Civil Appeal No(s). 2916 OF 2007 [@ Special Leave Petition (Civil) No.
19383-19390 of 2004]
Dalveer Bhandari, J
H1. This appeal is directed against
the judgment dated 18th January, 2000 passed in ITR No. 10 of 1996 by
the High Court of Kerala at Ernakulam.
2. The short question which arises
for adjudication by this court is whether the respondent assessee who is
engaged in purchase of different qualities of tea and blending the same
for the purpose of export is entitled to weighted deduction under
section 35B (1A) of the Income Tax Act, 1961 (hereinafter referred to as
the Act ) in respect of expenditure incurred for its export for the
assessment year 1979-80.
3. Brief facts which are necessary
to dispose of this appeal are as under:
The assessee is a registered firm
engaged in the business of export of tea. The respondent assessee
purchases tea of diverse grades and brands and blends the same by mixing
different kinds of tea. In this appeal, we are called upon to examine
whether the business activity of the respondent assessee falls within
the ambit of production, manufacturing or processing? The respondent
assessee would be entitled to weighted deduction under section 35B(1A)
of the Act in case the goods exported were manufactured or produced in
small scale industrial undertaking but, in case it falls short of
production or manufacture, then the respondent would not be entitled to
the benefit under section 35B(1A) of the Act. The said benefit,
according to the relevant statute, is restricted to only goods produced
or manufactured in the small scale industrial undertaking for export.
The benefit cannot be extended in case the goods are merely processed by
the small scale industrial undertaking. In order to derive benefit under
section 35B (1A) the goods have to be either manufactured or produced by
the small scale industrial undertaking.
4. Section 35B (1A) was introduced
with effect from 01.04.1978 and the respondent assessee claimed
entitlement to weighted deduction being a small scale exporter. The
Income Tax Officer disallowed the claim of the respondent assessee.
5. The respondent assessee aggrieved
by the said order preferred an appeal before the Commissioner of Income
Tax (Appeals). The appeal filed by the respondent assessee was allowed
on the ground that the respondent assessee was a small scale industrial
unit in the light of certificate of registration granted to it by the
Directorate of Industries, Kerala State. The respondent was engaged in
purchasing different kinds of tea and blending the same for the purpose
of export and was entitled to the weighted deduction under section 35B
(1A) of the Act.
6. In an appeal filed by the
appellant against the decision of the Commissioner of Income Tax
(Appeals), the Income Tax Appellate Tribunal endorsed the view of the
Commissioner of Income Tax (Appeals). The Tribunal in its order relied
on the decisions of the Calcutta High Court in G.A. Renderian Ltd. v.
Commissioner of Income-Tax, West Bengal-I 1984 (145) ITR 387 and
also of this court in Chowgule & Co. (P) Ltd. & Another v. Union of
India & Others (1981) 1 SCC 653 and held that the respondent
assessee was entitled to weighted deduction under section 35B (1A) of
7. The Revenue challenged the
judgment of the Tribunal before the High Court. The High Court upheld
the judgment of the Tribunal. The Revenue, aggrieved by the impugned
judgment of the High Court, has preferred this appeal.
8. In order to properly comprehend
the controversy involved in this case, it would be proper to reproduce
section 35B (1A) & (2) as introduced by the Finance Act, 1978:
(1A) Notwithstanding anything
contained in sub-section (1), no deduction under this section shall be
allowed in relation to any expenditure incurred after the 31st day of
March, 1978, unless the following conditions are fulfilled, namely:-
a) the assessee referred to in that
sub-section is engaged in:-
(i) the business of export of goods
and is either a small scale exporter or a holder of an Export House
(ii) the business of provision of
technical know-how, or the rendering of services in connection with the
provision of technical know how, to persons outside India; and
b) the expenditure referred to in
that sub-section is incurred by the assessee wholly and exclusively for
the purpose of the business referred to in sub-clause (1) or, as the
case may be, sub-clause (ii) of clause (a).
Explanation For the purpose of this
(a) small-scale exporter means a person who exports goods manufactured
or produced in any small scale industrial undertaking or undertakings
owned by him; Provided that such persons do not own any industrial
undertaking which is not a small-scale industrial undertaking.
(b) Export House Certificate means a
valid Export House Certificate issued by the Chief Controller of Imports
and Exports, Government of India;
(c) provision of technical know-how has the meaning assigned to it in
sub-section (2) of Section 80MM;
(d) small-scale industrial undertaking has the meaning assigned to it in
clause (2) of the Explanation below sub-section (2) of section 32A.
(2) Where a deduction under this
section is claimed and allowed for any assessment year in respect of any
expenditure referred to in sub-section (1), deduction shall not be
allowed in respect of such expenditure under any other provision of this
Act for the same or any other assessment year.
9. All the three stages, namely,
production, manufacturing and processing of tea can be enumerated as
under. The tea is produced in the tea gardens. This first stage is
called production of tea. The second stage is manufacture of tea. In
this stage, the tea leaves are plucked from the tea bushes and by
mechanical process, tea leaves are converted to tea. This second stage
is considered manufacturing of tea. The third stage is blending of
different qualities of tea in order to smoothen its marketability. This
third stage is considered processing of tea.
10. The controversy involved in this
case revolves around construction and meaning of terms manufacture ,
production and process , therefore, we deem it appropriate to deal with
these terms in detail as enumerated in various dictionaries and by the
decided cases to properly comprehend the distinction in these terms.
11. The term manufacture has not been defined in the Income Tax Act,
12. The term manufacture has been
defined in section 2(f) of the Central Excise Act, 1944. Parts (i) and
(ii) of section 2(f) read as under:-
2(f). 'Manufacture' includes any process-
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or
Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as
amounting to manufacture"
12A. Clause (f) gives an inclusive
definition of the term 'manufacture'. According to the dictionary, the
term 'manufacture' means a process which results in an alteration or
change in the goods which are subjected to the process of manufacturing
leading to the production of a commercially new article. In determining
what constitutes 'manufacture' no hard and fast rule can be applied and
each case must be decided on its own facts having regard to the context
in which the term is used in the provision under consideration.
13. The term manufacture has been
defined by the Black Law Dictionary (5th Edition) as under:Manufacture :
The process or operation of making goods or any material produced by
hand, by machinery or by other agency; anything made from raw materials
by the hand, by machinery, or by art. The production of articles for use
from raw or prepared materials by giving such materials new forms,
qualities, properties or combinations, whether by hand labor or machine.
14. The word manufacture has been
defined in Halsbury s Laws of England, 3rd Ed. Vol. 29 p.23 as under:-
Manufacture has been defined as a manner of adapting natural materials
by the hands of man or by man-made devices or machinery and as the
making of an article or material by physical labour or applied power ;
but the practice is to accept as manufacture a wider range of industrial
activities than such a definition would suggest. It includes articles
made in situ as well as articles made in a factory.
15. The Supreme Court of the United
States of America has defined the term manufacture a century ago in
Anheuser-Busch Brewing Assn. v. United States (1907) 52 L Ed. 336.
The definition has been followed in subsequent American, English and
Indian cases. The definition reads as under: Manufacture implies a
change, but every change is not manufacture, and yet every change in an
article is the result of treatment, labour and manipulation. But
something more is necessary. ..There must be transformation; a new and
different article must emerge, having a distinctive name, character or
16. In Black s Law Dictionary (5th Edition), the term production has
been defined as under:
Production. Process or act of producing. That which is produced or made;
i.e. goods. Fruit of labor, as the productions of the earth,
comprehending all vegetables and fruits; the productions of intellect,
or genius, as poems and prose compositions; the productions or art, as
manufactures of every kind.
17. The term produce , as defined in
the New Webster s Dictionary of the English Language (Deluxe
Encyclopedic Edition), is as follows:
Produce, To bring forth into existence; to bring about; to cause or
effect, esp. intellectually or creatively; to give birth to; to bear,
furnish, yield; to make accrue; to bring about the performance of, as a
movie or play; to extend, as a line.- v.i. To bring forth or yield
appropriate offspring, products, or consequences.
18. This Court in Deputy
Commissioner of Agricultural Income-tax & Sales Tax, Central, Zone,
Ernakulam v. M/s Palampadam Plantations Ltd. AIR 1969 SC 930 had
considered the meaning of the term produce used in the Kerala General
Sales Tax Act, 1963. The expression used was the person who sells goods
produced by him by manufacture, agriculture, horticulture or otherwise.
19. The expression produced was
given a wider meaning than the word manufacture pointing out that the
word produced will include an activity of manufacturing the materials by
applying human endeavour on some existing raw material, but the word
produce may include securing certain produce from natural elements, for
example, by growing plants on soil, or by operating mines and the like
or for example, by milching the cow the milkman produce milk though he
has not applied any process on any raw material for the purpose of
bringing into existence the thing known as milk.
20. 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
21. According to Oxford Dictionary one of the meanings of the word
process is "a continuous and regular action or succession of actions
taking place or carried on in a definite manner and leading to the
accomplishment of some result."
22. In Chambers 21st Century
Dictionary, the term process has been defined as under:
Process: 1. a series of operations performed during manufacture, etc. 2.
a series of stages which a product, etc. passes through, resulting in
the development or transformation of it.
23. In Collins Cobuild English
Dictionary, the term process has been defined as under:
A process is series of actions which are carried out in order to achieve
a particular result.
A process is a series of things
which happen naturally and result in a biological or chemical change.
When raw materials or foods are
processed, they are treated chemically or industrially before they are
used or sold.
24. The term process as defined in
the New Webster s Dictionary of the English Language [Deluxe
Encyclopedia Edition] is as under:
Process, To treat or prepare by some
particular process; to convert, as an agricultural commodity, into
marketable form by some special treatment; Produced or treated by some
artificial means; as, process sugar; of or pertaining to photographic
reproduction that involves photo-engraving or photomechanical means;
relating to special effects obtained in motion pictures through the use
of special filming techniques.
25. Mr. Mohan Parasaran, learned
Additional Solicitor General appearing on behalf of the appellant
submitted that the activity of the respondent, namely, blending of tea,
packaging and selling the same does not amount to manufacture or
production of a commercially new and different product. According to Mr.
Parasaran, the activity of the respondent assessee can at the most
amount to processing of tea. According to him, the processing is an
intermediate stage of the final product. Therefore, the respondent
assessee is not entitled to the weighted deduction under section 35B
(1A) of the Act because under the said section, the benefit has been
confined to the exporters engaged in the export of goods manufactured or
produced in any small scale industrial undertaking owned by them.
According to Mr. Parasaran, there is no doubt that the assessee has a
small scale undertaking but its activity does not fall either in the
category of manufacturing or producing. The benefit under this section
can be extended to the assessee if the goods exported are either
manufactured or produced and not when the goods are merely processed.
26. Mr. Parasaran in support of his
arguments relied on various decided cases of this court and the other
27. In East Texas Motor Freight
Lines v. Frozen Food Express 100 L Ed. 917, the Supreme Court of United
States of America held that the processing of chicken in order to make
them marketable, but without changing their substantial identity, did
not turn chicken from agriculture commodities into manufactured
commodities. The Indian courts have been influenced by the definition of
processing as given in this case and some other American cases while
dealing with the terms manufacture , production and process.
28. In Bay Bottle Gas Co. v.
Michigan Dept. of Revenue 74 N.W. 2d 37, 39, 344 Mich. 326, while
dealing with the term process , the court observed as under:
To process means to subject,
especially raw material, to a process of manufacturing, development,
preparation for the market, etc.; to convert into marketable form, as
livestock by slaughtering, grain by milling, cotton by spinning, milk by
pasteurizing, fruits and vegetables by sorting and repacking.
29. According to the Marine Products
Export Development Authority Act 1972, [s.3(1)], processing in relation
to marine produces includes the preservation of such products such as
canning, freezing, drying, salting, smoking, peeling or filleting and
any other method of processing which the authority may, by notification
in the Gazette of India, specify in this behalf. According to section
2(C) of the State Financial Corporation Act 1951, the expression
processing of goods includes any art or process for producing, preparing
or making an article by subjecting any material to a manual, mechanical,
chemical, electrical or any other like operation.
30. Mr. Parasaran placed reliance on
the decision in D.D. Shah & Bros. v. Union of India & Another
reported in (2006) 283 ITR 486 (Raj.). In this case, similar question
arose for consideration before the Rajasthan High Court whether the
blending of different types of tea by the assessee amounts to production
of a thing or an article by an industrial undertaking within the meaning
of the expression as used in section 80-1B of the Act.
31. The High Court in the said
judgment has dealt with the terms manufacture , production and process
in great detail. The High Court in the said judgment arrived at a
definite finding that blending though does not amount to manufacturing
of goods but it clearly amounts to processing of goods in the sense that
it brings some change in the goods.
32. It may be pertinent to mention
that reference of Chowgule s case acquires greater significance because,
in that case, this Court dealt with a Division Bench judgment of the
Bombay High Court in the case of Nilgiri Ceylon Tea Supplying Co. v.
State of Bombay (1959) 10 STC 500. This Court observed that the judgment
of the Bombay High Court did not lay down the correct law because it
held that the activity of the assessee did not amount to processing.
33. Details of relevant Statute are
Section 8 of the Bombay Sales Tax Act, 1953, so far as is subject to the
provisions of section 7, there shall be levied a sales tax on the
turnover of sales of goods specified in column I of Schedule B at the
rate, if any, specified against them in column 2 of the said Schedule,
after deducting from such turnover (a) sales of goods -
(i) which have been purchased from a registered dealer on or after the
appointed day, or
(ii) on the purchase of which the dealer has paid or is liable to pay
the purchase tax :
Provided that the goods have not been processed or altered in any manner
after such purchase.
34. This Court held that the
different brands of tea which were mixed by the assessee in Nilgiri s
case for the purpose of producing a tea mixture of a different kind and
quality according to the formula evolved by them, there was plainly and
indubitably processing of different brands of tea, because these brands
of tea experienced, as a result of mixing, qualitative change, in that
the tea mixture which came into existence was of different quality and
flavour than the different brands of tea which went into the mixture.
35. Mr. Parasaran has also placed
reliance on Deputy Commissioner of Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam v. M/s PIO Food Packers 1980 Supp. SCC 174. The
court in this case also dealt with the distinction of manufacture and
processing . In the said case, the appeals were filed against the order
of the Kerala High Court holding that the turnover of pineapple fruits
purchased for preparing pineapple slices for sale in sealed cans is not
covered by section 5-A(1)(a) of the Kerala General Sales Tax Act, 1963.
This court after examining the relevant cases reached the conclusion
that while preparing pineapple slices from the original fruit
(pineapple), the commodity continues to possess its original identity,
notwithstanding the removal of inedible portions, the slicing, and
thereafter canning it on adding sugar to preserve it. The court was of
the opinion that in canning the pineapple, the processing is definitely
involved but it would not amount to manufacture as no new commodity came
36. In Bharat Forge and Press
Industries vs. CCE (1990) 1 SCC 532, this court observed that tariff
item 26-AA(iv) encompasses all sorts of pipes and tubes. It calls for no
distinction between pipes and tubes manufactured out of sheets, rods,
bars, plates or billets and those turned out from larger pipes and
tubes. It is of no consequence whether the pipes and tubes are
manufactured by rolling, forging, spinning, casting, drawing, annealing,
welding or extruding.
The expression pipe fittings merely
denotes that it is a pipe or tube of a particular length, size or shape.
Pipe fittings do not cease to be pipes and tubes, they are only a
species thereof. They are merely intended as accessories or supplements
to the larger pipes and tubes. They are pipes and tubes made out of
pipes and tubes. There is no change in their basic physical properties
and there is no change in their end use. It cannot be said that pipe
fittings, though they may have a distinctive name or badge of
identification in the market, are not pipes and tubes.
37. The court in this case observed
that the "processing" may be an intermediate stage in manufacture and
until some change has taken place and the commodity retains a continuing
substantial identity through the processing stage, we cannot say that it
has been manufactured. That does not, however, mean that any operation
in the course of such process is not in relation to the manufacture. 38.
While interpreting the same exemption notification in Standard
Fireworks Industries, Sivakasi and another v. Collector of Central
Excise, Madurai AIR 1987 1 SC 600, this Court held that cutting of
steel wires and the treatment of paper is a process for the manufacture
of goods in question.
39. Now, we deem it appropriate to
deal with some cases in which the term manufacturing has been construed
and interpreted by this court in order to properly comprehend the subtle
distinction between manufacturing and processing
40. In Union of India & Others v.
Industries Ltd. & Others (1998) 2 SCC 32, this Court has laid down a
two-fold test for determining whether the process is manufacturing .
First, whether by the said process a different commercial commodity
comes into existence or whether the identity of the original commodity
ceases to exist. Secondly, whether the commodity which was already in
existence will serve no purpose but for the said process. Applying the
two-fold test, it was held that printing on bottles does not amount to
41. A Constitution Bench of this
court in M/s Devi Das Gopal Krishnan etc. v. State of Punjab & Others
AIR 1967 SC 1895 observed that if by a process a different identity
comes into existence then it can be said to be manufacture . When oil is
produced out of the seeds the process certainly transforms raw material
into different article for use.
42. In Empire Industries Limited
& Others v. Union of India & Others (1985) 3 SCC 314, it was
observed that manufacture is complete as soon as by the application of
one or more processes, the raw material undergoes some change and a new
article is brought into existence having a distinct name and character
would amount to manufacture.
43. A Constitution Bench of this
court in M/s Ujagar Prints & Others (II) v. Union of India & Others
(1989) 3 SCC 488 and M/s Saraswati Sugar Mills & Others v. Haryana
State Board & Others (1992) 1 SCC 418 took the same view.
44. In Gramophone Co. of India
Ltd. v. Collector of Customs, Calcutta (2000) 1 SCC 549, this Court
examined earlier cases and held that manufacture implies a change, but
every change is not manufacture and yet every change of an article is
the result of treatment, labour and manipulation. But something more is
necessary and there must be transformation; a new and different article
must emerge having a distinctive name, character and use. In this case,
the word manufacture has various shades of meanings but unless defined
under the Act, it is to be interpreted in the context of the object and
the language used in the section. It would not be applicable in cases
where only processing activity is carried out. Further, such production
activity must be by an industrial undertaking.
45. In Collector of Central Excise,
Jaipur etc. v. Rajasthan State Chemical Works, Deedwana, Rajasthan etc.
(1991) 4 SCC 473, the court had defined the word manufacture as under:
Manufacture implies a change but
every change is not manufacture, yet every change of an article is the
result of treatment, labour and manipulation. Naturally, manufacture is
the end result of one or more processes through which the original
commodities are made to pass.
The nature and extent of processing
may vary from one class to another. There may be several stages of
processing, a different kind of processing at each stage. With each
process suffered the original commodity experiences a change. Whenever a
commodity undergoes a change as a result of some operation performed on
it or in regard to it, such operation would amount to processing of the
commodity. 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.Manufacture thus involves series of processes. Process in
manufacture or in relation to manufacture implies not only the
production but the various stages through which the raw material is
subjected to change by different operations. It is the cumulative effect
of the various processes to which the raw material is subjected to,
manufactured product emerges. Therefore, each step towards such
production would be a process in relation to the manufacture. Where any
particular process is so integrally connected with the ultimate
production of goods that but for that process manufacture of processing
of goods would be impossible or commercially inexpedient, that process
is one in relation to the manufacture.
46. In the following cases, this
court has dealt with and construed the terms manufacturing , production
and processing . Collector of Central Excise v. Technoweld Industries
(2003) 11 SCC 798, Metlex (I) (P) Ltd. v. Commissioner of Central
Excise, New Delhi (2005) 1 SCC 271, Aman Marble Industries (P) Ltd. v.
Collector of Central Excise, Jaipur (2005) 1 SCC 279 and Shyam Oil Cake
Ltd. v. Collector of Central Excise, Jaipur (2005) 1 SCC 264, South
Bihar Sugar Mills Ltd. & Another etc. v. Union of India & Another etc.
AIR 1968 SC 922, Laminated Packings (P) Ltd. v. Collector of Central
Excise, Guntur (1990) 4 SCC 51, Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam v. M/s COCO Fibres 1992 Supp (1) SCC
290, Commissioner of Sales Tax, Orissa & Another v. Jagannath Cotton
Company & Another (1995) 5 SCC 527, Ashirwad Ispat Udyog & Others v.
State Level Committee & Others (1998) 8 SCC 85, State of Maharashtra v.
Mahalaxmi Stores (2003) 1 SCC 70, Aspinwall & Co. Ltd. v. Commissioner
of Income Tax, Ernakulam (2001) 7 SCC 525, M/s J.K. Cotton Spinning &
Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur & Another (1965) 1
SCR 900, Collector of Central Excise v. Kiran Spinning Mills (198) 2 SCC
348, Park Leather Industry (P) Ltd. & Another v. State of UP & Others
(2001) 3 SCC 135.
7. Mr. Bhargava Desai, learned
counsel appearing on behalf of the respondent assessee submitted that
the respondent buys various varieties of packed tea of different grades
and prices in public auction covering various tea gardens. These diverse
varieties of tea are all different in size, liquor and other
characteristics of tea. The respondent assessee has to make purchases in
order to meet the requirement of blending to achieve the same quality,
taste and form of tea which the respondent has to sell to its customers.
48. The respondent further submitted
that once enough quantity is available of the required types of tea for
blending and the respondent is able to manufacture the required quantity
for the Standard tea or approved sample, the respondent produces a small
sample in required proportions on the table and subsequently a blend
sheet is prepared indicating the measure of proportion of each variety
of tea and the said blend sheet is given to the manufacturing warehouse
of the respondent where a large blend is manufactured and produced. The
respondent further contended that after receipt of the blend sheet, the
workers at the warehouse gather the required variety of tea and the
required quantities as set out in the blend sheet. The process undergoes
is as under:(i) Spread out in the warehouse by opening;
(ii) Chest (Boxes) and emptied first
few in full and then balance in half by rotation (Spreading & Bulking).
After the bulking, the entire quantity of different variety of tea is
gathered at one place in a tomb structure and then the bulk is broken in
a circle with the central shell empty for movement by workers in rounds
for mixing and the entire mixture is blended by:
a) manual hand mixing
b) by shoveling; and
c) sometimes by machine, depending on the need, quantity and urgency.
49. It is further contended that the
blending workers are trained to blend tea uniformly. After the process
of mixing and blending of tea is complete, the samples are drawn and
sent for testing and matching with the buyers approved samples of tea.
Manually blended tea and the finished product is required to match the
type of samples given to the surveyors. Once the surveyor approves the
tea both in liquor and appearance, only then is the respondent permitted
to pack the tea in the required packs as approved by the buyers. This
finished product is totally different from the various blended tea in
respect of colour, texture, liquor, appearance, characteristic and even
The said final product cannot be
marketed unless manufactured and produced by this process. After the
process of manufacture and production of the final tea by blending, the
entire originality of the different varieties of tea is lost and a new
product of tea is produced. This is entirely experts job and cannot be
done by anybody. The experts have the knowledge, experience and
expertise in blending and the proportions based on tastes, colour, size,
texture and the source and origin of the tea garden etc. It is further
contended that the packing of tea is done manually and also by machines.
Electrical packing and weighing is also carried out. The automation to a
great extent was not available at the relevant time and as such this was
also carried out partly manually.
50. Mr. Desai, appearing on behalf
of the respondent assessee also strongly relied on the judgment of this
court in Chowgule s case and submitted that in view of the clear
findings in the said judgment, the controversy involved in this case is
no longer res integra. According to Mr. Desai, the present case is
squarely covered by the decision in Chowgule s case and consequently the
respondent assessee is entitled to the weighted deduction under section
35B (1A) of the Act.
51. The respondent has also relied
upon the decision in G.A. Renderian Ltd. s case (supra). In the said
case, the assessee carried on the business of purchasing tea of
different qualities, blending the same by mixing one type with another
and selling it. The assessee claimed that it was an industrial company
within the meaning of section 2(7)(c) of the Finance Act, 1978 and was
entitled to concessional rate of tax. The Tribunal disallowed the claim
on the ground that there was no processing as the end product remained
the same and the entire process was manual. The High Court while placing
reliance on the decision in Chowgule s case (supra) came to the
conclusion that the activity of the assessee amounted to processing. The
court while setting aside the judgment of the Tribunal, observed as
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
52. In G.A. Renderian Ltd (supra),
while relying upon the decision of this court in Indian Copper
Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar & Others
(1965) 16 STC 259, this court observed as under:
In this light, the Supreme Court
observed that the operation conducted by the assessee in that case
should be considered to be processing . In the instant case before us
this observation fully applies and if the operation conducted by the
assessee in that case before the Supreme Court amount to processing then
in this case also the operation which is conducted by the assessee would
also amount to processing.
53. According to the respondent
assessee, the controversy involved in this case is squarely covered by a
three Judge Bench judgment of this court in Chowgule s case (supra). The
learned counsel for the appellant also placed reliance on Chowgule s
case in support of his submissions. It may be pertinent to mention that
a number of subsequent judgments have either relied upon, referred to,
or distinguished the said judgment of Chowgule s case (supra) without
properly appreciating the facts of this case, therefore, we deem it
appropriate to deal with the facts of this case in extenso from the
54. The assessee, Chowgule & Co.,
was a private limited company carrying on business of mining iron ore
and selling it in the export market after dressing, washing, screening
and blending it.
55. The entire activity of the
assessee in Chowgule's case can broadly be classified into seven
different operations, one following upon the other, namely, (i)
extraction of ore from the mine; (ii) conveying the ore to the dressing
plant; (iii) washing, screening and dressing the ore; (iv) conveying of
the ore from the mine site to the river side; (v) transport of the ore
from the river side to the harbour by means of barges; (vi) stacking of
the ore at the harbour in different stock piles according to its
physical and chemical composition, and (vii) blending of the ore from
different stock piles with a view to produce ore of the required
specifications and loading it into the ship by means of the mechanized
ore handling plant. The question was whether goods purchased by the
assessee for use in the above operations could be said to be goods
purchased for use "in the manufacture or processing of goods for sale or
in mining" so as to attract the lower rate of sales tax under section
8(1)(b) of the Central Sales Tax Act, 1956. The relevant part of section
8(1)(b) at the material time is as under:
8. (1) Every dealer, who is in the
course of inter-State trade or commerce-
(a) sells to the government any goods; or
(b) sells to a registered dealer other than the government goods of the
description referred to in sub-section (3);shall be liable to pay tax
under this Act, which shall be 3 per cent of his turnover.
3) The goods referred to in clause
(b) of sub-section (1)
(b) .. are goods of the class or classes specified in the certificate of
registration of the registered dealer purchasing the goods as being
intended for resale by him or subject to any rules made by the Central
Government in this behalf, for use by him in the manufacture or
processing of goods for sale or in mining or in the generation or
distribution of electricity or any other form of power.
56. Chowgule & Co. in the
aforementioned case made an application to get benefit of section
8(3)(b) and Rule 13 of the Central Sales Tax Act, 1956. According to the
ratio of this case, blending of ore in the course of loading through the
mechanical ore handling plant amounted to processing. In section
8(3)(b), the legislature in its wisdom had incorporated terms
manufacture and processing . Therefore, when the Chowgule & Co. did not
get the desired relief from the courts below, then the company
ultimately approached this court. This court examined the case in great
detail and came to a definite conclusion that the activity of Chowgule &
Co. amounted to processing and consequently, the assessee was found to
be entitled to the benefit only because the term processing was
incorporated in section 8(3)(b) of the statute in Chowgule s case.
57. In Chowgule s case the court
specifically examined a case decided by a Division Bench of the Bombay
High Court in Nilgiri s case. In this case, the Division Bench of Bombay
High Court held that blending of different kinds of tea does not amount
to processing. The Revenue, in support of its arguments, placed reliance
on the said Nilgiri s judgment. This court in Chowgule s case
comprehensively examined Nilgiri s judgment and observed as under:
Now undoubtedly there is a close
analogy between the facts of Nilgiri Tea Company case and the facts of
the present case, but we do not think we can accept the decision of the
Bombay High Court in the Nilgiri Tea Company case as laying down the
correct law. When different brands of tea were mixed by the assesses in
Nilgiri Tea Company case for the purpose of producing a tea mixture of a
different kind and quality according to a formula evolved by them, there
was plainly and indubitably processing of the different brands of tea,
because these brands of tea experienced, as a result of mixing,
qualitative change, in that the tea mixture which came into existence
was of different quality and flavour than the different brands of tea
which went into the mixture.
