Case: M/s. Aspinwall and Co. Ltd Vs. The Commissioner of Income Tax, Ernakulam

and polishing is done. Thereafter gradation is done. The process of gradation requires separation of good coffee for the purpose of grading by a process of what is known as garbling/manual grading. At times, the process of gradation is done by mechanical means as well. After grading the polishing is done on the basis of grading. The Tribunal held that in this process assessee was involved in the activity of manufacturing the coffee beans from the raw material plucked from the plant.10. The High Court accepted the factual matrix but in conclusion as to whether it amounts to manufacturing activity differed with the Tribunal and held : "We find that all the nine stages of the process do not show any kind of change or a commercially different commodity is not seen to be passing through the various stages of the process. It cannot be ignored that in common parlance, `coffee means, coffee powder, a beverage consumed as either a hot or cold drink. At no stage, this colour combination between manufacture and production has its manifestation". The relevant portion of Section 32-A is reproduced below : "32-A. (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee :Provided that no deduction shall be allowed under this Section in respect of -(a) xxx xxx xxx(b) xxx xxx xxx(c) xxx xxx xxx(d) xxx xxx xxx(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely :-(a) xxx xxx xxx(b) xxx xxx xxx(i) xxx xxx xxx(ii) xxx xxx xxx(iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.)". The short point for consideration is whether the High Court was right in coming to the conclusion that the assessee was not involved in any manufacturing or production activity in the process of curing the coffee. 11. The word `manufacture has not been defined in the Act. In the absence of a definition of the word `manufacture it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.12. This Court while determining as to what would amount to a manufacturing activity held in Deputy Commissioner of Sales Tax v. M/s. Pio Food Packers, 1980 Supp. SCC 174 : that the test for determination whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognized in the trade as a new and distinct commodity. It was observed : "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 an perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place." 13. Adverting to facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognized in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product.14. Submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which result in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 15. For the reason stated above, we are of the opinion that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans ready for consumption would not be a manufacturing activity disentitling the assessee to the investment allowance provided under Section 32-A of the Act.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. The word `manufacture has not been defined in the Act. In the absence of a definition of the word `manufacture it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.12. This Court while determining as to what would amount to a manufacturing activity held in Deputy Commissioner of Sales Tax v. M/s. Pio Food Packers, 1980 Supp. SCC 174  : that the test for determination whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognized in the trade as a new and distinct commodity. It was observedmanufacture 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 an perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place.Adverting to facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognized in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from raw material from which it was manufactured. A distinct change comes about in the finished product.14. Submission of the learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which result in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity.