for producing electrical laminations is not manufacture of any article or thing and therefore, the same was not eligible sfor deduction under section 80IB of the Act and disallowed the claim of deduction under section 80IB of Rs.29,48,780/-. In appeal, the Learned Commissioner of Income Tax(Appeals) allowed the claim of the assessee holding that the assessee was engaged in the manufacturing of electrical laminates from CRNGO and CRGO sheets. We find that the issue at hand is now covered by the decision of Hon'ble Gujarat High Court ITA No.835/Ahd/2005 M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -3- in the case of Commissioner of Income Tax vs. Alfa lamination (2009) 22 DTR (Guj) 161, wherein it was held as under: -
8. There is no dispute on facts, inasmuch as it is an accepted position between the parties that the assessee company is engaged in making CRGO core lamination or transformer core, a vital component of various kinds and types of transformers used in power distribution. As already noted, the core lamination is made by using the raw material known as CRGO/CRNO. The majority has recorded the following processes as being involved in making of core lamination after purchasing CRGO/CRNO coils and/or sheets.
I Slitting : Slitting process a high precision computerized constitutes the first important manufacturing activity and fundamental in order to obtain the final product. The quality and accuracy of the process largely determines the quality of the final product. The slitting is done on the slitting lines (machines) maintaining ' two loops ' system which ensures that the grains are not strained or stretched during the process. The loop before and after slitting also ensures the parallelbility of the slits and minimum edge camber to prevent roughness on the edges. All the slitting blades are made of fully hardened and ground alloy steel to ensure sharpness and durability particularly to remove camber (waviness), is taken to keep the edge burr under control, within the specific tolerances.
II Shearing : The second stage of the process is shearing at 45 ' or 90 ' as required by the customers. Strict tolerances are maintained and a unique three point location method to ensure accuracy in dimension in terms of angle and length. Burrs are controlled by ensuring the blades are always sharp. Continues line inspection exists to ensure that all parameters are strictly maintained within the acceptable limits.
III-V Notching : The third and important step of the manufacturing process is the requirement of V-Notch which is per the customer ' s design and position of centre limbs. Accuracy is of utmost importance during individual V-Notching operations. During step lap, the size and position of V- Notch will differ due to different sizes of plates.
IV-Punching and holing : The fourth step of the process is known as punching and holing of limbs and plates. As per customer ' s drawings and cutting instructions holes are punched on to the yoke plates. The yoke plates are kept under the holing power press machines to achieve the desired position of holes. The position of holes may even be offcentre with respect to the longitudinal axis of the limb. During step lap, punching of holes varies according to different sizes of plates. These holes are utilized during bolting and assembling the core lamination. All limbs/plates or laminations : After the above processes, physically all the limbs or plates are prepared however every single and individual plate is yet to be further processed to restore or improve its quality characteristics.
V-Annealing : The fifth and one of the most important steps of the process is the annealing process. This process is undertaken to deburr and relieve the stress and strains on the limbs/plates through a roller hearth annealing furnace, ITA No.835/Ahd/2005 M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -4- CRGO electrical steel and core laminations develop stress, strains and burrs during shipment transit and processing which affects its quality. Annealing process is down as per the mill ' s specification at a temperature of 820 for 72 to 90 seconds depending upon the thickness and grade of material. This process of annealing is to restore and improve the magnetic and electrical properties of lamination.
VI-Testing of lamination : After annealing, the laminations are physically inspected for technical details. They are verified to ensure that they are as per customer ' s drawings and specifications. Key aspects like length, width, thickness, mitering, holing, notching and physical appearances are verified and examined during this process. The verification is done by experienced and skilled quality executives. To certify and verify that the annealing process has restored or improved the magnetic and electrical properties of the lamination, a test is conducted. The Franklin power supply unit measures the surface insulation of the lamination and the Epstein tester iron loss tester measures the core/iron loss in the lamination. The quality and technical staff ensures that the lamination is as per its technical details. Certificates are prepared and issued by quality Department as per the results.
VII-Core stacking : The core laminations are stacked as per customer ' s specification. The laminations are stacked in such a fashion that minimum manhandling is occurred while assembling/packaging or transporting the core. Due to the large sizes of core laminations of power transformers, they stacked and directly sent to packaging Department for packaging and forwarding.
VIII-Core assembly : The transformer laminations for distribution transformers are assembled and built to form an assembled transformer core. Drawings, specifications and details are provided by the customers. The supporting utilities to build the core lamination are also supplied by the customers which include iron channels, iron rods of various sizes, nuts and bolts, insulation tape, craft paper, resins etc. All the limbs/plates are interleaved in mitered joints in order to facilitate the passage of the magnetic/electrical flux and to avoid hot spots and reduce no load losses, no load current and low noise level. Highly experienced, professional and trained personnels are employed to assemble the transformer core. The personnels practice utmost care during building the core and ensure that stacking factor, building, window height, air gapping and other technical aspects are within technical limitations/details.
IX-Testing of assembled core : After assembling and building the core, it is mandatory to test and certify the no load losses of the built core. EMCO no load tester measures and ensures that its technical results are within standard limits specified in customer ' s drawings. The technical staff and testing laboratory are fully equipped to detect and rectify any lapse in the built core. Certificates are prepared by quality Department.
X-Packaging and forwarding : For packing the assembled cores, the whole core is horizontally laid down on to wooded skids then securely wrapped with jute cloth and plastic covers. The core is then strapped tightly to the skids/pallets with steel straps. For packing stacked core laminations, individual limbs/ laminations are packed separately with jute cloth and plastic wrappers further ITA No.835/Ahd/2005 M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -5- they are strapped tightly onto wooden skids/pallets. Strapping the final product on to wooden skids ensures and prevents any damaged or disturbance to the material during transportation. Packing lists provided to customers. The packaging Department follows the pyramid style of packing the laminations which is advantageous during core assembly.
