2006-VIL-361-ITAT-JDP

Equivalent Citation: TTJ 104, 149, [2006] 10 SOT 225 (JODH.) (TM)

Income Tax Appellate Tribunal JODHPUR

IT APPEAL NOS. 86 AND 87 (JODH.) OF 2004

Date: 30.06.2006

ARIHANT TILES AND MARBLES P. LIMITED.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : M. A. BAKSHI., HARI OM MARATHA., JOGINDER PALL.

JUDGMENT

Both these appeals filed by the assessee against two separate orders of the CIT(A) dt. 1st Jan., 2004 and 5th Jan., 2004 pertaining to asst. yrs. 2000-01 and 2001-02 involve identical questions of fact and law. So these are being disposed of by this common order for the sake of convenience.

2. At the time of hearing, Shri Sanjay Jhanwar and Shri M.S. Jhanwar were present on behalf of the assessee and filed written submissions and Shri D.R. Zala was present on behalf of the Department.

3. Briefly stated facts of the case are that the assessee is a private limited company. It is an industrial undertaking engaged in the business of sawing of marble blocks into slabs and tiles and also in trading of marble blocks and tiles in both indigenous and foreign market. The assessee-company also exported goods and earned foreign exchange and claimed deduction under s. 80HHC of the IT Act, 1961 (hereinafter referred to as 'the Act'). Apart from trading of marble, the assessee-company also derived income from job charges, receipts of sawing marbles of others. The assessee-company keeps computerized account books consisting of cash-book, ledger, general sales and purchase register along with bills and vouchers which have been examined and verified on test check basis. On examination of these account books, sales, purchases and expenses relating to manufacturing expenses i.e. sawing, polishing, freight, power and fuel and factory expenses have been found vouched and trading results declared by the assessee-company are better in comparison to the preceding year. However, during the course of scrutiny, the AO found that the deduction under s. 80-IA of the Act cannot be allowed to this assessee.

4. According to the AO, the prime condition for allowing deductions under these sections is that the industrial undertaking should have "manufactured" or "produced" any article or thing specified in the Eleventh Schedule of the Act. He relied on the decision of the Hon'ble Supreme Court of India in the case of Lucky Minmat (P) Ltd. vs. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC) wherein it was held that mere mining of marble and cutting the same before it was sold in the market could not be considered a 'manufacturing' or 'production' activity as required under s. 80-IA of the Act. According to the AO, the Hon'ble Supreme Court, in the above case, has held that the activities of sawing of marble blocks into sizeable blocks and tiles before selling them into market, carried over by the assessee-company cannot be considered as a manufacturing or production activity and thus the assessee-company is not entitled to benefit of s. 80-IA of the Act. So, the AO made the additions by disallowing the claim under s. 80-IA of the Act in both the years by separate orders.

5. The assessee preferred appeal against this finding of the AO for both the years and the learned CIT(A), in turn, confirmed the orders of the AO and hence the assessee is in appeal before us.

6. We have heard the rival submissions and have perused the evidence on record. We have also considered the long paper books tiled before us and have also carefully treaded through the provision of the Act and the precedent relied by both the parties. We have also given our thoughtful consideration to all facts, evidence and material on record.

7. The learned Authorised Representative Shri Sanjay Jhanwar has vehemently argued before us that the decision of the Hon'ble Supreme Court relied by the AO in the case of Lucky Minmat is distinguishable on facts and hence the ratio of this decision is not at all applicable to the facts of the present case. For that matter, he has relied on various decisions and has also taken us through the above decision of the Hon'ble Supreme Court, and the decision of Hon'ble High Court and also that of the Tribunal.

8. The learned Authorised Representative has taken us through a long paper book and has tried to convince us that the process involved in the production of the 'tiles' and 'marble blocks' is in fact a manufacturing activity of the assessee, and/or on the worst part, it is definitely a production activity of the assessee and hence the claim of deduction under s. 80-IA of the Act is available to it. The learned Authorised Representative has also taken us through various steps involved in the alleged production/manufacture activity under reference. He has relied on the various steps taken in the production of tiles and marble slabs by the assessee-company, and this fact could not be controverted by the learned Departmental Representative, Shri D.R. Zala. Various steps undertaken by the assessee-company in its activity are reproduced below:

(i) Marble blocks excavated/extracted by the mine owners being in raw uneven shapes have to be properly sorted out and marked,

(ii) Such blocks are then processed on single blade/wire saw machines using advanced technology to square them by separating waste material;

(iii) squared up blocks are sawed for making slabs by using the gang-saw machine or single/multi-block cutter machine;

(iv) The sawn slabs are further reinforced by way of filling cracks by epoxy resins and fiber netting;

(v) The slabs are polished on polishing machine; the slabs are further edge cut into required dimensions/tiles as per market requirement in perfect angles by edge cutting machine and multi-disc cutter machines;

(vi) Polished slabs and tiles are buffed by shiner.

9. In addition to this, the learned Authorised Representative has also taken us through the photographs which are placed at p. 128 onwards of the paper book wherein all the processes taken in the process of production of the tiles of the assessee are picturized.

10. The learned Authorised Representative has also drawn our attention to p. 6 of the paper book and particularly, its para 2.4 and has submitted that the assessee-company has been consistently regarded as a manufacturer/producer by various Government Departments and agencies and its process is being regularly considered as 'manufacturing' and 'production' process. In support of this fact he has relied on para 2.4 of the paper book which is reproduced below:

(i) The assessee-company is duly registered with the Ministry of Commerce and Industries for the manufacture of marble slabs/tiles as stated in the acknowledgement dt. 4th May, 2000.

(ii) The assessee-company has been found entitled to and been extended benefit of sales-tax exemption by the Government of Rajasthan on manufacturing marble slabs and tiles under Sales-tax Exemption Scheme and Sales-tax Deferment Scheme. Copy of letter dt. 23rd March, 1995 GM, DIC, Member Secretary, District Industries Centre, Udaipur and dt. 20th March, 1998, issued by the Asstt. Commr., Commercial Taxes Department, Udaipur, Government of Rajasthan for such eligibility are annexed herewith marked Annexs. 2 and 3, respectively. Further letter dt. 11th Nov., 2002 issued by the Commr., Industries, Rajasthan, Jaipur, confirming eligibility under the Sales-tax Exemption Scheme on sale of marble slabs manufactured by the unit of the assessee is also annexed herewith marked as Annex. 4.

(iii) The Asstt. Commr., Commercial Taxes Department, Udaipur, issued certificate of registration No. RST/2744/02679/SP dt. 26th Aug., 1995 permitting/allowing manufacturing of marble slabs and tiles.

(iv) The Government of Rajasthan, District Industries Centre, Udaipur, issued permanent registration certificate for the manufacture of marble slabs.

(v) The Central Excise Registration Certificate issued to the assessee confirming that the factory of the assessee-company is registered for manufacturing marble slabs/tiles is annexed herewith.

(vi) The Chemicals and Allied Products Export Promotion Council, New Delhi, issued registration-cum-membership certificate for the manufacture of marble slabs.

In relation to all these six points, the evidences which are placed at pp. 35 to 44 of paper book have been referred to and relied by the learned Authorised Representative to substantiate his contention.

11. On the other hand, the learned Departmental Representative has relied on the orders of the AO and the learned CIT(A) and has further relied on the decision of the Hon'ble Supreme Court in the case of Lucky Minmat on which the AO and the learned CIT(A) have also relied.

12. We have given careful thought to the facts, circumstances and evidence and all other relevant material available on record. So far as the process involved in the activities of the assessee is concerned, the Department has not denied or controverted; it has only disputed that even then the activity of the assessee-company cannot be taken to be a manufacturing or production activity. It is also not disputed by the Department that such a dispute never arose in the past, earlier to these assessment years which are under consideration. The assessee-company had been regarded as manufacturer/producer by Government Department/agencies in all the preceding years. To define the word "manufacture", the submissions of the learned Authorised Representative, are contained in para 4.3 of paper book placed at p. 10 as under:

The Law Lexicon

Manufacture is the transforming or fashioning of raw materials into change of forms for use.

The production of articles for use from raw or prepared materials, given by these materials new forms, qualities, properties of combinations, whether by hand-labour or by machinery.

Rajasthan Sales-tax Act, 1994, s. 2(27)

"Manufacture" includes every processing of goods, which brings into existence a commercially different and distinct commodity but shall not include such processing as may be notified by the State Government.

The Employees Provident Funds and Miscellaneous Provisions Act, 1952 and the Factories Act, 1948

"Manufacturing process means any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport delivery or disposal."

S. No. 959A : CCT Circular F. 16 (102) Tax/CCT/89/3581 dt. 9th Jan., 1995 issued by Commr., Government of Rajasthan

"It clarifies that after excavation of marble from mines, the activity of cutting blocks into slabs and tiles falls within the ambit of manufacture but mere edge cutting and/or polishing bf stone will not be treated as manufacturing activity."

Exim Policy 2002-2007, Chapter 9 para 9.30

"Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration. repacking, polishing and labelling. Manufacture for the purpose of this policy shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.

Calcutta High Court in the case of CIT vs. East India Hotels Ltd. (1995) 123 CTR (Cal) 27 : (1994) 209 ITR 854 (Cal)

The test of manufacture lies in the answer to the question that whether what is produced or processed as the end of product is commercially known as different product from the materials out of which it is so produced. Therefore, if the product has a different name and is identified by the buyers and sellers as a different product and is bought and sold as a distinct product from its raw materials, one can say that it is a manufactured product.

CIT vs. R.C. Construction (1997) 137 CTR (Gau) 486 : (1996) 222 ITR 658 (Gau)

Activity making chips out of big stones was held as manufacturing.

CIT vs. Tata Locomotive & Engineering Company Ltd. (1968) 68 ITR 325 (Bom)

Assembling of bus/trucks from imported parts amounts to manufacture [Ref. Indian IT Act, 1922 s. 15C(2) and s. 15C(6)).

CIT vs. Hindustan Metal Refining Works (P) Ltd. (1981) 23 CTR (Cal) 252 : (1981) 128 ITR 472 (Cal)

The production or manufacture of goods involves bringing into existence new goods or article known as such goods or article in the market.

Ujagar Prints vs. Union of India & Ors. (1989) 75 CTR (SC) 1 : (1989) 179 ITR 317 (SC), Empire Industries Ltd. VS. Union of India AIR 1986 SC 662, 673d, South Bihar Sugar Mills Ltd. vs. Union of India AIR 1968 SC 922, 968.

Manufacturing implies a change and there must be transformation, a new and different article emerging with a distinctive name, character or use. Grey fabric, after undergoing various processes of bleaching, dyeing, sighing, printing, finishing, etc. merges as a commercially different commodity with its own price structure, customs and other commercial incidents, involving 'manufacture'.

S.S.T. vs. Dr. Sukh Deo (1969) 23 STC 385, 387 (SC)

The expression 'manufacture' has in ordinary acceptance a wide connotation, it means making of articles or material commercially different from the basic components, by physical labour or mechanical process, and a manufacturer is a person by whom or under whose direction or controls the articles or materials are made.

