The ITO, Ward-4(1),, Ahmedabad v. Elctro Ferro Alloys Pvt.Ltd,, Ahmedabad

ITA 4523/AHD/2007 | 2000-2001
Pronouncement Date: 25-03-2011 | Result: Dismissed

Appeal Details

RSA Number 452320514 RSA 2007
Assessee PAN ERAIR1977S
Bench Ahmedabad
Appeal Number ITA 4523/AHD/2007
Duration Of Justice 3 year(s) 3 month(s) 1 day(s)
Appellant The ITO, Ward-4(1),, Ahmedabad
Respondent Elctro Ferro Alloys Pvt.Ltd,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 25-03-2011
Date Of Final Hearing 16-12-2010
Next Hearing Date 16-12-2010
Assessment Year 2000-2001
Appeal Filed On 24-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI JM AND D.C.AGRAWAL A M INCOME-TAX OFFICER WARD 4(1) AHMEDABAD. VS. ELECTRO FERRO ALLOYS (P) LTD. 208 ADITYA BUILDING NEAR KHADAYATA BUILDING MTHAKHALI SIX ROAD ELLISHBRIDGE AHMEDABAD. (APPELLANT) .. (RESPONDENT) AND INCOME-TAX OFFICER WARD 4(1) AHMEDABAD. VS. ELECTRO FERRO ALLOYS (P) LTD. 208 ADITYA BUILDING NEAR KHADAYATA BUILDING MTHAKHALI SIX ROAD ELLISHBRIDGE AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI ALOK JOHRI CIT DR WITH SHRI K. MADHUSUDAN SR.DR RESPONDENT BY:- SHRI S. N. SOPARKAR SR. ADVOCATE & SHRI P. M. MEHTA AR ITA NOS.4523 TO 4527/AHD/2007 ASST. YEARS 2000-01 TO 2004-05 ITA NOS.2339/AHD/2008 ALONG WITH C.O.NO.171/AHD/2008 ASST. YEAR 2005-06 ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 2 O R D E R PER BENCH IN THIS GROUP OF CASES THE MAIN ISSUE INVOLVED IS ABOUT THE ALLOWABILITY OF DEDUCTION U/S 80IB OF THE INCOME-TA X ACT 1961 [HEREINAFTER AFTER REFERRED TO AS THE ACT]. 2.1 IN THE ASSESSMENT YEAR [AY] 2000-01 THE REVENU E HAS FILED THE APPEAL AGAINST ALLOWING DEDUCTION U/S 80I B OF THE ACT AT RS.10 83 126/- NOT GIVEN BY THE ASSESSING OFFICER [ AO] BUT ALLOWED BY THE LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS) [THE CIT(A)]. 2.2 IN THE AY 2001-02 THE AMOUNT OF DEDUCTION INVO LVED IS RS.5 78 841/-. THE AO HAD NOT ALLOWED DEDUCTION BUT THE LEARNED CIT(A) HAD ALLOWED THE SAME THEREFORE THE REVENUE HAS PREFERRED AN APPEAL. 2.3 IN THE AY 2002-03 THE AMOUNT OF DEDUCTION U/S 80IB INVOLVED IS RS.11 38 060/-. IT WAS NOT ALLOWED BY T HE AO BUT WAS ALLOWED BY THE LEARNED CIT(A) AND THEREFORE THE RE VENUE IS IN APPEAL BEFORE US. 2.4 SIMILARLY IN THE AY 2003-04 THE AMOUNT OF DED UCTION INVOLVED IS RS.89 66 192/-. IT WAS NOT ALLOWED BY T HE AO BUT WAS ALLOWED BY THE LEARNED CIT(A) AND THE REVENUE HAS P REFERRED AN APPEAL. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 3 2.5 IN THE AY 2004-05 THE LEARNED CIT(A) ALLOWED D EDUCTION U/S 80IB TO THE TUNE OF RS.3 54 93 137/- FOR SILVAS SA UNIT AND OF RS.26 11 119/- FOR DAMAN UNIT BUT RESTRICTED IT TO GROSS TOTAL INCOME OF RS.2 43 23 939/-. 2.6 IN THE AY 2005-06 THE AMOUNT OF DEDUCTION ALLO WED BY THE LEARNED CIT(A) IS RS.14 85 74 625/-. THERE ARE OTHE R ISSUES INVOLVED IN THE APPEAL IN THIS YEAR. HENCE THEY WI LL BE CONSIDERED SEPARATELY IN THE FOLLOWING PARAGRAPHS. 3 THE LEAD YEAR IS ASST. YEAR 2003-04 WHERE THE AO HAS CARRIED OUT INVESTIGATION AND WRITTEN A DETAILED OR DER WHICH HAS BECOME THE BASIS FOR ASSESSMENT IN OTHER YEARS. THE REFORE WE WILL TAKE UP FOR DISCUSSION ASSESSMENT YEAR 2003-04 . THE GROUNDS RAISED BY THE REVENUE IN ALL THE ASSESSMENT YEARS EXCEPT AY 2005-06 ARE THE SAME EXCEPT AMOUNT OF DEDUCTION UNDER CHALLENGES AND HENCE THEY WILL NOT BE QUOTED SEPARA TELY FOR THE SAKE OF BREVITY. IN THE AY 2003-04 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION U/S 80IB OF RS.89 66 912/- ON THE SILVASS A UNIT THOUGH THE SAME WAS NOT ALLOWABLE ON FOLLOWING GROU NDS: - (I) THE SILVASSA UNIT WAS NOT ENGAGED IN MANUFACTUR ING ACTIVITIES. AS PER THE CONTENTION OF THE ASSESSEE ON RECEIPT O F RAW MATERIAL AT THE SILVASSA UNIT SAMPLING TESTING BATCHING A ND DETERMINATION OF COMPOSITION OF THE RAW MATERIAL IS CARRIED OUT. THEN THE GOODS ARE SENT TO THE AHMEDABAD UNIT ALONG WITH THE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 4 TEST REPORT FOR FURTHER PROCESSING. AT THE AHMEDAB AD UNIT THE MAIN RAW MATERIAL I.E. MOLYBDENUM ORE IS MIXED UP W ITH SOME LOCALLY PURCHASED RAW MATERIAL BY MELTING PROCESS T O CREATE SLABS OF FERRO MOLYBDENUM AND MOLY DISULPHIDE.. CHE MICAL REACTION TAKES PLACES BETWEEN THE DIFFERENT RAW MAT ERIALS IN THE MELTING PROCESS AT THE AHMEDABAD UNIT. AFTER MELTIN G THE MATERIAL IS COOLED AND CONVERTED INTO SLABS. THE SL ABS ARE THEN TRANSPORTED TO SILVASSA WHERG_ THEY ARE CRUSHED AN GLGNNDED BY A MECHANICAL PROCESS EITHER MANUALLY OR BY USING J AW CRUSHER AND GRINDER AND CONVERTED INTO LUMPS CHIPS AND PO WDER. NONE OF THE ACTIVITIES CARRIED OUT AT THE SILVASSA UNIT CAN BE TERMED AS EITHER 'MANUFACTURE' OR 'PRODUCTION AS P ER THE REQUIREMENTS OF SECTION 80IB. RELIANCE IN THIS REGA RD IS PLACED ON THE FOLLOWING DECISIONS:- (A) CIT VS. GOMATESH GRANITES (246 ITR 737 (MAD) - WHEREBY THE HON'BLE MADRAS HIGH COURT HELD THAT EXTRACTION OF GRANITE FROM HILLS BLASTING THE SAME INTO GRANITE BLOCK INVOLVES ONLY A PROCESS OF CUTTING OR REMOVING PART OF LARGER MASS IT IS NOT AN ACTIVI TY WHICH CAN PROPERLY BE REGARDED AS MANUFACTURE OR PRODUCTI ON. (B) CIT VS. NATRAJ PROCESSING INDUSTRIES (203 ITR 8 33 (PAT)- WHEREBY THE HON'BLE PATNA HIGH COURT HELD THAT CALENDARING_OF GREY CLOTH IS ONLY A PROCESS TO GIVE A TEMPORARY FINISH BY PRESSING THE FABRIC FOR MAKING IT MARKETABLE WITHOUT BRINGING ANY LASTING CHANGE AND THE SAME DOES NOT AMOUNT TO MANUFACTURING. (C) CIT VS. HINDUSTAN METAL REFINING WORKS (P) LTD (128 ITR 472(CAL)- WHEREBY THE CALCUTTA HIGH COURT HELD THAT_THE_GALVANIZING_WORK_OF COATING IRON OR STEEL WITH ZINC TO PREVENT RUST DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF NEW GOODS. (D) V. M. SALGAOCAR BROS.(P) LTD. VS. CIT(217 ITR 8 49 (KAR)- WHEREBY THE HON'BLE KARNATAKA HIGH COURT HEL D THAT JRON ORE SIZING AND WASHING PLANT USED IN WASH ING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 5 THE IMPURITIES FROM IRON ORE AND SIZING THE SAME IS NOT MANUFACTURING OR PRODUCTION. (E) CIT VS. LUCKY MINERAL PVT. LT. (226 ITR 245(RAJ ) - WHEREBY THE RAJASTHAN HIGH COURT HELD THAT MINING O F LIMESTONE AND MARBLE BLOCKS AND CUTTING AND SIZING OF THE SAME DOES AMOUNT TO MANUFACTURE OR PRODUCTION AS TH E MARBLE STONE RETAINS A CONTINUING SUBSTANTIAL IDENT ITY. THE SAID DECISION OF HON'BLE RAJASTHAN HIGH COURT STANDS CONFIRMED BY THE HON'BLE SUPREME COURT IN TH E CASE OF LUCY MINMAT (P) LTD VS. CIT AS REPORTED IN 245 ITR 830 (SC). (F) CIT VS. PREMIER GENERAL TRADERS (P) LTD(242 ITR 654(BOM)-WHEREBY THE BOMBAY HIGH COURT HAS HELD THA T GRINDING OF SOAP STONES AND MINERALS CANNOT BE REGA RDED AS MANUFACTURE OF ARTICLE OR THING. (G) CIT VS. COMPUTER GRAPHICS LTD(285 ITR 84 (MAD)- WHEREBY THE MADRAS HIGH COURT HAS HELD THAT CUTTING OF JUMBO ROLLS OF GRAPHIC COLOUR PAPER INTO MARKETABLE SIZE BY THE PROCESS OF SLITTING NEITHER AMOUNTS TO MANU FACTURE NOR PRODUCTION. (H) CIT VS. SRI MEENAKSHI ASPHALTS (266 ITR 626(MAD ) - WHEREBY THE MADRAS HIGH COURT HAS HELD THAT HEATING OF THE SCRAP BITUMEN IN ORDER TO OBTAIN SOLID BITUMEN DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION AS NO PRODU CT EMERGED FROM THE PROCESS AND THE BITUMEN CONTINUES TO BE BITUMEN WITH LESSER QUANTITY OF OIL AND MOISTURE . (I) CIT VS. SACS EAGLES CHICORY (241 ITR 319(MAD) - WHEREBY THE MADRAS HIGH COURT HAS HELD THAT PREPARA TION OF CHICORY POWDER FROM THE CHICORY DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION AS THERE IS NO ESSENTIAL DIFFERENCES BETWEEN THE IDENTITY OF THE ORIGINAL COMMODITY AND THAT OF PROCESSED ARTICLE. THE ABOVE SAID DECISION OF THE HON'BLE MADRAS HIGH COURT STANDS CONFIRMED BY THE HONBLE SUPREME COURT IN THE SAME CASE REPORTED IN 255 ITR 178 (SC). ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 6 (J) CIT VS. MADURAI PANDIAN ENGINEERING CORPORATION LTD (239 ITR 375 (MAD)- WHEREBY THE HON'BLE MADRAS HIGH COURT HELD THAT BUSINESS OF TYRE RETREADING DOES NO T AMOUNT TO MANUFACTURE OR PRODUCTION AS NO NEW ARTIC LE COMES INTO EXISTENCE. THE ABOVE SAID DECISION OF TH E HONBLE MADRAS HIGH COURT STANDS CONFIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF TAMALNADU STAT E TRANSPORT CORPORATION LTD. VS. CIT REPORTED IN 252 ITR 883 (SC). (II) THE STATEMENTS OF SHRI ADARSH JHAVERI THE DIR ECTOR OF THE COMPANY AND OTHER EMPLOYEES LIKE THE CHIEF ACCOUNTA NT PRODUCTION CHEMIST RECORDED AT THE TIME OF SURVEY O N 17.01.2006 PROVE THAT THE ACTUAL MANUFACTURING PROC ESS WAS BEING CARRIED OUT AT AHMEDABAD ONLY INCLUDING THE OFFLOADING OF RAW MATERIAL. THE FINAL PRODUCTS WERE ONLY BEING SIZED OR POWDERED AT THE SILVASSA UNIT. THE LD. CIT(A) HAS ERRED IN ACCEPTING THE ASSESSEE' S CONTENTION THAT SINCE THE STATEMENTS HAD BEEN SUBSEQUENTLY WIT HDRAWN THE SAME ARE NOT BE TREATED AS EVIDENCE AGAINST THE ASS ESSEE. ANY RETRACTION AFTER A LONG GAP IS NOTHING BUT AN A FTER THOUGHT. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS:- 1. MANHARLAL KASTURCHAND CHOKSI V.ACIT 61 ITD 55 (A'BAD ITAT) 2. HOTEL KIRAN VS. ACIT 82 ITD 453 (PUNE ITAT) 3. PRASSANCHAND SURANA VS. ACIT 71 TTJ 466 (HYDERBA D ITAT) 4. PARAM ANAND BUILDERS PVT. LTD VS. ACIT 59 ITD 29(BOM ITAT) 5. SURJEETSINGH CHABRA(SC)AIR 1997/2560 6. K.KUNHANBAM & SONS VS. CIT 219 ITR 235(KER) ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 7 7. RAJNIK A CO. VS. ACIT 251 ITR 561 (AP) 8. SC GUPTA VS. ACIT 248 ITR 782 (ALL). 9. DHURU JOHN VS. RETURNING OFFICER AIR 1977 SC 172 4 10. ITO VS. BD DAL A OIL MILL 40 ITD 180 (JAIPUR IT AT) 11. ITO VS. SADHURAM GUPTA 66 ITD 441 (CHANDIGARH ITAT). 12. DCIT VS. BHOGILAL A\ULCHAND KANDOI 96 ITD 344 ( A'BAD ITAT). 13. ACIT VS. RAMESHCHANDRA R. PATEL 89 ITD 203 (A'B AD 3RD MEM). 14. H. V. VENUGOPAL CHETTIAR VS. CIT 153 ITR 376 (M AD) 15. HIRALAL MAGANLAL A CO. VS. DCIT 96 ITD 113 (MUM ). THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT T HE STATEMENTS WERE BACKED BY INDEPENDENT EVIDENCE. AS PER PER ASSESSEE'S SUBMISSION DATED 16.3.2006 I RON SCRAP IS PURCHASED DIRECTLY DIRECTLY BY THE AHMEDABAD UNIT. HOWEVER IRON SCRAP IS CLAIMED TO BE NEEDED FOR THE PRODUCTI ON OF THE MAIN PRODUCT FERRO MOLY AND IS STATED TO BE ONE OF THE INGREDIENTS REQUIRED FOR THE PILOT PROCESS WHICH DE TERMINES THE PRODUCT MIX WHICH IS COMMUNICATED IN THE JOB ORDER TO THE AHMEDABAD UNI.T IT IS FOR THE ASSESSEE TO EXPLAIN A S TO HOW THE PILOT PROCESS IS CONDUCTED AT SILVASSA IN THE ABSEN CE OF IRON SCRAP. THE CLOSING STOCK OF THE SILVASSA UNIT DOES NOT RE FLECT ANY CHEMICALS WHICH COULD HAVE BEEN USED FOR TESTING OF RAW MATERIAL. ALSO UNLOADING AND SAMPLING OF EACH BATCH OF RAW MATERIAL AND RE-LOADING FOR DISPATCH TO AHMEDABAD W OULD CURTAIL LOADING / UNLOADING CHARGES. NO SUCH CHARGE S ARE DEBITED IN THE SILVASSA UNIT. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 8 (III) THE ASSESSEE-COMPANY HAD NOT EMPLOYED 10 OR M ORE WORKERS AS REQUIRED. THE PRODUCTION-IN-CHARGE HIS ASSISTAN T AND THE PRODUCTION CHEMIST BEING MANAGERIAL POSTS CANNOT BE COUNTED TOWARDS WORKERS FOR THE PURPOSE OF SECTION 80IB. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D. CIT(A) BE QUASHED AND THAT OF THE ASSESSING OFFICER BE RESTOR ED. 4 IN FACT THE REVENUE IS AGITATING AGAINST ALLOWAN CE OF DEDUCTION U/S 80IB AND IN SUPPORT IT HAS INSERTED A RGUMENTS IN THE GROUNDS OF APPEAL. 5.1 THE FACTS OF THE CASE INQUIRIES CARRIED OUT BY THE AO AND RESULTS OF INQUIRIES HAVE BEEN ELABORATELY DISCUSSE D BY THE AO IN HIS ORDER WHICH RUNS INTO ABOUT 87 PAGES. IN ADDITI ON 5 ANNEXURES BEING STATEMENTS AND ASSESSEES SUBMISSIO NS ALSO FORM PART OF THE ASSESSMENT ORDER. 5.2 BRIEF HISTORY OF THE FACTS AS DISCUSSED BY THE AO ARE SUMMARIZED AS UNDER:- [I] THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERRO & MOLYBDENUM ALLOYS. IT HAD ONE MANUFACTURING UNIT AT AHMEDABAD. FROM FY 1979-80 IT HAS BEEN CARRYING ON THE MANUFACTURING ACTIVITIES IN AHMEDAB AD UNIT. IT STARTED ANOTHER UNIT AT SILVASSA IN THE UNION TERRI TORIES OF DADRA & NAGAR HAVELI SINCE FY 1999-2000 WHICH IS A NOTIFI ED BACKWARD AREA AS DECLARED UNDER VIIITH SCHEDULE OF THE INCOME- TAX ACT 1961 ACCORDING TO WHICH THE ASSESSEE IS EN TITLED TO BENEFIT U/S 80IB AT 100% OF THE INCOME DERIVED FROM SUCH INDUSTRIAL UNIT SITUATED AT SILVASSA. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 9 [II] THE MAIN RAW MATERIAL FOR MANUFACTURING FERRO ALLOYS IS MOLYBDENUM ORE WHICH IS GENERALLY IMPORTED BY THE A SSESSEE. IT IS BROUGHT TO AHMEDABAD UNIT BY TRUCKS. OTHER RAW M ATERIAL LIKE IRON-ORE IS MIXED TO MAKE FERRO MOLYBDENUM ALLOYS. SUBSEQUENTLY THIS PRODUCT IS BROKEN IN DIFFERENT S IZES AND SORTED OUT SIZE-WISE. DIFFERENT SIZES OF FERRO MOLYBDENUM ALLOYS [FMA FOR SHORT] KNOWN BY DIFFERENT NAMES IN THE C OMMERCIAL WORLD IS SOLD TO DIFFERENT CUSTOMERS ACCORDING TO T HEIR NEEDS. [III] THE AO TOOK THE VIEW THAT SILVASSA UNIT HAS B EEN OPENED ONLY TO TAKE THE BENEFIT OF DEDUCTION U/S 80IB OF T HE ACT WHERE DEDUCTION U/S 80IB IS AVAILABLE AT THE RATE OF 100% AS SILVASSA IS A DECLARED BACKWARD AREA. THE ASSESSEE HAD CONTINUE D TO OPERATE AT SILVASSA UNIT TILL JULY 2005. AFTER THAT PERIOD AVAILABLE DEDUCTION U/S 80IB WAS REDUCED TO 30% FROM EARLIER AVAILABLE AT 100% AND THEREFORE THE ASSESSEE OPENED ANOTHER UNI T AT DAMAN WHICH WAS ELIGIBLE FOR 100% DEDUCTION. THIS LED THE AO TO HAVE SUSPICION THAT NO MANUFACTURING ACTIVITY AS SUCH IS BEING CARRIED OUT AT SILVASSA UNIT OR DAMAN UNIT AND THEY ARE ONL Y MAKE-BELIEF AFFAIR. IN ORDER TO FIND OUT THE TRUTH THE AO CARR IED OUT SURVEY U/S 133A OF THE ACT AT ALL THE THREE PREMISES I.E. AT SILVASSA AHMEDABAD AND DAMAN UNITS ON 17-01-2006. DURING THE COURSE OF SURVEY PROCEEDINGS THE AO HAD RECORDED THE STAT EMENTS OF VARIOUS PERSONS ON OATH. FROM THE MATERIAL GATHERED DURING SURVEY OPERATION THE AO INFERRED THAT NO MANUFACTU RING OR PRODUCTION OF ANY ARTICLE OR THING IS CARRIED OUT A T TWO PLACES VIZ. SILVASSA AND DAMAN UNITS EXCEPT OCCASIONALLY CRUSHING AND GRINDING OF THE FINAL PRODUCT WITH THE HELP OF ONE JAW CRUSHER AND TWO GRINDING MACHINES AND ENGAGING FEW WORKERS FOR SIZING AND SIEVING. THE BASIS FOR ARRIVING AT THIS INFEREN CE HAS BEEN DISCUSSED BY THE AO IN DETAIL IN THE SUBSEQUENT PAR AGRAPHS IN HIS ORDER. THIS BASIS / REASONING ARE FURTHER SUMMARIZE D AS UNDER:- [A] SHRI SACHCHIDANAND JHA THE MAIN PERSON WHO WAS CONTROLLING THE AFFAIRS OF DAMAN UNIT STATED THAT T HE ONLY ACTIVITY CARRIED OUT AT DAMAN UNIT IS CRUSHING GRINDING AND SIZING AND ALL OTHER PROCESSES ARE BEING CARRIED OUT AT AHMEDA BAD. HE STATED THAT THE SIZE OF FMA RECEIVED FROM AHMEDABAD UNIT I S BIG VIZ. 350 MM. TO 550 MM SIZE WHICH IS CRUSHED TO SIZE OF 10 MM AND ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 10 ALSO IN POWDER FORM. NO CHEMICAL CHANGE IS BEING EF FECTED IN THE GOODS RECEIVED FROM AHMEDABAD. HE ALSO STATED THAT SIMILAR PROCESS OF CRUSHING GRINDING AND SIZING IS CARRIED OUT AT SILVASSA UNIT. [B] A COPY OF REGISTRATION CERTIFICATE NO. DIC/1/(2 068)/SSI/99 DATED 23-02-2000 OF DISTRICT INDUSTRIES CENTRE D& NH SILVASSA WHICH WAS VALID UPTO 23-02-2005 REFLECTED THAT THE ASSESSEE WAS GIVEN LICENCE ONLY FOR CRUSHING AND GRINDING OF FER RO MOLYBDENUM AND MOLYBDENUM-DI-SULPHIDE. [C] OTHER PERSONS SUCH SHRI ADARSH JHAVERI WHO WAS DIRECTOR OF THE COMPANY SHRI ATUL DHIRUBHAI PATEL WHO WAS P RODUCTION CHEMIST SHRI BHARAT PRAJAPATI DISPATCH CLERK ALSO CONFIRMED THAT THE ACTUAL MANUFACTURING OR PRODUCTION IS DONE AT AHMEDABAD AND OCCASIONALLY THE ACTIVITIES OF CRUSHI NG AND GRINDING ALONE ARE CARRIED OUT AT OTHER UNITS SUCH AS SILVASSA AND DAMAN. [D] THERE HAS BEEN NO CLAIM IN THE RETURN OF INCOME OF THE ASSESSEE COMPANY IN RESPECT OF P.F. OR ESIC IN RESP ECT OF WORKERS OF THESE TWO UNITS. 