“(i) Prior to the passing of
the Special Economic Zones Act, 2005, the assessee’s industry was located in
the zone previously known as ‘Cochin Export Processing Zone’ which is a Free
Trade Zone covered by S. 10A. It is clear from the provisions of S. 10A that
deduction is of the profits and gains derived by the industrial undertaking
from the export of articles, etc., manufactured or produced by it.
(ii) In substance, the
provisions of S. 10A and provisions S. 10AA, which were introduced later on,
serve the very same purpose of granting exemption on the profit earned by
the industrial units in the FTZ/SEZ. These provisions introduced in the
Income-tax Act are essentially for implementation of the EXIM Policy
periodically announced by the Government providing incentives to the
export-oriented units located in the FTZ/SEZ mainly to augment the foreign
exchange earnings. In fact, though S. 10A does not contain a definition for
‘manufacture’, definition of the said term contained in S. 2(r) of the SEZ
Act has been incorporated in S. 10AA with effect from 10-2-2006. Admittedly,
the said definition covers blending also. Therefore, blending and packing of
tea done by the assessee qualified for exemption u/s.10AA from 10-2-2006
onwards.
(iii) The question to be
considered was whether the benefit was available to the assessee for the A.Y.
2004-05 for the reason that the then existing provision of S. 10A did not
contain a definition clause. Admittedly, S. 10A also provides for exemption
in respect of goods manufactured or produced and sold by units in the FTZ.
Undoubtedly, the exemption to industries in the FTZ is granted based on the
EXIM Policy framed by the Government periodically. The definition of
‘manufacture’ as per the EXIM Policy is given a very wide definition to take
in even processing involving conversion of something to another thing with a
distinct name, character and use. Even refrigeration of an item, which
involves only freezing, repacking, labelling, etc., is also covered by the
definition of ‘manufacture’. Blending of tea is mixing of different
varieties of tea produced in estates located in different regions having
different altitudes, climatic conditions, etc. It is common knowledge that
new flavours of tea are generated by blending its different varieties.
(iv) Since the purpose of
exemption u/s.10A is to give effect to the EXIM Policy of the Government,
the definition of ‘manufacture’ contained in the EXIM Policy is applicable.
For the purpose of the said provision, ‘manufacture’ as defined under the
EXIM Policy has a wide and liberal meaning covering tea blending as well
and, therefore, blending and packing of tea qualifies for exemption u/s.10A.
(v) Besides that, the
assessee-industry, presently in the SEZ engaged in the same process of
blending and packing of tea, was specifically brought under the exemption
clause through incorporation of S. 2(r) of the SEZ Act in the provisions of
S. 10AA. Therefore, the later amendment is only clarificatory and the
definition of ‘manufacture’ contained in S. 2(r) of the SEZ Act incorporated
in S. 10AA with effect from 10-2-2006, which is essentially the same as the
definition contained in the EXIM Policy, applies to S. 10A also. Therefore,
blending of tea was a manufacturing activity which entitled the assessee to
exemption u/s.10A for the A.Y. 2004-05.”
