Income Tax Appellate Tribunal - Ahmedabad
Missionpharma Logistics (India) ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL AT
AHMEDABAD
AHMEDABAD "D"BENCH
Before Dr. O.K. Narayanan, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
ITA No.1337/ Ahd/2007
[Asstt.Year:2003-04]
Date of drafted:21.1.10
Missionpharma Logistics (India) Vs. Deput y Commissioner of
Pvt. Ltd., Commerce House, Incom e-tax, Circle-4,
1 s t Floor, Opp: Rajvansh Flats Navjivan Trust Building,
Judge's Bungalow, Road Off; Ashram Road,
Bodakdev, Ahmedabad 380054 Ahmedabad-380014
P AN No. AACCM6133D
(Appellant) (Respondent)
Revenue b y: Shri Anil Kumar, CIT DR
Assessee by: Shri Saurabh N Soparkar, AR
Date of order reserved: 07/01/10
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-VII, Ahmedabad, in appeal No. CIT(A) VII/Cir.4/144/2006-07 dated 26-12-2006. The assessment was framed by the DCIT, Circle-4, Ahmedabad u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 20-03-2006 for the assessment year 2003-04.
2. The first issue in this appeal of the assessee is against the order of CIT(A) in disallowing the claim of exemption u/s.10A of the Act. For this, the assessee has raised the following ground No.2:-
ITA No.1337/Ahd/2007 A.Y. 2003-04Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 2 "2. The learned CIT (Appeals) has erred in law and on facts in confirming disallowance of claim of exemption of income u/s.10A.
Based on the facts of the case, circumstances of the case, provisions of law and ratio of various decisions laid down by the Hon'ble Supreme Court, other High Courts as well as Income Tax Appellate Tribunals, it is prayed that the company is eligible for exemption of income u/s.10A of the Income Ta Act. It is prayed that it be held so now."
3. The brief facts leading to the above issue are that the assessee- company is a 100% subsidiary of Mission Pharma A/S, Denmark (earlier known as Mission Pharma International Project Services A/S) and incorporated on 04-10-2001. The business activity of the assessee-company constituted as re-packing, re-labeling and kit-packing of medicines, pharmaceuticals and medical disposables. The parent company Mission Pharma A/S is a world leader in supplying medical kits through out world and its business unit is set up in a Special Economic Zone (SEZ in short) approved by Developmental Commissioner, Kandla. The assessee-company in its return of income for the relevant assessment year claimed deduction u/s.10A of the Act on the ground that it is a manufacturer and its business is set up in SEZ. During the course of assessment proceedings the Assessing Officer after examining the details and explanations filed by the assessee, disallowed the claim of deduction u/s10A of the Act on the ground that the assessee is not a 'manufacturer'. Aggrieved, the assessee preferred appeal before CIT(A).
4. The CIT(A) noted the fact that the assessee is doing the business of re- packing, re-labeling and kit-packing of medicines, pharmaceuticals and medical disposables and on the basis of the same claimed the same as manufacturing activity and accordingly claimed deduction u/s.10A of the Act. The CIT(A) after considering the submissions of the assessee, dismissed the claim of the assessee by noting the following activities of the assessee- company:-
"(i) Purchase and receipt of the goods i.e. medicines and medical disposables;
(ii) Entry of date of GRN into system;
(iii) Random sampling;ITA No.1337/Ahd/2007 A.Y. 2003-04
Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 3
(iv) Quality check - visual inspection;
(v) Preparation of Kits - arranging various items of different quantity in different size boxes, labeling, putting shipping marks, stapling etc.
(vi) Warehousing;
(vi) Logistics;
He noted that medicines and disposables are not manufactured by the assessee and there are purchased by assessee from different manufacturers. The assessee does not open the seal or aluminum and plastic foils in which each unit of medicine, say, a paracefamol 100 mg. tablet is packed. No change is made in these products either in quality or in quantity. The end user use the medicine as was packed by the manufacturer. The assessee- company re-packs medicine in different quantities without any change in nature or quality of product purchased from manufacturers. Where there is no difference in identity between original commodity and the manufactured article, it is not possible to say that one commodity has been consumed in manufacture of another. The CIT(A) dismissed the claim by holding in para- 5.9 to 5.15 as under:-
"5.9 I have considered the above submissions. It is seen that the appellant has applied for permission for setting up a manufacturing unit at the Kandla, SEZ to the Development Commissioner, SEZ who has granted permission to the appellant to set up a manufacturing unit. But a close look at the application filed before the Development Commissioner shows that the assessee has applied permission for the manufacturing of medicines and disposables in lots and kits stated as under:-
'... ... ... Please refer to your application dated 19.10.2001 on the above subject. This is to convey the approval in terms of the provisions contained in Export and Import Policy and Handbook of Procedure, Vol-I (1997-002) for setting up a unit at Kandla Special Economic Zone for carrying out the under mentioned activities:
Activity/item of Annual capacity Annual Turnover Annual Turnover
manufacture (in lacs) (in US$)
Thousand
Pharmaceutical Lots/Kits
Product namely - 7000 & 5000 I 2300 5000
Medicines & 7000 & 5000 II 2300 5000
ITA No.1337/Ahd/2007 A.Y. 2003-04
Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 4
Disposables 7000 & 5000 III 2300 5000
8750 & 6250 IV 2760 6000
10000 & 7000 V 3220 7000
It is noted that you have projected export turnover of US$ 28000 (in thousand) and net Foreign Exchange Earning (NFE) of US$ 2379 (in thousand) in five years. The approved is based on the details furnished by you in your project application ... ... ..."
From the above, it is clear that though the permission is granted for manufacture of medicines and disposables with use of certain raw materials, the appellant company has not manufactured any of the medicines or medical disposables. The fact that the Development Commissioner has granted permission to set up manufacturing unit cannot in any way change the basic character of business activities of the appellant company from one of trader of goods to a manufacturer. The fact that Development Commissioner has allowed the company to set up a manufacturing unit for manufacturing medicines and disposables and kits cannot be a ground to treat the company ass a manufacturer for allowing deduction u/s.10A. For this purpose, the activities of the company are to be examined and not the intention which it has expressed before the Development Commissioner. Therefore, this argument of the assessee company is not acceptable hence the same is rejected.
5.10 The next point of argument is that judicial pronouncements in support appellant's claim. The appellant has relied on the following case laws in support of its claim that its activities are manufacturing activities:
(i) ITO v. Ektara Exports P. Ltd. 1523 ITR 18
(ii) ISBC consultancy Services Ltd. vs. DCIT 83 TTJ 597
(iii) Aspinwall & Co. Vs. CIT, 251 ITR 323 (SC)
(iv) CIT v. Ajay Printery Pvt. Ltd., 58 ITR 811
(v) CIT vs. Casino Pvt. Ltd. 91 ITR 289,
5.11 I have considered the above decisions. The facts of the case are entirely different. While in appellant's case it is simple case of packing or re-packing without making change in the nature and quality of materials used, in the cases cited above, there is a change in the quality and content of the materials used in the cases cited above. Hence the case laws relied upon by the appellant are not applicable, rather the following case laws relied upon by the AO are squarely applicable of the facts of the appellant's case.
5.12 In a recent case the Hon'ble Madhya Pradesh High Court in the case of Vindhyachal Distilleries (P) Ltd. vs. State of Madhya Pradesh, 5 ITA No.1337/Ahd/2007 A.Y. 2003-04 Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 5 STT (2006) M.P. have held that packing cannot be said to be manufacturing. This decision is squarely applicable to the facts of the appellant. Further, the decisions in the following cases are squarely applicable to the facts of the case of the appellant company:
(i) Seth Chemical Works (P) Ltd. vs. U(OI, (1993) 66 ELT 76 (Cal):
The activity of packing of ultramarine blue manufactured in bulk
(ii) Banner & Co. vs. USI (1994) 70 ELT 181 (Cal);
putting brand name on specified goods does not change the goods and cannot, therefore, amount to manufacture
(iii) UOI vs. J.G. Glass Inds. Ltd.(1998), 96 TAXMAN 29, 38 (SC);
printing on bottles does not involve a process of manufacturing.