CIT vs. Kanam Latex Industries (P) Ltd. (1996) 132 CTR (Ker) 178 : (1996) 86 Taxman 466 (Ker)

Conversion of normal and natural latex into preserved latex by centrifuging process, amounts to manufacture, as it is commercially different from natural latex and capable of being put to different use (Ref. IT Act, 1961 s. 80J).

South Bihar Sugar Mills Ltd. vs. Union of India

Manufacture is end result of one or more processes, through which original commodity passes. Manufacture implies change but every change is not manufacture. A new and different article must emerge having different characters, use and name.

CCE vs. Rajasthan State Chemicals Works 1991 (55) ELT 444, 448, 449 (SC)

A process is a manufacturing process when it brings out a complete transformation for the whole components so as to produce commercially different article or a commodity. But, that process itself may consist of several processes which mayor may not bring about any change at every intermediate stage. But the activities of the operation may be so integrally connected that the final result is the production of a commercially different article or thing.

CIT vs. Darshak Ltd. (2001) 165 CTR (Kar) 17 : (2001) 247 ITR 489 (Kar)

Transforming plain glassware into decorative glassware amounts to manufacture as the end product is different and distinct from plain glassware.

Ship Scrap Trader vs. CIT (2001) 168 CTR (Bom) 489 : (2001) 251 ITR 806 (Bom)

Ship-breaking activity is manufacture since a new commercial and identifiable article comes into existence.

CIT vs. S.L. Agarwal & Co. (1992) 101 CTR (Ori) 222 : (1991) 197 ITR 239 (Ori)

Breaking of huge iron ingots into small pieces amounts to manufacture, as smaller pieces were different and distinct commercial commodity.

Aditya Mills Ltd. vs. Union of India 73 STC 195 (SC)

Changing of raw material by application of some process amounts to manufacture and therefore doubling together of two plies of polyster spun yarn and one ply of rayon yarn and resulting into special PPRF yarn amounts to manufacture.

Dy. CST vs. Pio Food Packers 46 STC 63

It is the change or a series of change, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article, then a manufacture can be said to take place.

CIT vs. Sree Krishna Pulverising Mills (2000) 163 CTR (AP) 151 : (2000) 241 ITR 262 (AP)

The barytes are distinct not only in form and name but also in use from barytes powder and barytes powder is a distinct and separate article produced from barytes and is used for different purposes and hence the industrial undertaking qualifies for deduction under ss. 80HH and 80-I of the Act. The phraseology of the said two sections is identical in this respect.

Tatson Food Industries vs. State of Kerala (2000) 119 STC 265 (Ker)

The turmeric and turmeric powder are distinct commodities. Turmeric gets consumed when it is powder and in its place new goods/commodities emerge. Turmeric powder so emerging has higher utility than the commodity and commercial turmeric powder is different from turmeric.

State of Karnataka vs. B. Raghurama Shetty (1981) 47 STC 369 (SC)

A manufacturer also consumes commodities which are ordinarily called raw materials when he produces semi-finished goods which have to undergo further processes of production before they can be transformed into consumer's goods. At every such intermediate stage of production, some utility or value is added to goods, which are used as raw materials, and at every such stage the raw materials are consumed. Take the case of bread. It passes through the first stage of production when wheat is grown by the farmer, the second stage of production when wheat is converted into flour by the miller and the third stage of production when flour is utilized by the baker to manufacture bread out of it. The miller and the baker have consumed wheat and flour, respectively, in course of their business.

Rajasthan Roller Flour Mills Association vs. State of Rajasthan (1993) 91 STC 408 (SC)

Applying the reasoning adopted hereinabove, it must be held that when wheat is consumed for producing flour or Maida or Suji, the commodities so obtained are different commodities from wheat. The wheat loses its identity. It gets consumed and in its place new goods/commodities emerge. The new goods so emerging have a higher utility than the commodity consumed. They are different goods commercially speaking.

Union of India vs. J.G. Glass Industries Ltd. AIR 1998 SC 839.

The Court held that a two-fold test emerges for deciding whether the process is that of "manufacture": (a) Whether by the said process different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; and (b) Whether the commodity which was already in existence will serve no purpose but for the said process.

CIT vs. Best Chem & Lime Stone Industries (P) Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj)

"Manufacture involves the bringing into existence of a new product which may have a different physical or chemical composition and is understood differently in common and commercial parlance." It held that upon the conversion of the mineral into the form of Rodi and powder it does not retain the physical shape, which the raw material was and it understood as a different commercial commodity by the business community. In these circumstances, the Tribunal was justified in coming to the conclusion that conversion of limestone by crushing into Rodi or lime dust is a process of manufacture. It referred to earlier decision in CTO vs. Bikaner Gypsum Ltd. (1986) 61 STC 264 and distinguished that decision after holding that the conversion of the mineral in the form of Rodi and powder, it is evident that it does not retain the physical shape which the raw material has and is understood as a different commercial commodity by the business community.

Union of India vs. Delhi Cloth & General Mills (1977) ELT (J) 199

Manufacture implies a change, but every change in raw material is not manufacture although every change of article is result of treatment, labour and manipulation. In order to make a change amount to manufacture something more is necessary and that something more is such transformation of a production is (to) bring into (existence) a new and different article having different name, character and use.

CCE vs. Kutty Flush Doors & Furniture Co. (P) Ltd. (1988) 70 STC 314, 315-316 (SC)

It is well settled that excise duty becomes chargeable only when a new and different article emerges having a distinct name, character and use.

Asstt. CTO vs. Girrota Silica Udyog (1994) 93 STC 280 (Raj)

It discussed the procedure adopted with excavation of silica sand and its sale. It stated that the procedure adopted is "(i) boulders are excavated from the mines and they are graded, (ii) the stones and impurities are removed, (iii) the process of screening and grading adopted, (iv) different sizes of silica-sand is taken out after passing through the sieve and such graded silica-sand is used for different industries like tiles, ceramic, glass, etc. and the lumps excavated from the mines are not sold and it is only after the above process that silica sand is sold". Hon'ble High Court held that the above act was manufacturing in the context of Sales-tax Act.

CTO vs. Bhonri Lal Jain (1994) 94 STC 118 (Raj)

When after excavation of blocks, it was cut into specified sizes and process of reducing the big blocks of stones to smaller pieces having definite length, breadth and thickness is a process of manufacturing. It also observed that the blocks and stones had different commercial names in common and commercial parlance and hence the dealer was a manufacturer entitled to avail of the benefit of notification under sales-tax law.

Dy. CIT vs. Mysore Minerals Ltd. (2001) 167 CTR (Kar) 11 : (2001) 250 ITR 730 (Kar)

Business of extraction of granite cutting, polishing and conversion into slabs amounts to manufacture and production of an article or thing entitled to investment allowance as the same involves manufacturing.

4.4 It is evident from the above discussion that if the following tests are satisfied then one can say that there is manufacture or production:

(i) There is a change or 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.

13. From various definitions and decisions, it finally emerges that if the following tests are satisfied by the assessee, then it can be said that there is a 'manufacture' or 'production'. These tests are that:

(i) there is a change or 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.

14. When these tests are applied to the facts of the assessee's case, according to the learned Authorised Representative, the assessee is a manufacturer/producer. For that purpose, he has relied on the chart placed at p. 18 of the paper book wherein he has tried to apply the above tests to the facts of this case and tried to explain the activities relating to marble business from the first point to the last.

15. This fact is not denied by the Revenue that the appellant company is registered with the Central Excise Department and the Department has been regularly charging excise duty on the manufacture of marble slabs and tiles by considering the same as falling within the scope of 'manufacture'. Page 41 of paper book contains the necessary evidence and from this, it is crystal clear that the Excise Department has accepted the assessee as a 'manufacturer'. The Sales-tax Department has also considered the assessee as manufacturer or producer and necessary evidence is at pp. 37-38 of paper book. The Bank of Baroda, RFC and Pollution Control Board and various other Departments have accepted the assessee as 'manufacturer' or 'producer'. But we are concerned with the IT Act. The above facts may help us in coming to a conclusion. But these cannot be followed in toto.

16. The learned Authorised Representative has tried to distinguish the facts of the Lucky Minmat's case by placing before us the assessment order, the learned CIT(A)'s order, copy of the Tribunal, Jaipur Bench order, Hon'ble Rajasthan High Court decision and the Hon'ble Supreme Court decisions dt. 24th Nov., 1980, 29th Jan., 1982, 4th Feb., 1993, 27th Feb., 1996 and 3rd Aug., 2000, respectively and has tried to demonstrate before us that the facts in Lucky Minmat's case are entirely different from the facts of the case in hand.

17. We have gone through all these orders. Para 2 of the Hon'ble Supreme Court decision placed at p. 255 of paper book clearly says that the assessee had a business of mining of limestones and marble blocks and thereafter cutting and sizing the same before being sold in the market. We would like to reproduce para 2 below:

"The High Court noted that the facts found by the Tribunal in the instant case were 'The assessee had business of mining of limestones and marble blocks and thereafter cutting and sizing the same before being sold in the market'. The High Court distinguished its earlier judgment in the case of CIT vs. Best Chem & Lime Stone Industries (P) Ltd. (1993) 113 CTR (Raj) 298 because there the assessee was engaged in the business of extracting limestone and its sale either as such or after converting it into lime and lime dust or concrete by stone crushers. Such, the High Court found, were not the facts in the case before us."

18. From the above, it is crystal clear that in Lucky Minmat's case, the assessee had business of "mining" and the blocks were only cut to size before selling the same in the market and there was no other activity involved.

19. The Hon'ble Supreme Court in Lucky Minmat's case was considering the claim of the manufacturing of assessee for the purpose of deduction under s. 80HH of the Act based on the undisputed facts that the said assessee had business of mining of marble blocks and limestones and thereafter cutting and sizing the same before being sold in the market. The Hon'ble Supreme Court distinguished the facts of Best Chem & Lime Stone Industries (P) Ltd. with the case decided by the High Court in CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj) and held that conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process while the mere mining of limestone and marble and cutting the same before it was sold in the market could not be so considered. So, the Hon'ble Supreme Court confirmed the view expressed by Hon'ble Rajasthan High Court in the case where the commodity retains substantial identity throughout the processing stage. It cannot be stated that it had been manufactured.

20. But the facts of these asses sees are that the 'marble' is found in the shape of bulky rocks and such rocks cannot be sold in that form and shape. Such rocks have to be cut and sized for transportation and marketing purposes. Such primary cutting and sizing of the marble by the mine owner does not convert either the original identity, character or use of the commodity. So, such an activity cannot tantamount to manufacture.

21. The appellant-company acquires or purchases the marble blocks primarily cut and sized for transportation and marketing by the mine owners. Thereafter, the company converts the same through comprehensive manufacture and production process into marble slabs and tiles as has been detailed above. So, the case of this assessee cannot be equated with the case of Lucky Minmat. The following decisions of the Hon'ble Rajasthan High Court can be applied to the facts of this case:

1. CIT vs. Best Chem & Lime Stone Industries (P) Ltd.

2. CTO vs. Bhonri Lal Jain

3. Asstt. CTO vs. Girota Silica Udyog

4. Union of India vs. Delhi Cloth & General Mills

5. CTO vs. Prakash Udyog (2002) 126 STC 372 (Raj)

22. The whole controversy in this case hinges around the definition of the words "manufacture" or "production". The IT Act, has not defined either the 'manufacture' or the 'production', and rightly so, because these cannot be defined either by giving inclusive and exclusive definition. There cannot be a 'straightjacket' formula, in which the activity of manufacture/production can fit in.

23. The issue as to what constitutes manufacture is a perennial problem, because concessions meant for manufacturing units as new industrial undertakings or by way of development rebate, investment allowance, etc. are sought to be whittled down by adverse interpretations.

24. In the interesting decision of Karnataka High Court in CIT vs. Gogte Minerals (1996) 136 CTR (Kar) 499 : (1997) 225 ITR 60 (Kar), mining for excavating iron ore were accepted as a manufacturing process with the result that new machinery and plant used in mining operations, was held to be eligible for investment allowance. In coming to the conclusion, it took the view that there is production of an article or a thing in such operations of extracting iron ore embedded in earth. It distinguished its earlier decision against the assessee in Hind Nippon Rural Industries (P) Ltd. vs. CIT (1993) 201 ITR 581 (Kar) by pointing out that in this case the assessee in Hind Nippon's case is the subject-matter of special leave granted to the assessee by Supreme Court as reported in (1992) 197 ITR (St) 2. The definition of manufacture in the case of Chowgule & Co. (P) Ltd. vs. Union of India (1981) 47 STC 124 (SC), and the decision of Gujarat High Court in CIT vs. Kutch Oil & Allied Industries (P) Ltd. (1986) 50 CTR (Guj) 37 : (1987) 163 ITR 237 (Guj), which accepted pulverization of bentonite as an industrial activity gave wider scope to the concept of manufacture where there is relocation resulting in substantial value addition.

25. So, on every type of activities, there are divergent views expressed by different High Courts and/or by the same High Court even. Even the Hon'ble Supreme Court has taken different views on the same subject. But, these are specifically based on the facts of each and every case. The Courts have specifically mentioned in all such decisions that the decision is taken on the particular facts of that particular case. So, the fact remains, again, that there cannot be any 'straight-jacket' formula to define manufacture/production, it will depend on the facts and circumstances of a given case.

26. Before we deal with case laws relied by the learned Authorised Representative we would like to revert back to the decision of Rajasthan High Court in the case of CIT vs. Lucky Minerals (P) Ltd. which is heavily relied by the learned Departmental Representative.

27. The facts of Lucky Mineral were stated at p. 247 as under:

"The assessee had business of mining of limestones and marbles blocks and thereafter cutting and sizing the same before being sold in the market. The assessee claimed itself to be an industrial undertaking for the purpose of s. 80HH of the IT Act. The ITO did not accept the same, as according to him, the assessee was not engaged in the manufacture or production of goods. The CIT(A), however, accepted the claim of the assessee and allowed the appeal. The Tribunal, on appeal by the Revenue, sustained the order of the CIT(A) following an earlier decision of the Bench in the case of the assessee itself for the asst. yr. 1978-79 in ITA Nos. 1492 and 1493 dt. 25th July, 1980."

28. Again the Hon'ble Judges clarified the facts at pp. 251, 252(A) pertain to be more specific on the facts as under:

"We have stated in extenso the facts found by the Tribunal. Those facts are that the activities of the assessee-company consist of excavating limestone and marble boulders and after cutting the boulders into slabs."

29. In the above decision, it has been observed by the Hon'ble High Court as thus:

"The Supreme Court had spoken almost in the same words in the case of Union of India vs. Delhi Cloth & General Mills (1977) ELT 199 (SC) where it was observed that manufacture implies a change, but every change in the raw material is not manufacture although every change of an article is the result of treatment, labour or manipulation. In order to make a change amount to 'manufacture' something more is necessary and that something more is such transformation of a production as brings into existence a new and different article having distinct name, character or use. The same view was expressed in the case of South Bihar Sugar Mills vs. Union of India (1978) ELT (J) 3, where it was observed that if a new substance known to the market emerges, this will amount to manufacture. In the case of Empire Industries Ltd. vs. Union of India (1986) 162 ITR 846 (SC), it was observed by the Supreme Court that to constitute manufacture, it is not necessary that one should absolutely make out a new thing because it is well-settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand. It is the transformation of one matter into something else which would amount to manufacture. It is a question of degree that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill the commodity is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place. The moment there is a transformation into a new commodity having its own character, use and name whether as a result of one process or several processes, 'manufacture' takes place."

30. The Hon'ble Court has heavily borrowed the language from Dy. CST vs. Pio Food Packer to arrive at the decision, as has been mentioned by the Hon'ble Judges themselves in the order.

31. To sum up, in a manufacturing activity, raw material transforms into a new commodity having its own character, use and name whether as a result of one process or several processes.

32. Every change in the raw material is not manufacture, although every change of an article is the result of treatment or manipulation. This change should bring into existence a new and different article having distinct name, character or use.

33. Now let us test the activity of this assessee in the light of the above decision of the Hon'ble Rajasthan High Court in Lucky Minerals.

34. First of all we have to see as to whether the facts of this case are identical to the Lucky Mineral's case, since the above decision has been rendered on the basis of particular fact that "the assessee had business of mining of limestones and marbles blocks and thereafter cutting and sizing the same".

35. The facts of this case are that the assessee is producing tiles and slabs after purchasing the 'marble' from the mine owners. What is sold in the market in Lucky Minerals' case is the 'raw material' of the present assessee, who purchases such slabs/blocks which are excavated from mines and cut to size.

36. So, clearly the facts of the case of Lucky Minerals are entirely different from the facts of the assessee. Where the process of the assessee in Lucky Minerals ends, the process of this assessee starts. When facts of the two cases are entirely different, the ratio of Lucky Minerals' cannot apply to this case. But the decision of Lucky Minerals has laid down certain tests to come to a conclusion as to whether an activity can be said to be a manufacturing/production activity or not. In order to test this case on the above touchstone, we will have to see, as to whether, a new thing or article which has its own character, use and name has been manufactured by this assessee or not?

37. The steps which are taken by the assessee after purchasing blocks from mines to produce the end product of tiles/slabs are mentioned in our earlier part of the order. The Department has not at all contested these processes. The end result is a tile of different size, shape and name, there is no doubt about the same. The price is altogether different and market is altogether different. This product is known by a different name. So, the only test remains that if a new and distinct thing or article is produced in the process which is different from the raw material used by this assessee.

38. Our answer is, yes, a new and distinct thing has been produced. The distinct and new thing does not mean that there should be a physical or chemical change and then and only then it would be new and distinct thing or article. The Hon'ble Court in Lucky Mineral's case relied on the decision of Madras High Court in the case of CIT vs. M.R. Gopal (1965) 58 ITR 598 (Mad), the facts of the case were that the assessee converted boulders into small stones, i.e., chips of various sizes, with the aid of the machinery. This activity was held to be manufacturing activity. The Hon'ble Rajasthan High Court has not disputed or dissented from the ratio of the above decision of Madras High Court. It has only stated (that) the facts of the case of Lucky Minerals were entirely different. Meaning thereby, when a boulder is converted into small stones of various sizes, it is a manufacture. Thus, it does not mean that the constituent of the raw material should also change altogether. There should not be a chemical change. In a way the Hon'ble High Court has accepted the ratio of the Madras High Court. What happens in this case, big blocks are converted into tiles/slabs of different sizes by various treatments. It is not the simple case of conversion into small stones, rather various treatments including filling and chemical treatments in addition to polishing, etc. are undertaken and thereafter different commodity having distinct name and character, use, value and different market are emerged. So, definitely a new thing or article is produced by the assessee.

39. The decision of Lucky Mineral is thus not applicable to this case as the facts are entirely different. The ratio of the case is (sic) applicable to the facts of this case which supports the claim of the assessee. Since a new, distinct article or thing, having different character, name and use is produced in the process undertaken by the present assessee.

40. The other decision relied by the Hon'ble High Court, inter alia, in Lucky Minerals is of the CIT vs. S.L. Agarwal & Co. In that case the activity of breaking up of huge iron ingots into small pieces was held to be a manufacturing activity. We also draw support from this decision. As in this case, big pieces are transformed into tiles, etc.

41. Now, we would revert to the case of the Dy. CST vs. Pio Food Packers, on which the Hon'ble Rajasthan High Court has heavily relied and even borrowed the language and the learned Departmental Representative has also relied on that decision. A copy of this decision is placed on pages Nos. 95-97 of the paper book of the assessee.

42. The Hon'ble Supreme Court, was dealing with a case where preparation of pineapple slices was questioned as a manufacturing activity within the meaning of s. 5A(1)(a) of the Kerala General Sales-tax Act, 1963. In that case the assessee used to purchase pineapples fruit and consumed after washing and removing the inedible portion, the end crown, the skin, the inner core and thereafter sliced the fruit and sold in the market after filling into cans.

43. The Hon'ble Supreme Court held as under:

"Sec. 5A(1)(a) of the Kerala General Sales-tax Act envisages the consumption of a commodity in the manufacture of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture, and the result must be manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. Generally prevalent practice whether the article produced is regarded in this trade by those who deal in it as distinct in identity from the commodity involved in its manufacture. 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 from 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 recognized as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity."

44. The facts of Lucky Minerals and of this case are entirely different but the ratio of this decision can be applied to present assessee's case for the same reasons, as we have mentioned while discussing Lucky Mineral's case in above paras. The tests laid down by this decision are fulfilled by this assessee.

45. The decision relied by the learned Authorised Representative, which are referred to in early part of this order along with the held portion are clearly applicable to the facts of this case. These cases are:

1. CIT vs. Best Chem & Lime Stone Industries (P) Ltd.,

2. CTO vs. Bhonri Lal Jain,

3. CTO vs. Girota Silica Udyog,

4. Union of India vs. Delhi Cloth & General Mills,

5. CTO vs. Prakash Udyog.

There is no need to repeat the 'held' portion again.

46. So, in the light of the above discussion we can safely conclude that the treatment given to raw material by this assessee by various steps which are given below, produce a new article or thing. The steps are:

Step (i) marble blocks excavated/extracted by the mine owners being in raw uneven shapes have to be properly sorted out and marked;

Step (ii) such blocks are then processed on single blade/wire saw machines using advanced technology to square them by separating waste material;

Step (iii) squared up blocks are sawed for making slabs by using the gang-saw machine or single/multi-block cutter machine;

Step (iv) the sawn slabs are further reinforced by way of filling cracks by epoxy resins and fiber netting;

Step (v) The slabs are polished on polishing machine; the slabs are further edge cut into required dimensions/tiles as per market requirement in perfect angles by edge cutting machine and multi-disc cutter machines;

Step (vi) Polished slabs and tiles are buffed by shiner.

47. A new article or thing is produced by name of marble tiles and marble slabs which are different and entirely distinct in terms of name, character, use, and the market value and appearance. So, the activity of the assessee is a manufacture/production activity. We heavily draw support from Mysore Mineral Ltd. decision of the Hon'ble Karnataka High Court as well as the Hon'ble Supreme Court, which is a later decision and which we have discussed in earlier part of our order. We also draw support from the fact that the appellant-company is being consistently regarded as a manufacturer/producer by various Government Departments and agencies. The evidences are placed on record, in this regard, which we have discussed each and every such evidence, in earlier part of our order along with page numbers. These facts have not been controverted by the Department. So, the facts of this case and the Lucky Minerals and others relied by the Department are entirely different. But the ratio of these decisions, when applied, it speaks in the favour of this assessee.

48. We agree with the learned Authorised Representative that the case of Karnataka High Court in Dy. CIT vs. Mysore Minerals Ltd. wherein it has been held that the process of extracting granite and cutting it into slabs of various sizes and polishing them was one of manufacturing and production and accordingly investment allowance under s. 32A was admissible on plant and machinery installed for the said purpose. SLP against the same was dismissed by the Hon'ble Supreme Court. Their Lordships of the Hon'ble Supreme Court dismissed the petition filed by the Revenue dt. 7th Dec., 2000 of the (against) Hon'ble Karnataka High Court (2001) 167 CTR (Kar) 11 : (2001) 250 ITR 730 (Kar) whereby the High Court had dismissed the Department's appeal holding that the assessee was entitled to investment allowance under s. 32A of the Act on the machinery, such as earth-moving equipment, crane oil engines, pumps and machinery foundations for gang-saws employed in the manufacture or production of article or thing and the decision of the Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) had not overruled the decision of the High Court. in Mysore Minerals Ltd. The decision reported in (2002) 254 ITR (St) 274 is obviously a later judgment of the Hon'ble Supreme Court than the Lucky Minmat's case and since the facts of the Lucky Minmat's case are not identical to the facts of this case.

49. In N.C. Budharaja's case it was held at p. 415 as under:

"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 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 word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor 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. The next word to be considered is 'articles', occurring in the said clause. What does it mean? The word is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation-the sense in which it is understood in the commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word 'articles' is preceded by the words 'it has begun or begins to manufacture or produce.' Can we say that the word 'articles' in the said clause comprehends and takes within its ambit a dam, a bridge, a building, a road, a canal and so on ? We find it difficult to say so. Would any person who has constructed a dam say that he has manufactured an article or that he has produced an article? Obviously not. If a dam is an article, so would be a bridge, a road, an underground canal and a multi-storied building. To say that all of them fall within the meaning of the word 'articles' is to overstrain the language beyond its normal and ordinary meaning. It is equally difficult to say that the process of constructing a dam is a process of manufacture or a process of production. It is true that a dam is composed of several articles; it is composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices, etc. But to say that the end product, the dam, is an article is to be unfaithful to the normal, connotation of the word. A dam is constructed; it is not manufactured or produced. The expressions 'manufacture' and 'produce' are normally associated with movables-articles and goods, big and small-but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or building. The decisions of the Bombay High Court in CIT vs. N.U.C. (P) Ltd. (1980) 126 ITR 377 (Bom) and in CIT vs. Shah Construction Co. Ltd. (1982) 30 CTR (Bom) 245 : (1983) 142 ITR 696 (Bom), relied upon by Sri Murthy, are no doubt not decisions rendered under s. 80HH or under s. 84 they arose under the relevant Finance Acts, the question being whether the assessees were industrial companies but they do contain observations which tend to support the stand of the Revenue."

50. Again, the ratio of this decision, as we have mentioned above, is not of any help to the Department, rather, it helps the assessee's case. The production as well as manufacturing activities are so intermingled and intermixed that the difference between the two is very subtle and very delicate, the difference is of nuances. So, sometimes, it is very difficult to differentiate manufacture and production. In any case, if the activities are not exactly taken to be a manufacturing activity, then the activities of the assessee are definitely activities of production. For that matter, the learned Authorised Representative has relied on a decision of Third Member in the case of Kirloskar Electricals vs. Dy. CIT (2003) 80 TTJ (Pune)(TM) 436 : (2003) 87 ITD 264 (Pune)(TM) but as we have held that the activities of the assessee are manufacturing activities, so production and manufacturing can be taken as substitute for these two activities in assessee's case because every manufacturing activity involves production.

51. To sum up our findings we are satisfied that the judgment of the Hon'ble Supreme Court in the case of Lucky Minmat does not apply to the facts of the present case inasmuch as, the finding of facts recorded in that case by Tribunal as reproduced by Hon'ble Supreme Court, which we have also reproduced in our earlier part of the order, clearly reveals that in the Hon'ble Supreme Court's case, it was dealing with the case of mine owner who was doing the cutting work mainly for the purpose of taking the same to the market for selling the same. The case of a mine owner cannot be equated with the case of a factory owner, who is involved in comprehensive/production process. The present case is not that of a mine owner, but of a factory owner who is engaged in the activity of manufacturing which undergoes several stages through different technical procedures with the help of the set up exhaustive plant and machinery in the factory. The raw material of the assessee is marble blocks purchased from mine owners and the assessee transforms this raw material into an entirely different finished goods in the form of marble slabs/marble tiles. The raw material and finished goods of this assessee are entirely different and distinct in terms of their names, characteristics, uses, identity, form, appearance, value as well as the market in which they are been dealt with. In our opinion the ratio of Lucky Minmat's case is of no help to the Revenue, but in a way, helps the case of the assessee which we have mentioned above. Further, the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Mysore Minerals Ltd. helps the assessee and the Revenue's SLP stands dismissed by the Hon'ble Supreme Court vide its order dt. 18th Jan., 2002 reported at (2002) 254 ITR (St) 278. Thus, we have no hesitation in holding that the production process employed by the assessee involves manufacturing activity. Accordingly, it is entitled to deduction under s. 80-IA of the Act as per law. We are also satisfied that the word 'produced' even wider in meaning and, therefore, even on that count, the assessee's claim under s. 80-IA deserves to be allowed. The AO is accordingly directed to allow the claim of the assessee under s. 80-IA of the Act in both the years under consideration.

In the result, the appeals of the assessee are allowed.

JOGINDER PALL, A.M.: 24th Nov., 2004

I have gone through the proposed order of my learned Brother (JM). I have not been able to persuade myself to agree with the view taken by my learned Brother, I, therefore, proceed to write my own order.

2. The facts of the case and the submissions of both the parties have been discussed in detail by my learned Brother in the proposed order. Therefore, I do not consider it necessary to again repeat the same in this order. However, for the sake of brevity, it may be mentioned that the assessee has claimed deduction under s. 80-IA on the ground that it is an industrial undertaking engaged in the business of sawing of marble blocks into slabs and tiles. According to the assessee, various operations carried on by it amount to manufacturing activity. The various processes involved in sawing of marble blocks into slabs and tiles as explained by the assessee are as under:

(i) Marble blocks purchased from mine owners being in raw uneven shapes have to be properly sorted out and marked;

(ii) Such blocks are then processed on single blade/wire saw machines using advanced technology to square them by separating waste material.

(iii) Squared up blocks are sawed for making slabs by using the gang-saw machine or single/multi-block cutter machine.

(iv) The sawn slabs are further reinforced by way of filling cracks by epoxy resins and fiber netting;

(v) The slabs are polished on polishing machine; the slabs are further edge cut into required dimensions/tiles as per market requirement in perfect angles by edge cutting machine and multi-disc cutter machines;

(vi) Polished slabs and tiles are buffed by shiner.

Now, the main question that requires to be decided is whether the above activities/processes undertaken by the assessee for converting the marble blocks into marble slabs and tiles amount to manufacturing of goods and articles. There is no dispute about the fact that the assessee would be entitled to deduction under s. 80-IA only if it is found to be engaged in the manufacturing or production of article. The expression "manufacturing of articles" has not been defined in the Act. Therefore, one has to necessarily draw an assistance from the ratio of various decisions as to what amounts to manufacturing activity. This issue came to be considered by the Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) where the Hon'ble Supreme Court has considered the issue as to whether a process of constructing a dam is a process of manufacture or a process of production. Their Lordships of the Hon'ble Supreme Court have observed as under at pp. 415 of 204 ITR:

"The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture. The word 'production' or 'produce', when used in juxtaposition with the word 'manufacture', takes in bringing into existence new goods by a process which mayor 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.

The expressions 'manufacture' and 'produce' are normally associated with movable-articles and goods, big and small, but they are never employed to denote construction activity of the nature involved in construction of a dam or a building.

The word 'article' is not defined in the IT Act or the Rules. It must, therefore, be understood in its normal connotation-the sense in which it is understood in the commercial world. It is equally well to keep in mind the context, since a word takes its colour from the context. The word 'article' in s. 80HH(2)(i) cannot comprehend or take within its ambit a dam, a bridge, a building, a canal and so on.

It is difficult to say that the process of constructing a dam is a process of manufacture or a process of production. A dam is constructed, it is not manufactured or produced.

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."

2A. The issue as to what constitutes a manufacturing activity also came to be considered in the case of Dy. CST vs. Pio Food Packers 46 STC 63, where the apex Court held that generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. No doubt such commodity undergoes several processes from the initial stage to the final stage and undergoes a change, but it is only when the change or series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place.

Where there is no difference in identity between the original commodity and the processed article, it is not possible to say that one commodity has been consumed in the manufacture of another. It would still be regarded retaining its original identity.

2B. This issue was again considered by the Hon'ble Supreme Court in the case of Union of India vs. Delhi Cloth & General Mills (1977) ELT (J) 199 where it was observed that manufacture implies a change, but every change in the raw material is not manufacture although every change of an article is the result of treatment, labour or manipulation. In order to make a change amount to "manufacture" something more is necessary and that something more is such transformation as it brings into existence a new and different article having distinct name.

3. Now the case of the assessee requires to be decided in the light (of) tests laid down by the Hon'ble Supreme Court in the above cases. In this case, the Revenue has relied on the judgment of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC) where the Hon'ble Supreme Court upheld the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj). It would, therefore, be in the fitness of things to first refer to the judgment of the Hon'ble Rajasthan High Court in the above-mentioned case. The facts of the case before the Hon'ble High Court were that the assessee was a mine owner. The assessee extracted limestones and marble boulders and cut them into marble slabs. The issue raised before the Hon'ble High Court was whether the business activity of the assessee amounted to manufacture or production for the purpose of deduction under s. 80HH. Their Lordships of Hon'ble Rajasthan High Court considered the various judgments including its own judgments in the writ petitions and took the view that conversion of agglomerated marble blocks into marble slabs and tiles did not amount to manufacture or production of articles. In this regard, the Hon'ble Rajasthan High Court referred to its own judgments in the cases of Polar Marmo Agglomerates Ltd. vs. Union of India 1994 (73) ELT 536 (Raj), Amrutsheele vs. Union of India (Civil Writ Petn. No. 1654 of 1982, decided on 22nd July, 1987), Jain Marbles vs. Union of India (Civil Writ Petn. No. 869 of 1992, decided on 26th May, 1988), Kasat Enterprises vs. Union of India (Civil Writ Petn. No. 133 of 1983, decided on 7th Nov., 1990) and J.S. Marbles vs. Union of India (Civil Writ Petn. No. 479 of 1985, decided on 19th July, 1990). Besides, the Hon'ble High Court has also referred to several judgments relating to Central Excise where the same view was taken and it was held that conversion of marble blocks into marble slabs and tiles did not amount to manufacture or production of things. It would be relevant to reproduce herebelow the relevant extracts from the above judgment at pp. 250 to 252 of 226 ITR:

"The above discussion leads us to hold that 'manufacture' implies a change, but as cautioned by the Supreme Court, every change is not 'manufacture' although every change in the article is the result of treatment, labour and manipulation. To bring about the change qualifying as manufacture something more is necessary and that something is transformation i.e. a new and different article, having a distinct name, character or use, must emerge. This view of ours, we think, is in conformity with the views expressed by the Court in the case of Polar Marmo Agglomerates Ltd. 1994 (73) ELT 536 (Raj). In that case the question involved was whether conversion of agglomerated marble block into agglomerated marble slabs/tiles amounted to "manufacture" or not. The Court considered the question in great detail and finally, making reference to a number of decisions of this Court in different cases, held as under in para 16 of the decision:

'16. It has been held in the following decisions of the Court that conversion of marble blocks into marble slabs/tiles by sawing does not involve manufacturing process:

1. Amrutsheele vs. Union of India, Civil Writ Petn. No. 1654 of 1982, decided on 22nd July, 1987,

2. Jain Marbles vs. Union of India, Civil Writ Petn. No. 869 of 1992, decided on 26th May, 1988,

3. Kasat Enterprises VS. Union of India, Civil Writ Petn. No. 133 of 1983, decided on 7th Nov., 1990, and

4. J.S. Marbles vs. Union of India, Civil Writ Petn. No. 479 of 1985, decided on 19th July, 1990.

Similar view has been taken in CCE vs. Fine Marbles & Minerals (P) Ltd. 1985 (22) ELT 128, Sangmermer India (P) Ltd. vs. CCE 1989 (42) ELT 725 (Trib) and Associated Stone Industries (Kota) Ltd. vs. CCE 1992 (60) ELT 639. It is mentioned in Associated Stone Industries (Kota) Ltd. vs. CCE, para 3, that the Revenue filed appeal against the order given in CCE vs. Fine Marbles and the Supreme Court dismissed it. Similar will be the position for the conversion of agglomerated marble blocks into agglomerated marble slabs/tiles."

Following and borrowing the language from Dy. CST vs. Pio Food Packers, we conclude that although at some point processing and manufacturing will merge, but where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured. We find the same position in the instant case. We have stated in extenso the facts found by the Tribunal. Those facts are that the activities of the assessee-company consist of excavating limestone and marble boulders and after cutting the boulders into slabs, selling them. After cutting the boulders into slabs, may be with the aid of machinery, the original commodity retains a continuing substantial identity through the processing stage, carried out by the assessee-company. It has not been found by the Tribunal, as was successfully tried by Mr. Garg to assert, that the assessee-company converts the boulders into powder, chips or any other articles commercially known by another name and used as a different article. On such facts, as are stated by the Tribunal to us, we opine that the activities carried on by the assessee-company did not amount to manufacture and, therefore, it was not entitled to the benefit of s. 80HH of the IT Act."

Thus, from the above discussion, it is very clear that while deciding this matter, the Hon'ble High Court has taken into account various judgments of the same Court and the Hon'ble Supreme Court where the view taken was that conversion of marble blocks into marble slabs/tiles does not amount to manufacture or production of articles. According to the learned counsel for the assessee, the facts of the present case are distinguishable from the facts of the case of CIT vs. Lucky Mineral (P) Ltd. The learned counsel has contended that the facts in the case of Lucky Minmat (P) Ltd. were that the assessee was mine owner and extracted marble boulders and cut them into slabs. But in this case, the assessee is not a mine owner. The assessee purchased marble blocks from mine owners and then converted them into marble slabs/tiles. Thus, according to the assessee, the various processes carried on by the assessee for converting them into marble slabs/tiles amounted to manufacture and production of goods. However, I do not agree with this view for the reason that even if the facts of the case before the High Court related to extraction of marble boulders and cutting them into marble slabs, yet the cases relied on by the Hon'ble High Court and as discussed above also related to subsequent process of cutting marble blocks into marble slabs/tiles. Here also the activities of the assessee are the same. The assessee is buying marble blocks and converting them into marble slabs/tiles through sawing operations including polishing of the same. These operations are essentially cutting operations. These are not crushing operations. Therefore, the original commodity i.e. marble blocks retain the same identity but known as marble slabs/tiles. Thus, in my opinion the above judgment of the Rajasthan High Court is squarely applicable to the facts of the present case.

4. This judgment was the subject-matter of appeal before the Hon'ble Supreme Court where the question raised before the Hon'ble Supreme Court was as under:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that business activity of the assessee is clearly in the nature of manufacturing or production and, therefore, it is entitled for relief under s. 80HH of the IT Act, 1961?"

During the course of hearing before the Hon'ble Supreme Court, the assessee relied on the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Best Chem & Limestone Industries (P) Ltd. (1993) 113 CTR (Raj) 298 : (1994) 210 ITR 883 (Raj). The Hon'ble Supreme Court found that the facts of the present case were distinguishable from the facts of the case of Best Chem & Limestone Industries (P) Ltd. because in that case the activities included converting the limestone and lime dust by a stone crusher. It was noticed that crushing of stone is different from that of cutting activities because the crushing activity results in loss of the identity of the original article and brings into existence a new, different and distinct article. These were not the facts of the case where the assessee was engaged in converting the marble blocks into marble slabs/tiles because the activities were only cutting activities. Therefore, the Hon'ble Supreme Court upheld the order of the Hon'ble Rajasthan High Court where it was held that extraction of limestone and marble boulders and cutting them into blocks does not amount to manufacture or production of articles. The Hon'ble Supreme Court has given detailed reasons for upholding the Hon'ble Rajasthan High Court's orders and is, therefore, speaking order. The same is binding on all authorities in the country. As mentioned earlier, the judgment of the Hon'ble Rajasthan High Court which was upheld by the Hon'ble Supreme Court also covered cases where the activities undertaken by the assessee were the same as that of the assessee. Therefore, in my view the judgment of the Hon'ble Rajasthan High Court and the Hon'ble Supreme Court in the aforesaid cases are fully applicable to the facts of the present case. Now the nature of activities undertaken by the assessee does not result into a new item which could be categorized different from the original commodity. The item made by the assessee is known as marble tiles or marble slabs. Mere suffixing of blocks and slabs does not change the identity, character and nature of article. Still the end product is known as marble. Therefore, the same cannot be considered as a new item different from the original commodity. Hence, the activities carried on by the assessee cannot be regarded as manufacture or production.

5. The expression "manufacture" was also considered by the Tribunal, Calcutta Bench in the case of Jai Mica Supply Co. (P) Ltd. vs. Asstt. CIT (2003) 79 TTJ (Kol)(TM) 953 : (2003) 86 ITD 93 (Kol)(TM). In that case the assessee had claimed deduction under s. 80HHC in respect of export of fabricated mica products. The question was whether the items manufactured by the assessee continued to retain the character of minerals i.e. items prohibited under the IT Act for allowing deduction or it was altogether a new and distinct item. The case of the assessee was that the various activities undertaken by the assessee resulted into bringing into existence a commodity which was commercially different and distinct. Therefore, it was contended that the assessee was entitled to deduction under s. 80HHC. The Tribunal observed that mica blocks were processed and out of the same, items like fabricated mica, silvered mica, plates were made. However, the Tribunal held that such items continued to retain the character of minerals and were not the items distinct and different from original commodity. The Tribunal also illustrated the point with example of pure gold. It noted that pure gold could be converted into gold biscuits, gold coins, gold bars, gold sheets, gold threads and gold dust, etc. Though all these items were made of gold and were having a different commercial name, yet most of these items are recognised as nothing but pure gold in the commercial world. Therefore, it could still be regarded as pure gold. However, when such pure gold is converted into gold ornaments after mixing copper, diamonds, etc., the same becomes a separate item distinct in character and commercial use. Thus, it was held that mere commercial name by itself is not a determinative factor for ascertaining as to whether fabricated mica, silvered mica plate, etc. are recognized something other than minerals in the commercial world merely because some words have been prefixed and suffixed to the word 'mica'. When we apply the ratio of the aforesaid decision, we find that items finally produced by the assessee Le. marble slabs/tiles from marble blocks still retain the same identity, character as of marble blocks. Mere suffixing the name with marble slabs/tiles would not alter the identity, character of the original commodity i.e. marble blocks. Therefore, it could not be said that the assessee is engaged in the business of manufacture or production of articles or things.

6. The learned counsel for the assessee has strongly relied on the decision of Karnataka High Court in the case of Dy. CIT vs. Mysore Minerals Ltd. (2001) 167 CTR (Kar) 11 : (2001) 250 ITR 730 (Kar) where the Hon'ble High Court has held that the assessee engaged in the business of extracting granite from quarry, converting it into slabs, cutting and polishing them amount to manufacturing activity. The claim of the assessee is that this judgment is applicable to the facts of the present case. I am unable to subscribe to such view. The reasons for the same are as under:

(i) In the case of Mysore Minerals Ltd., the activity involved is extracting of granite stone from quarry and then further converting it into slabs, cutting and polishing them. Thus original commodity found in the mines was different i.e. stones from the final end product. All these operations were carried on by the assessee itself. But in this case, the assessee is not extracting marble from mines. The assessee is purchasing only marble block from the mine owners. Moreover, the operations involved in converting granite into granite slabs are far more sophisticated as compared to converting marble blocks into marble slabs/tiles. These processes have been explained by the Hon'ble Madras High Court in the case of CIT vs. Pooshya Exports (P) Ltd. (2003) 179 CTR (Mad) 557 : (2003) 127 Taxman 369 (Mad) which are as under:

"2. The assessee is a company doing business of mining and quarrying of granite stones and exporting them as finished goods to various countries. Before exporting these granites stones as per the specification of the customers, the stones undergoes various types of manual and machinery processes, such as, removal of overburden of the quarry by manual process, location and drilling of the boulders, eschewing of waste, drilling of holes, lifting these granite logs either manually or with the help of cranes, dressing, shaping, sizing, colouring and giving uniform grains to these stones, etc. and the process also involved removing of certain natural flaws such as air-pores, veins, crakes, etc. in order to ensure quality of the product. Certain chemical impurities are also required to be removed in special manufacturing process which requires special machines/ equipments, etc. like jet burners, block cutters, vertical and horizontal drilling machines, etc."

It may be seen therefrom that such processes involve, inter alia, removal of chemical impurities through special manufacturing processes which require specialized machines/equipments, etc. like jet burners, block cutters, vertical and horizontal drilling machines, etc. Thus, the granite stones i.e. original commodity is converted into granite slabs/tiles through sophisticated and complex processes. Therefore, those activities were held to be manufacture and production. These are not the processes involved in the present case.

(ii) It is observed that the Revenue had filed an SLP against the decision of the Hon'ble Karnataka High Court and as reported in (2002) 254 ITR (St) 254 such SLP was dismissed without passing a speaking order. However, the Hon'ble Supreme Court has not given any detailed reasons for the same. But in the case of Lucky Minmat (P) Ltd. vs. CIT, the Hon'ble Supreme Court has dismissed the SLP with reasons for upholding the judgment of the Hon'ble Rajasthan High Court. Once the Hon'ble Supreme Court has given a judgment with its own reasoning, such judgment is binding on all the authorities in the country. However, in a case where the Hon'ble Supreme Court has only dismissed the SLP without reasons, it could only mean that the judgment of the Hon'ble High Court has been upheld. The same would be binding on all the authorities in a particular State where the matter was decided by the Hon'ble High Court. It would not be binding on the authorities outside the jurisdiction of the Hon'ble High Court.

(iii) Further, the judgment of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT was not brought to the notice of the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. The judgment of the Rajasthan High Court which was also upheld by the Hon'ble Supreme Court was also not quoted before the Hon'ble Karnataka High Court. The counsel has not drawn our attention to any judgment of the Hon'ble Supreme Court overruling the judgment of the Hon'ble Rajasthan High Court.

(iv) Moreover, the judgment of Hon'ble Karnataka High Court is with reference to deduction under s. 32A whereas the judgment in the case of Lucky Minmat (P) Ltd. is with reference to deduction under s. 80HH i.e. where conditions are the same as involved in the present case.

(v) While deciding the case of CIT vs. Lucky Mineral (P) Ltd., the Hon'ble High Court has considered various judgments on the issue whether conversion of marble blocks into marble slabs/tiles amounts to manufacture or production of articles. However, the Hon'ble High Court decided the issue against the assessee and in favour of the Revenue. This judgment has been upheld by the Hon'ble Supreme Court. Therefore, the facts of the present case are identical to the facts of the case relied upon by the Hon'ble Rajasthan High Court in the aforesaid cases and are directly applicable to this case. Therefore, the judgment of the Hon'ble Rajasthan High Court is binding on all the authorities including Tribunal covered in its jurisdiction.

7. Thus, in the light of these facts and circumstances of the case, I am of the considered opinion that the activities undertaken by the assessee for converting the marble blocks into marble slabs and tiles do not amount to 'manufacture' or 'production' in view of the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd. and of Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. Therefore, the assessee is not entitled to deduction under s. 80-IA. Accordingly, the order of CIT(A) does not merit any interference and all the grounds of appeal of the assessee for both the assessment years are rejected.

8. In the result, the appeals of the assessee are dismissed.

M.A. BAKSHI, VICE PRESIDENT (AS THIRD MEMBER): 31st May, 2006

The captioned two appeals of the assessee had come up for consideration before the Jodhpur Bench of the Tribunal. Since there was a difference of opinion between the learned Members constituting the Division Bench in regard to entitlement of the assessee to the deduction under s. 80-IA, the Hon'ble President has nominated me as a Third Member in regard to the point of difference which is as under:

"Whether the activities undertaken by the assessee tantamount to manufacture/production which entitles it a relief under s. 80-IA or not?"

2. I have heard both the parties and perused the record including separate orders of the learned Members of the Division Bench.

3. The assessee is dealing in marble slabs and tiles. The company purchases marble blocks from miners. The said blocks are sawn into slabs and tiles by mechanical process. The slabs and tiles are polished and sold in the market. The company had set up various units from time to time for doing the above business. In earlier years, deduction was claimed under s. 80HH as an industrial undertaking engaged in the production and manufacture of marble slabs, tiles, etc. and the same was allowed to the assessee in respect of unit No. 1 and unit No. 2. The assessee had set up 3rd and 4th units subsequently. Deduction in respect of the 3rd unit was also allowed to the assessee in earlier years. So, however, deduction was denied to the assessee for the asst. yrs. 2000-01 and 2001-02 on the ground that it was not engaged in the business of production or manufacture of any article or thing. The CIT(A) has confirmed the disallowance of the deduction. On appeal, whereas the learned JM held that assessee was entitled to deduction under s. 80- IA, the learned AM relying upon the decision of the Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT (2000) 162 CTR (SC) 404 : (2000) 245 ITR 830 (SC), held that the assessee was not entitled to such deduction.

4. Before me, the learned counsel for the assessee contended that assessee was engaged in the production or manufacture of article or thing within the meaning of s. 80-IA. It was pointed out that whereas the mine owner excavates the marble blocks from the mines after necessary cuttings, sells the same to various manufacturers for varied uses, the assessee purchases the marble blocks from the miners and by a mechanized process cuts the blocks into slabs and tiles and after buffing and polishing sells the same in the market. According to the learned counsel, the marble blocks are transformed into marble slabs and tiles and therefore, a different commodity emerges after the process of cutting, buffing and polishing. The learned counsel further pointed out that assessee is registered as a small-scale unit with the Department of Industries. The Government of Rajasthan has also found it eligible for incentive which is granted for encouraging the industrial development in the State. The excise duty is also paid on the products manufactured by the assessee. Sales-tax incentive is also granted to the assessee for the purpose of encouraging the industrial development in the State. Learned counsel further pointed out that in respect of unit No. 3, deduction was allowed to the assessee in earlier years. So, however, in 2000-01, the deduction has been denied by taking a different view without change in facts or circumstances of the case. It was further contended that the decisions cited on behalf of the Department before the Bench are distinguishable on facts. It was pointed out that in the case of Lucky Minmat (P) Ltd. vs. CIT, the assessee was a mine owner extracting marble blocks from the quarries. The cutting of blocks into smaller blocks was held not to involve the process of manufacture or production of article or thing. According to the learned counsel, the assessee is engaged in the business of converting the marble blocks into marble slabs and tiles by a mechanical process. The decision of Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT is accordingly claimed to be not applicable to this case. It was further pointed out that the issue is covered in favour of the assessee by the decision of Karnataka High Court in the case of Dy. CIT vs. Mysore Minerals Ltd. (2001) 167 CTR (Kar) 11 : (2001) 250 ITR 730 (Kar). The Karnataka High Court, according to the learned counsel, has held that extraction of granite, cutting the same into slabs and tiles and selling the same after buffing and polishing amounts to production and manufacture of article or thing and, therefore, the assessee was entitled to deduction under s. 80-IA. It was pointed out that the Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd. (2004) 192 CTR (SC) 577 : (2004) 271 ITR 331 (SC), has confirmed the decision of Karnataka High Court in the case of Dy. CIT vs. Mysore Minerals Ltd. and accordingly the said decision is applicable in respect of marble as well. It was pointed out that the Hon'ble Supreme Court has held the process of extracting, cutting and polishing amount to production of article or thing.

5. Reliance was also placed on the decision of Calcutta High Court in the case of Andaman & Nicobar Islands Forest & Plantation Development Corporation Ltd. vs. CIT (2005) 198 CTR (Cal) 76 : (2006) 280 ITR 118 (Cal) in support of the contention that sawing of timber into planks, etc. amounts to production of article or thing. Reliance was also placed on the decision of Allahabad High Court in the case of CIT vs. Shiv Oil & Dall Mill (2006) 281 ITR 221 (All), wherein oil refining has been held to amount to manufacture. Reliance was also placed on the decision of the Supreme Court in the case of Kores India Ltd. 2004 (174) ELT 7 (SC), wherein the cutting of ribbon from big rolls into small rolls and selling the same after winding on pullies has been held to amount to production of article or thing. According to the learned counsel, the learned JM has rightly held the activities carried on by the assessee amount to at least production of article or thing. The learned AM has not dealt with this issue at all, contended the learned counsel for the assessee. Since assessee would be entitled to deduction even if it is engaged in the production of article or thing, which may not amount to manufacture, deduction is permissible to the assessee, it was pleaded before me.

6. The learned standing counsel for the Department, on the other hand, heavily relied upon the decision of Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT. Reliance was also placed on the decision of Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj), to support the contention that assessee is not engaged in the production or manufacture of article or thing. The learned standing counsel has also relied upon the written submissions and according to him, the decision of the Supreme Court in the case of CIT vs. Sesa Goa Ltd., is inapplicable to the fa9J;s of this case insofar as the assessee in that case was engaged in the extraction of ore which was considered to amount to production of article or thing. Relying upon the decision of the Supreme Court in the case of CIT vs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC), it was contended that the assessee does not fall within the category of manufacturers under the IT Act, 1961. The mere fact that it has been recognized as an industrial undertaking under different statutes is not enough for grant of deduction to the assessee.

7. My attention was invited to the written submissions and the decisions cited therein to support the contention that cutting, polishing, sizing marble does not amount to production or manufacture of article or thing. It was further contended that deduction allowed to the assessee in earlier years was not a bar for the tax authorities to consider the correctness of the claim in the year under appeal in accordance with law.

8. In counter-reply, the learned counsel for the assessee pointed out that the decision of the Supreme Court in the case of CIT vs. Sesa Goa Ltd., has not been read carefully by the learned standing counsel insofar as in last para of the judgment, the decision of the Karnataka High Court in the case of Dy. CIT vs. Mysore Minerals Ltd., has been affirmed by the Supreme Court. It was pointed out that in the case of Mysore Minerals Ltd., the Karnataka High Court has held that cutting of granite blocks into slabs and tiles and selling the same after polishing amounts to production and manufacture of article and thing. It was accordingly pleaded that the view taken by the learned JM may be adopted in preference to the view expressed by the learned AM and assessee be held to be entitled to deduction under s. 80-IA.

9. I have given my careful consideration to the rival contentions. The issue involved in this appeal, as pointed out earlier, is as to whether the assessee is engaged in the business of manufacture or production of article or thing. The assessee purchases marble blocks from the mine owners. The deduction claimed by the assessee is under s. 80-IA falling under Chapter VI-A. The said section as applicable for the relevant assessment year provided for deduction out of gross total income to the extent of 25 per cent of profits derived from industrial undertaking engaged in the manufacture or production of article or thing. Whether conversion of marble blocks by sawing into slabs, tiles and polishing amounts to manufacture of article or thing is, in my view, covered against the assessee by the decision of Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. vs. CCE 2003 (157) ELT 393 (SC). In the said case, their Lordships of the Supreme Court held that cutting of marble blocks into slabs and polishing does not amount to manufacture of article or thing. Their Lordships of the Rajasthan High Court, which in this case is the jurisdictional High Court, in the case of CIT vs. Lucky Mineral (P) Ltd., had also occasion to consider the issue as to whether an assessee who was in the business of mining of limestones and marble blocks and thereafter cutting and sizing the same before being sold in the market was entitled to deduction under s. 80HH of the IT Act. In that case, it was held that the assessee was not entitled to deduction under s. 80HH as cutting and sizing of the marble blocks into marble slabs and polishing did not amount to manufacture and production of article or thing. As pointed out earlier, the learned counsel for the assessee has vehemently argued that the said decision of the Rajasthan High Court, which has been affirmed by the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT, is inapplicable in the present case insofar as that was a case of a miner extracting marble blocks and selling the same after cutting into smaller blocks to facilitate transportation.