9. Admittedly, the majority opinion has recorded that the aforesaid activities in cases of some assessees are without the process of annealing but the said fact by itself does not make any difference. The majority opinion, as expressed by the Third Member, in his order, reads as under :
".... Looking to these facts, there cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes. I also find that there was no dispute that the raw material from which the core is made is called CRGO coils whereas the item which has emerged after various processes is called transformer core. It is also undisputed position that the CRGO coils even with few processes cannot be used in a transformer unless all the processes were complete. It is the transformer core only which is end-product which could be used in the manufacturing of transformer. Thus there cannot be any dispute that due to various processes, the product has distinct name, shape and uses. By these processes the raw material loses its identity and new product comes into existence which is commercially recognized as a new product.
45. I have, therefore, examined as to whether out of various processes performed by the assessees, it could be said that the manufacture of transporter core has taken place. I find that during the course of assessment proceedings as well as appellate proceedings, the experts opinion from SAIL, VJTI and ERDA was filed. These institutions are well recognized institutions in the technical fields. Once technical opinion from them was filed the same should have been considered on its merits. Though the opinion expressed by them was not sacrosanct yet once the same was filed, the same should be accepted or rejected on merits. I have also perused the opinion given by them in the forms of question and answer also. In their opinion they have confirmed that various activities performed by the assessees for making the transformer core was manufacturing activity. Nothing has been brought to my notice to take a different view in this regard."
10. Thus, the findings of facts, after appreciation of evidence on record, by the Tribunal are that CRGO coils even with a few processes, out of all the processes enumerated hereinabove, cannot be used in a transformer unless all the processes were completed. That after completion of all the processes, CRGO/CRNO coils get converted into transformer core which is the end- product which can be used in manufacture of transformer. There is no dispute that due to various processes, the end-product, which is an input for the purpose of manufacturing transformer, has a distinct name, shape and use. After the raw material in the form of CRGO/CRNO coils and/or sheets goes through all the aforesaid processes, the raw material loses its identity and a new product comes into existence which is commercially distinct from raw material on which the processes have been performed. The Tribunal has further referred to various opinions of different experts on the subject and recorded that such technical opinions should be considered on merits, and though not sacrosanct, either the ITA No.835/Ahd/2005 M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -6- same should be accepted or rejected on merits, but cannot be ignored. That the experts have opined that various activities performed by the assessee for making the transformer core amount to manufacturing activities and nothing was pointed out to take a different view, i.e. different from the view expressed by the experts.
11. In light of the aforesaid findings of facts recorded by majority of the Members of the Tribunal, the Court is of the opinion that it cannot be said that any substantial question of law is involved. Whether a particular activity amounts to manufacture or not would always be a question dependent upon the facts and evidence on record and would be based on the facts of each case. The only issue which would call for an inquiry is as to whether correct tests have been applied after finding the facts on record. The tests to ascertain whether an activity amounts to manufacture or production of an article or thing have been laid down and reiterated by various decisions of the apex Court and this High Court. Broadly, the requirement is that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end-product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw material should go in as inputs in the process of manufacture and the result must be manufacture of other goods. The article produced must be regarded by the trade as a new and distinct article having an identity of its own, an independent market after the commodity is subjected to the process of manufacture. The nature and extent of the process would vary from case to case, and in a given case, there may be only one stage of processing, while in another case, there may be several stages of processing, and perhaps, a different kind of process at every stage. That with every process, the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, that it can be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final product does not retain the identity of the raw material after it has undergone the process or processes of manufacture. [CIT vs. Prabhudas Kishordas Tobacco Products (P) Ltd. (2006) 201 CTR (Guj) 312 : (2006) 282 ITR 568 (Guj)].
12. Applying the aforesaid tests to the facts found by the Tribunal, it is not possible to come to the conclusion that any legal infirmity exists in the impugned order of the Tribunal so as to give rise to substantial question of law. The Court is also of the opinion that in a case where the subject matter involves technical issue and opinion of technical experts in the field has been placed on record, unless and until such opinion of an expert is dislodged by placing on record a contrary opinion and giving an opportunity to the expert to deal with such contrary opinion, and thereafter examining the expert on the said issue, it would not be correct to discard such an opinion summarily. In fact, the Court and the Tribunal, or any other forum for that matter, would be wholly ill-equipped to deal with such technical opinion on merits and should refrain from undertaking such an exercise without following the aforesaid procedure. The Tribunal has in the circumstances rightly, while recording majority opinion, given due credence to the opinion of the technical experts of the field.
ITA No.835/Ahd/2005M/s.Chandravadan K. Bagadia Asst.Year -2001-02 -7-
13. Accordingly, the appeal is dismissed in absence of any substantial question of law."
The above decision was followed by the Hon'ble Gujarat High Court in the case of Commissioner of Income Tax vs. National Lamination Industries (2009) 22 DTR (Guj) 169.
7. Respectfully following the above decisions of the jurisdictional Hon'ble Gujarat High Court, we confirm the order of the Learned Commissioner of Income Tax(Appeals) and dismiss the appeal of the revenue.
8. In the result, appeal of the revenue is dismissed.
Order pronounced in the Court at the close of the hearing on 21.10.2009.
Sd/- Sd/-
( MAHAVIR SINGH) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 21/10/2009
Paras#
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad