Case: Income Tax Officer, Udaipur Vs. M/s. Arihant Tiles &amp; Marbles (P) Ltd

he lead matter is Civil Appeal arising out of S.L.P.(C) No.9812/2008 in the case of Income Tax Officer, Udaipur Vs. M/s. Arihant Tiles & Marbles (P) Ltd. The assessee, during the relevant Assessment Year 2001-2002, was engaged in the business of manufacture/production of polished slabs and tiles which the assessee exported (partly). The prime condition for allowing deduction under Section 80IA, as it stood at the material time, was that industrial undertakings should manufacture or produce any article or thing, not being any article or thing specified in the list in Eleventh Schedule of the Income Tax Act, 1961. The question before us is: whether on facts and circumstances of the case(s) the activities undertaken by the respondent(s) herein would fall within the meaning of the words "manufacture or production" in Section 80IA of the 1961 Act?  To answer the above issue, it is necessary to reproduce the details of stepwise activities undertaken by the assessee(s) which read as follows:-  "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 waster 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 fibre netting;  v) The slabs are polished on polishing machine; the slabs are further edge cut into required dimensions/tiles as per market requirement in prefect angles by edge cutting machine and multi disc cutter machines;  vi) Polished slabs and tiles are buffed by shiner."  In addition to the above activities, it may also be noted that the assessee(s) has been consistently regarded as a manufacturer/producer by various Government Departments and Agencies. The above processes undertaken by the respondent(s) have been treated as manufacture under the Excise Act and allied tax laws.  At the outset, we may point out that in numerous judgments of this Court, it has been consistently held that the word "production" is wider in its scope as compared to the word "manufacture". Further, Parliament itself has taken note of the ground reality and has amended the provisions of the Income Tax Act, 1961 by inserting Section 2(29BA) vide Finance Act, 2009, with effect from 1st April, 2009.  We quote herein-below the relevant provisions of Section 2(29BA) as also the relevant provisions of Section 80IA(2)(iii) of the Income Tax Act, 1961.  "2(29BA) "manufacture" with its grammatical variations, means a change in a non-living physical object or article or thing,-  (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or  (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;"  "80IA(2) (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India."  The Authorities below rejected the contention of the assessee(s) that its activities of polishing slabs and making of tiles from marble blocks constituted "manufacture" or "production" under Section 80IA of the Income Tax Act. There was difference of opinion in this connection between the Members of the ITAT. However, by the impugned judgment, the High Court has accepted the contention of the assessee(s) holding that in the present case, polished slabs and tiles stood manufactured/produced from the marble blocks and, consequently, each of the assessee was entitled to the benefit of deduction under Section 80IA. Hence, these Civil Appeals have been filed by the Department.  Incidentally, it may be noted that some of the assessees before us are also job workers duly registered under the provisions of the Excise Act/Rules framed thereunder. It may also be clarified that in these cases, we are concerned with assessees who are basically factory owners and not mine owners. This distinction is of some relevance when we analyse the various judgments cited before us fairly by the learned counsel on behalf of the Department.

Court's reasoning:
In the present case, we are not considered with such activity. Therefore, in our view the judgment of this Court in Rajasthan Electricity Board (supra) has no application to the facts of the present caseIn our view, the judgment of this Court in Aman Marble Industries Pvt. Ltd.(supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the Excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufactureIn the present case, we have extracted in detail the process undertaken by each of the respondents before us. In the present case, we are not concerned only with cutting of marble blocks into slabs. In the present case we are also concerned with the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated herein-above is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of "manufacture" or "production" under Section 80IA of the Income Tax Act. As stated herein-above, the judgment of this Court in Aman Marble Industries Pvt. Ltd. was not required to construe the word "production" in addition to the word "manufacture". One has to examine the scheme of the Act also while deciding the question as to whether the activity constitutes manufacture or production. Therefore, looking to the nature of the activity stepwise, we are of the view that the subject activity certainly constitutes "manufacture or production" in terms of Section 80IA. In this connection, our view is also fortified by the following judgments of this Court which have been fairly pointed out to us by learned counsel appearing for the DepartmentIn our view, applying the tests laid down by this Court in Sesa Goas case (supra) and applying it to the activities undertaken by the respondents herein, reproduced herein-above), it is clear that the said activities would come within the meaning of the word "production"Applying the above tests laid down by this Court in Budharajas case (supra) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognised by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961