Income Tax Appellate Tribunal - Pune
B.G. Chitale vs Deputy Commissioner Of Income Tax, ... on 5 June, 2008
Equivalent citations: (2008)116TTJ(PUNE)658
ORDER
K.P.T. Thangal, Vice President
1. These appeals were placed before the regular Bench for hearing. While hearing the matter, the Bench found that there were divergent views on the issue. The Pune Bench of the Tribunal in the case of Koyana Sahakari Dudh Utpadak Prakriya Sangh Ltd., Karad, in ITA No. 626 & 627/PN/1984. vide its order dated 30.09.1986, held that the process of pasteurization of milk does not amount to process of manufacture / production for the purpose of claiming deduction under Section 32A of the Income Tax Act, 1961. Similar view was taken by the Madras Bench of the Tribunal in the case of Kanyakumari District Co-op. Milk Supply Producers Union Ltd reported in 56 ITD 80 (Mad). The Bench further noted that a contrary view had been taken by the Mumbai Bench of the Tribunal in the case of Adarsh Dugdhalaya Pvt. Ltd. reported in 80 CTR 48 (Mum), wherein the Tribunal held that the process of pasteurization of milk amounts to process of manufacture / production for claiming deduction under Section 32A of the Act. This view was followed by the Pune Bench of the Tribunal in the case of Satara Sahakari Dudh Purvatha Sangh Ltd., vide its order dated 07.06.1990. In view of the above difference of opinion, the matter was referred to the Special Bench.
2. The Special Bench was constituted by the Hon'ble President for disposal of the impugned appeals before us. The question referred to the Special Bench is as under:
Whether on the facts of the case and in law, the process of pasteurization of milk amounts to process of manufacture / production for the purpose of claiming deduction under Sections 80-I and 80HHA?
3. In this case the original assessment was completed by the Assessing Officer vide order dated 19.10.1988 for the assessment year 1986-87 and 21.10.1988 for the assessment year 1987-88, treating the assessee's process of pasteurization of milk as amounting to process of manufacture / production, for the purpose of claiming deduction under Sections 80-I and 80HHA of the Act. Subsequently, the learned CIT, on perusal of the record, formed the opinion that the order passed by the AO for both the years as erroneous and prejudicial to the interest of the revenue. A notice was issued to the assessee, seeding why the deduction under Sections 80-I and 80HHA of the Act should not be withdrawn for both the years. Assessee briefly contended that assessee firm is an industrial undertaking engaged in the production and sale of pasteurized milk and milk products; registered under Factories Act, 1948, as it carries on manufacturing process. Assessee firm is also registered as a Small Scale Industrial Unit and employs sizable machinery and manpower. It was contended that the activities of the assessee firm has been accepted as manufacture / production for the assessment year 1985-86 and the proposal to withdraw the benefit of investment allowance for the assessment years 1980-81 and 1981-82, contemplated under Section 263 was dropped after considering the assessee's contention. It was contended that Sections 80-I and 80HHA of the Act, uses the words "engaged in the manufacture or production of an article or thing". The activity of pasteurization of milk involves considerable processing and standardization of milk. The pasteurized milk has an independent ISI code. It is independent from raw milk and therefore there is a manufacture of new product. The assessee, for the above proposition, relied on the decision of the Tribunal in the case of Adarsh Dugdhalaya Pvt. Ltd. reported in BO CTR 48 (Mum) (supra); the decision of the Hon'ble Allahabad High Court in the case of Singh Engineering Works Pvt. Ltd. v. CIT reported in 119 ITR 891 (All); and the decision of the Hon'ble Kerala High Court in the case of CIT v. Marwell Sea Foods reported in 166 ITR 624 (Ker). Assessee also distinguished the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise v. Jayant Oil Mills reported in 3 SCC 340.
4. Assessee's contention was rejected by the learned CIT. He held, pasteurization does not amount to production. He further held, the words used in the sections "manufacture and production" amounts to saying that the end product must be different from the original product, used as raw material. Assessee's contention that pasteurization of milk, which implies certain process that enhances the durability of the milk and consequently, amounts to manufacture / production of a new article or thing, was rejected by the learned CIT. Pasteurization process is heating up to certain temperature and cooling it down, but the end product remains the same - milk. It does not change its form or character. To come to the above conclusion, CIT received support from the decision of the Hon'ble Supreme Court in the case of Jayant Oil Mills (supra), wherein the Hon'ble Supreme Court held that the distinction between vegetable oil in liquid form and hydrogenated oil when it is hardened with melting point higher than 41°C, does not amount to manufacturing. He held that the test for determining whether the process is a manufacturing process, is to find out whether it brings a complete transformation of old components so as to produce a commercially distinct or different entity or commodity. CIT also got support from the decision of the Hon'ble Madras High Court in the case of CIT v. S S M Finishing Centre reported in 155 ITR 791 (Mad), wherein the Hon ble High Court held that the cloth remained the same both at the time of purchase by the assessee and after carrying out various operations by the assessee on the said cloth. This was a case, wherein the assessee purchased cloth manufactured by others and then bleached dyed and sentered the same. Assessee's claim for higher development rebate on the machinery used in its business under Section 33(1)(b)(B)(i) read with Section 32 of the Fifth Schedule to the Income-tax Act, 1961, was negatived by the ITO and the first appellate authority Tribunal reversed the orders of both the authorities. On a reference, the Hon'ble High Court reversed the decision of the Tribunal and held that the assessee could not be said to be engaged in the business of manufacture or production of textiles within the meaning of item 32 of the Fifth Schedule and hence the Hon'ble High Court held that the assessee was not eligible for higher development rebate.
The CIT also distinguished the decisions relied upon by the assessee, in the case of CIT v. M R Gopal reported in 58 ITR 598 (Mad) and in the case of G A Renderian Ltd. v. CIT reported in 145 ITR 387 (Cal).
5. After discussing the issue, the learned CIT followed the decision of the Tribunal in the case of Koyana Sahakari Dudh Utpadak Prakriya Sangh Ltd., Karad (supra) as against Adarsh Dugdhalaya Pvt. Ltd. (supra).
6. Learned Counsel for the assessee submitted a detailed note on pasteurization process and also detailed note on machinery installed use of machinery and information on input of raw milk to poly packed standardized pasteurized milk. At the first stage, assessee purchases raw milk from different centers. Clot on boiling test is performed on milk received so as to eliminate defective raw milk and also odour and smell test is carried out. At this stage, the milk had different percentages of Fat and Sold Non Fat (SNF). At the second stage, the raw milk is pumped through fine duplex filters into balance tanks of pasteurizer, to remove the impurities. At next stage, pre-determined quantity of cow milk is blended with buffalo milk in the pasteurizer balance tank. At next stage, mixed milk (buffalo + cow) from balance tank is pumped by feed pump to a flow controller, which maintains constant flow through the pasteurizer. From the flow controller, milk enters into regenerative preheating section, where it is heated to 45°C. Then it goes to filtration stage. After filtration, it goes to clarifier, which is centrifugal machinery, whereby different fine solid impurities are separated. Thereafter, the milk enters hermetic cream separator. At this stage, there is standardization of fat contents. The fat contents of milk in raw stage vary. Standardization of fat contents involves adjustment of fat content of milk by adding cream or skimmed milk, so as to obtain appropriate specified constant fat content. After standardization of fat and SNF, milk enters regenerative preheating section, where it is heated to 70.5°C. Thereafter, to increase the shelf life of standardized pasteurized milk, it is cooled to 1°C / 2°C by using gtycol chiller. After this, it goes to sterilized insulated storage tank.
7. Technically, pasteurization of milk is an import process. Before pasteurization, the milk was a dangerous source of infection in many cases. It is well known that diseases such as tuber colossus and typhus were spread by milk before such pasteurization.