58. In view of the specific language of the Statutes in Nilgiri s case
(supra) and Chowgule s case (supra), the term processing has been
specifically incorporated in the statute, therefore, the assessees were
justifiably held to be entitled to the benefit.
59. Undoubtedly, the facts of
Nilgiri s case are identical to the facts of the present case and the
ratio of Nilgiri s case is fully applicable to this case. But we have to
bear in mind a significant difference in the language employed in
section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri s case and the
language of section 35(1)(B) of the Income Tax in the present case. The
difference is that the term processing which has been specifically
incorporated in Nilgiri s case has been specifically omitted in the
present case. Similarly, in Chowgule s case, the term processing has
been incorporated in the statute and the activities of the assessees
both in Chowgule s and Nilgiri s cases were held to be processing and,
in these respective cases, the assessees were held to be entitled to the
benefit under the respective statutes. In the present case, same benefit
cannot be extended to the respondent assessee because the word
processing has been specifically omitted in the statute. The activities
of the assessees both in Nilgiri s and Chowgule s cases amount to
processing. The activity of the respondent assessee in the present case
also amounts to processing . Section 35(1)(b) governing the instant case
incorporated the terms manufacture and production and omitted the term
processing . Therefore, the respondent assessee cannot be extended the
benefit of section 35(1)(B) of the Income Tax Act.
60. The processing is only an
intermediate stage of production and/or manufacture. The processing of
tea of the respondent assessee falls short of either manufacturing or
production, therefore, because of the language of section 35(1)(B) of
the Income Tax Act, the respondent assessee cannot be extended the
benefit which has been extended to the assessees in Nilgiri s and
Chowgule s cases.
61. Since the legislature in its
wisdom has not used the term processing in section 35(1)(B) of the Act,
it would be erroneous to incorporate the word in the section and then
interpret the Statute. In this view of the matter Chowgule s case and
Nilgiri s case dealt with by this court in Chowgule s case are clearly
distinguishable because of the language of the statutes.
62. The intention of the legislature has to be gathered from the
language used in the statue which means that attention should be paid to
what has been said as also to what has not been said.
63. In Union of India & Another
v. Deoki Nandan Aggarwal 1992 Supp (1) SCC 323, a three-Judge Bench
of this court held that it is not the duty of the court either to
enlarge the scope of legislation or the intention of the legislature,
when the language of the provision is plain. The court cannot rewrite
the legislation for the reason that it had no power to legislate. The
power to legislate has not been conferred on the courts. The court
cannot add words to a statute or read words into it which are not there.
64. In State of Kerala v. Mathai
Verghese & Others (1986) 4 SCC 746, this court has reiterated the
well settled position that the court can merely interpret the section;
it cannot re-write, recast or redesign the section. In interpreting the
provision the exercise undertaken by the court is to make explicit the
intention of the legislature which enacted the legislation. It is not
for the court to reframe the legislation for the very good reason that
the powers to legislate have not been conferred on the court.
65. In Gwalior Rayons Silk Mfg. (Wvg.)
Co. Ltd. v. Custodian of Vested Forests, Palghat & Another 1990
(Supp) SCC 785, the court rightly observed that in seeking legislative
intention judges not only listen to the voice of the legislature but
also listen attentively to what the legislature does not say.
66. House of Lords in Pinner v.
Everett (1969) 3 All ER 257 aptly observed that we have been warned
again and again that it is wrong and dangerous to proceed by
substituting some other words for the words of the statute.
67. Therefore, the legal position
seems to be clear and consistent that it is the bounden duty and
obligation of the court to interpret the statute as it is. It is
contrary to all rules of construction to read words into a statute which
the legislature in its wisdom has deliberately not incorporated.
68. On clear construction and
interpretation of section 35B(1A) of the Act, we are clearly of the
opinion that the respondent s activity amounts to processing only and
the activity does not amount to either production or manufacture . The
term processing has not been included in section 35 B(1A) of the Act,
therefore, the respondent is not entitled for weighted deduction under
section 35B(1A) of the Act.
69. Consequently, this appeal is
allowed and the impugned judgment is set aside and, in the facts and
circumstances of the case, we direct the parties to bear their own
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