Full Judgment Text
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CASE NO.:
Appeal (civil) 3568 of 2001
PETITIONER:
Commissioner of Income Tax, Kerala
RESPONDENT:
M/s Tara Agencies
DATE OF JUDGMENT: 09/07/2007
BENCH:
Ashok Bhan & Dalveer Bhandari
JUDGMENT:
J U D G M E N T
Dalveer Bhandari, J.
1. This appeal is directed against the judgment
dated 18th January, 2000 passed in ITR No. 10 of 1996
by the High Court of Kerala at Ernakulam.
2. The short question which arises for adjudication
by this court is whether the respondent assessee who
is engaged in purchase of different qualities of tea and
blending the same for the purpose of export is entitled
to weighted deduction under section 35B (1A) of the
Income Tax Act, 1961 (hereinafter referred to as \023the
Act\024) in respect of expenditure incurred for its export
for the assessment year 1979-80.
3. Brief facts which are necessary to dispose of this
appeal are as under:
The assessee is a registered firm engaged in the
business of export of tea. The respondent assessee
purchases tea of diverse grades and brands and blends
the same by mixing different kinds of tea. In this
appeal, we are called upon to examine whether the
business activity of the respondent assessee falls
within the ambit of production, manufacturing or
processing? The respondent assessee would be
entitled to weighted deduction under section 35B(1A)
of the Act in case the goods exported were
manufactured or produced in small scale industrial
undertaking but, in case it falls short of production or
manufacture, then the respondent would not be
entitled to the benefit under section 35B(1A) of the Act.
The said benefit, according to the relevant statute, is
restricted to only goods produced or manufactured in
the small scale industrial undertaking for export. The
benefit cannot be extended in case the goods are
merely processed by the small scale industrial
undertaking. In order to derive benefit under section
35B (1A) the goods have to be either manufactured or
produced by the small scale industrial undertaking.
4. Section 35B (1A) was introduced with effect from
01.04.1978 and the respondent assessee claimed
entitlement to weighted deduction being a small scale
exporter. The Income Tax Officer disallowed the claim
of the respondent assessee.
5. The respondent assessee aggrieved by the said
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order preferred an appeal before the Commissioner of
Income Tax (Appeals). The appeal filed by the
respondent assessee was allowed on the ground that
the respondent assessee was a small scale industrial
unit in the light of certificate of registration granted to
it by the Directorate of Industries, Kerala State. The
respondent was engaged in purchasing different kinds
of tea and blending the same for the purpose of export
and was entitled to the weighted deduction under
section 35B (1A) of the Act.
6. In an appeal filed by the appellant against the
decision of the Commissioner of Income Tax (Appeals),
the Income Tax Appellate Tribunal endorsed the view
of the Commissioner of Income Tax (Appeals). The
Tribunal in its order relied on the decisions of the
Calcutta High Court in G.A. Renderian Ltd. v.
Commissioner of Income-Tax, West Bengal-I 1984
(145) ITR 387 and also of this court in Chowgule &
Co. (P) Ltd. & Another v. Union of India & Others
(1981) 1 SCC 653 and held that the respondent
assessee was entitled to weighted deduction under
section 35B (1A) of the Act.
7. The Revenue challenged the judgment of the
Tribunal before the High Court. The High Court
upheld the judgment of the Tribunal. The Revenue,
aggrieved by the impugned judgment of the High
Court, has preferred this appeal.
8. In order to properly comprehend the controversy
involved in this case, it would be proper to reproduce
section 35B (1A) & (2) as introduced by the Finance
Act, 1978:
\023(1A) Notwithstanding anything
contained in sub-section (1), no deduction
under this section shall be allowed in
relation to any expenditure incurred after
the 31st day of March, 1978, unless the
following conditions are fulfilled, namely:-
a) the assessee referred to in that sub-
section is engaged in:-
(i) the business of export of goods
and is either a small scale
exporter or a holder of an Export
House Certificate; or
(ii) the business of provision of
technical know-how, or the
rendering of services in
connection with the provision of
technical know how, to persons
outside India; and
b) the expenditure referred to in that sub-
section is incurred by the assessee
wholly and exclusively for the purpose
of the business referred to in sub-
clause (1) or, as the case may be, sub-
clause (ii) of clause (a).
Explanation\027For the purpose of this sub-
section \026
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(a) \023small-scale exporter\024 means a person
who exports goods manufactured or
produced in any small scale industrial
undertaking or undertakings owned by
him;
Provided that such persons do not
own any industrial undertaking which
is not a small-scale industrial
undertaking.
(b) \023Export House Certificate\024 means a
valid Export House Certificate issued
by the Chief Controller of Imports and
Exports, Government of India;
(c) \023provision of technical know-how\024 has
the meaning assigned to it in sub-
section (2) of Section 80MM;
(d) \023small-scale industrial undertaking\024
has the meaning assigned to it in
clause (2) of the Explanation below
sub-section (2) of section 32A.
(2) Where a deduction under this section
is claimed and allowed for any assessment
year in respect of any expenditure referred
to in sub-section (1), deduction shall not be
allowed in respect of such expenditure
under any other provision of this Act for the
same or any other assessment year.\024
9. All the three stages, namely, production,
manufacturing and processing of tea can be
enumerated as under. The tea is produced in the tea
gardens. This first stage is called production of tea.
The second stage is manufacture of tea. In this stage,
the tea leaves are plucked from the tea bushes and by
mechanical process, tea leaves are converted to tea.
This second stage is considered manufacturing of tea.
The third stage is blending of different qualities of tea
in order to smoothen its marketability. This third
stage is considered processing of tea.
10. The controversy involved in this case revolves
around construction and meaning of terms
\023manufacture\024, \023production\024 and \023process\024, therefore,
we deem it appropriate to deal with these terms in
detail as enumerated in various dictionaries and by the
decided cases to properly comprehend the distinction
in these terms.
MANUFACTURE
11. The term \021manufacture\022 has not been defined in
the Income Tax Act, 1961.
12. The term \021manufacture\022 has been defined in
section 2(f) of the Central Excise Act, 1944. Parts (i)
and (ii) of section 2(f) read as under:-
\0232(f). ’Manufacture’ includes any process-
(i) incidental or ancillary to the
completion of a manufactured product;
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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".
12A. Clause (f) gives an inclusive definition of the term
’manufacture’. According to the dictionary, the term
’manufacture’ means a process which results in an
alteration or change in the goods which are subjected
to the process of manufacturing leading to the
production of a commercially new article. In
determining what constitutes ’manufacture’ no hard
and fast rule can be applied and each case must be
decided on its own facts having regard to the context
in which the term is used in the provision under
consideration.\024
13. The term \023manufacture\024 has been defined by the
Black Law Dictionary (5th Edition) as under:
\023Manufacture : The process or operation of
making goods or any material produced by
hand, by machinery or by other agency;
anything made from raw materials by the
hand, by machinery, or by art. The
production of articles for use from raw or
prepared materials by giving such materials
new forms, qualities, properties or
combinations, whether by hand labor or
machine.\024
14. The word \021manufacture\022 has been defined in
Halsbury\022s Laws of England, 3rd Ed. Vol. 29 p.23 as
under:-
\023Manufacture has been defined as a
\021manner of adapting natural materials by
the hands of man or by man-made devices
or machinery\022 and as \021the making of an
article or material by physical labour or
applied power\022; but the practice is to accept
as \021manufacture\022 a wider range of industrial
activities than such a definition would
suggest. It includes articles made in situ as
well as articles made in a factory.\024
15. The Supreme Court of the United States of
America has defined the term \023manufacture\024 a century
ago in Anheuser-Busch Brewing Assn. v. United
States (1907) 52 L Ed. 336. The definition has been
followed in subsequent American, English and Indian
cases. The definition reads as under:
\023Manufacture implies a change, but every
change is not manufacture, and yet every
change in an article is the result of
treatment, labour and manipulation. But
something more is necessary. ..There must
be transformation; a new and different
article must emerge, \021having a distinctive
name, character or use\022.\024
PRODUCTION
16. In Black\022s Law Dictionary (5th Edition), the term
\023production\024 has been defined as under:
\023Production. Process or act of producing.
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That which is produced or made; i.e.
goods. Fruit of labor, as the productions of
the earth, comprehending all vegetables
and fruits; the productions of intellect, or
genius, as poems and prose compositions;
the productions or art, as manufactures of
every kind.\024
17. The term \023produce\024, as defined in the New
Webster\022s Dictionary of the English Language (Deluxe
Encyclopedic Edition), is as follows:
\023Produce, To bring forth into existence; to
bring about; to cause or effect, esp.
intellectually or creatively; to give birth to; to
bear, furnish, yield; to make accrue; to bring
about the performance of, as a movie or
play; to extend, as a line.- v.i. To bring forth
or yield appropriate offspring, products, or
consequences.\024
18. This Court in Deputy Commissioner of
Agricultural Income-tax & Sales Tax, Central,
Zone, Ernakulam v. M/s Palampadam Plantations
Ltd. AIR 1969 SC 930 had considered the meaning of
the term \023produce\024 used in the Kerala General Sales
Tax Act, 1963. The expression used was \023the person
who sells goods produced by him by manufacture,
agriculture, horticulture or otherwise\024.
19. The expression \023produced\024 was given a wider
meaning than the word \023manufacture\024 pointing out
that the word \023produced\024 will include an activity of
manufacturing the materials by applying human
endeavour on some existing raw material, but the word
\023produce\024 may include securing certain produce from
natural elements, for example, by growing plants on
soil, or by operating mines and the like or for example,
by milching the cow the milkman produce milk though
he has not applied any process on any raw material for
the purpose of bringing into existence the thing known
as milk.
20. The word \021production\022 or \021produce\022, when used in
juxtaposition with the word \021manufacture\022 takes in
bringing into existence new goods by a process which
may or may not amount to manufacture. It also takes
in all the by-products, intermediate products and
residual products which emerge in the course of
manufacture of goods.
PROCESS:
21. According to Oxford Dictionary one of the
meanings of the word \021process\022 is "a continuous and
regular action or succession of actions taking place or
carried on in a definite manner and leading to the
accomplishment of some result."
22. In Chambers 21st Century Dictionary, the term
\021process\024 has been defined as under:
\023Process: 1. a series of operations
performed during manufacture, etc. 2. a
series of stages which a product, etc. passes
through, resulting in the development or
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transformation of it.\024
23. In Collins Cobuild English Dictionary, the term
\021process\022 has been defined as under:
\023A process is series of actions which
are carried out in order to achieve a
particular result.
A process is a series of things which
happen naturally and result in a biological
or chemical change.
When raw materials or foods are
processed, they are treated chemically or
industrially before they are used or sold.\024
24. The term \021process\022 as defined in the New
Webster\022s Dictionary of the English Language
[Deluxe Encyclopedia Edition] is as under:
\023Process, To treat or prepare by some
particular process; to convert, as an
agricultural commodity, into marketable
form by some special treatment; Produced or
treated by some artificial means; as, process
sugar; of or pertaining to photographic
reproduction that involves photo-engraving
or photomechanical means; relating to
special effects obtained in motion pictures
through the use of special filming
techniques.\024
25. Mr. Mohan Parasaran, learned Additional
Solicitor General appearing on behalf of the appellant
submitted that the activity of the respondent, namely,
blending of tea, packaging and selling the same does
not amount to manufacture or production of a
commercially new and different product. According to
Mr. Parasaran, the activity of the respondent assessee
can at the most amount to processing of tea.
According to him, the processing is an intermediate
stage of the final product. Therefore, the respondent
assessee is not entitled to the weighted deduction
under section 35B (1A) of the Act because under the
said section, the benefit has been confined to the
exporters engaged in the export of goods manufactured
or produced in any small scale industrial undertaking
owned by them. According to Mr. Parasaran, there is
no doubt that the assessee has a small scale
undertaking but its activity does not fall either in the
category of manufacturing or producing. The benefit
under this section can be extended to the assessee if
the goods exported are either manufactured or
produced and not when the goods are merely
processed.
26. Mr. Parasaran in support of his arguments relied
on various decided cases of this court and the other
courts.
27. In East Texas Motor Freight Lines v. Frozen
Food Express 100 L Ed. 917, the Supreme Court of
United States of America held that the processing of
chicken in order to make them marketable, but
without changing their substantial identity, did not
turn chicken from agriculture commodities into
manufactured commodities. The Indian courts have
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been influenced by the definition of processing as given
in this case and some other American cases while
dealing with the terms \023manufacture\024, \023production\024
and \023process\024.
28. In Bay Bottle Gas Co. v. Michigan Dept. of
Revenue 74 N.W. 2d 37, 39, 344 Mich. 326, while
dealing with the term \021process\022, the court observed as
under:
To \023process\024 means to subject,
especially raw material, to a process of
manufacturing, development, preparation
for the market, etc.; to convert into
marketable form, as livestock by
slaughtering, grain by milling, cotton by
spinning, milk by pasteurizing, fruits and
vegetables by sorting and repacking.\024
29. According to the Marine Products Export
Development Authority Act 1972, [s.3(1)],
\021processing\022 in relation to marine produces includes
the preservation of such products such as canning,
freezing, drying, salting, smoking, peeling or filleting
and any other method of processing which the
authority may, by notification in the Gazette of India,
specify in this behalf. According to section 2(C) of the
State Financial Corporation Act 1951, the expression
\021processing of goods\022 includes any art or process for
producing, preparing or making an article by
subjecting any material to a manual, mechanical,
chemical, electrical or any other like operation.
30. Mr. Parasaran placed reliance on the decision in
D.D. Shah & Bros. v. Union of India & Another
reported in (2006) 283 ITR 486 (Raj.). In this case,
similar question arose for consideration before the
Rajasthan High Court whether the blending of different
types of tea by the assessee amounts to production of
a thing or an article by an industrial undertaking
within the meaning of the expression as used in
section 80-1B of the Act.
31. The High Court in the said judgment has dealt
with the terms \023manufacture\024, \023production\024 and
\023process\024 in great detail. The High Court in the said
judgment arrived at a definite finding that blending
though does not amount to manufacturing of goods
but it clearly amounts to processing of goods in the
sense that it brings some change in the goods.
32. It may be pertinent to mention that reference of
Chowgule\022s case acquires greater significance
because, in that case, this Court dealt with a Division
Bench judgment of the Bombay High Court in the case
of Nilgiri Ceylon Tea Supplying Co. v. State of
Bombay (1959) 10 STC 500. This Court observed that
the judgment of the Bombay High Court did not lay
down the correct law because it held that the activity
of the assessee did not amount to processing.
33. Details of relevant Statute are as under:
Section 8 of the Bombay Sales Tax Act, 1953, so
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far as is \023subject to the provisions of section 7, there
shall be levied a sales tax on the turnover of sales of
goods specified in column I of Schedule B at the rate, if
any, specified against them in column 2 of the said
Schedule, after deducting from such turnover \026
(a) sales of goods -
(i) which have been purchased from a
registered dealer on or after the
appointed day, or
(ii) on the purchase of which the dealer
has paid or is liable to pay the
purchase tax :
Provided that the goods have not been processed
or altered in any manner after such purchase.\024
34. This Court held that the different brands of tea
which were mixed by the assessee in Nilgiri\022s case for
the purpose of producing a tea mixture of a different
kind and quality according to the formula evolved by
them, there was plainly and indubitably processing of
different brands of tea, because these brands of tea
experienced, as a result of mixing, qualitative change,
in that the tea mixture which came into existence was
of different quality and flavour than the different
brands of tea which went into the mixture.
35. Mr. Parasaran has also placed reliance on
Deputy Commissioner of Sales Tax (Law), Board of
Revenue (Taxes), Ernakulam v. M/s PIO Food
Packers 1980 Supp. SCC 174. The court in this case
also dealt with the distinction of \023manufacture\024 and
\023processing\024. In the said case, the appeals were filed
against the order of the Kerala High Court holding that
the turnover of pineapple fruits purchased for
preparing pineapple slices for sale in sealed cans is not
covered by section 5-A(1)(a) of the Kerala General Sales
Tax Act, 1963. This court after examining the relevant
cases reached the conclusion that while preparing
pineapple slices from the original fruit (pineapple), the
commodity continues to possess its original identity,
notwithstanding the removal of inedible portions, the
slicing, and thereafter canning it on adding sugar to
preserve it. The court was of the opinion that in
canning the pineapple, the processing is definitely
involved but it would not amount to manufacture as
no new commodity came into existence.
36. In Bharat Forge and Press Industries vs. CCE
(1990) 1 SCC 532, this court observed that tariff item
26-AA(iv) encompasses all sorts of pipes and tubes. It
calls for no distinction between pipes and tubes
manufactured out of sheets, rods, bars, plates or
billets and those turned out from larger pipes and
tubes. It is of no consequence whether the pipes and
tubes are manufactured by rolling, forging, spinning,
casting, drawing, annealing, welding or extruding.
The expression \021pipe fittings\022 merely denotes that it is a
pipe or tube of a particular length, size or shape. \021Pipe
fittings\022 do not cease to be pipes and tubes, they are
only a species thereof. They are merely intended as
accessories or supplements to the larger pipes and
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tubes. They are pipes and tubes made out of pipes
and tubes. There is no change in their basic physical
properties and there is no change in their end use. It
cannot be said that pipe fittings, though they may have
a distinctive name or badge of identification in the
market, are not pipes and tubes.
37. The court in this case observed that the
"processing" may be an intermediate stage in
manufacture and until some change has taken place
and the commodity retains a continuing substantial
identity through the processing stage, we cannot say
that it has been manufactured. That does not,
however, mean that any operation in the course of
such process is not in relation to the manufacture.
38. While interpreting the same exemption
notification in Standard Fireworks Industries,
Sivakasi and another v. Collector of Central
Excise, Madurai AIR 1987 1 SC 600, this Court held
that cutting of steel wires and the treatment of paper is
a process for the manufacture of goods in question.
39. Now, we deem it appropriate to deal with some
cases in which the term \023manufacturing\024 has been
construed and interpreted by this court in order to
properly comprehend the subtle distinction between
\021manufacturing\022 and \021processing\022.
40. In Union of India & Others v. J.G. Glass
Industries Ltd. & Others (1998) 2 SCC 32, this Court
has laid down a two-fold test for determining whether
the process is \021manufacturing\022. First, whether by the
said process a different commercial commodity comes
into existence or whether the identity of the original
commodity ceases to exist. Secondly, whether the
commodity which was already in existence will serve
no purpose but for the said process. Applying the two-
fold test, it was held that printing on bottles does not
amount to manufacture.
41. A Constitution Bench of this court in M/s Devi
Das Gopal Krishnan etc. v. State of Punjab &
Others AIR 1967 SC 1895 observed that if by a
process a different identity comes into existence then it
can be said to be \021manufacture\022. When oil is produced
out of the seeds the process certainly transforms raw
material into different article for use.
42. In Empire Industries Limited & Others v.
Union of India & Others (1985) 3 SCC 314, it was
observed that manufacture is complete as soon as by
the application of one or more processes, the raw
material undergoes some change and a new article is
brought into existence having a distinct name and
character would amount to manufacture.
43. A Constitution Bench of this court in M/s Ujagar
Prints & Others (II) v. Union of India & Others
(1989) 3 SCC 488 and M/s Saraswati Sugar Mills &
Others v. Haryana State Board & Others (1992) 1
SCC 418 took the same view.
44. In Gramophone Co. of India Ltd. v. Collector of
Customs, Calcutta (2000) 1 SCC 549, this Court
examined earlier cases and held that \023manufacture\024
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implies a change, but every change is not manufacture
and yet every change of an article is the result of
treatment, labour and manipulation. But something
more is necessary and there must be transformation; a
new and different article must emerge having a
distinctive name, character and use. In this case, the
word \021manufacture\022 has various shades of meanings
but unless defined under the Act, it is to be interpreted
in the context of the object and the language used in
the section. It would not be applicable in cases where
only processing activity is carried out. Further, such
production activity must be by an industrial
undertaking.\024
45. In Collector of Central Excise, Jaipur etc. v.
Rajasthan State Chemical Works, Deedwana,
Rajasthan etc. (1991) 4 SCC 473, the court had
defined the word \021manufacture\022 as under:
\023Manufacture implies a change but
every change is not manufacture, yet every
change of an article is the result of
treatment, labour and manipulation.
Naturally, manufacture is the end result of
one or more processes through which the
original commodities are made to pass. The
nature and extent of processing may vary
from one class to another. There may be
several stages of processing, a different kind
of processing at each stage. With each
process suffered the original commodity
experiences a change. Whenever a
commodity undergoes a change as a result
of some operation performed on it or in
regard to it, such operation would amount
to processing of the commodity. But it is
only when the change or a series of changes
take the commodity to the point where
commercially it can no longer be regarded as
the original commodity but instead is
recognised as a new and distinct article that
a manufacture can be said to take place.
Manufacture thus involves series of
processes. Process in manufacture or in
relation to manufacture implies not only the
production but the various stages through
which the raw material is subjected to
change by different operations. It is the
cumulative effect of the various processes to
which the raw material is subjected to,
manufactured product emerges. Therefore,
each step towards such production would be
a process in relation to the manufacture.
Where any particular process is so integrally
connected with the ultimate production of
goods that but for that process manufacture
of processing of goods would be impossible
or commercially inexpedient, that process is
one in relation to the manufacture.\024
46. In the following cases, this court has dealt with
and construed the terms \023manufacturing\024,
\023production\024 and \023processing\024. Collector of Central
Excise v. Technoweld Industries (2003) 11 SCC 798,
Metlex (I) (P) Ltd. v. Commissioner of Central
Excise, New Delhi (2005) 1 SCC 271, Aman Marble
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Industries (P) Ltd. v. Collector of Central Excise,
Jaipur (2005) 1 SCC 279 and Shyam Oil Cake Ltd. v.
Collector of Central Excise, Jaipur (2005) 1 SCC
264, South Bihar Sugar Mills Ltd. & Another etc. v.
Union of India & Another etc. AIR 1968 SC 922,
Laminated Packings (P) Ltd. v. Collector of Central
Excise, Guntur (1990) 4 SCC 51, Deputy
Commissioner of Sales Tax (Law), Board of
Revenue (Taxes), Ernakulam v. M/s COCO Fibres
1992 Supp (1) SCC 290, Commissioner of Sales Tax,
Orissa & Another v. Jagannath Cotton Company &
Another (1995) 5 SCC 527, Ashirwad Ispat Udyog
& Others v. State Level Committee & Others (1998)
8 SCC 85, State of Maharashtra v. Mahalaxmi
Stores (2003) 1 SCC 70, Aspinwall & Co. Ltd. v.
Commissioner of Income Tax, Ernakulam (2001) 7
SCC 525, M/s J.K. Cotton Spinning & Weaving Mills
Co. Ltd. v. Sales Tax Officer, Kanpur & Another
(1965) 1 SCR 900, Collector of Central Excise v.
Kiran Spinning Mills (198) 2 SCC 348, Park Leather
Industry (P) Ltd. & Another v. State of UP & Others
(2001) 3 SCC 135.
47. Mr. Bhargava Desai, learned counsel appearing
on behalf of the respondent assessee submitted that
the respondent buys various varieties of packed tea of
different grades and prices in public auction covering
various tea gardens. These diverse varieties of tea are
all different in size, liquor and other characteristics of
tea. The respondent assessee has to make purchases
in order to meet the requirement of blending to achieve
the same quality, taste and form of tea which the
respondent has to sell to its customers.
48. The respondent further submitted that once
enough quantity is available of the required types of
tea for blending and the respondent is able to
manufacture the required quantity for the \023Standard
tea\024 or approved sample, the respondent produces a
small sample in required proportions on the table and
subsequently a blend sheet is prepared indicating the
measure of proportion of each variety of tea and the
said blend sheet is given to the manufacturing
warehouse of the respondent where a large blend is
manufactured and produced. The respondent further
contended that after receipt of the blend sheet, the
workers at the warehouse gather the required variety
of tea and the required quantities as set out in the
blend sheet. The process undergoes is as under:
(i) Spread out in the warehouse by
opening;
(ii) Chest (Boxes) and emptied first few in
full and then balance in half by
rotation (Spreading & Bulking). After
the bulking, the entire quantity of
different variety of tea is gathered at
one place in a tomb structure and then
the bulk is broken in a circle with the
central shell empty for movement by
workers in rounds for mixing and the
entire mixture is blended by:
a) manual hand mixing
b) by shoveling; and
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c) sometimes by machine,
depending on the need, quantity
and urgency.
49. It is further contended that the blending workers
are trained to blend tea uniformly. After the process of
mixing and blending of tea is complete, the samples
are drawn and sent for testing and matching with the
buyers approved samples of tea. Manually blended tea
and the finished product is required to match the type
of samples given to the surveyors. Once the surveyor
approves the tea both in liquor and appearance, only
then is the respondent permitted to pack the tea in the
required packs as approved by the buyers. This
finished product is totally different from the various
blended tea in respect of colour, texture, liquor,
appearance, characteristic and even pricing. The said
final product cannot be marketed unless
manufactured and produced by this process. After the
process of manufacture and production of the final tea
by blending, the entire originality of the different
varieties of tea is lost and a new product of tea is
produced. This is entirely experts\022 job and cannot be
done by anybody. The experts have the knowledge,
experience and expertise in blending and the
proportions based on tastes, colour, size, texture and
the source and origin of the tea garden etc. It is
further contended that the packing of tea is done
manually and also by machines. Electrical packing
and weighing is also carried out. The automation to a
great extent was not available at the relevant time and
as such this was also carried out partly manually.
50. Mr. Desai, appearing on behalf of the respondent
assessee also strongly relied on the judgment of this
court in Chowgule\022s case and submitted that in view
of the clear findings in the said judgment, the
controversy involved in this case is no longer res
integra. According to Mr. Desai, the present case is
squarely covered by the decision in Chowgule\022s case
and consequently the respondent assessee is entitled
to the weighted deduction under section 35B (1A) of
the Act.
51. The respondent has also relied upon the decision
in G.A. Renderian Ltd.\022s case (supra). In the said
case, the assessee carried on the business of
purchasing tea of different qualities, blending the same
by mixing one type with another and selling it. The
assessee claimed that it was an industrial company
within the meaning of section 2(7)(c) of the Finance
Act, 1978 and was entitled to concessional rate of tax.
The Tribunal disallowed the claim on the ground that
there was no processing as the end product remained
the same and the entire process was manual. The
High Court while placing reliance on the decision in
Chowgule\022s case (supra) came to the conclusion that
the activity of the assessee amounted to processing.
The court while setting aside the judgment of the
Tribunal, observed as under:
\023The nature and extent of processing may
vary from one case to another and indeed
there may be several stages of processing
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and perhaps a different kind of processing at
each stage. With each process suffered, the
original commodity experiences a change.
But it is only when the change, or a series of
changes take the commodity to the point
where commercially it can no longer be
regarded as the original commodity but
instead is recognised as a new and distinct
article that a manufacture can be said to
take place’. The test that is required to be
applied is: does the processing of the
original commodity bring into existence a
commercially different and distinct
commodity?\024
52. In G.A. Renderian Ltd (supra), while relying
upon the decision of this court in Indian Copper
Corporation Ltd. v. Commissioner of Commercial
Taxes, Bihar & Others (1965) 16 STC 259, this court
observed as under:
\023In this light, the Supreme Court observed
that the operation conducted by the
assessee in that case should be considered
to be \023processing\024. In the instant case
before us this observation fully applies and
if the operation conducted by the assessee
in that case before the Supreme Court
amount to processing then in this case also
the operation which is conducted by the
assessee would also amount to processing.\024
53. According to the respondent assessee, the
controversy involved in this case is squarely covered by
a three Judge Bench judgment of this court in
Chowgule\022s case (supra). The learned counsel for the
appellant also placed reliance on Chowgule\022s case in
support of his submissions. It may be pertinent to
mention that a number of subsequent judgments have
either relied upon, referred to, or distinguished the
said judgment of Chowgule\022s case (supra) without
properly appreciating the facts of this case, therefore,
we deem it appropriate to deal with the facts of this
case in extenso from the judgment.
54. The assessee, Chowgule & Co., was a private
limited company carrying on business of mining iron
ore and selling it in the export market after dressing,
washing, screening and blending it.
55. The entire activity of the assessee in Chowgule\022s
case can broadly be classified into seven different
operations, one following upon the other, namely, (i)
extraction of ore from the mine; (ii) conveying the ore to
the dressing plant; (iii) washing, screening and
dressing the ore; (iv) conveying of the ore from the
mine site to the river side; (v) transport of the ore from
the river side to the harbour by means of barges; (vi)
stacking of the ore at the harbour in different stock
piles according to its physical and chemical
composition, and (vii) blending of the ore from different
stock piles with a view to produce ore of the required
specifications and loading it into the ship by means of
the mechanized ore handling plant. The question was
whether goods purchased by the assessee for use in
the above operations could be said to be goods
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purchased for use "in the manufacture or processing of
goods for sale or in mining" so as to attract the lower
rate of sales tax under section 8(1)(b) of the Central
Sales Tax Act, 1956. The relevant part of section
8(1)(b) at the material time is as under:
\0238. (1) Every dealer, who is in the
course of inter-State trade or commerce-
(a) sells to the government any goods;
or
(b) sells to a registered dealer other
than the government goods of the
description referred to in sub-
section (3);
shall be liable to pay tax under this Act,
which shall be 3 per cent of his turnover.
(3) The goods referred to in clause (b) of sub-
section (1) \026
(b) \005.. are goods of the class or classes
specified in the certificate of
registration of the registered dealer
purchasing the goods as being
intended for resale by him or subject
to any rules made by the Central
Government in this behalf, for use
by him in the manufacture or
processing of goods for sale or in
mining or in the generation or
distribution of electricity or any
other form of power.\024
56. Chowgule & Co. in the aforementioned case
made an application to get benefit of section 8(3)(b)
and Rule 13 of the Central Sales Tax Act, 1956.
According to the ratio of this case, blending of ore in
the course of loading through the mechanical ore
handling plant amounted to processing. In section
8(3)(b), the legislature in its wisdom had incorporated
terms \021manufacture\022 and \021processing\022. Therefore, when
the Chowgule & Co. did not get the desired relief from
the courts below, then the company ultimately
approached this court. This court examined the case
in great detail and came to a definite conclusion that
the activity of Chowgule & Co. amounted to
processing and consequently, the assessee was found
to be entitled to the benefit only because the term
processing was incorporated in section 8(3)(b) of the
statute in Chowgule\022s case.
57. In Chowgule\022s case the court specifically
examined a case decided by a Division Bench of the
Bombay High Court in Nilgiri\022s case. In this case, the
Division Bench of Bombay High Court held that
blending of different kinds of tea does not amount to
processing. The Revenue, in support of its arguments,
placed reliance on the said Nilgiri\022s judgment. This
court in Chowgule\022s case comprehensively examined
Nilgiri\022s judgment and observed as under:
\023Now undoubtedly there is a close
analogy between the facts of Nilgiri Tea
Company case and the facts of the present
case, but we do not think we can accept the
decision of the Bombay High Court in the
Nilgiri Tea Company case as laying down the
correct law. When different brands of tea
were mixed by the assesses in Nilgiri Tea
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Company case for the purpose of producing
a tea mixture of a different kind and quality
according to a formula evolved by them,
there was plainly and indubitably processing
of the different brands of tea, because these
brands of tea experienced, as a result of
mixing, qualitative change, in that the tea
mixture which came into existence was of
different quality and flavour than the
different brands of tea which went into the
mixture.\024
58. In view of the specific language of the Statutes in
Nilgiri\022s case (supra) and Chowgule\022s case (supra),
the term \021processing\022 has been specifically incorporated
in the statute, therefore, the assessees were justifiably
held to be entitled to the benefit.