10. There appears to be some weight in the said contention advanced on behalf of the assessee insofar as the assessee in the case of CIT vs. Lucky Minerals (P) Ltd. before the Rajasthan High Court, the assessee was a miner. So, however, the Hon'ble Rajasthan High Court in the case of CIT vs. Lucky Minerals (P) Ltd., at p. 251 of the judgment, has referred to its own decision in the case of Polar Marmo Agglomerates Ltd. vs. Union of India 1994 (73) ELT 536 (Raj). The question involved in the case of Polar Marmo Agglomerates Ltd. was as to whether the conversion of agglomerated marble slabs/tiles amounted to manufacture or not. The Hon'ble Court after making reference to the following decisions held that conversion of marble blocks into marble slabs/tiles by sawing does not involve manufacturing process:

1. Amrutsheele vs. Union of India, Civil Writ Petn. No. 1654 of 1982, decided on 22nd July, 1987.

2. Jain Marbles vs. Union of India, Civil Writ Petn. No. 869 of 1992, decided on 26th May, 1988.

3. Kasat Enterprises vs. Union of India, Civil Writ Petn. No. 133 of 1983, decided on 7th Nov., 1990, and

4. J.S. Marbles vs. Union of India, Civil Writ Petn. No. 479 of 1985, decided on 19th July, 1990.

In the above cases also it was held by the Rajasthan High Court that conversion of marble blocks into marble slabs/tiles by sawing does not involve manufacturing process. Thus, the mere fact that the decision in the case of Lucky Minmat (P) Ltd., is in respect of the mine owner does not help the assessee in regard to the ratio laid down by the Hon'ble High Court that cutting of the marble blocks into marble slabs/tiles does not amount to manufacture. As pointed out earlier, even otherwise, the Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. has also laid down the principle of law that cutting of marble blocks into slabs and tiles and polishing does not amount to manufacture and, therefore, there is no escape from the same. Even in the case of Lucky Minmat, their Lordships of the Supreme Court held, "Conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process while the mere mining of limestone and marble and cutting the same before being sold in the market does not amount to manufacturing of any article or thing".

11. The learned counsel for the assessee has heavily relied upon the decision of Supreme Court in the case of CIT vs. Sesa Goa Ltd., where extracting and processing of ore has been held to fall within the ambit of the word 'production'. It has also been pointed out that the Hon'ble Supreme Court in the said case has also affirmed the decision of the Karnataka High Court in the case of Dy. CIT vs. Mysore Minerals Ltd. According to the learned counsel, the Karnataka High Court in the case of Mysore Minerals Ltd. held that extracting granites from quarry, converting the same into slabs/tiles, polishing and cutting before effecting the sale of the same amounts to production or an article or thing. Further, the said decision of the Karnataka High Court having been affirmed by the Hon'ble Supreme Court squarely covers the issue involved in the present case, it was contended before me.

12. In the case before me, the assessee has purchased marble blocks and the same have been cut to various sizes, part of which has been exported and part sold in India. It is also pertinent to mention that the assessee is also engaged in doing the job work of cutting the marble blocks into marble slabs on payment of job charges. The assessee also makes marble tiles by cutting the marble slabs and polishing and buffing the same. The issue to be determined is as to whether the decision of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT, is applicable to the facts of the present case or the decision of Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd., or none is applicable. In the case of Lucky Minmat (P) Ltd., the assessee was a mine owner, the marble blocks had been cut into marble blocks and as such a distinction in the facts has got to appreciated insofar as what was excavated from the mines was sold after cutting the same into smaller blocks the product remaining the same. In the case of Sesa Goa Ltd., their Lordships of the Supreme Court held that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production'. Their Lordships referred to its decision in the case of CIT vs. N.C. Budharaja & Co., to hold that the word 'production' is much wider than the word 'manufacture'. The following passage from the judgment in the case of N.C. Budharaja & Co. was reproduced:

"The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture....

The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which mayor 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."

At p. 235, their Lordships of the Supreme Court held as under:

"We are, therefore, of the opinion that extraction and processing of iron ore amounts to 'production' within the meaning of the word in s. 32A(2)(b) (iii) of the Act and, consequently, the assessee is entitled to the benefit of s. 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to 'manufacture' is left open."

Affirming the decision of Karnataka High Court in the case of CIT vs. Mysore Minerals Ltd., their Lordships of the Supreme Court held as under:

"The provision required to be construed in this appeal is s. 80-I of the IT Act, 1961, the relevant extract of which are substantially identical to the provisions of s. 32A(2)(b)(iii) of the IT Act, 1961, which have been construed by us in the order delivered by us today in CIT vs. Sesa Goa Ltd. (Civil Appeal No. 7456 of 2004). Following the decision in Sesa Goa Ltd., the civil appeal is dismissed."

The facts in the case of Mysore Minerals Ltd. are that the assessee was a mine owner extracting granite from quarry, cutting and polishing the same. The Hon'ble Karnataka High Court held that extracting granite from quarry and cutting it to various sizes and polishing was manufacturing or production of any article or thing and assessee was entitled to deduction under s. 80-I. The Hon'ble Supreme Court has affirmed the decision of the Hon'ble Karnataka High Court to the extent that the activities of extraction of granite and selling the same after cutting, buffing and polishing amounts to production.

13. On perusal of the two decisions of the Hon'ble Supreme Court, discussed above, it appears that mere extraction or excavation of marble blocks and cutting the same into smaller blocks does not amount to manufacture or production of article or thing. Mere cutting of marble blocks into slabs may also not amount to manufacture or production of any article or thing. So, however, the integrated activity of extracting granite, cutting the same into slabs/tiles, polishing and selling the end product in the market would amount to production of article and thing (whether it amounts to manufacture has been left open by the Supreme Court). In the case of present assessee, the activities carried on by them are not mining of marble slabs. The assessee purchases marble blocks. The said blocks are cut into various sizes to make marble slabs/tiles. So, however, the marble tiles are sold after polishing as these are used mainly on floors/walls, etc. as a finished product. In the case of CIT vs. Gogte Minerals (1996) 136 CTR (Kar) 499 : (1997) 225 ITR 60 (Kar), Hon'ble Karnataka High Court held that mining operation carried on for excavating iron are and sequestering the same from other materials involved a very big process and there was complete transformation of the material from one form to another and that this amounted to a manufacturing activity and consequently, the assessee would be entitled to investment allowance on the screening plant and electrical installations used in mining. In the case of Hind Nippon Rural Industries vs. CIT (1993) 201 ITR 588 (Kar), the Hon'ble Karnataka High Court held that the assessee purchasing granite blocks made on specifications stated by the assessee and no quarrying was done by the assessee, the assessee mainly engaged in the export of stones was not engaged in the manufacturing process of goods. In the case of Dy. CST vs. Pio Foods Packers 46 STC 63 (SC), their Lordships of the Supreme Court held as under:

"When pineapple fruit is processed into pineapple slices for the purpose of being sold in sealed cans, there is no consumption of original pineapple fruit for the purpose of manufacture and the case does not fall within s. 5A(1)(a) of the Kerala General Sales-tax Act, 1963. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity notwithstanding the removal of inedible portions, the slicing and thereafter canning it or adding sugar to preserve it."

Their Lordships further held, "It is the change or series of change taking the commodity to the point where commercially it can no longer be regarded as the original commodity but instead it is recognized as a new and distinct article, then the manufacturing can be said to take place".

14. In the case of Union of India vs. Delhi Cloth & General Mills Ltd. 1977 (ELT) 199 (SC), it was held that manufacture implies a change but every change in raw. material is not manufacture although every change of article is a result of treatment, labour and manipulation. In order to make a change, 'manufacture' something more is necessary and that something more is such transformation of a production in bringing into (existence) a new and different article having different name, character or use.

15. In the case of Polar Marmo Agglomerates Ltd. vs. Union of India, it was held that agglomerated marble slabs/tiles made from crushed lumps/chips of naturally excavated marble and pigments and binding agents and agglomerated block sawn into required sizes was not a different and distinct commodity from excavated marble blocks and, therefore, no manufacturing activity was involved in making the product and hence the same was not liable to duty under the Central Excise and Salt Act. In the case of CIT vs. Pooshya Exports (P) Ltd. (2003) 179 CTR (Mad) 557 : (2003) 127 Taxman 369 (Mad), the assessee-company was doing business of mining and quarrying of granite stones and exporting them as finished goods to various countries. The AO disallowed assessee's claim for investment allowance on the ground that no production or manufacturing activity was involved in the process of mining and exporting granite blocks. The Hon'ble Madras High Court held that assessee was not entitled to investment allowance.

16. On the analysis of the above decisions, it appears that where the assessee is involved in integrated activity of mining of marble blocks and cutting the marble blocks into slabs and selling the slabs/tiles after polishing, the product sold in the market is different from the ore extracted from the mines and accordingly 'production' can be said to be involved in the process of mining. Mere cutting of marble blocks into slabs will not amount to any manufacture or production of article or thing. On the other hand, extraction of marble blocks, cutting the same into slabs/tiles and selling the same after polishing would amount to production of article or thing (integrated activities). It will be pertinent to mention that mere cutting of granite blocks and selling the same would not amount to production of article or thing insofar as no new article emerges on cutting of granite blocks. The reasoning given by the Bombay High Court in the case of CIT vs. Sesa Goa Ltd. (2004) 188 CTR (Bom) 120: (2004) 266 ITR 126 (Bom), and later affirmed by the Hon'ble Supreme Court in CIT vs. Sesa Goa Ltd. would be relevant to appreciate the distinction as under:

"The ore has to be extracted or raised from the earth in which it is embedded and has to be brought to the surface, as an article or thing. If that be the case, winning or extracting of ore would fall within the expression 'production'. Once it falls within the expression 'production', the assessee would be entitled to the benefit under s. 32A of the said Act. That being the case, it would not be possible to interfere with the view taken by the Tribunal in all the three appeals."

While affirming the decision of the Bombay High Court, their Lordships of the Hon'ble Supreme Court also pointed out that what is embedded in the earth is something different than what is sold by the assessee.

17. At this stage, it may be relevant to point out that there is a distinction between mineral and ore. The term 'mineral' though frequently applied to substances containing metals, in its proper sense includes all fossil bodies or matters dug out of mines. In its enlarged sense it comprises all the substances which formed or have formed a solid body of the earth. There is difference in common and scientific parlance between mineral and ore, ore being a compound of metal and some other substance. Ore is the compound of a metal and some other substance as oxygen, sulphur or arsenic called its mineralizer by which its properties are disguised or lost. As per Oxford Dictionary a mineral is a natural body destitute of organization or life. The word is evidently derived from mine as being that which is usually obtained from a mine but mineral bodies occur in three physical conditions of solid, liquid and gas and although the term is more frequently applied to substances containing metals, in its proper sense it includes all fossil bodies or matters dug out of mines and is not confined to metals only, but primarily means all substances other than the agricultural surface of the ground which may be got for manufacturing or mercantile purposes, such as stone or clay, whether got from a mine as the word would seem to imply or by open working, and whether containing metallic substances or substances entirely non-metallic. The decision of the Supreme Court in the case of Sesa Goa Ltd. has to be understood in the light of above distinction.

18. While explaining the meaning of the word 'production' within the meaning of s. 80J, the Jammu & Kashmir High Court in the case of CIT vs. Abdul Ahad Najar (2001) 169 CTR (J&K) 273 : (2001) 248 ITR 744 (J&K) explained that conversion of standing trees into logs and planks amounts to production of article or thing. It has been explained that the standing trees are different than the logs and planks as these are not known as trees. Similar view has been taken by the Calcutta High Court in the case of Andaman & Nicobar Islands Forest & Plantation Development Corporation Ltd. From these decisions also it clearly emerges that mere sawing of logs and planks by itself would not amount to production. So, however, the process of cutting of trees and then converting the same into logs and planks either manually or mechanically would amount to production of article or thing insofar as the standing trees are different than the logs and planks. On the other hand, mere cutting and polishing does not amount to production or manufacture of article or thing, as in the case of CIT vs. Gem India Manufacturing Co. (2002) 172 CTR (SC) 615 : (2001) 249 ITR 307 (SC). In the said case, their Lordships of the Supreme Court held that cutting and polishing of uncut diamonds does not amount to production or manufacture of article or thing.

19. On the analysis of the above decisions, it would be necessary to consider as to whether the sawing of marble blocks into marble slabs and tiles with or without polishing amounts to production of article or thing. I have earlier pointed out that the aforesaid activities do not amount to manufacture of article or thing. A reference has been made by me to the decision of the Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. vs. CCE, in which the decision of the Central Excise Tribunal was reversed by the Hon'ble Supreme Court. When the matter came up before the Tribunal in the case of Aman Marble Industries (P) Ltd., one of the Members had relied upon earlier decisions to hold that the cutting of blocks and slabs into tiles was not a process of manufacture or production of article or thing. However, a contrary view was taken by one of the Members of the Tribunal and after reference to the Third Member, the matter was remanded back to the Central Excise authorities for fresh examination in the light of the majority decision. On appeal to the Hon'ble Supreme Court, the view expressed by the learned JM of the CEGAT was upheld. The Hon'ble Supreme Court held that it was not possible to accept that excavation of stones and thereafter cutting and polishing them into slabs resulted in any manufacture of goods. The contention advanced on behalf of the assessee that the decisions to the effect that the activities carried on by the assessee do not amount to manufacture of article or thing would not come in the way of the assessee insofar as even the production of article or thing not amounting to manufacture also enables the assessee to get the deduction under s. 80-IA is also bereft of substance. In the case of CCE vs. Fine Marble & Minerals (P) Ltd. 1985 (22) ELT 128, the CEGAT has specifically pointed out that cutting of marble blocks into marble slabs does not amount to manufacture or production of article or thing. The relevant portion of the order being paras 6 to 10 are reproduced hereunder:

"6. Sec. 3 of the Central Excise and Salt Act, 1944, is the 'charging section'. Duty is leviable on all excisable goods which are produced and manufactured in India as and at the rates set forth in the First Schedule. Sec. 2(d) defines excisable goods as goods specified in the First Schedule. The goods in question viz. cut marble slabs are not one of the items specifically enumerated in the First Schedule. So, we have to find out whether the residuary Item 68 would be applicable. This Tariff item refers to 'all other goods not elsewhere specified'. Reading s. 3 and Tariff Item 68 together, it follows that Tariff Item No. 68 would not be applicable unless they are 'goods' produced or manufactured in India. The term 'manufacture' itself as defined in s. 2(f) is an inclusive definition. Excise duty is imposed when the manufacture of goods occurs. The concept of "manufacture" has been considered in several cases cited on both the sides. The principles that evolve out of these decisions are that (i) mere change is insufficient and a new product should emerge. In the assessee decision in the case of Union of India vs. Delhi Cloth Mills, the Supreme Court has observed, relying on passage from an American judgment, the word '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 or use".

(ii) a new substance known to the market must emerge.

(iii) there should be loss of original identity. The fact that the product has undergone a degree of processing would be irrelevant if the original commodity continues to possess its original identity.

7. We have to analyse in the light of legal principles set out above, whether the respondents have manufactured a product liable for duty. The process of cutting marble block into marble slabs has been set out in the earlier para. The marble slabs that are merely sawn from the marble blocks cannot be called a distinct commodity. The end product which would come into existence after the activity is completed, would still be called 'marble'. Thus, the original identity continues despite the several processes undergone. In the trade circles, marble slabs or the marble tiles that are manufactured after cutting the edges, trimming, polishing and other processes, continue to be known as marble. Unless it is proved that by virtue of the sawing process, a different or distinct commodity comes into existence, the process cannot be equated to manufacture. It is wrong to say that by the application of one or more processes, if the raw material indicates a change, that change would necessarily amount to manufacture. In order to fall within the ambit of 'excisable goods', the process applied should result in "goods" which could originally come to the market to be brought and sold. The intermediate state, as distinguished from the final product, could in most cases be a question of degree, but as Justice Holmes has said, "among distinctions of law are often distinctions of degree".

8. "Marble" as noticed from Encyclopedia Britannica often occurs as metamorphic rocks. The quarry of marble is very limited. Channelling machines are utilized to make cuts wide and deep. The marble blocks, outlined by joints and cuts are separated by driving wedges into drill holes. It further reads "mill-sawing into slabs is done with sets of parallel iron blades that move back and forth and are fed by sand and water. The marble may be machined with lathes and carborundum wheels and is then polished with increasingly finer grades of abrasive". It is, therefore, seen that only after machining and polishing and such other process are applied to the cut slabs, do they become a marketable commodity viz. 'marble tiles'. In short the manufacture of an article known as marble could be said to be complete only after all or most of these processes are undergone to result in a distinctly different commodity.

9. The decision in Pio Food Packers indicates that manufacture is the end result of one or more processes through which the original commodity is made a pass. In that case the question arose whether pineapple fruit converted into pineapple slices for sale in sealed cans would amount to manufacture under s. 5A(1)(a) of the Kerala General Sales-tax Act. The primary test is the continuation of the identity of the commodity involved in the manufacture or otherwise. Shri Laxmi Kumaran, pointed out that pineapple would continue to be pineapple whether taken in slices or as a whole fruit, and Shri Ravinder Narain countered by saying that so would marble continue to be marble whether in the form of block, slab or tile. Be that it may, we have to consider whether the slicing of pineapple would amount to manufacture. Applying the ratio of that decision, it is seen that cutting marble slabs from marble blocks would not produce a commercially distinct and marketable article.

10. From the decision cited by the senior Departmental Representative, we find that in certain cases certain processes involved have been treated as 'manufacture'. For example 1982 ELT 253 (Teleprinter in sub-item (ii) Tariff Item 17 is a distinct entry) 1987 ELT 389 (the product viz. circles fully specified the description contained in Item 26A(2), (iii) 1980 ELT 735. But those were instances where the article or product was covered under a specific Tariff entry. As rightly pointed out by the learned counsel for the respondents, the product now in question, before and after the said process of sawing, are not so different and distinct that it could be said that, in commercial parlance, commodity was converted into another commercially distinct and different commodity."

The above decision in the case of Fine Marble & Minerals (P) Ltd. is referred to in the order of the Tribunal in the case of Aman Marble Industries (P) Ltd. vs. CCE, and has been relied upon by the learned JM of CEGAT whose decision has ultimately been upheld by the Hon'ble Supreme Court. It is evident from the above decision of the Central Excise Tribunal that the activities carried on by the assessee do not also fall within the ambit of production of article or thing and, therefore, the assessee is not entitled to deduction under s. 80-IA.

20. Before winding up, it will be necessary to consider the contention advanced on behalf of the assessee that the excise duty is paid on the activities carried on by the assessee which supports the claim that the assessee is engaged in the manufacture or production of article or thing. I have pointed out earlier that the Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. vs. CCE, considered the activities carried on by the assessee for the purpose of taxation under the Central Excise Act, 1944. The Hon'ble Supreme Court, as pointed out earlier, laid down the law that the activities of cutting, trimming and polishing of marble does not amount to manufacture or production of article or thing. Subsequently, levy of excise duty on marble blocks, slabs and tiles might have been authorized under the Customs (Central) Excise Act. In this connection it will be relevant to point out that s. 2 of the Central Excise Act, 1944 was amended to give the inclusive definition of 'manufacture' as under:

'(b) in s. 2, for cl. (f), the following clause shall be substituted; namely: (f) "manufacture" includes any process,-

(i) incidental or ancillary to the completion of a manufactured product; and

(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, and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on the own account;'

The definition of excisable goods had also been amended to mean "goods specified in the Schedule to Central Excise Tariff Act, 1985 as being subject to duty of excise". Before this amendment, the Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. vs. CCE, had laid down the law that the activity of cutting, trimming, polishing of marble does not amount to production or manufacture of article or thing. It is by virtue of the inclusive definition of 'manufacture' under the Central Excise Act, 1944, which enables the levy of excise duty in respect of marble slabs and marble tiles. It is well-settled principle of law that in interpreting a statute with reference to other statutes, it is necessary to keep in mind the relevant provisions of a statute. Definition of a particular statute may not be applicable in interpreting the meaning of a word under a different statute. Under the IT Act, the word 'manufacture' is not defined. Therefore, one will have to depend on the interpretation of the word 'manufacture' as per settled precedents laid down by the Hon'ble Supreme Court or the High Courts. The decision of the Supreme Court has got to be read in the context in which it has been rendered. The decision of the Supreme Court in the case of Aman Marble Industries (P) Ltd. is before the amendment in the Central Excise Act, 1944 and, therefore, is applicable to the present case. Subsequent decision in the case of Kores India Ltd. is not applicable as it has been rendered in the light of amended law.

21. Similarly, the assessee being registered as an industrial unit does not necessarily make them as manufacturer or producer of any article or thing. The learned counsel for the assessee had pointed out before us that the Sales-tax Department had also classified the marble blocks and marble slabs separately and imposed tax at different rates. In my considered view, the mere fact that the Sales-tax Department has provided different rates for sale of marble in different shapes does not advance the case of the assessee that a different commodity is transformed by cutting and polishing the marble blocks to amount to production or manufacture of article or thing.

22. It may also be pertinent to mention that the learned counsel had invited my attention to certain decisions of the Rajasthan High Court such as in the case of CTO vs. Bhanri Lal Jain (1994) 94 STC 118 (Raj), wherein their Lordships had held that cutting of marble stones and blocks amounts to manufacture. These decisions are rendered prior to the decision of the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. vs. CIT. The decision of the Hon'ble Supreme Court is dt. 3rd Aug., 2000 and, therefore, any earlier decision to the contrary of any High Court stands overruled and, therefore, these are no longer good law.

23. Taking the totality of facts and circumstances of this case into consideration, especially the decision of the Hon'ble Supreme Court in the case of Aman Marble Industries (P) Ltd. being directly on the issue, I am of the considered view that the cutting of marble blocks into marble slabs and tiles and selling the same after polishing does not amount to either production or manufacture of any article or thing. I, therefore, concur with the view expressed by the learned AM.

24. The matter is now remitted to the Division Bench for passing order in accordance with the majority view.

R.S. SYAL, A.M.: 30th June, 2006

In conformity of the opinion of the majority of the Members of the Tribunal who have heard these cases, for the reasons cited in the orders, we adjudicate the issue apropos of the point of difference against the assessee.

2. In the result, both the appeals stand dismissed.

 

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