8. In short, learned Counsel submitted, standardized pasteurized milk is something special. It is different from raw milk. It is skimmed, the fat contents are made low or in some cases no fat at all. Learned Counsel brought our attention to Paper Book Page 33. which is the code for pasteunzation of milk, prescribing techniques used in the manufacture and the methods of sampling and test for pasteurized milk. In fact, the standardized pasteurized milk has a value addition compared to raw milk. It is a different saleable marketable commodity. What is sold in the market is entirely different from the raw milk that purchased from the market, though the name "milk" continues. Learned Counsel brought our attention to Paper Book (Noll) Page 14, the decision of the Hon'ble Madras High Court in the case of Employees Co-op. Milk Supply Society v. Regional Director, ESI Corporation reported in 20 ILD 37 (Mad), wherein the Hon'ble High Court held stores of milk amounts to manufacturing process under the ESI Act. Definitely, assessee falls within the category of industrial undertaking, established in a rural area. Assessee's factory is situated in rural area. Learned Counsel brought our attention to the decision of the Hon'ble Supreme Court in the case of CIT v. Sesa Goa Ltd. reported in 271 ITR 331 (SC), wherein the Hon'ble Supreme Court held that the word "production" has a wider connotation them the word 'manufacture" and every production need not amount to manufacture. Learned Counsel also relied upon the following decisions; -
(1) CIT v. Premier Tobacco Packers P. Ltd. 284 ITR 222 (Mad) (2) CIT v. Prabhtidas Kishordas Tobacco Products P. Ltd. 282 ITR 568 (Guj) (3) CIT v. Shiv Oil and Dal Mill 281 ITR 221 (All)
9. Replying to the above, learned Departmental Representative submitted, standardization by itself does not amount to manufacture / production of milk. But if the milk is further pasteurized, then it may amount to manufacture or producing a new product. As far as the assessee concerned, it does not go beyond the first stage. He further submitted, process may or may not be manufacturing process and in the instant case of the assessee, there is no manufacturing process. Even pasteurization does not change all the bacteria. As far as the assessee is concerned, there is no scientific recycling. In the instant case of the assessee, learned DR submitted, even after doing certain preliminary cleaning and other steps, the product remains the same. For example, he submitted, milk plus bacteria = X; but milk minus bacteria = Y. In the case of the assessee, the raw material is X and it remains X. Assessee's contention would have been acceptable if the product has been turned into Y, The plea of the learned Counsel that it is cleaned and standardized by adding skimmed milk etc., learned DR submitted, does not further assessee's case What is added to milk is milk only. This adding of further milk, skimmed or not, cannot be treated as a manufacturing process. He brought our attention to the decision of the Hon'ble Calcutta High Court in the case of G A Renderian Ltd. v. CIT reported in 145 ITR 387 (Cal), relied upon by the learned Counsel.
Particularly, he brought our attention to Para 10 of the said order, which reads as under:
The point which arises for consideration under the first question is as to whether blending of ore in the course of loading it into the ship through the mechanical ore handling plant constituted manufacture or processing of ore. Now it is well-settled as a result of several decisions of this Court, the latest being the decision of this Court, given on 9th May, 1980, in Civil Appeal No. 2398 of 1978, Dy Commissioner of Sales Tax v. Pio Food Packers , that the test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. This Court, speaking through one of us (Pathak J) pointed out: 'Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place". The test that is required to be applied is: does the processing of the original commodity bring into existence a commercially different and distinct commodity? On an application of this test, it is clear that the blending of different qualities of ore possessing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article, namely, ore, though with different specifications than the ore which is blended, and hence it cannot be said that any process of manufacture is involved in blending of ore.
Learned DR submitted, if the above test is applied to the instant case of the assessee, it could never be said that by adding milk to milk or by heating and cooling, assessee had brought into existence a new product.
10. Learned DR distinguished the decisions relied upon by the assessee. The decision relied by the learned Counsel in the case of Shiv Oil and Dal Mill (supra), learned DR submitted, was decided on a particular fact. There was a clear finding by the Tribunal that after purchase of oil, it was subjected to a process or treatment and what was sold by the assessee was not the same thing as was originally purchased and (here was no contrary material to the above finding before the Hon'ble Allahabad High Court. Hence, learned DR submitted, this decision relied upon by the learned Counsel cannot be applied.