59. Undoubtedly, the facts of Nilgiri\022s case are
identical to the facts of the present case and the ratio
of Nilgiri\022s case is fully applicable to this case. But
we have to bear in mind a significant difference in the
language employed in section 8 of the Bombay Sales
Tax Act, 1953 in Nilgiri\022s case and the language of
section 35(1)(B) of the Income Tax in the present case.
The difference is that the term \021processing\022 which has
been specifically incorporated in Nilgiri\022s case has
been specifically omitted in the present case.
Similarly, in Chowgule\022s case, the term \021processing\022
has been incorporated in the statute and the activities
of the assessees both in Chowgule\022s and Nilgiri\022s
cases were held to be processing and, in these
respective cases, the assessees were held to be entitled
to the benefit under the respective statutes. In the
present case, same benefit cannot be extended to the
respondent assessee because the word \021processing\022 has
been specifically omitted in the statute. The activities
of the assessees both in Nilgiri\022s and Chowgule\022s
cases amount to processing. The activity of the
respondent assessee in the present case also amounts
to \021processing\022. Section 35(1)(b) governing the instant
case incorporated the terms \021manufacture\022 and
\021production\022 and omitted the term \021processing\022.
Therefore, the respondent assessee cannot be extended
the benefit of section 35(1)(B) of the Income Tax Act.
60. The processing is only an intermediate stage of
production and/or manufacture. The processing of tea
of the respondent assessee falls short of either
manufacturing or production, therefore, because of the
language of section 35(1)(B) of the Income Tax Act, the
respondent assessee cannot be extended the benefit
which has been extended to the assessees in Nilgiri\022s
and Chowgule\022s cases.
61. Since the legislature in its wisdom has not used
the term \021processing\022 in section 35(1)(B) of the Act, it
would be erroneous to incorporate the word in the
section and then interpret the Statute. In this view of
the matter Chowgule\022s case and Nilgiri\022s case dealt
with by this court in Chowgule\022s case are clearly
distinguishable because of the language of the
statutes.
62. The intention of the legislature has to be gathered
from the language used in the statue which means
that attention should be paid to what has been said as
also to what has not been said.
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63. In Union of India & Another v. Deoki Nandan
Aggarwal 1992 Supp (1) SCC 323, a three-Judge
Bench of this court held that it is not the duty of the
court either to enlarge the scope of legislation or the
intention of the legislature, when the language of the
provision is plain. The court cannot rewrite the
legislation for the reason that it had no power to
legislate. The power to legislate has not been conferred
on the courts. The court cannot add words to a
statute or read words into it which are not there.
64. In State of Kerala v. Mathai Verghese &
Others (1986) 4 SCC 746, this court has reiterated the
well settled position that the court can merely interpret
the section; it cannot re-write, recast or redesign the
section. In interpreting the provision the exercise
undertaken by the court is to make explicit the
intention of the legislature which enacted the
legislation. It is not for the court to reframe the
legislation for the very good reason that the powers to
\021legislate\022 have not been conferred on the court.
65. In Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v.
Custodian of Vested Forests, Palghat & Another
1990 (Supp) SCC 785, the court rightly observed that
in seeking legislative intention judges not only listen to
the voice of the legislature but also listen attentively to
what the legislature does not say.
66. House of Lords in Pinner v. Everett (1969) 3 All
ER 257 aptly observed that we have been warned again
and again that it is wrong and dangerous to proceed by
substituting some other words for the words of the
statute.
67. Therefore, the legal position seems to be clear and
consistent that it is the bounden duty and obligation of
the court to interpret the statute as it is. It is contrary
to all rules of construction to read words into a statute
which the legislature in its wisdom has deliberately not
incorporated.
68. On clear construction and interpretation of
section 35B(1A) of the Act, we are clearly of the opinion
that the respondent\022s activity amounts to \023processing\024
only and the activity does not amount to either
\023production\024 or \023manufacture\024. The term \023processing\024
has not been included in section 35 B(1A) of the Act,
therefore, the respondent is not entitled for weighted
deduction under section 35B(1A) of the Act.
69. Consequently, this appeal is allowed and the
impugned judgment is set aside and, in the facts and
circumstances of the case, we direct the parties to bear
their own costs.