5.3 ON THE BASIS OF ABOVE THE AO ISSUED A SHOW CAUS E NOTICE TO THE ASSESSEE ON 13-03-2006 WHEREIN THE ABOVE FINDIN GS WERE CONVEYED TO THE ASSESSEE. THE AO ALSO ASKED THE ASS ESSEE TO EXPLAIN WHY THE AUDIT REPORT IN FORM NO. 10CCB HAS NOT BEEN FURNISHED ALONG WITH THE RETURN. IN ADDITION TO THI S ANOTHER FINDING WAS CONVEYED TO THE ASSESSEE THAT THERE WER E ONLY SEVEN (7) WORKERS WHO HAD WORKED IN THE FACTORY AT SILVAS SA UNIT FOR ONLY LIMITED NUMBER OF DAYS AS UNDER:- ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 11 S.NO. NAME DESIGNATION NO. OF DAYS WORKED DURING FY 2002-03 ------------------ --------------- -------------- --------- 1 RAJKUMAR HELPER 301 2 BABLA RUPA 286 3 VADHWAJ KALUR 270 4 MANGALU KALUR 228 5 SHAKER JIVAJI 296 6 CHHAGANBHAI DABHIBHAI 136 7 GANESH RAPJI 212 SINCE THE ASSESSEE IS RUNNING THE FACTORY WITH THE AID OF POWER IT HAS TO EMPLOY 10 (TEN) PERSONS OR MORE. THIS WAS CO NSIDERED TO BE A VIOLATION AS PER CLAUSE (IV) OF SUB-SECTION (2 ) OF SECTION 80IB OF THE ACT. 5.4 THE AO ALSO CALLED FOR THE EXPLANATION OF THE A SSESSEE ON HIS VIEW THAT THE EXPENSES OF SILVASSA UNIT HAVE BE EN SHIFTED TO AHMEDABAD UNIT THEREBY REDUCING THE PROFIT OF AHMED ABAD UNIT AND INCREASING THE PROFIT OF SILVASSA UNIT FOR CLAI MING THE BENEFIT OF DEDUCTION U/S 80IB OF THE ACT. HE LISTED SUCH CO MMON EXPENSES SHIFTED TO AHMEDABAD UNIT AS UNDER:- (A) SALARY / WAGES (B) CONTRIBUTION TO PF ESI SCHEME (C) P.F. ADMN. EXPENSES (D) MANAGING DIRECTORS REMUNERATION (E) COMMISSION ON SALE (F) BOOKS AND PERIODICALS (G) COMPUTER EXPENSES (H) L.C. OPENING CHARGES (I) INTEREST PAYMENTS TO DIRECTORS AND OTHERS ETC. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 12 5.5 IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE THE ASSESSEE EXPLAINED THAT - (I) SUBSTANTIAL MANUFACTURING PROCESS AND DECISION MAKING ARE DONE AT SILVASSA UNIT WHICH BRINGS VALUE ADDITION TO THE PRODUCT; (II) ONLY THE PROCESS OF MELTING IS CARRIED OUT AT AHMEDABAD AND REST OF PROCESS IS DONE AT SILVASSA AND DAMAN UNITS; (III) THIS WAS DONE AS THE AUTHORITIES IN SILVASSA DID NO T ALLOW THE MELTING PROCESS TO BE CARRIED OUT THERE; (IV) ULTIMATE RESPONSIBILITY OF SUPPLY OF MATERIAL TO TH E SATISFACTION OF THE CUSTOMERS IS OF SILVASSA UNIT; (V) THE DETAILS OF PLANT AND MACHINERY INSTALLED AND USED IN SILVASSA UNIT ARE GIVEN IN THE ANNEXURE TO THE REPLY; (VI) MERELY BECAUSE THE DIRECTORS ARE RESIDING AT AHMEDABAD IT CANNOT BE INFERRED THAT THE ENTIRE DECISION MAKING IS DONE AT AHMEDABAD; (VII) WHAT IS DONE AT SILVASSA UNIT IN ADDITION TO CRUSHING GRINDING AND SIZING ARE AS UNDER:- [A] THE RAW-MATERIALS ARE IN FACT RECEIVED AT SILVASSA; [B] THE COMPOSITION RATIO OF RAW-MATERIAL MIX IS DETERMINED AT SILVASSA; [C] THE EXPENDITURE BY WAY OF PAYMENT TO THE LABOURERS ARE MADE AT SILVASSA. FOR THIS PURPOSE THE COMPANY HAS A BANKING ACCOUNT AT SILVASSA ALSO; ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 13 [D] THE DIRECTORS MAKE FREQUENT VISITS TO SILVASSA TO GUIDE AND ASSIST THE PERSONNEL AT SILVASSA. (VIII) THE MACHINES INSTALLED AT SILVASSA UNIT ARE NEW AND PURCHASED FOR THE PURPOSE OF INDUSTRIAL UNDERTAKING AT SILVASSA AND WERE NOT USED AT AHMEDABAD; (IX) THE AUDIT REPORT WAS SUBMITTED ALONG WITH THE RETURN AS ANNEXURE-C BUT A FRESH COPY OF AUDIT REPORT IN FORM NO.10CCB IS FURTHER ENCLOSED; (X) STAFF WERE GENERALLY ON LEAVE DUE TO HOLY FESTIVALS ; (XI) THERE WERE 12 (TWELVE) WORKERS AT SILVASSA UNIT; (XII) THE DEDUCTION OF PF ETC. IS DONE AND PAYMENT IS MADE TO PF DEPARTMENT; ESIC IS NOT APPLICABLE TO SILVASSA UNIT. 5.6 VIDE ITS LETTER DATED 16-03-2006 THE ASSESSEE EXPLAINED VARIOUS PROCESS IN THE COURSE OF MANUFACTURING OF F ERRO MOLYBDENUM AND MOLYBDENUM-DI-SULPHIDE AS UNDER:- SR. NO. UNIT STAGE / ACTIVITY STATE PLANT AND MACHINERIES USED 1 SILVASSA SAMPLING & TESTING RAW MATEIALS - LABORATORY EQUIPMENTS AND INSTRUMENTS - SOFT SKILL (KNOWLEDGE) 2 SILVASSA BATCHING MIXING DIFFERENT RAW MATERIALS AND -SOFT SKILL (KNOWLEDGE) ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 14 TESTING COMPOSITION DETERMINATION IGNITING TRIAL BATCH REACTION ANALYSIS OF ELEMENTS IN LAB DETERMINATION OF THE RATIO IN WHICH DIFFERENT RAW MATERIALS SHOULD BE MIXED TO GET DESIRED CHEMICAL COMPOSITION RECOVERY STANDARDS AND CUSTOMER REQUIREMENT. -SOFT SKILL (KNOWLEDGE) -SOFT SKILL (KNOWLEDGE) 3 AHMEDABAD MELTING OF RAW MATERIALS (BASED ON INFORMATION FROM SILVASSA) SEMI FINISHED GOODS (SLABS) SAND PIT FILLED WITH QUARTZ SAND 4 SILVASSA CRUSHING OF SLABS INTO DIFFERENT SIZE LUMPS AND CHIPS SEGREGATION AND SIEVING -CAN BE SOLD TO CUSTOMERS WHO ORDERED FOR LUMPS - TO NEXT STAGE JAW CRUSHER SIEVING 5 SILVASSA GRINDING SMALLER CHIPS AND INTO DIFFERENT MESH SIZE POWDER AS REQUIRED BY CUSTOMER SIEVING & - CAN BE SOLD TO CUSTOM ERS WHO ORDERED FOR CHIPS / POWDER GRINDER SIEVING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 15 GRADING AND MIXING - TO BE INTERCHANGED BETWEEN SIEVING STAGE AS WELL 6 SILVASSA TESTING TO BE ANALYZED TO MATCH WITH THE ORDER SPECIFICATIONS AND STANDARD SPECIFICATION LABORATORY OVEN HOT PLATE AND ELECTRICAL BALANCE. GLASSWARE AND CHEMICAL 7 SILVASSA PACKING FINISHED GOODS GRADED PHYSICALLY AND CHEMICALLY TESTED PACKED AS PER CUSTOMER REQUIREMENT SIEVING DECKS LABORATORY 6. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASS ESSEE THAT SUBSTANTIAL PART OF THE PROCESS DURING THE COURSE O F MANUFACTURING WERE CARRIED OUT AT SILVASSA UNIT FO R THE FOLLOWING REASONS:- [1] THE DOCUMENTS FOR PROCURING MOLYBDENUM ORE WHIC H CONSTITUTE 90% OF THE COST OF PRODUCTION IS ONLY IM PORTED IN THE NAME OF SILVASSA UNIT BUT IN REALITY THEY WERE DELI VERED AT AHMEDABAD UNIT. [2] THE DOCUMENTS SHOWING PROCUREMENT OF ORE DO NOT PROVE THAT THE RAW MATERIALS WERE IMPORTED TRANSPORTED A ND UNLOADED AT SILVASSA UNIT. THE AO RELIED ON THE STATEMENT OF SHRI ADARSG JHAVERI DIRECTOR TO THE EFFECT THAT ONLY GRINDING CRUSHING AND SIZING IS DONE AT SILVASSA UNIT. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 16 [3] SHRI ATUL D PATEL HAD STATED THAT THE DIRECTOR OF THE COMPANY GIVES THE ORDER FOR PURCHASE OF RAW MATERIA L. [4] THE REMUNERATION OF DIRECTORS ARE DEBITED IN TH E ACCOUNTS OF AHMEDABAD UNIT ONLY AND NOT A SINGLE PENNY IS AL LOCATED TO SILVASSA UNIT. [5] THERE IS NO EVIDENCE THAT THE IMPORTED RAW MATE RIALS WERE ACTUALLY DELIVERED AND UNLOADED AT SILVASSA. [6] SHRI SACHCHIDANAND JHA CHEMIST STATED THAT THE RAW MATERIALS IMPORTED FROM KORIA AND CHINA ARE SENT TO AHMEDABAD FACTORY FOR MANUFACTURING OF ALLOYS. [7] SHRI ATUL D PATEL CHEMIST FURTHER STATED THAT THE RAW MATERIALS ARE PURCHASED BY THE COMPANY AND WHOLE OF RAW MATERIALS ARE RECEIVED AT AHMEDABAD FACTORY AND THE RECEIPTS ARE ENTERED ONLY IN THE BOOKS OF AHMEDABAD FACTORY. [8] NO SEPARATE LOADING OR UNLOADING CHARGES WERE B OOKED AT SILVASSA UNIT AGAINST THE RAW MATERIALS CONSUMED OF RS.12.54 CRORES (APPROXIMATELY 480 MTS). ONLY A NOMINAL AMOU NT ON SALARY WAGES BONUS GRATUITY CARRIAGE FORWARD AN D PACKING EXPENSES ARE DEBITED AT SILVASSA UNIT AS UNDER:- (I) SALARY WAGES BONUS GRATUITY - RS.2 56 596/ - (II) CARRIAGE OUTWARD - RS.5 43 920/- (III) PACKING EXPENSES - RS. 7 790/- NO SAMPLING IS ACTUALLY DONE AT SILVASSA UNIT AS M ATERIAL IS DIRECTLY TRANSPORTED TO AHMEDABAD UNIT. [9] FOR ALL THE PURCHASE OF ALUMINIUM POWDER THERE IS CORRESPONDING DELIVERY CHALLAN AND OCTROI PAYMENT R ECEIPT WHICH SHOWS THAT THE OCTROI HAS BEEN PAID ONLY AT AHMEDAB AD EVEN THOUGH THE DELIVERY CHALLAN HAS BEEN PREPARED IN TH E NAME OF SILVASSA UNIT. IN MAJORITY OF CASES THE GOODS HAVE BEEN RECEIVED ON THE SAME DAY AS ON THE DATE OF PAYMENT OF OCTROI DUTY. THUS NO ALUMINIUM POWDER HAS TRAVELED FROM AHMEDABAD. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 17 [10] THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS OR BILLS IN RESPECT OF PURCHASE FERRO SILICON AT SILVASSA UNIT INDICATING THAT NO SUCH PURCHASE WAS DONE AT THAT UNIT. [11] THE PURCHASE OF IRON SCRAP IN THE FORM OF MILL SCALE AND NAIL CHIPS IS DONE AT AHMEDABAD UNITS FOR MIXING WI TH MOLYBDENUM ORE. THUS NO LABORATORY TESTING CAN BE D ONE AT SILVASSA UNIT WHEN THERE IS NO RAW MATERIAL RECEIVE D AT THAT UNIT. [12] THE ASSESSEE DOES NOT CARRY OUT ANY LABORATORY TESTING AND SAMPLING OF RAW MATERIAL AT SILVASSA BECAUSE ALUMIN IUM POWDER FERRO SILICON IRON SCRAP NEVER REACHED SILVASSA. [13] NO SAND PIT FOR CARRYING OUT LAB TESTING IS FO UND AT SILVASSA OR DAMAN AS THEY ARE NECESSARY FOR TESTING. [14] ONCE AUTHORITIES HAVE PROHIBITED THE ASSESSEE TO CARRY OUT MELTING THEN IT IS NOT POSSIBLE TO BELIEVE THAT SUC H MELTING FOR TESTING PURPOSES COULD BE PERMITTED. [15] FOR CARRYING OUT CHEMICAL TESTING OF RAW MATER IALS OR OF FINAL PRODUCT LARGE NUMBER OF AGENTS VIZ. SULPHU RIC ACID HYDROCHLORIC ACID OR OTHER REGENTS ARE REQUIRED AND FOR CHEMICAL ANALYSIS ELECTRONIC INSTRUMENTS ARE ALSO NEEDED. T HE SURVEY AT SILVASSA DID NOT INDICATE THAT ASSESSEE HAD PURCHAS ED ANY SUCH CHEMICAL AGENTS OR INSTRUMENTS REQUIRED FOR CHEMICA L ANALYSIS. A VESSEL FOR MELTING MOLYBDENUM DI SULPHIDE FOR CONVE RTING INTO MOLYBDENUM TRI SULPHIDE AT A TEMPERATURE OF 400 DEG REE CEL. IS REQUIRED BUT NO SUCH VESSEL WAS FOUND. 7 THEREAFTER THE AO REFERRED TO VARIOUS AUTHORITIE S FOR THE PROPOSITION THAT THE PROCESS CARRIED OUT BY THE ASS ESSEE IS NOT MANUFACTURING. SOME OF THESE AUTHORITIES REFERRED T O BY THE AO ARE AS UNDER:- ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 18 (I) BANNER & CO. V. UNION OF INDIA (1994) 70 ELT 1 81 (CAL) [PUTTING BRAND NAME ON SPECIFIED GOODS DOES N OT CHANGE THE GOODS AND CANNOT THEREFORE AMOUNT TO MANUFACTURE]. (II) COLLECTOR OF CENTRAL EXCISE V. BAKELITE HYLAM LTD. (1997) 1OSCC 350 361-62 [CUTTING INDUSTRIAL LAMINATED SHEETS (PAPER BASED) AND GLASS EPOXY LAMINATED SHEETS INTO REQUISITE SIZE AND PUNCHING HOLES FOR MAKING THEM CAPABLE OF BEING FITTED AS INSULATORS DOES NOT AMOUNT TO MANUFACTURE]. MANUFACTURE SEC. 28 1333 (IV) COLLECTOR OF CENTRAL EXCISE V. BANSWARA SYNTEX LTD. (1996) 11 SCC 55 58 [THE PROCESS OF DOUBLING OR MULTI-FOLDING OF THE SINGLE PLY YARN DOES NOT CONSTITUTE MANUFACTURE]. (V) UNION OF INDIA V. J.G. GLASS INDUSTRIES LTD. ( 1998) 96 TAXMAN 29 38 (SC) [PRINTING ON BOTTLES DOES NOT INVOLVE A PROCESS OF MANUFACTURE]. (VI) ADDL. COMMISSIONER OF INCOME-TAX MADRAS-I VS. CHILIES EXPORT HOUSE LIMITED 115 ITR 73 MADRAS HIGH COURT. ........ THE FULL EXPRESSION IS 'ENGAGED IN THE BUS INESS OF MANUFACTURE OR PROCESSING OF GOODS'. THE EXPRESSION 'PROCESSING' HAS NOT BEEN DEFINED. IT IS THEREFORE TO BE INTERPRETED IN A PRACTICAL AND WORKABLE MANNER IN THE CONTEXT AND SETTING IN WHICH IT APPEARS. THAT CAN BE DONE BY APPLYING THE DOCTRINE OF NOSCITUR A SOD IS BY REFERENCE TO THE WORDS PHRASE S OR EXPRESSIONS ASSOCIATED WITH IT WHICH IN THE INSTAN T CASE IS 'MANUFACTURE. ........' (VII) MARBLE BLOCKS AS SUCH DO NOT HAVE ANY COMMERC IAL USE. HOWEVER THEY CAN BE USED ONLY AFTER CONVERTIN G MARBLE BLOCKS INTO TILES. IN THE DECISION GIVEN BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S . ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 19 LUCKY MINERAL PVT. LTD. (1997) 226 ITR 245 IT WAS HELD THAT CONVERSION OF MARBLE BLOCKS INTO TILES DO ES NOT CONSTITUTE 'MANUFACTURE'. THIS DECISION OF THE HON'BLE RAJASTHAN HIGH COURT HAS BEEN AFFIRMED BY THE THREE MEMBER BENCH OF THE HON'BLE SUPREME COURT IN THE CASE OF LUCKY MINMAT (P) LTD V/S. CIT (2000 ) 245 ITR 830. (IX) THE FOODSTUFF PREPARED BY COOKING OR BY ANY OT HER PROCESS FROM RAW MATERIALS SUCH AS CEREALS PULSES VEGETABLES MEAT OR THE LIKE CANNOT BE REGARDED AS A COMMERCIALLY DISTINCT COMMODITY AND IT CANNOT BE HELD THAT SUCH FOODSTUFF IS MANUFACTURED OR PRODUCE D - INDIAN HOTELS CO. LTD. V. ITO (2000)112 TAXMAN 46 (SC). (X) GRINDING OF SOAP STONES. PROCESS OF GRINDING OF SOAP STONES AND MINERALS WOULD NOT AMOUNT TO MANUFACTURE OF ARTICLES OR THINGS - CIV V. PREMIER GENERAL TRAD ERS PVT. LTD.(2000) 242 ITR 654 (BOM.). (XI) A NEW ARTICLE DOES NOT COME INTO EXISTENCE AS A RESULT OF RECONDITIONING OF THE OLD BELT. CIT V. NEYVELI LIGNITE CORPN. ' LTD. (2001) 118 TAXMAN 230 (MAD.) (XII) MINING OF STONE. IF THE ASSESSEE IS ENGAGED I N THE BUSINESS OF MINING OF LIMESTONES AND MARBLES BLOCKS AND THEREAFTER CUTTING AND SIZING THE SAME BEFO RE BEING SOLD IN THE MARKET IT DOES NOT AMOUNT TO MANUFACTURE / PRODUCTION LUCKY MINERAL (P) LTD. V S. CIT (2001) 116 TAXMAN 1 (SC). 8. THE OTHER JUDGMENTS RELIED ON BY THE AO ARE AS U NDER :- 1. TITANER COMPONENT LTD. 72 ITD 514(DELHI) COATING OF METAL IS NOT MANUFACTURING OF ARTICLES OF THINGS. 2. PINK-STAR VS. DCIT 72 ITD 137(MUMBAI) CUTTING AN D POLISHING OF DIAMOND IS NOT MANUFACTURING AND 80I I S NOT AVAILABLE TO THE ASSESSEE FOR THESE ACTIVITIES. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 20 3. LIBERTY GROUP MARKETING DIVISION V/S. ACIT 61 T TJ 566 (DELHI) - GETTING SHOES MANUFACTURED FROM COBBLERS CANNOT BE CALLED MANUFACTURING. 4. SHAW SCOT DISTILLERIES (P) LTD. V/S. AOT 76 ITD 89(SB (KOLKOTTA) PRODUCTION OF IMFL & PACKING IS NOT AMOUNTING TO MANUFACTURE OF ARTICLES OF THINGS. 5. ACIT V/S. GTC ENTERPRISE 87 ITD 188(CHENNAI) - MAKING OF SMALL QUARTZ FROM LARGE IS NOT MANUFACTUR E OF ARTICLE OR THINGS. 6. PRINTING ~OF MANUFACTURES NAME ON CAPSULES IS N OT MANUFACTURING OF ARTICLES OR THINGS. CIT VS. WESTER N INDIA PHARMA 248 ITR 96 (BOM) 7. PLANT INSTALLED FOR SIZING AND WASHING IRON ARE NOT ENTITLED TO DEDUCTION U/S 80I SINCE ARTICLES OR THI NGS WERE NOT MANUFACTURED. V M SALGOANKAR BROS. (---) LTD. VS. CIT 217 ITR 849 (KARNATAKA) 8. PROCESS OF GALVASING IS NOT MANUFACTURE 128 ITR 472 (CAL) CIT VS. HINDUSTAN METAL LTE. 9. CUTTING DRILLING FASTENING OF ANGLES PLATES ETC. NOT AMOUNTING TO MANUFACTURING OF ARTICLES OR THINGS. TELCO VS. UOI 89 LT 463 (BOM) 10. 255 ITR 178 (SC) SAC EAGLES CHICORY VS. CIT PREPARATION OF CHICORY POWDER FROM CHICORY ROOTS AFTER ROASTING THEM DOES NOT AMOUNT TO MANUFACTURE OF ARTICLE OR THINGS. THEREAFTER THE AO DISALLOWED THE CLAIM OF DEDUCTIO N U/S 80IB OF THE ACT BY HOLDING THAT WHAT THE ASSESSEE DOES AT S ILVASSA UNIT IS NOT MANUFACTURING OR PRODUCTION AS ENVISAGED IN THA T SECTION. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 21 9. THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A) WHO ALLOWED DEDUCTION U/S 80IB OF THE ACT TO THE ASSESS EE VIDE HIS ORDER DATED 22-10-2007. IN HIS ORDER THE LEARNED CI T(A) SUMMARIZED THE REASONS GIVEN BY AO AS UNDER:- (I) IMPORTED RAW MATERIAL LIKE MOLYBDENUM PURCHASED DID NOT REACH SILVASSA UNIT BUT IT WAS DIRECTLY REA CHING TO AHMEDABAD. (II) ACCORDING TO THE AO SILVASSA UNIT ACTUALLY WAS NOT HAVING ANY LABORATORY AND HAD NOT CARRIED OUT ANY CHEMICAL TESTING BEFORE THE MATERIAL WAS SENT TO AHMEDABAD. (III) THE SILVASSA UNIT WAS NOT HAVING ANY MACHINER Y PURCHASED BY IT. (IV) THE SILVASSA UNIT WAS NOT HAVING 10 OR MORE WO RKERS EMPLOYED AND THAT IT WAS NOT USING POWER AND FUEL. (V) THUS MAIN MANUFACTURING ACTIVITY WAS CARRIED OU T AT AHMEDABAD AND NO MANUFACTURING ACTIVITY WAS CARRIED OUT AT SILVASSA UNIT. (VI) SILVASSA UNIT DID ONLY THE GRINDING AND CRUSHI NG ACTIVITIES. 9.1 CONSIDERING THE ARGUMENTS OF THE ASSESSEE AND R EASONING GIVEN BY THE AO THE LEARNED CIT(A) ALLOWED THE CLA IM BY OBSERVING AS UNDER:- 13. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE A.R. AND THE DECISIONS CITED BY THE ID. AUTHORIZED REPRE SENTATIVE AND ALSO CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE R EMAND REPORT OF THE AO. ON PERUSAL OF THE FACTS AND THE SUBMISSIONS I FIND THAT THE IMPORTED RAW MATERIAL BEING MOLYBDENUM ORE WAS RECE IVED AT ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 22 SILVASSA UNIT AND THEN WAS CHEMICALLY TESTED ON SAM PLE BASIS AT SILVASSA AND IT IS DECIDED AS TO THE RATIO IN WHICH THE OTHER MATERIALS LIKE FERRO SILICA ALUMINIUM POWDER ARE TO BE ADDE D TO THE ORE TO OBTAIN THE FINAL PRODUCT AND AFTER THE TESTING THE MATERIAL IS SENT TO AHMEDABAD WITH THE JOB WORK INSTRUCTIONS FOR MIXING OTHER MATERIALS. THUS AT SILVASSA UNIT SAMPLING AND TESTING BATCHIN G AND DETERMINATION OF COMPOSITION ARE CARRIED OUT. ON THE BASIS OF TEST REPORT OBTAINED AT SILVASSA TH E PROCESS OF CONVERTING IT INTO MOLLY SLAB IS CARRIED OUT AT AHM EDABAD. THE APPELLANT IS REQUIRED TO CARRY OUT THIS PROCESS AT AHMEDABAD FOR THE REASON THAT THIS PROCESS CREATES HUGE HEAT AND IT A LSO PRODUCES SOME TOXIC GASES WHICH CAUSE POLLUTION. THE LOCAL AUTHOR ITY OF SILVASSA ON ACCOUNT OF THIS POLLUTION PROBLEM HAS GIVEN PERMISS ION OF PRODUCTION OF FINAL PRODUCT BY CRUSHING AND GRINDING OF SLABS ONLY AT SILVASSA. THUS FOR THIS REASON THE SILVASSA UNIT HAS GOT ITS PART OF THE PROCESS CARRIED OUT AT AHMEDABAD ON JOB BASIS AT ALIMEDABAD . AT AHMEDABAD UNIT OTHER MATERIALS LIKE FERRO SILICA ALUMINIUM POWDER IRON SCRAP ARE ADDED TO THE RAW MATERIAL I.E. MOLLY ORE AND ME LTING OF METAL IS CARRIED OUT IN VESSELS. AS IT IS AN EXOTHERMIC PROC ESS SUBSTANTIAL HEAT IS GENERATED AND NO EXTERNAL HEAT IS SUPPLIED. CHEM ICAL REACTION TAKES PLACE BETWEEN DIFFERENT RAW MATERIALS IN THE MELTIN G PROCESS AT AHMEDABAD UNIT. THEREAFTER THE MATERIAL IS ALLOWED TO COOL NATURALLY AND SLABS WEIGHING 300 KGS TO 400 KGS AND ABOUT 3 F T. DIAMETERS ARE PRODUCED AT AHMEDABAD UNIT WHICH ARE THEN SENT TO SILVASSA AND CRUSHED INTO DIFFERENT SIZES. THUS AT AHMEDABAD SEM I FINISHED PRODUCT IS OBTAINED IN FORM OF SLABS. AFTER THE PRODUCTION OF SLABS THE SAME ARE CARRIED TO SILVASSA AND AT THAT PLACE WITH THE USE OF MACHINERY THE SAME ARE CRUSHED AND GRINDED AND CONVERTED INTO LUM PS CHIPS AND POWDER. SLABS ARE NOT USABLE BY ANY INDUSTRY. ACCOR DING TO THE CHEMICAL CONTENTS LUMPS CHIPS AND POWDERS ARE USED BY DIFFERENT INDUSTRIES I.E. LUMPS ARE USED BY STEEL PLANTS CHI PS ARE USED BY FOUNDRY AND CASTING UNITS WHEREAS THE POWDERS ARE USED BY ELECTRODE INDUSTRIES AND IN SINTER METALLURGY . THUS THE ULTI MATE PRODUCT IS BEING MANUFACTURED AT SILVASSA. THIS PROCESS HAS BEEN EX PLAINED IN THE STATEMENT OF ADARSH JHAVERI MANAGING DIRECTOR OF T HE COMPANY AND YOGESH MODI THE ACCOUNTANT OF THE COMPANY ON THE D ATE OF SURVEY. THE WORKERS HAVE ALSO IN THEIR STATEMENTS AT DAMAN EXPLAINED THE PROCESS CARRIED OUT BY THEM ON JAW CRUSHER AND GRIN DER. THE EXCISE RECORDS AT DIFFERENT LEVELS CLEARLY RECORD THESE TH INGS AND ARE BEING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 23 AUDITED BY THE EXCISE DEPARTMENT AT SILVASSA. THUS ONE HAS TO ACCEPT THAT THE SILVASSA UNIT MANUFACTURES THE END PRODUT WHICH IS BEING MANUFACTURED FROM THE PURCHASE OF MOLY ORE BY CARRY ING OUT ONE PART OF PROCESS AT AHMEDABAD. 13.1 THE A.O.'S OBSERVATION REGARDING EMPLOYMENT OF LESS THAN 10 WORKERS IS TOTALLY INCORRECT IN VIEW OF THE FACT TH AT IN REMAND PROCEEDINGS IT WAS FOUND BY THE AO THAT THE APPELLA NT HAS MORE THAN 10 EMPLOYEES AND THAT IT HAS ALSO GOT TWO CASUAL WO RKERS. THE VARIOUS COURTS AS CITED BY THE ID. A.R. HAVE HELD THAT THE CASUAL WORKERS ARE TO BE CONSIDERED FOR THE PURPOSE OF SECTION 80-1 AND E VEN THE SUPERVISORY STAFF IS ALSO TO BE CONSIDERED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80-1. THE DECISIONS REFERRED TO BY TH E APPELLANT ARE VERY MUCH IN SUPPORT OF THE EXPLANATION GIVEN BY THE A.R . 13.2 IN SO FAR AS THE EMPLOYMENT OF MACHINERY IS CO NCERNED NEW MACHINERY PURCHASED FOR SILVASSA UNIT IS SUPPORTED BY THE PROPER BILLS AND TRANSPORTATION RECEIPT I.E. L.R. THESE EVIDENCE S HAVE BEEN VERIFIED IN THE REMAND PROCEEDINGS BY THE A.O. MERELY BECAUS E THE MACHINERY HAS BEEN PURCHASED FROM ALIMEDABAD IT CANNOT BE PRE SUMED THAT IT WAS THE MACHINERY OF AHMEDABAD UNIT WHICH WAS SENT TO SILVASSA PARTICULARLY WHEN THE APPELLANT HAS PRODUCED BILLS FOR SUCH MACHINERY AND THE SUPPLIERS HAVE BEEN VERIFIED BY THE ASSESSI NG OFFICER U/S. 133(6) OF THE I. T. ACT. THE APPELLANT HAS GOT MACH INERIES LIKE JAW CRUSHER VIBRO SCREEN DOUBLE CONE CRASHER GRINDER GENSET AND LAB EQUIPMENT AT SILVASSA UNIT. 13.3 IN SO FAR AS THE USE OF POWER IS CONCERNED TH E APPELLANT HAS GIVEN DETAILS THAT IT HAS PURCHASED LDO WHICH HAS B EEN USED FOR RUNNING GENSET FOR OPERATING MACHINERY AND THAT IT HAS ALSO GOT THREE PHASE POWER LINE. THE APPELLANT HAS PRODUCED EVIDEN CE THAT METER WAS NOT FUNCTIONING PROPERLY AND THAT THEREFORE IT HAD TIME AND AGAIN MADE COMPLAINT TO THE ELECTRICITY AUTHORITY. THIS FACT W AS VERIFIED IN REMAND PROCEEDINGS BY THE A.O. WITH THE ELECTRICITY AUTHORITIES. THE TRANSFER OF LDO TO SILVASSA IS SUPPORTED BY L.R. WH ICH HAS ALSO BEEN VERIFIED WITH THE SUPPLIER OF LDO AND THE TRANSPORT COMPANY BY THE A.O. IN THE REMAND PROCEEDINGS. 13.4 THUS THE ADVERSE OBSERVATIONS OF THE AO WITH R EFERENCE TO THE ABOVE ISSUES HAVE BEEN PROPERLY EXPLAINED AND THE S AME HAVE BEEN ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 24 VERIFIED IN THE REMAND PROCEEDINGS. IN THE CIRCUMST ANCES MERELY ON THE BASIS OF STATEMENT OF ONE PERSON OR TWO PERSONS ONE CANNOT CONCLUDE THAT THE SILVASSA UNIT OF THE APPELLANT WAS NOT CARRYING OUT MANUFACTURING ACTIVITY AND THAT THE ENTIRE MANUFACTURING WAS CARRIED OUT AT AHMEDABAD AND THAT THE FINAL PRO DUCT WAS ALSO PRODUCED AT AHMEDABAD. ALL THESE OBSERVATIONS ARE S UPPORTED BY THE FACTS BROUGHT OUT BY THE APPELLANT AND HAVE BEEN RE BUTTED BY THE APPELLANT. FURTHER THE AFFIDAVITS FILED BY SACHIDAN AND JHA AND RAJ KUMARSINH AND VERIFIED BY THE ASSESSING OFFICER DUR ING REMAND PROCEEDINGS SUPPORT THE CONTENTION OF THE APPELLANT THAT INITIAL TESTING OF RAW MATERIAL CRUSHING AND GRINDING AND TESTING WAS CARRIED OUT AT SILVASSA.VARIOUS DECISIONS REFERRED TO BY THE APPEL LANT CLEARLY SHOW THAT EVEN IF A PART OF PROCESS OF PRODUCTION HAS BE EN CARRIED OUT FROM OUTSIDE AGENCY IT CANNOT BE SAID THAT THE APPELLAN T HAS NOT MANUFACTURED GOODS. WHAT IS TO BE CONSIDERED IS THE END PRODUCT AND WHETHER THE RAW MATERIAL OF THE APPELLANT IS CONVER TED INTO A DIFFERENT PRODUCT. ON TOTAL CONSIDERATION OF THE FACTS OF THE CASE THUS IT IS HELD THAT THE APPELLANT HAS CARRIED OUT MANUFACTURING OF FERRO MOLYBDENUM AND MOLY DI SULPHIDE AT SILVASSA. THESE PRODUCTS AR E USED BY DIFFERENT INDUSTRIES. THE APPELLANT HAS PRODUCED FERRO MOLLY AND MOLY DI SULPHIDE . THE MOST IMPORTANT RAW MATERIAL IS MOLYB DENUM AND OTHER IMPORTANT MATERIALS WHICH HAVE BEEN ADDED ARE ALUMI NIUM POWDER FERRO SILICON IRON SCRAP AND QUARTZ ETC. THE MATER IAL IS RECEIVED AT SILVASSA FROM THE PORT THROUGH TRUCKS AND AS IT ENT ERS INTO THE JURISDICTION OF DADRA AND NAGAR HAVELI ENTRY TAX HA S BEEN PAID TO THE MOTOR VEHICLE DEPARTMENT AND THE APPELLANT HAS PROD UCED THE RECEIPT FROM MOTOR VEHICLE DEPARTMENT. THE RECEIPT OF RAW M ATERIAL IS ENTERED IN THE EXCISE RECORDS I.E. REGISTER RG 23-A . AFTER THE JOB WORK WAS COMPLETED AT AHMEDABAD THE MATERIAL IN SEMI FINISHE D PRODUCT FORM OF SLABS WAS RECEIVED BY SILVASSA UNIT WHERE IT WAS CRUSHED AND GRINDED AND THE SLABS ARE CHANGED TO LUMPS CHIPS A ND POWDER. THE SLAB HAS NO USE FOR ANY CUSTOMER WHEREAS THE LUMPS ARE HAVING CHEMICALLY HIGH CONTENT OF MOLLY AND THEY ARE USED IN STEEL PLANTS WHEREAS CHIPS ARE HAVING LOWER MOLLY AND THEY ARE U SED IN FOUNDRY AND CASTING UNIT. POWDER IS HAVING LOWEST MOLLY CON TENT AND IT IS USED IN ELECTRODE INDUSTRY AND SINTER METALLURGY. 13.5 AS HELD IN THE CASE OF ASPINWALL AND CO. LTD. 251ITR 323 (SC ) MANUFACTURING IMPLIES A COMPLETE TRANSFORMATION IN THE ORIGINAL ARTICLE SO AS TO PRODUCE A COMMERCIALLY DIFFERENT A RTICLE OR COMMODITY ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 25 AND THE NET PRODUCT SHOULD BE ABSOLUTELY DIFFERENT AND SEPARATE FROM THE INPUT .THE CHANGE MADE IN THE ARTICLE RESULT IN A NEW AND DIFFERENT ARTICLE WHICH IS RECOGNIZED IN THE TRADE AS A NEW A ND DISTINCT COMMODITY I.E. THE NAME USE AND CHARACTER OF THE E ND PRODUCT SHOULD BE DIFFERENT. IN THE CASE OF THE APPELLANT THE FINA L PRODUCT IS CALLED FERRO MOLLY MOLLY DI SUPHIDE WHICH HAS BEEN BROUGH T ABOUT BY CHANGES IN THE CHEMICAL COMPOSITION OF THE ORIGINAL COMMODITY I.E. MOLYBDENUM THEREFORE IT IS DEFINITELY A PROCESS O F MANUFACTURING. THE FINAL PRODUCT PRODUCED AT SILVASSA UNIT IS KNOW N IN THE TRADE AS A DISTINCT COMMODITY AND HAS A SEPARATE MARKET. THE A PPELLANT HAS GOT MACHINERIES AT SILVASSA IN THE FORM OF JAW CRUSHER GRINDER AND SIEVING MACHINE . CONSIDERING THESE ASPECTS I HOLD-THAT TH E A.O. WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF DEDUCTION U/S. 80-IB. 13.6 ON THIS ISSUE I FURTHER OBSERVE THAT THE ASSES SING OFFICER HAS MADE REMARKS ABOUT ACCOUNTING OF EXPENSES AT AHMEDA BAD. ON THIS