11. Learned DR again submitted, the decision in the case of Premier Tobacco Packers P. Ltd. (supra) is also distinguishable. That was a case wherein the assessee, after thrashing and re-drying, the process which was called Virginia flue-cured tobacco (VFT) in commercial parlance, converted it into lamina and NR stems etc. The end product was used in the manufacture of cigarettes and the raw materials, viz VFT could not be used directly to the manufacture of cigarettes; whereas in the instant case of the assessee, even the so called raw material is good for human consumption. Hence, learned DR submitted, this decision, on facts, is distinguishable.
12. Learned DR submitted, the decision of the Hon'ble Madras. High Court, relied upon by the learned Counsel, in the case of CIT v. Perfect Liners reported in 142 ITR 654 (Mad) is also distinguishable on facts. This was a case where the assessee was engaged in the business of rough castings and supplying the same to the manufacturers of pump-sets, tractors, etc., after machining and polishing them in its factory. The Court held that "manufacture" would mean anything made from raw materials by hand, by machinery, or by art, as cloths, iron utensils, shoes, machinery, etc. The Court held that labour is employed and something is converted into something else, a product which is of value and is used, and in that sense the chips are a new production as a result of a manufacturing process. But in the instant case of the assessee, learned DR submitted, this decision is not applicable as the end product remains the same.
13. Replying to the above, learned Counsel for the assessee submitted, assessee do pasteurization and by this process, it ensures destruction of all pathogenic micro organisms. By heating to a particular temperature and even cooling again, assessee achieves this process. Pasteurization consists of the following process:
(a) Balance tank
(b) Feed pump
(c) Flow controller
(d) Regenerative preheating Section 1
(e) Filtration equipment
(f) Clarifier
(g) Cram separator with standardizing equipment
(h) Powder dosing equipment
(i) Regenerative preheating Section 2
(j) Heating section
(k) Holding section
(l) Flow diversion valve
(m) Cooling section
(n) Valve & fittings
(o) Equipment for supervision & control Learned Counsel submitted, assessee derives the profit only from the final product and not at any intermediary stages. The judicial forums held in many cases that even cutting is a manufacturing process. In the case of Shree Mulchand Co. Ltd. v. CIT repotted in 162 ITR 764 (Bom), the jurisclictional High Court held that an assessee, who is engaged in the export of goods to foreign countries, after purchasing mixed clipped glazed raw wool in heaps from shepherds and petty traders at upcountry centres, the wool which was of various colours, fibres and different staple lengths, sorted out this wool in different qualities, colours and staple lengths and had the wool hand-washed to eliminate dirt, grease and other vegetable matter and thereafter it is dried in the sun on open ground and then it is opened by opener so that lots were blended uniformly to get average export type quality, amounts to manufacturing or processing of goods. The Court held that the assessee has carried out a number of operations on the raw wool purchased and as a result of these activities, the raw wool purchased by the assessee has been converted into uniformly blended wool, ready for sale in the market and the quality and character of the raw wool purchased by the assessee has undergone a change as a result of these activities and hence this activity amounts to processing.
14. Learned Counsel submitted, the question is whether the assessee sold the raw material without any processing. Learned Counsel further submitted, in the case of Shree Mulchand Co. Ltd. (supra), jurisdictional High Court held the purchase of raw wool, cleaning and drying if makes a new product; definitely assessee's activities also converts the raw milk into a marketable product and the market treats this milk as different from the raw milk purchased by the assessee. Learned Counsel submitted, the section is a beneficial one and it should be interpreted liberally; and if two views are possible, the ones beneficial to the assessee should be followed.
15. We heard the rival submissions, gone through the impugned orders, the decisions cited and the question placed before us for our opinion. In the case of CIT v. Sesa Goa Ltd. reported in 271 ITR 331 (SC) (supra), the Hon'ble Supreme Court held that extraction and processing of iron ore amounts to manufacture or production of an article or thing. The Hon'ble Supreme Court held: "the word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods". Here the question is whether by this process a new goods has been come into existence, ff this is the test laid down, then definitely the pasteurization of milk does not amounts to manufacture or production for the purpose of deduction under Sections 80-1 and 80HHA of the Act. The stand of the revenue is that the goods, even after standardization and pasteurization, remain the same. To avail the benefit, the goods should be different from the raw material used by the assessee for making the marketable final product. In the market, the raw milk and the pasteurized milk are treated one and the same commodity, though pasteurized milk could be treated as something gone through "make up" to make it more presentable in the market. The process of cleaning, standardization and pasteurization makes the final product mere more acceptable in the market but not a different commodity.
16. In the case of G A Rendehan Ltd. (supra), relied upon by the assessee, the Hon'ble Calcutta High Court held that the commodity, which is subjected to the process of manufacture, can no longer be regarded as the original commodity, depending on facts. Their Lordships further held: "commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. The test that is required to be applied is: does the processing of the original commodity bring into existence a commercial different and distinct commodity?". Vide Para 16 of its order, their Lordships again considered the meaning of the word 'processing", particularly in the light of the decision of the Hon'ble Supreme Court in the case of Indian Copper Corporation Ltd. v. CCT reported in 16 STC 259 (SC) After discussing the issue, vide Para 17, the Hon'ble High Court set aside the order of the Tribunal and held that "processing" is operation on or treatment of the commodity with a view to develop or prepare the same for market and if the market treats the raw material as something different from the original one, it amounts to processing.
17. In this case the assessee was carrying the business of purchasing tea of different qualities in auction, blending the same by mixing one type of tea with another and sell the tea so blended in packs. The Hon'ble High Court held that it amounts to processing. If this amounts to processing, stages of changes done by the assessee does amount to processing. As we have noted hereinabove vide Para 13, the milk passes through various stages of "processing". Defective raw milk is eliminated, odour and smell test is carried out. The raw milk is passing through fine duplex filters, again to remove the impurities. At next stage, pre-determined quantity of cow milk is blended with buffalo milk and pumped to a flow controller, maintaining constant flow through the pasteurizer. It is heated at 45°C and then it goes to filtration stage. Then the milk enters hermetic cream separator, at which stage the standardization of the fat content is done, i.e. a process of adjustment of fat content of milk by adding cream or skimmed milk so as to obtain appropriate specified constant fat content. The milk is again heated to 70.5°C and then it is cooled using giycol chiller to 1°C / 2°C. inspite of all the process, the name "milk" continues and it is treated as such in the market, though the natural ratio of component changed, it is used for the same purpose as it would have been used in its original stage itself. Mere value adding is not sufficient to treat it as a separate commodity. Such process, we have to treat as an independent process eligible for the claim assessee made.
18. In the case of Perfect Liners (supra), the Hon'ble Madras High Court held that the process of polishing rough casting which are used as component in internal combustion engines, is a manufacturing activity. The Tribunal, in the case of Adarsh Dugdhalaya Pvt. Ltd. (supra), held that the term 'process" is a much wider term. It means a course or method of operation in the production of something which process may be mechanical, manual or chemical. While coming to the above conclusion, the Tribunal further found that the product now marketed is entirely different from the raw material even though the name "milk" still retained. After the process undertaken by the assessee, the milk is fit for consumption. But the same was true even on the raw milk. All processing does not make the assessee eligible for claiming the benefit of Sections 80-I and 80HHA. The wording in both the sections are similar and the criteria laid down is "manufacture" or "production" of an article or thing. Even the assessee is not having a case that he is manufacturing an article or a thing. Assessee says he produces an article or a thing - or is doing "processing" that amounting to production of an article or thing.
19. In the case of CIT v. Sesa Goa Ltd. reported in 271 ITR 331 (SC) supra, the issue was not standardization and pasteurization in that case. Extraction and processing of ore was treated as "production" and it was so specifically treated as such under Section 33(1)(b)(B) read with Item No. 3 of Fifth Schedule to the Act.
