Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8260 OF 2022
M/s Polyflex (India) Pvt. Ltd. …Appellant
Versus
The Commissioner of Income Tax & Another …Respondents
J U D G M E N T
M.R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 25.02.2014 passed by the High Court of Karnataka at
Bengaluru in Income Tax Appeal No. 623/2007, by which the High Court
has allowed the said appeal preferred by the Revenue, the assessee
has preferred the present appeal.
Signature Not Verified
Digitally signed by R
Natarajan
Date: 2022.11.17
17:01:11 IST
Reason:
2. The facts leading to the present appeal in nutshell are as under:
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That the appellant – assessee is having a manufacturing unit at
Pune in which the appellant – assessee is manufacturing ‘polyurethane
foam,’ which is ultimately used as automobile seat. The assessee filed
its return of income for the assessment year 2003-04 and claimed
deduction under Section 80-IB of the Income Tax Act (for short, ‘IT Act’).
The assessing officer disallowed the deduction under Section 80-IB of
the IT Act by observing that the nature of the business of the assessee is
“manufacturer of polyurethane foam seats” which falls under entry 25 to
the Eleventh Schedule of the IT Act and therefore the assessee shall not
be entitled to deduction under Section 80-IB. However, it was the case
on behalf of the assessee that different sizes of polyurethane foam are
used as automobile seats and therefore the end product can be said to
be the automobile seat which is different than the polyurethane foam and
therefore the same does not fall under entry 25 to the Eleventh Schedule
of the IT Act. However, the assessing officer did not accept the same by
observing that as ‘polyurethane foam’ is made of Polyol and Isocyanate
and other components, the deduction under Section 80-IB of the IT Act
cannot be given to the assessee-company as Section 80-IB(2)(iii) states
that the benefit of deduction under the said section cannot be given if the
assessee manufactures or produces any article or thing specified in the
list in the Eleventh Schedule of the IT Act.
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2.1 The assessee preferred an appeal before the Commissioner of
Income Tax (Appeals) (for short, ‘CIT(A)) against the assessment order.
The CIT(A) upheld the order of the assessing officer. The CIT(A)
observed that the two chemicals, namely, Polyol and Isocyanate used in
the manufacture of polyurethane foam seats assemblies were the basic
ingredients of polyurethane foam and therefore the case would squarely
fall in what is specified in the Eleventh Schedule.
2.2 Against the order of the CIT(A), the Assessee filed an appeal
before the Income Tax Appellate Tribunal (for short, ‘ITAT’). The ITAT set
aside the assessment order as well as the order passed by the CIT(A)
and allowed the appeal filed by the assessee by observing that
polyurethane foam was neither produced as a final product nor is an
intermediate product nor is a by-product by the assessee and the same
was used as automobile seat and therefore does not fall within entry 25
to Eleventh Schedule of the IT Act and therefore the assessee shall be
entitled to claim deduction under Section 80-IB of the IT Act. The order
passed by the ITAT has been set aside by the High Court, by the
impugned judgment and order specifically observing that what is
manufactured by the assessee is polyurethane foam in different
sizes/designs and there is no further process undertaken by the
assessee to convert it into automobile seats and therefore what is
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manufactured by the assessee is polyurethane foam falling in entry 25 to
Eleventh Schedule and therefore the assessee shall not be entitled to
deduction claimed under Section 80-IB of the IT Act. Consequently, the
High Court has allowed the appeal preferred by the revenue and has
quashed and set aside the order passed by the ITAT and has restored
the assessment order denying the deduction claimed under Section 80-
IB of the IT Act. The impugned judgment and order passed by the High
Court is the subject matter of present appeal.
3. Shri Preetesh Kapur, learned Senior Advocate has appeared on
behalf of the assessee and Shri Balbir Singh, learned Additional Solicitor
General of India has appeared on behalf of the revenue.
3.1 Shri Preetesh Kapur, learned counsel appearing on behalf of the
assessee has vehemently submitted that when on appreciation of the
entire evidence on record and after considering the process undertaken
by the assessee and after considering the fact that the end product was
automobile seat, the ITAT allowed the appeal and held that the assessee
is entitled to claim deduction under Section 80-IB of the IT Act, the same
was not required to be interfered with by the High Court.