ISSUE IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFOR E THE A.O. AS REQUIRED BY HIM THE APPELLANT HAD FAMISHED 'REVISED WORKING OF ACCOUNTS BY ALLOCATING THE EXPENSES IN THE RATIO OF TURNOVER OF AHMEDABAD UNIT AND SILVASSA UNIT AND ON THAT BASIS WORKED OUT THE NET PROFIT OF BOTH THE UNITS SEPARATELY. IN THIS WO RKING THE APPELLANT HAD ALSO CONSIDERED THE JOB WORK INCOME AS RECEIPTS OF AHMEDABAD UNIT. THIS WORKING WAS AGAIN FINISHED IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME. THE ENTIRE SUBMISSIONS WERE FORWARDED TO THE ASSESSING OFFICER FOR REMAND REPORT ALSO. HOWEVER ON THIS ISSUE THE REPORT OF THE AO IS SILENT. I HAVE GONE THROUGH-THE WORKING. THE REALLOCATION MADE BY THE APPELLANT IS FOUND TO BE R EASONABLE PARTICULARLY WHEN IT HAS BEEN MADE ON THE BASIS OF TURNOVER OF BOTH THE UNITS. THE SAID WORKING IS THEREFORE ACCEPTED AND ON PROFIT DETERMINED1 ON THE BASIS OF THE SAID REALLOCATION THE A.O. IS DIRECTED TO GRANT-DEDUCTION U/S.80-IB IN RESPECT OF THE PROF IT OF SILVASSA UNIT. 9.2 THE GIST OF REASONING GIVEN BY THE LEARNED CIT( A) IS THAT - (I) AHMEDABAD UNIT ONLY PRODUCES THE SEMI FINISHED PRODUCT IN THE FORM OF SLABS OF FMA; SILVASSA UNIT MANUFACTURE S THE END PRODUCT. THUS ONLY ONE PART OF PROCESS IS CARR IED OUT AT AHMEDABAD. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 26 (II) THE ASSESSEE HAS MORE THAN 10 EMPLOYEES WHICH HAS BEEN VERIFIED BY HIM. (III) NEW MACHINERIES WERE PURCHASED AT SILVASSA. I T IS NOT MATERIAL THAT THEY WERE PURCHASED AT AHMEDABAD AND SENT TO SILVASSA. THESE MACHINERIES ARE JAW CRUSHER VIBRO SCREEN DOUBLE CONE CRUSHER GRINDER GENSET AND LAB EQUIPM ENT. (IV) THE RECEIPT OF RAW MATERIAL IS ENTERED INTO EX CISE REGISTER AT SILVASSA. THEY ARE DISPATCHED FOR JOB WORK TO AHMEDABAD WHERE THEY ARE MELTED AND FORMED INTO SLA BS. (V) FROM AHMEDABAD THE SLABS ARE TRANSPORTED TO SIL VASSA WHERE THEY ARE CRUSHED GRINDED AND SIEVED TO MAKE LUMPS CHIPS AND POWDER. EACH OF THEM CONTAIN DIFFERENT PERCENTAGE OF MOLYBDENUM AND ARE ACCORDINGLY USED B Y DIFFERENT INDUSTRIES. (VI) THERE IS A CHANGE MADE IN THE ARTICLE WHICH RE SULTED INTO A NEW AND DIFFERENT ARTICLE RECOGNIZED IN TRADE AS DI STINCT COMMODITY. (VII) ALL THE THREE ITEMS HAVE DIFFERENT CHEMICAL C OMPOSITION OF IRON AND MOLYBDENUM AND ALL OF THEM HAVE DIFFERENT MARKET USE. (VIII) THE JOB WORK DONE AT AHMEDABAD RESULTED IN I NCOME AT AHMEDABAD UNIT WHICH IS SO ACCOUNTED FOR BY THE AHMEDABAD UNIT. (IX) REALLOCATION OF EXPENSES BY THE ASSESSEE COMPA NY BETWEEN SILVASSA UNIT AND AHMEDABAD UNIT ARE REASONABLE WHI CH ARE MADE ON THE BASIS OF TURNOVER OF BOTH THE UNITS . 10. BEFORE US THE LEARNED DR IN GENERAL RELIED ON THE ORDER OF THE AO AND THE FINDINGS GIVEN IN SURVEY PROCEEDINGS AND STATEMENTS OF VARIOUS PERSONS RECORDED BY HIM DURIN G THE COURSE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 27 OF SURVEY. IN BRIEF THE LEARNED DR SUBMITTED THE F OLLOWING ARGUMENTS:- [1] THE ENTIRE PRODUCTION AS SUCH OF FMA WAS MADE A T AHMEDABAD BUT NO PROFIT IS SHOWN AT AHMEDABAD. AS E NTIRE PRODUCTION IS SHOWN AT SILVASSA UNIT IT SHOWS THE INTENTION OF THE ASSESSEE TO TRANSFER ENTIRE PROFITS TO SILVASSA UNIT FOR CLAIMING THE DEDUCTION U/S 80IB OF THE ACT. THUS T HERE IS DIVERSION OF PROFITS FROM AHMEDABAD UNIT TO SILVASS A UNIT. IN FACT SILVASSA UNIT IS A DISGUISE TO TAKE AN UNDUE BENEFIT UNDER THE ACT. AS SILVASSA SITUATED IN A BACKWARD AREA AS PER VIIITH SCHEDULE IT HAS ENABLED THE ASSESSEE TO CLAIM SUCH DEDUCTION. THE INTENTION OF THE ASSESSEE IS FURTHER CLEAR FROM THE FACT THAT WHEN THE DEDUCTION AVAILABLE TO SILVASSA UNIT WAS R EDUCED TO 30% THEN IT OPENED ANOTHER UNIT AT DAMAN. SALARIES OF THE IMPORTANT PERSONS ARE DRAWN FROM AHMEDABAD UNIT. TH ERE IS NO EVIDENCE WITH THE LEARNED CIT(A) IN SUPPORT OF HIS FINDINGS. [2] WHETHER IT IS SLAB CHIPS POWDER OR LUMP THEY ARE ALL FERRO MOLYBDENUM ALLOY AND THERE IS NO DIFFERENCE IN COMP OSITION EXCEPT CHANGE IN PHYSICAL SIZES. THIS WILL NOT AMOU NT TO MANUFACTURING. [3] NO TESTING IS DONE AT SILVASSA UNIT AS THERE IS NO CONTEMPORARY RECORD SHOWING WHAT TESTING HAS BEEN D ONE. THERE IS NO EVIDENCE OF ANY PURCHASE OF CHEMICAL REQUIRED FOR ANALYSIS OR RECORD OF SUCH ANALYSIS IF ANY CARRIED OUT AT SILVASSA. [4] AT SILVASSA IT IS ONLY THE SIZE OF FMA THAT IS CHANGED AND NOT THE COMPOSITION. IN AN INDUSTRY WHERE FMA IS US ED IT IS IN FACT THE MOLYBDENUM WHICH IS REQUIRED AND CONTENTS OF IRON IS OF NO USE. DIFFERENT INDUSTRIES REQUIRE DIFFERENT SIZE OF MOLYBDENUM THEREFORE THEY ARE GRINDED CRUSHED AN D SIEVED TO SEPARATE THEM INTO LUMPS CHIPS AND POWDER. THE FIN AL PRODUCT WHICH IS SOLD BY THE ASSESSEE IS NOT A DISTINCT COM MODITY THAN WHAT IS RECEIVED BY IT FROM AHMEDABAD UNIT IN THE F ORM OF SLABS. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 28 [5] THE STATEMENTS OF VARIOUS PERSONS AS REFERRED T O BY THE AO IN HIS ORDER AND RECORDED DURING THE COURSE OF SURV EY AND IN POST-SURVEY INQUIRIES CLEARLY INDICATED THAT NO MAN UFACTURING PROCESS WAS CARRIED OUT AT SILVASSA AND IT WAS ONLY THE GRINDING CRUSHING AND SIZING IS DONE TO MAKE THE FMA IN DIFF ERENT SIZES. THUS NONE OF THE ACTIVITIES CARRIED OUT AT SILVASS A UNIT CAN BE TERMED EITHER AS MANUFACTURE OR PRODUCTION AS PER T HE REQUIREMENTS OF SECTION 80IB OF THE ACT. [6] THE IRON SCRAP IS PURCHASED DIRECTLY BY AHMEDAB AD UNIT. IT IS ONLY A CLAIM THAT IRON SCRAP IS NEEDED FOR THE P RODUCTION OF THE MAIN PRODUCT I.E. FMA AND IS ONE OF THE INGREDIENTS REQUIRED FOR THE PILOT PROCESS WHICH DETERMINES THE PRODUCT MIX WHICH IS COMMUNICATED IN THE JOB ORDER TO THE AHMEDABAD UNIT . [7] THE ASSESSEE HAD NOT EXPLAINED HOW PILOT PROCES S IS CARRIED OUT AT SILVASSA IN THE ABSENCE OF IRON SCRAP. [8] CLOSING STOCK OF THE SILVASSA UNIT DOES NOT REF LECT ANY CHEMICAL WHICH COULD HAVE BEEN USED FOR TESTING OF RAW MATERIAL. [9] THE UNLOADING AND SAMPLING OF EACH BATCH OF RAW MATERIAL AND RELOADING FOR DISPATCH TO AHMEDABAD WOULD REQUI RE LOADING AND UNLOADING CHARGES BUT NO SUCH CHARGES ARE DEBIT ED IN THE SILVASSA UNIT. [10] ALL THOSE PERSONS WHOSE STATEMENTS WERE RECORD ED DURING THE SURVEY HAVE RETRACTED THEIR STATEMENTS AFTER LO NG GAP OF TIME ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 29 AND SUCH RETRACTION AFTER LONG GAP OF TIME IS NOTHI NG BUT AN AFTER- THOUGHT. FOR THIS PROPOSITION THE LEARNED DR RELIE D ON THE JUDGMENTS REFERRED TO BY AO IN HIS ORDER. 10.1 IN SUPPORT OF HIS CONTENTION THAT WHAT THE ASS ESSEE DOES AT SILVASSA UNIT IS NEITHER MANUFACTURE NOR PRODUCTION THE LEARNED DR REFERRED TO THE FOLLOWING JUDGMENTS:- (A) CIT VS. GOMATESH GRANITES (246 ITR 737 (MAD) - WHEREIN THE HON'BLE MADRAS HIGH COURT HELD THAT EXTRACTION OF G RANITE FROM HILLS BLASTING THE SAME INTO GRANITE BLOCK INVOLVE S ONLY A PROCESS OF CUTTING OR REMOVING PART OF LARGER MASS IT IS NOT AN ACTIVITY WHICH CAN PROPERLY BE REGARDED AS MANUFACT URE OR PRODUCTION. (B) CIT VS. NATRAJ PROCESSING INDUSTRIES (203 ITR 8 33 (PAT)- WHEREIN THE HON'BLE PATNA HIGH COURT HELD THAT CALE NDARING_OF GREY CLOTH IS ONLY A PROCESS TO GIVE A TEMPORARY FI NISH BY PRESSING THE FABRIC FOR MAKING IT MARKETABLE WITHOU T BRINGING ANY LASTING CHANGE AND THE SAME DOES NOT AMOUNT TO MANUFACTURING. (C) CIT VS. HINDUSTAN METAL REFINING WORKS (P) LTD (128 ITR 472(CAL)- WHEREIN THE CALCUTTA HIGH COURT HELD THAT THE GALVANIZING WORK OF COATING IRON OR STEEL WITH ZIN C TO PREVENT RUST DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION O F NEW GOODS. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 30 (D) V. M. SALGAOCAR BROS.(P) LTD. VS. CIT(217 ITR 8 49 (KAR)- WHEREIN THE HON'BLE KARNATAKA HIGH COURT HELD THAT WASHING THE IMPURITIES FROM IRON ORE AND SIZING THE SAME IS NOT MANUFACTURING OR PRODUCTION. (E) CIT VS. LUCKY MINERAL PVT. LT. (226 ITR 245(RAJ ) - WHEREIN THE HON. RAJASTHAN HIGH COURT HELD THAT MINING OF L IMESTONE AND MARBLE BLOCKS AND CUTTING AND SIZING OF THE SAM E DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION AS THE MARBLE S TONE RETAINS A CONTINUING SUBSTANTIAL IDENTITY. THE SAID DECISION OF HON'BLE RAJASTHAN HIGH COURT STANDS CONFIRMED BY TH E HON'BLE SUPREME COURT IN THE CASE OF LUCY MINMAT (P) LTD VS . CIT AS REPORTED IN 245 ITR 830 (SC). (F) CIT VS. PREMIER GENERAL TRADERS (P) LTD(242 ITR 654(BOM)- WHEREIN THE HON. BOMBAY HIGH COURT HAS HELD THAT GR INDING OF SOAP STONES AND MINERALS CANNOT BE REGARDED AS MANU FACTURE OF ARTICLE OR THING. (G) CIT VS. COMPUTER GRAPHICS LTD(285 ITR 84 (MAD)- WHEREIN THE HON. MADRAS HIGH COURT HAS HELD THAT CUTTING OF JUMBO ROLLS OF GRAPHIC COLOUR PAPER INTO MARKETABLE SIZE BY THE PROCESS OF SLITTING NEITHER AMOUNTS TO MANUFACTURE NOR PRODUCTION. (H) CIT VS. SRI MEENAKSHI ASPHALTS (266 ITR 626(MAD ) - WHEREIN THE HON. MADRAS HIGH COURT HAS HELD THAT HEATING OF THE SCRAP BITUMEN IN ORDER TO OBTAIN SOLID BITUMEN DOES NOT A MOUNT TO MANUFACTURE OR PRODUCTION AS NO NEW PRODUCT EMERGED FROM THE PROCESS AND THE BITUMEN CONTINUES TO BE BITUMEN WIT H LESSER QUANTITY OF OIL AND MOISTURE. (I) CIT VS. SACS EAGLES CHICORY (241 ITR 319(MAD) - WHEREIN THE HON. MADRAS HIGH COURT HAS HELD THAT PREPARATION OF CHICORY POWDER FROM THE CHICORY DOES NOT AMOUNT TO MANUFACT URE OR PRODUCTION AS THERE IS NO ESSENTIAL DIFFERENCES BET WEEN THE IDENTITY OF THE ORIGINAL COMMODITY AND THAT OF PROC ESSED ARTICLE. THE ABOVE SAID DECISION OF THE HON'BLE MADRAS HIGH COURT ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 31 STANDS CONFIRMED BY THE HONBLE SUPREME COURT IN TH E SAME CASE REPORTED IN 255 ITR 178 (SC). (J) CIT VS. MADURAI PANDIAN ENGINEERING CORPORATION LTD (239 ITR 375 (MAD)- WHEREIN THE HON'BLE MADRAS HIGH COUR T HELD THAT BUSINESS OF TYRE RETREADING DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION AS NO NEW ARTICLE COMES INTO EXISTENC E. THE ABOVE SAID DECISION OF THE HONBLE MADRAS HIGH COURT STA NDS CONFIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF TAMALNADU STATE TRANSPORT CORPORATION LTD. VS. CIT REPORTED IN 252 ITR 883 (SC). 11. AGAINST THIS THE LEARNED AR FOR THE ASSESSEE H AS MADE ELABORATE ARGUMENTS WHICH ARE SUMMARIZED AS UNDER:- [A] RAW MATERIAL I.E. MOLYBDENUM ORE IS IMPORTED. I T IS RECEIVED AT MUMBAI PORT WHICH IS BROUGHT TO SILVASS A. THE CHEMICAL TESTING IS CARRIED OUT AT SILVASSA FOR DET ERMINING THE RATIO IN WHICH OTHER MATERIAL IS TO BE MELTED A LONG WITH ORE SO PURCHASED SO AS TO OBTAIN FINAL PRODUCT. ON THE BASIS OF TESTING INSTRUCTIONS ARE TO SENT TO AHMEDABAD U NIT ALONG WITH THE RAW MATERIAL. [B] MELTING ACTIVITIES ARE PROHIBITED AT SILVASSA B ECAUSE THEY CREATE HEAT AT A HIGH TEMPERATURE OF 1800 DEGREE CE L. IT HAS BEEN SO GIVEN IN WRITING BY THE POLLUTION DEPARTMEN T OF UNION TERRITORIES OF DADRA & NH. THEREFORE MELTING PROCESS IS CARRIED OUT AT AHMEDABAD. [C] ONLY THE PERMISSION GRANTED FOR SILVASSA UNIT I S FOR BREAKING CRUSHING AND SIZING OF SLABS ONLY. [D] AFTER MELTING AT AHMEDABAD UNIT THE SLABS ARE SENT TO SILVASSA WHERE THEY ARE BROKEN CRUSHED GRINDED AN D SIEVED. [E] WHEN MELTED IN SLABS FMA IS NEVER HOMOGENEOUS AND CHEMICALLY IT VARIES AT DIFFERENT HEIGHT OF THE SLA BS. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 32 [F] THE MATERIAL IS SORTED ANALYZED PACKED AND SU PPLIED TO THE INDUSTRIES AS PER CUSTOMERS SPECIFICATIONS. DIFFER ENT CUSTOMERS REQUIRE MATERIAL WITH DIFFERENT PERCENTAG E OF IRON AND MOLYBDENUM. STEEL COMPANIES REQUIRE LUMPS OF PARTICULAR SIZE. THE CASTING UNITS REQUIRE CHIPS AN D ELECTRODE INDUSTRIES REQUIRE POWDER OF DIFFERENT ME SH SIZES. [G] THUS MANUFACTURING ACTIVITY DONE IS AT SILVASS A AND ONLY JOB WORK IS DONE AT AHMEDABAD. [H] SILVASSA UNIT HAS A FULL FLEDGED LABORATORY AND CHEMIST IS APPOINTED TO TAKE CARE OF THE DIFFERENT MATERIAL AN D TESTING THE PROPORTION REQUIRED OF COMPONENTS.TESTING OF DI FFERENT MATERIAL SUCH AS FERRO SILICON ALUMINIUM POWDER N AIL CLIPPING SCRAP ETC. IS CARRIED OUT. [I] AFTER GRINDING CRUSHING AND SIEVING AT SILVASS A LAB TESTING WEIGHING AND PACKING IS ALSO DONE. THIS PR OCESS STARTS AT SILVASSA AND COMPLETED AT SILVASSA. [J] SEPARATE BOOKS ARE KEPT FOR AHMEDABAD AND SILVA SSA UNITS. THERE IS COMPLETE RECORD OF ACCOUNTS AT SILVASSA UN IT INDEPENDENT OF AHMEDABAD. [K] WHEN MOLYBDENUM ORE IS IMPORTED BY SILVASSA UNI T CUSTOM DOCUMENTS ARE IN THE NAME OF SILVASSA UNIT. THE INVOICES ARE ALSO IN THE NAME OF SILVASSA UNIT. [L] THE TRUCKS TRANSPORT THE MATERIAL FROM PORTS EN TERED INTO JURISDICTIONAL AREA OF DADRA & NH. ENTRY TAX CHARGE S ARE PAID AT SILVASSA. [M] THE RECEIPT OF MATERIAL IS ENTERED INTO THE EXC ISE RECORD I.E. FORM RG 23A PART 1. WHEN MATERIAL IS SENT FROM SILVASSA TO AHMEDABAD JOB WORK INSTRUCTIONS ARE SE NT. THEY ARE ALSO ENTERED INTO RG 23A. ENTRY FOR CUSTOM DUTY ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 33 IS MADE FOR WHICH THE ASSESSEE GETS MODVAT CREDIT. THESE RECORDS ARE KEPT AT SILVASSA. [N] LAB REPORTS OF RAW MATERIAL TESTING IS SENT TO AHMEDABAD ALONG WITH THE RAW MATERIAL AND THEY ARE RECORDED I N THE RELEVANT REGISTERS. [O] AFTER JOB WORK IS DONE AT AHMEDABAD BY MELTING MOLYBDENUM ORE AS PER INSTRUCTIONS ISSUED BY SILVAS SA UNIT THEN SLABS ARE FORMED WHICH ARE TRANSPORTED B ACK TO SILVASSA UNIT. RELEVANT ENTRIES ARE MADE IN THE DIS PATCH AND RECEIPT REGISTERS. [P] WHEN THE IRON AND MOLYBDENUM IS MELTED AT HIGHE R TEMPERATURE IT GET MIXED IN DIFFERENT PROPORTION A T DIFFERENT LEVEL I.E. DIFFERENT PERCENTAGE OF IRON AND MOLYBDENUM IS MIXED AT DIFFERENT HEIGHT OF THE SLAB SO IT IS NOT A CASE THAT UNIFORM PROPORTION OF IRON AND MOLY BDENUM IS FOUND IN THE SLABS. WHEN FMA SLAB IS CRUSHED AND GRINDED IT RESULTS INTO LUMPS CHIPS AND POWDER. S LAB AS SUCH IS NOT SALEABLE OR USABLE BY ANY INDUSTRY IN T HEIR PRODUCTION PROCESS. DURING CRUSHING OF ALLOYS OF TH ESE TWO METALS DIFFERENT PRODUCT ITEM HAVING DIFFERENT STR ENGTH AND CHEMISTRY IS PRODUCED. THE CHEMISTRY OF LUMP IS DIF FERENT FROM CHIPS GRANULES OR POWDER. THEY HAVE DIFFERENT STRENGTH AND DIFFERENT CHEMICAL EFFECT. EVEN THOUGH ALL OF THEM CONTAIN IRON AND MOLYBDENUM BUT DUE TO VARYING PROPORTION OF THESE TWO METALS IN DIFFERENT SIZES THE EFFECT THEY WOULD CREATE IN THE MANUFACTURING PROCESS CARR IED OUT BY THE CLIENTS WOULD BE DIFFERENT. THUS LUMPS GRA NULES OR POWDER ARE CHEMICALLY TESTED TO SUIT THE CUSTOMERS AND TO UNDERSTAND MOLYBDENUM CONTAINED IN THE MATERIAL. [Q] IT IS INCORRECT ON THE PART OF THE AO AND THE L EARNED DR THAT THE NEW MACHINERIES WERE NOT PURCHASED AT SILVASSA. THE LEARNED AR REFERRED TO COPY OF TRANSPORT RECEIPTS A ND PURCHASE VOUCHERS. THE CLAIM OF THE AO THAT THERE WERE (7) SEVEN WORKERS AND NOT (10) TEN OR MORE IS INCORREC T BECAUSE THE AO HAS IGNORED TO COUNT PRODUCTION CHEM IST ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 34 PRODUCTION SUPERVISOR AND PRODUCTION MANAGER WHO SH OULD ALSO BE COUNTED AS WORKERS. IN ADDITION TO THIS CA SUAL WORKERS WERE ALSO EMPLOYED. ALL THESE WORKERS ARE E LIGIBLE FOR PF BENEFITS AND DETAILS THEREOF WERE FURNISHED TO THE LEARNED CIT(A). [P] THERE IS NO INTENTION TO SHOW LOSS AT AHMEDABAD UNIT AND HIGHER PROFIT AT SILVASSA UNIT. THE ALLOCATION OF E XPENSES HAS BEEN DONE ON THE BASIS OF TURNOVER WHICH HAS BE EN FOUND BY THE LEARNED CIT(A). 11.1 REGARDING THE EXISTENCE OF LABORATORY THE LEA RNED AR SUBMITTED THAT THE ASSESSEE HAD FULL FLEDGED LABORA TORY FOR ITS TESTING. NECESSARY PROOF IN THE FORM OF L.R. OF TRA NSPORTATION OF EQUIPMENT WERE FILED IN APPELLATE PROCEEDINGS. ONE CHEMIST WAS EMPLOYED FULL TIME. VERY FEW MATERIAL IS REQUIRED F OR TESTING. FURTHER SURVEY WAS CARRIED OUT AT A TIME WHEN SILV ASSA UNIT WAS NOT FUNCTIONING AT FULL GEAR. THE FINDING DURING TH E COURSE OF SURVEY ON THE BASIS OF STATEMENTS RECORDED OF EMPLO YEES WILL NOT BE APPLICABLE TO THE ASSESSMENT YEAR RELATING TO TH E FY 2004-05 AND EARLIER AS SURVEY WAS ONLY CARRIED OUT ON 17-01 -2006. THE FUNCTIONING OF SILVASSA UNIT HAD TO BE STOPPED BECA USE FACTORY BUILDING WAS TO BE DEMOLISHED DUE TO WIDENING OF RO ADS CARRIED OUT BY THE ADMINISTRATIVE AUTHORITIES OF SILVASSA. ALL THE EXCISE DUTY RELATING TO MANUFACTURING OF PRODUCT IS PAID A T SILVASSA AS EVIDENT FROM THE EXCISE RECORDS OF THAT PLACE. OCTR OI IS ALSO PAID ON RAW MATERIAL. THE LEARNED AR SUBMITTED THAT THE ONLY MACHINERY REQUIRED FOR MANUFACTURING AT SILVASSA AR E JAW CRUSHER GRINDER AND SIEVING MACHINE. FOR MELTING P URPOSE NO SPECIFIC MACHINE IS REQUIRED. IT CANNOT BE DONE IN SANDPIT AND ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 35 THERE IS NO NEED OF ANY MACHINERY AS PRESUMED BY TH E AO. THE REQUIRED MACHINERIES AND PLANT SUCH AS JAW CRUSHER GRINDER SIEVING MACHINE WERE PRESENT AT SILVASSA AS VERIFIE D BY THE AO DURING THE SURVEY. 