20. In the case of M B Chemicals v. DCIT reported in 76 ITD 1 (Pune) (TM), the Tribunal held that the "candy sugar" is a commercially different commodity from sugar because it has also different uses and serves different purposes from ordinary sugar. Coming to the instant case of the assessee, the "use" and "purpose" of raw milk and pasteurized milk is not different. Merely the commodity has undergone some changes, it cannot be treated as two different commodities. In the case of IV! B Chemicals (supra), Tribunal noted that if an article becomes a different commercial article by undergoing a process, there is manufacture. In the instant case of the assessee, as we have already noted, the milk has undergone changes in odour and contents through different stages of activity undertaken. It is standardized, pasteurized and in the market yet treatment given to standardized pasteurized milk is same as of raw milk. It is true it had added commercial value. The term "production" has wider meaning as compared to the term "manufacture", yet each and every processing does not amount to "production". If that be so, the word "production" has no difference from "processing". Nobody has a cave that the meaning of "processing" and "production" is the same.
21. Sections 80-I and 80HHA uses the words "engaged in manufacture or produce...." The activity of pasteurization of milk involves a number of processing. Assessee pasteurizes and standardizes the milk. According to the assessee, the pasteurised milk has an independent ISI code. It is a different product than the raw milk, which amounts to manufacture of new product. In the case of Adarsh Dugclhalaya FM. Ltd. (supra), Tribunal held that the assessee produced a commercial commodity. Tribunal held that end product of the assessee is an article essentially different from the raw material used and the assessee is entitled to the benefit of investment allowance. The word "manufacture" has various shades of meaning and ordinarily involves application of some labour, resulting in a final product, which is commercially different from the article to which the labour was applied. An article is said to be commercially different if it has "distinct character, name and use after the process to which it is subjected". Not so in the case of milk. There is no commercially different use. Use is the same. Only quality improved or changed. All the process does not amount to manufacture / production. The Hon'ble Supreme Court in the case of Idandas v. Anant Rarnchandra Phadke AIR 1982 SC 127, has laid down three tests as to what constitutes manufacture. They are - (i) a certain commodity should have been produced; (ii) the process of production must involve either labour or machinery; and (Hi) the end product should have a distinct character, name and used. As per Black's Law Dictionary "manufacture" is as follows. -
The process of operation of making goods or any material produced by hand, by machinery or by other agency.... The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine.
According to the Webster's Dictionary, "manufacture" means: " (a) to make or fashion by hand or machinery, (b) to work into useful form, (c) to produce in a mechanical way, (d) to produce goods by hand or by industrial art or processes, etc.". The Hon'ble Supreme Court held, approving the Dictionary meaning, "manufacture" means "work up materials into forms suitable for use". The word "material" does not necessarily mean the original raw material, for a finished article may have to go through several manufacturing processes before it is fit and made ready for the market. What is itself a manufactured commodity may constitute a "material' for working it up into a different product. In the case of CIT v. Tata Locomotive & Engg. Co. Ltd reported in 68 ITR 325 (Bom), the jurisdictional High Court held that the word "manufacture" has wider and narrower connotation. The Hon'ble High Court held as under:
The word 'manufacture' has a wider and also a narrower connotation. In the wider sense it simply means to make, or fabricate or bring into existence an article or a product either by physical labour or by power, and the word 'manufacturer' in ordinary pariance would mean a person who makes, fabricates or brings into existence a product or an article by physical labour or power. The other shade of meaning, which is the narrower meaning, implies transforming raw materials into a commercial commodity or a finished product which has an entity by itself, but this does not necessarily mean that the materials with which the commodity is so manufactured must lose their identity. Thus, both the words 'manufacture and 'produce' apply to the bringing into existence of something which is different from its components...(p. 325)
22. In the case of ACIT v. New Nandi Seeds Corporation reported in 99 ITD 702 (Ahd), the Tribunal held that Bajra seed produced by the assessee is a different article or thing than the raw Bajra, fit for human consumption for all intent and purpose, since after giving treatment with poisonous chemicals it becomes unfit for consumption. This is because the poisonous elements removed. The milk in the normal course does not contain any poisonous elements that harm healthy normal human.
23. The question before us is the milk that assessee acquired from the market, which was usable even at that stage, after the process of pasteurization and standardization, does it becomes a different commodity, though the name remains the same "milk' and the use has been changed. Is impurities removed, bacteria free standardized milk, by adding / removing fat contents, now marketed by the assessee is it different from the raw milk, though the use is same? Assessee do processing of the milk. But all the processing does not amount to production.
24. Now let us come to the different stages of pasteurization and standardization. The complete pasteurize consists of:
(a) Balance Tank: The float controlled inlet valve regulates the flow of milk and maintains a constant level in the balance tank. If the supply of milk is interrupted, the level begins to drop. The pasteurizer must be full at all times during operation in order to prevent product from burning on to the plates.
(b) Feed Pump: The milk is pumped from the balance tank, which provides a constant head, through the pasteurizer by the feed pump.
(c) Flow Control Valve: The flow controller maintains the flow through the pasteurizer at the correct value. This guarantees stable temperature controller and the constant length of the holding time for a required pasteurization effect.
(d) Regenerative Preheating: The milk continues from the flow controller to the first section in the pasteurizer, the preheating section. Here it is regeneratively heated to 45°C with pasteurized milk, which is cooled at the same time.
(e) Duplex Filters. After preheating milk enters duplex filtration equipment for filtration. The filtration is carried out at 45°C as the filtration efficiency at this temperature is more.
(f) Clarifier: After filtration, milk still contains some impurities which are very fine in nature which cannot be removed by mere filtration. In a centrifugal milk clarifier, the milk is introduced to the separation channels at the outer edge of the disc stack, flows radially inwards through the channels towards axis of the rotation and leaves through an axial outlet. On the way through the channels the impurities are separated and thrown back along the lower sides of the discs to the periphery of the separator bowl. There they are collected in sediment space. As the milk passes along the full radial width of discs, the time of passage also allows very small particles to become separated.
(g) Hermetic Cream Separator with Standardizing Equipments: Hermetic separator is used for standardization of fat contents in milk and for separation of milk. The fat contents of the incoming milk varies. Standardization of fat contents involves adjustment of fat contents of milk by addition of cream or skimmed milk as appropriate to obtain a specified fat content. During separation in a paring disc separator, preheated milk is introduced in to the separator bowl from above through the stationary axial inlet tube. The heavier solid particles settle outwards and are deposited j in the sediment space. Cream moves towards the axis of rotation and passes through the channels to the cream paring chamber. The skimmed milk leaves discs stack at the outer edge and passes between the top disc and the bowl hood to the skimmed milk paring chamber.
Standardization of the fat content of milk: Direct standardization starts with separation of preheated whole milk in to skimmed milk and cream with consent fat contents. A regulated amount of cream is then remixed with the skim milk in a in-line system immediately alter the separator in order to obtain standardized milk of a required fat content.
Powder Dosing equipment: After standardization of fat, SNF of the milk is adjusted by using Powder dosing equipment. Skim Milk Powder is added in a hopper, Vacuum created by venturi effect, draws the powder from the hopper & mixes with the milk.
After standardization of fat & SNF milk enters Regenerative Preheating Section 2 where it is heated to 70.5 C. Final heating of milk to Pasteurization temperature (75°C) with hot water takes place in the heating section of the pasteurizer. The hot milk continues to the holding section.
25. All these steps, in short, are purification, boiling and standardization. It does not go beyond the stages of "processing" and by this processing it has become little more "clean" and "more fit" for consumption. But the milk in its raw stage was also fit for consumption. Assessee do processing. But all processing does not amount to production of an article or thing. If the assessee markets curd, ghee or other products after processing, that amounts to "manufacture or production of an article or thing". Pasteurization and standardization does not amount to production.
26. In view of the above discussion, we hold that the process of standardization and pasteurization of milk amounts to processing but does not amount to manufacture / production for the purpose of claiming deduction under Sections 80-I and 80HHA of the Act.
27. In the result, appeals by the assessee are rejected and appeals by the revenue are allowed.
Pronounced on 5th June 2008