(iv) CIT vs. Western India Pharmaceutical Serv. P. Ltd. (1993) 230 ITR 96 (Bom.) 5.13 It is also argued that the provisions of section10A provides for an exemption and when a provision is made in the context of a law which provides for concessional rate of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon the language of the statute. Reliance is place on the decision of CIT vs. Strawboard Mfg. Co. Ltd., 17 ITR 431 5.14 The above decision is not applicable to the appellant's case. The appellant doesn't at all satisfy the conditions to be treated as a "manufacturer". Therefore, the question of taking a liberal view by treating the non-manufacturing activity as a manufacturing one doesn't arise. In the case of CIT vs. N.C. Budhiraja & Co. 204 ITR 417, the Hon'ble S.C has held as under"
"The principle of adopting a liberal interpretation which advances the purpose and object of beneficent 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 rewrite 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. After all, the underlying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature"
5.15 Therefore the appellant is not entitled for status of a manufacturer. On consideration of the facts of the case and the case laws cited above, I hold that AO is justified in rejecting the appellant's claim of ITA No.1337/Ahd/2007 A.Y. 2003-04 Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 6 manufacturing and disallowing the deduction u/s.10A. The disallowance u/s.10A is, therefore, upheld."
Aggrieved, the assessee came in second appeal before us.
5. Before us also Ld. Counsel for the assessee reiterated the same submissions as made before the CIT(A) as well as Assessing Officer. On the other hand, Ld. CIT DR relied on the orders of the lower authorities. He stated that the packing of medicines cannot be terms as a 'manufacturing' as there is no change in the identity between original commodity and the manufactured article. Accordingly, it is not possible that one commodity has assumed the character of manufacture of another and accordingly this is only re-packing or re-labeling of medical kits and this is not a manufacturing activity so as to allow the claim u/s.10A of the Act.
6. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has explained the stage-I procurement of raw materials, stage-II inspection and approval i.e. inspection and approval, stage-III storage and identification, stage-IV, production and stage-V inspection and dispatch. Before us, Ld. Counsel for the assessee made argument of production, i.e stage-IV and stated that normal kit packing can consist of a small as six items and sometimes may go upto about 50 items. On receipt of the kit-pack orders, the list of orders to be consolidated under one kit pack are specified based on the type of requirement by the end user which could be any disaster such as war, earthquake, cyclone, epidemic, firming or sometimes even help programmes organized by various Ministry of Health in different countries. Each product is individually put into dust proof plastic covers and marked clearly in the language most prevalent in the importing country which could be French, Arabic, Spanish, Korean, text on all the packs. Sticker labels are developed in different languages as per requirement and stuck different products similarly packed and quantity specified are thereby put into an outer carton, which is ITA No.1337/Ahd/2007 A.Y. 2003-04 Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 7 marked specially for the project, hospital, funding agency. Sticker's labels for shipping marks and consignee labels are produced along with colour code stickers used for identifying kit for different regional or destination hospitals. Each individual kit is then blued and sealed further shrink strapped and in some cases carrying handles are provided where cranes or forth lift are not existence. From the above facts noted in the orders of lower authorities and the argument made before us. We find that following tests specified are met with, only then one can say that there is manufacture or production:-
"(i) There is a change of transformation of one commodity into another.
(ii) The two commodities are commercially different and distinct.
(iii) The resultant commodity emerging out of the process should have a distinct name, character or use
(iv) All the changes and mere change of size does not tantamount to manufacture and the change should be such as to bring into existence a new commodity having a different identity.
We find that the assessee is in the business of re-packing of medicines and disposable into of the containers, which are used as end product by the user and as there is no change in quality, character or composite of units, the assessee cannot claim the same as manufacturer. We further find from the fact that the assessee does not tamper the seals of medicines. The medicines and the description like contents, composition, lot No, licence No., expiry and manufacturing date remains intact in the case of the assessee and there is no new commodity which is different in quality & quantity that is used by the end users. We find that the assessee's case is just of re-packing after purchase and nothing else. Accordingly, the assessee is not entitled to claim of deduction u/s. 10A of the Act. Accordingly, we uphold the orders of lower authorities and the ground of the assessee's appeal is dismissed.
7. The next issue in this appeal of the assessee is against the order of CIT(A) in not allowing the exempt u/s.80HHC of the Act. For this, the assessee has raised the following ground No.3:-
ITA No.1337/Ahd/2007 A.Y. 2003-04Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 8 "3. Without prejudice to the Ground No.2 above, the learned CIT (Appeals) has erred in law and on facts in holding that the company is not eligible for exemption of income available u/s.80HHC of the Income Tax Act. On the facts & circumstances of the case and provisions of law, it is submitted that the company is eligible for exemption/deduction u/s.80HHC in respect of the exports made by it as it has fulfilled all the conditions to be eligible for entitled of deduction. It is prayed that it be held so now."
8. From the above, it is seen that alternative claim of the assessee is as regards to deduction u/s.80HHC of the Act. We find from the order of the lower authorities that the claim of the assessee's deduction u/s.80HHC of the Act was disallowed on the ground that the Chartered Accountant's report was not filed along with the return of income and some suppliers have also claimed the deduction u/s.80HHC of the Act by treating the sale of the assessee- company as export. As the facts are not clear from the order of the lower authorities and we are of the view that this issue needs re-examination as regards to entitlement to deduction u/s.80HHC of the Act of the assessee, principally the assessee is eligible for deduction u/s.80HHC of the Act. Accordingly, this issue needs re-verification on enterity at the level of the Assessing Officer and AO will decide the claim of deduction after allowing reasonable opportunities of being heard to the assessee.
9. The next issue in this appeal of the assessee is against the order of CIT(A) in not allowing un-absorbed depreciation and carry forward business loss for assessment year 2002-03. For this, the assessee has raised the following ground No.4:-
"4. The learned CIT (Appeals)-VII has erred in not dealing with the ground of appeal relating to non-granting for unabsorbed depreciation and carried-forward business loss for A.Y 2002-03. Based on the facts and legal provisions, it is submitted that the claim of the company for set-off of unabsorbed depreciation and carried-forward business loss for A.Y 2002-03 against the income for A.Y. 2003-04 be allowed. It is prayed that it be held so now".
10. After hearing the rival contentions, we find that the issue regarding unabsorbed depreciation and carry forward business loss of assessment year ITA No.1337/Ahd/2007 A.Y. 2003-04 Missionpharma Logistics (I) Pvt. Ltd. v. DCIT Cir-4. A'bd Page 9 2002-03 before the lower authorities, particularly the CIT(A), this issue was not agitated in the hope of getting deduction u/s.10A of the Act. Now the assessee is interested in contesting this issue regarding unabsorbed depreciation and carry forward business loss relating to assessment year 2002-03. As the main issue regarding u/s.80HHC of the Act has been set aside to the file of Assessing Officer, we feel that this issue also needs re- examination at the level of the Assessing Officer as the facts are not available on records. Accordingly, this issue of the assessee's appeal is allowed for statistical purposes.
11. In the result, assessee's appeal is partly allowed for statistical purposes.
Order pronounced on this day of 28th January 2010
Sd/- Sd/-
(Dr.O.K.Narayanan) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 28/01/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-VII, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad