Indian Kanoon - Search engine for Indian Law

(1) Registration of the assessees, as manufacturing concern under various other Acts or the Certificate issued by various Institutes were not decisive factors whether the activity of the assessees was of manufacture or not. The issue could be decided considering the facts of the case.

(2) The only case on the very subject was of Jhonson Electric Co. v. Collector of Central Excise , New Delhi. In this case, it was held that the assessee was engaged in the manufacturing activity. The assessees cases were on better footing as these assessees were performing more comprehensive activities than the activities performed by Jhonson Electric Co. (supra). (3) In two cases of M/s National Lamination Industries and Alfa Lamination Industries, the AO while passing the orders has accepted that due to annealing activities there was some structural change in the metal. These activities increase the iron loss of the core, relieves the lamination of the plastic and elastic stresses and improves the magnetic value of the transformer core. But the present AO has adopted that annealing process does not bring out any structural change in the metal. Admittedly, the present AO has sent his report without verifying as to all the actual effect of annealing which was accepted by the AO who passed the order. Thus after annealing process the quality and structure of the lamination strip used in the transformer core definitely improved and increased.

14.5 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not making a speaking order whether the process of heating named as annealing by the assessee, that does not change any structure or character, is not manufacturing as held by the Hon'ble Madras High Court in the case of CIT v. Meenakshi Asphalts .

14.6 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not making a speaking order whether catting is not manufacturing as held by the Hon'ble Apex court in the cases relied by the Assessing Officer and heating that does not change any structure or character is not manufacturing as held by the Hon'ble Madras High court in the case of CIT v. Meenakshi Asphalts .

10. The assessee also submitted a detailed representation before the CIT(A). On the basis of these representations, the A.O. was asked to submit a combined report in the case of the both the assessee, latest by 3.8.2004. It was specifically brought to the notice of the A.O. that if any new thing is required, the same may be submitted separately. The A.O. submitted his reports one on 24.8.2004 and other on 22.9.2004.

11. The CIT(A) considered the submissions of the parties, perused the assessment order and also visited the factory premises of the assessee to inspect the process on the spot. He held that the final production in the case of the assessee is totally different in electrical properties in comparison to the raw coils. CRGO raw material can be used in other electrical applications whereas CRGO laminations can be used only in different types of Transformers. The CRGO material is in coil and sheet form whereas after process it is converted into Transformer core, which consists of number of pieces stacked. Each CRGO lamination produced is specific to the customer's requirements and cannot be used by other customers. He referred to a decision of the CEGAT Special Bench 'B1" New Delhi in the case of Jhonson Electric Co. v. Collector of Central Excise , a similar case relating to manufacturing of stampings or laminations. In that case that the appellant have Imported Cold Rolled Grain Oriented Electrical Grade Silicon Steel sheet, which after cutting in particular forms straight away went into transformers as stampings or laminations. In this case, the cut laminated strips can be used only for the purpose of placement as a cave in a transformer and not for any other purpose. It would indicate that the manufacture of this cut strips was with a view to manufacture electrical stampings; that when the manufacture is for particular utility, namely, lamination for transformers, the manufacturing activity would be established. It is the effect of the operations that is mattering for deciding the issue; that there is a substantial and basic change in the product in view of the processes of cutting and the design involved. The steel sheets or strips, which are subject to cutting would no longer be sheets but become stampings or laminations for use in the transformer. Thus, it is a new product compared with a steel sheet or laminated sheets. After cutting to particular shapes, the strips left their character of strips, plane and simple and became laminations or stampings. The strips that have been formed, shaped and worked upon would never be strips again to be used as such. Thus, cutting of the strips amounts to manufacture." He also observed that, "The annealing process has been explained during the course of assessment proceedings. During the course of hearing, a copy of the table showing iron loss and magnetizing current loss before and after the annealing process was given. This table was also submitted before the Assessing Officer. After going through this table, the CIT(A) was convinced of a definite reduction in iron loss and magnetizing current loss after the annealing process. The percentage reduction in iron loss at 1.5T is 14.5 -19.5 and at 1.7T is 19.5 - 32.4. The percentage reduction in magnetizing current loss at 1.5T is 54 - 84.6 and at 1.7% is 120 - 244. Some report was submitted by the then Assessing Officer that annealing process does not bring about any structural changes in the metal but he did not agree with that and said that 'In the assessment order itself, the Assessing Officer has given the finding that the annealing process performed by the assessee though decreases the iron loss of the core and relieves the laminations of plastic and elastic stresses and improves the conductivity and magnetic value of the transformer core, it cannot be said that simply because of this process, a new product comes into existence.' Based on the figures in the table of reduction of iron and magnetizing loss and the process of annealing, the CIT(A) was of the opinion that after the annealing process, the quality and structure of the lamination strips, used in the transformer core are definitely improved and increased. Considering the various processing stages of the of the assessee's activity including the design and drawing involved, the annealing process, the assembling process, the test certificate given and packing in wooden pallet he expressed no doubt that the activity of the assessee was a manufacturing activity. The CRGO coils/sheets, he observed, loose their identity during the manufacturing process and a new and different article comes into form which is called transformer lamination core. It is commercially known in different name in the market than CRGO coils/sheets. It is a different marketable article compared to the CRGO coils/sheets. The CRGO coils/sheets loose their character while cutting to particular shape and size and get structural and qualitative change after annealing process. After assembling process, it becomes the transformer lamination core, entirely a different article.

Heating or Annealing done by the assessee means passing the CRGO sheets through electric furnace for a few seconds. It is a scientifically established fact that unless and until heat is substantially absorbed; there can be no structural change. The annealing done by the assessee only regularizes the disturbed orientation of silicon grains on the surface of the material The furnace of the assessee is such that it has a conveyor belt, which runs constantly. The CRGO sheet is put on the conveyor belt and in few seconds, the CRGO sheet comes out from the other end.