[ITO v. Arihant Tiles and Marbles P. Ltd., (2010) 320 ITR 79
(SC)]
In the batch of civil appeals before the Supreme Court, a
common question of law which arose for determination was : Whether conversion of
marble blocks by sawing into slabs and tiles and polishing amounted to
‘manufacture or production of article or thing’, so as to make the
respondent(s)-assessee(s) entitled to the benefit of S. 80-IA of the Income-tax
Act, 1961, as it stood at the material time.
According to the Supreme Court, to answer the above issue, it
was necessary to note 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 had to be properly sorted out and marked;
(ii) Such blocks were then processed on single blade/wire
saw machines using advanced technology to square them by separating waste
material;
(iii) Squared up blocks were sawed for making slabs by
using the gang-saw machine or single/multiblock cutter machine;
(iv) The sawn slabs were further reinforced by way of
filling cracks by epoxy resins and fiber netting;
(v) The slabs were polished in polishing machine; the slabs
were further edge-cut into required dimensions/tiles as per market requirement
in perfect angles by edge-cutting machine and multidisc cutter machines;
(vi) Polished slabs and tiles were buffed by shiner.
The Supreme Court further noted that the assessee(s) had been
consistently regarded as a manufacturer/producer by various Government
departments and agencies. The above processes undertaken by the respondent(s)
had been treated as manufacture under the Excise Act and allied tax laws.
At the outset, it was observed by the Supreme Court that in
numerous judgments, it had been consistently held that the word ‘production’ was
wider in its scope as compared to the word ‘manufacture’. Further, the
Parliament itself had taken note of the ground reality and amended the
provisions of the Income-tax Act, 1961, by inserting S. 2(29BA) vide the Finance
Act, 2009, with effect from April 1, 2009.
The Supreme Court noted that the authorities below had
rejected the contention of the assessee(s) that its activities of polishing
slabs and making of tiles from marble blocks constituted ‘manufacture’ or
‘production’ u/s.80-IA of the Income-tax Act. There was a difference of opinion
in this connection between the Members of the Income-tax Appellate Tribunal.
However, by the impugned judgment, the High Court had 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 u/s.80-IA. Hence, the civil
appeals were filed by the Department.
The Supreme Court also noted that in these cases, it was
concerned with assessees who were basically factory owners and not mine owners.
The Supreme Court held that 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 that per se will not amount to the activity of manufacture.
From the details of process undertaken by each of the respondents it was clear
that they were not concerned only with cutting of marble blocks into slabs but
were also concerned with the activity of polishing and ultimate conversion of
blocks into polished slabs and tiles. The Supreme Court found from the process
indicated hereinabove that there were various stages through which the blocks
had to go through before they become polished slabs and tiles. In the
circumstances, the Supreme Court was of the view that on the facts of the cases
in hand, there was certainly an activity which would come in the category of
‘manufacture’ or ‘production’ u/s.80IA of the Income-tax Act. The Supreme Court
held that in the judgment in Aman Marble Industries P. Ltd. (2003) 157 ELT 393
(SC), it was not required to construe the word ‘production’ in addition to the
word ‘manufacture’.
Before concluding, the Supreme Court thought it fit to make
one observation. The Supreme Court observed that if the contention of the
Department was to be accepted, namely, that the activity undertaken by the
respondents herein was not a manufacture, then it would have serious revenue
consequences. As stated above, each of the respondents was paying excise duty,
some of the respondents were job workers and activity undertaken by them had
been recognised by various Government authorities as manufacture. To say that
the activity would not amount to manufacture or production u/s.80-IA would 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, the Supreme Court was of the view that in the present cases,
the activity undertaken by each of the respondents constituted manufacture or
production and, therefore, they would be entitled to the benefit of S. 80-IA of
the Income-tax Act, 1961.