3.2 It is submitted that the relevant pre-condition for the assessee to
be eligible for the benefit under Section 80-IB of the IT Act in the present
case is that the final product manufactured and sold by the assessee
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ought not to have an article classifiable in the Eleventh Schedule. It is
submitted that the final product manufactured by the assessee is not
polyurethane foam, but automobile seat in which polyurethane foam is
used. It is submitted that the learned ITAT returned a categorical finding
of fact that the final product manufactured by the assessee is automobile
seat in which polyurethane foam is used. It is submitted that if that be
so, the manufactured item shall not come within any of the entry of
Eleventh Schedule and therefore the assessee shall be entitled to
deduction under Section 80-IB of the IT Act.
3.3 It is submitted that in fact the assessee received orders for supply
of automobile seats and even paid the sales tax as automobile seats. It
is submitted that the final product is commercially distinct from
polyurethane foam.
3.4 It is submitted that the High Court ought to have appreciated that
in fact in assessee’s own case in respect of the very same product, in
relation to classification for the purposes of payment of excise duty, the
CEGAT has observed that the product manufactured by the assessee
can never be said to be known in trade parlance as articles of
polyurethane foam and hence cannot be classified as polyurethane
foam. It is submitted that the order passed by the CEGAT had attained
finality. It is submitted that therefore once the articles/goods
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manufactured cannot be classified as polyurethane foam under the
Excise Act, the same cannot be treated and/or considered as
polyurethane foam under the IT Act.
3.5 It is submitted that in the present case the Tribunal noted in detail
the elaborate manufacturing process undertaken by the assessee
whereby the final product, namely, car seats are manufactured. It is
submitted that after elaborating the process, the Tribunal has returned a
finding of fact that the said process clearly results in the emergence of a
final product which is commercially distinct and different from
polyurethane foam and is known in the market as car seats and not as
polyurethane foam.
3.6 It is submitted that the High Court has reversed the decision of the
ITAT without even noticing the above process or the CEGAT’s order and
also without giving any reason as to how the above finding of fact was
perverse. It is submitted that at no stage the department has denied that
the final product sold by the assessee is the car seat.
3.6 It is further submitted that it is a settled position of law that the
moment a commercially distinct commodity, known in trade parlance by
a different name and having a different use, comes into being, it ceases
to be classifiable as the raw material/ingredient from which it is made.
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3.7 It is further submitted by Shri Preetesh Kapur, learned counsel
appearing on behalf of the assessee that entry 25 of Eleventh Schedule
specifically talks about “latex foam sponge and polyurethane foam” and
it does not talk about the “latex foam sponge and polyurethane foam
preparations” and/or items and/or articles made from the aforesaid foam.
It is submitted that whenever the legislature wanted, there is a specific
entry like entry 2 and 3 in which it is specifically mentioned “tobacco and
tobacco preparations and cosmetics and toilet preparations”. It is
submitted therefore that when the final product is automobile seat and
the polyurethane foam loses its characteristics which is used as
ingredient, the assessee shall be entitled to deduction under Section 80-
IB of the IT Act.
3.8 Making the above submissions and relying upon the decisions of
this Court in the cases of Commissioner of Income Tax, Madras v.
Vinbros and Company, (2015) 14 SCC 483 and Commissioner of
Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Limited,
(2017) 15 SCC 254 , it is prayed to allow the present appeal.
4. Shri Balbir Singh, learned ASG appearing on behalf of the revenue
has vehemently submitted that what is manufactured by the assessee is
polyurethane foam in different shapes/designs and what is sold is
different sizes/designs of polyurethane foam which ultimately is being
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used by the assembly operator for manufacturing of car
seats/automobile seats and the same is used as ingredient and after the
process of moulding etc., the seats are manufactured. It is submitted
that therefore, by no stretch of imagination, it can be said that the
assessee is manufacturing and selling automobile seats. It is submitted
that what is manufactured and sold is the polyurethane foam which is
manufactured by using two chemicals Polyol and Isocyanate.
4.1 It is submitted that the High Court has specifically observed and
held that except manufacture of polyurethane foam which is
manufactured by injecting two chemicals, there is no further process
undertaken by the assessee. It is submitted that as rightly observed by
the High Court the assessee produces the polyurethane foam seats
which are used for making end product to be fixed in different vehicles.
It is submitted that the assessee as such is not manufacturing the end
product, namely, automobile seats to be fixed in the vehicles. For the
aforesaid, Shri Balbir Singh, learned ASG has taken us to the findings
recorded by the CIT(A) and has submitted that after considering the
detailed process undertaken by the assessee, the CIT(A) opined that the
assessee is not the manufacturer of the car seats and what is
manufactured is the polyurethane foam which is being sold in different
designs/shapes/sizes.
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4.2 It is submitted that therefore as the assessee is manufacturing
polyurethane foam which falls under entry 25 of the Eleventh Schedule
and therefore considering Section 80-IB(2)(iii), the assessee shall not be
entitled to deduction under Section 80-IB of the IT Act. It is submitted
that therefore the impugned judgment and order passed by the High
Court is not required to be interfered with.
5. We have heard learned counsel for the respective parties at
length.
6. The short question which is posed for the consideration of this
Court is, “whether the assessee is eligible for the benefit under Section
80-IB of the IT Act?”
7. The assessee shall not be eligible for the benefit under Section 80-
IB of the IT Act if it is found that the articles and/or goods manufactured
by the assessee do not fall and/or classifiable under Eleventh Schedule.
According to the revenue, the assessee is manufacturing polyurethane
foam which falls under the Eleventh Schedule. However, it is the case
on behalf of the assessee that the final product manufactured and sold
by the assessee is automobile seats/car seats which is other than the
manufacture of polyurethane foam.
8. By the impugned judgment and order, the High Court has
specifically observed and held that what is manufactured and sold by the
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assessee is polyurethane foam which is manufactured by injecting two
chemicals, namely, Polyol and Isocyanate and the polyurethane foam
which is manufactured by the assessee is used as ingredient for
manufacture of automobile seats. The assessee is manufacturing
polyurethane foam and supplying the same in different sizes/designs to
the assembly operator, which ultimately is being used for car seats. The
assessee is not undertaking any further process for end product, namely,
car seats. The polyurethane foam which is supplied in different
designs/sizes is being used as ingredient by others, namely, assembly
operators for the car seats. Merely because the assessee is using the
chemicals and ultimately what is manufactured is polyurethane foam and
the same is used by assembly operators after the process of moulding
as car seats, it cannot be said that the end product manufactured by the
assessee is car seats/automobile seats. There must be a further
process to be undertaken by the very assessee in manufacturing of the
car seats. No further process seems to have been undertaken by the
assessee except supplying/selling the polyurethane foam in different
sizes/designs/shapes which may be ultimately used for end product by
others as car seats/automobile seats.
9. So far as the reliance placed upon the decisions of this Court in
the cases of Vinbros and Company (supra) and Hindustan
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Petroleum Corporation Limited (supra) , relied upon by the learned
counsel appearing on behalf of the assessee is concerned, the same
shall not be applicable to the facts of the case on hand and/or the same
shall not be of any assistance to the assessee in view of the findings
recorded hereinabove.
10. In view of the above when the articles/goods which are
manufactured by the assessee, namely, polyurethane foam is an article
classifiable in the Eleventh Schedule (entry 25), considering Section 80-
IB(2)(iii), the assessee shall not be entitled to the benefit under Section
80-IB of the IT Act. The High Court has rightly held so and has rightly set
aside the order passed by the ITAT and has rightly restored the order
passed by the assessing officer denying the deduction/benefit claimed
under Section 80-IB of the IT Act. We are in complete agreement with
the view taken by the High Court and that of the assessing officer,
confirmed by the CIT(Appeals).
11. In view of the above and for the reasons stated above, the present
appeal fails and the same deserves to be dismissed and is accordingly
dismissed. However, there shall be no order as to costs.
…………………………………J.
[M.R. SHAH]
NEW DELHI; ………………………………….J.
November 17, 2022. [M.M. SUNDRESH]
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