11.2 REGARDING THE COMMENTS OF THE AO THAT THERE WE RE NO BOILER FURNACE OR EXHAUST PIPES THE LEARNED AR SU BMITTED THAT THE PROCESS OF MELTING IN ASSESSEES CASE IS CARRIE D OUT IN THE OPEN SANDPIT AS VAPOURS GENERALLY GETS EVAPORATED I N OPEN AIR. 11.3 THE STATEMENTS RECORDED BY THE AO OF THE PERSO NS AVAILABLE AT THE TIME OF SURVEY DID NOT LEAD TO ANY POSITIVE INFERENCE ON EITHER SIDE. WHATEVER THEY HAVE STATED IS BROADLY T HE PROCESS CARRIED OUT AT SILVASSA AND AHMEDABAD UNITS. THE IN FERENCE DRAWN BY THE AO THAT NO MANUFACTURING ACTIVITY IS C ARRIED OUT AT SILVASSA IS HIS OWN INFERENCE. IT IS NOT PROPER TO DRAW LEGAL INFERENCE FROM THE STATEMENTS OF THE EMPLOYEES OF T HE COMPANY. WHAT IS BEING DONE AT SILVASSA HAS BEEN STATED BY T HEM. WHAT THEY STATED IS A PART OF MANUFACTURING PROCESS. TH E OTHER PART OF PROCESS I.E. CRUSHING GRINDING AND SIEVING SHOULD BE CONSIDERED TOGETHER WITH THE LABORATORY TESTING OF RAW MATERIA L CARRIED OUT AT SILVASSA BEFORE DISPATCHING OF SUCH RAW MATERIAL TO AHMEDABAD UNIT FOR MANUFACTURING AND MELTING. 11.4 ON REPEATEDLY ASKED FROM THE BENCH TO SHOW THE PRIMARY RECORD OF LABORATORY TESTING THE LEARNED AR ONLY R EFERRED TO CERTIFICATE SENT TO VARIOUS BUYERS AS TO THE CONTEN TS OF MOLYBDENUM SOLD TO THEM IN THE FORM OF LUMPS GRANU LES OR ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 36 POWDER BUT HE COULD NOT PRODUCE OR SHOW ANY REGISTE R IN WHICH RECORD OF SUCH TESTING IS MADE HAVING THE SIGNATURE OF THE PERSON WHO HAS TESTED THE MATERIAL AND ALSO THE RESULTS OF SUCH TESTING. 11.5 THE CERTIFICATES DID NOT INDICATE AS TO WHERE SUCH TESTING WAS CARRIED OUT. IT WAS ALSO NOT EXPLAINED HOW THE PROPORTION OF MOLYBDENUM OR IRON IN A PARTICULAR SAMPLE WAS FOUND . IF MELTING IS REQUIRED TO BE CARRIED OUT EVEN FOR TESTING THEN HOW THE HIGH TEMPERATURE FOR SUCH MELTING WAS ACHIEVED AND WHAT WERE THE INSTRUMENTS WHICH DETERMINE THE PERCENTAGE OF MOLYB DENUM / IRON IN A SAMPLE. 11.6 (I) THE LEARNED AR REFERRED TO VARIOUS DOCUMEN TS FROM HIS PAPER BOOK. PAGE 350 WAS A LETTER FROM ADMINISTRATI ON OF DADRA AND NAGAR HAVELI U.T. (DEPARTMENT OF INDUSTRY) DI STRICT INDUSTRIES CENTRE REGARDING RENEWAL OF PMP SSI REGI STRATION. IT INDICATED THAT THE ASSESSEE WILL MANUFACTURE FERRO MOLYBDENUM MOLYBDENUM DI SULPHIDE (BY CRUSHING AND GRINDING ONLY). (II) PAGE 603 IS A LETTER DATED 28-08-2006 FROM TH E OFFICE OF THE POLLUTION CONTROL COMMITTEE SILVASSA WHICH IND ICATED THAT MELTING ACTIVITY IS NOT PERMITTED IN SILVASSA AS PER ADMINISTRATION NOTIFICATION DATED 03-05-1999. FURTH ER PRIMARY METALLURGICAL PROCESS IS CATEGORIZED UNDER RED / BANNED CATEGORY. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 37 (III) PAGE 354 IS THE REGISTRATION CERTIFICATE FROM SUPERITENDENT CENTRAL EXCISE REGISTERING THE ASSESSEE UNDER CENTR AL EXCISE ACT. (IV) PAGE 355 SHOWS THAT THE ASSESSEE IS REGISTERED WITH THE CENTRAL EXCISE AS MANUFACTURER AT SILVASSA. (V) PAGE 356 IS THE CERTIFICATE OF EXEMPTION FROM S ALES-TAX WHICH PROVIDES EXEMPTION FROM PAYMENT OF CENTRAL SA LES- TAX IN RESPECT OF GOODS MANUFACTURED PROCESSED AS SEMBLED IN THE UNION TERRITORY OF DADRA AND NAGAR HAVELI. I T PROVIDED SUCH MANUFACTURING BY CRUSHING AND GRINDIN G ONLY. (VI) PAGE 357 IS AGAIN A CERTIFICATE OF REGISTRATIO N UNDER THE CENTRAL SALES-TAX ACT WHICH PROVIDED MANUFACTURING THROUGH CRUSHING AND GRINDING. (VII) PAGE 358 IS THE CERTIFICATE OF REGISTRATION I N THE UNION OF TERRITORY OF DADRA AND NAGAR HAVELI AS A DEALER TRE ATING THE ASSESSEE AS A MANUFACTURER THROUGH CRUSHING AND GRI NDING ONLY. (VIII) PATE 363 IS THE CERTIFICATE FROM THE POLLUTI ON CONTROL COMMITTEE DIRECTING THE ASSESSEE NOT TO CARRY OUT P RIMARY METALLURGICAL PROCESS AND MANUFACTURE FERRO ALLOYS AND NOT PERMITTED TO FUSING OF BLENDED FERRO ALLOYS IN THE SAME ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 38 PREMISES. IT ALSO PROVIDED THAT THE ASSESSEE CAN DO SUCH MANUFACTURING BY CRUSHING AND GRINDING ONLY. (IX) PATE 365 IS THE CERTIFICATE OF THE NATIONAL SM ALL INDUSTRIES CORPORATION LIMITED WHERE ALSO THE ASSESSEE IS SHOW N DEALING IN FERRO MOLYBDENUM. (X) PAGE 367 IS A LICENCE TO WORK AS A FACTORY WHIC H INDICATES THAT THE FACTORY IS ENGAGED IN THE MANUFACTURING OF FERRO ALLOYS AND MOLYBDENUM DI SULPHIDE. (XI) PAGE 402 IS A LETTER FROM MUKAND LTD. - THE C USTOMER OF THE ASSESSEE WRITTEN TO MR. ADARSH JHAVERI [DATE NO T KNOWN] INDICATING THAT THE LUMPS OF FMA WAS DISPATCHED. A REPRESENTATIVE SAMPLE IS DRAWN FROM THE HEAP OF FER RO MOLYBDENUM OFFERED FOR INSPECTION AND ANALYZED IN LABORATORY BUT WHEN NOT KNOWN. (XII) PAGE 403 IS A JOINT INSPECTION REPORT SHOWING INSPECTION OF DAMAN UNIT AND SAMPLING SIZE CHECKED AND FOUND OK [ PO SIZE 10 TO 100 MM] (XIII) PAGE 404 IS AGAIN A JOINT SAMPLING ANALYSIS REPORT. 11.7 THE LEARNED AR ON THE BASIS OF THE ABOVE ARGUM ENTS SUBMITTED THAT THE ASSESSEE IS HELD AS A MANUFACTUR ER BY VARIOUS STATE GOVERNMENT AUTHORITIES BUT ITS ACTIVITIES ARE RESTRICTED TO GRINDING AND CRUSHING AT SILVASSA. EVEN THESE ACTIV ITIES INCLUDING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 39 LABORATORY TESTING AND GRINDING AND CRUSHING WOULD CONSTITUTE MANUFACTURING HE REFERRED TO THE FOLLOWING JUDGMEN TS:- (I) COMPUTERS GRAPHICS LTD. VS. CIT (2009) 308 ITR 98 (SC) (II) CIT VS. PRABHUDAS KISHORDAS TOBACCO PRODUCTS ( P) LTD. 282 ITR 568 (GUJ) (III) PAUL MATHEW & SONS VS. CIT (2003) 263 ITR 10 1 (KERALA) (IV) CIT VS. S KHADIR KHAN SONS (2008) 300 ITR 157 (MAD) (V) ITO VS. 327 ITR 497 (CHHATISGARH) (VI) 97 ITD 361 (ITAT) (AHD) (VII) 328 ITR 384 (VIII) 107 ITR 195 (IX) 108 ITR 367 (X) LIBERTY INDIA VS. (2009) 317 ITR 218 (SC) (XI) CIT VS. SPORT KING INDIA LTD. (2010) 324 ITR 2 83 (DELHI) (XII) M/S SUBHALACHAL PRINT & PACK VS. ACIT [ITA NO.2128/AHD/2007 ORDER DATED 16-12-2009] 11.8 FOLLOWING JUDGMENTS WERE ALSO REFERRED TO BY L D. AR:- (1) VIJAY SHIP BREAKING LTD. VS. CIT (2008) 314 ITR 309 (SC) (2) M/S KORES INDIA LTD. VS. CIT (2004)-(174)-ELT-0 007-SC (3) INDIA CINE AGENCIES VS. CIT 308 ITR 98 (SC) (4) ITO VS. ARIHANT TILES & MARBLES P. LTD. 320 ITR 79 (SC) (5) CIT VS. BEST CHEM & LIMESTONE INDUSTRIES P. LTD . (1994) 210 ITR 883 (6) LUCKY MINMAT P. LTD. (2000) 245 ITR 830 (SC) (7) D J STONE CRUSHER VS. CIT (2010) 229 CTR 195 (H P) (8) CIT VS. R C CONSTRUCTION (1996) 222 ITR 658 (GA UHATI) (9) CIT VS. S L AGARWALA AND CO. (1992) 197 ITR 239 (ORISSA) (10) COLLECTOR CENTRAL EXCISE VS. THACKER PULVERISI NG CO. RAJKOT (1997) 094 ELT 0359 TRIB. (11) CENTRAL EXCISE ACT 1983 (13) ELT 1192 (CEGAT) NEW DELHI (12) S N SUNDERSON (MINERALS)LTD. VS. SUPERINTENDEN T (PREVENTIVE) C. EXCISE INDORE 1995 (75) ELT 273 (M P) (13) CIT VS. ASP9INWALL & CO.(2001) 251 ITR 0323 SC . (14) V M JOG ENGG. LTD. VS. JT. CIT (2006) 104 TTJ 487 (ITAT PUNE) ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 40 (15) CIT VS. GORDHANBHAI JETHABHAI TOBACCO INDUSTRI ES (2002) 258 ITR 727 (GUJ) (16) PLAY INDIA VS. CIT (2000) 122 ELT 349 (TRIBUNA L) (2005 180 ELT 291 (SC) 11.9 ON THE BASIS OF ABOVE AUTHORITIES THE LEARNED AR EMPHASIZED THE POINT THAT EVEN IF IT IS PRESUMED TH AT THE ASSESSEE IS ONLY DOING CRUSHING GRINDING AND SIEVING THEN STILL IT IS TO BE HELD AS ENGAGED IN MANUFACTURING AND PROCESSING AND THEREFORE THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 80I B OF THE ACT. 12. IN REJOINDER THE LD. DR PRIMARILY SUMMARISED AS TO WHAT HE HAS ARGUED. HE SUBMITTED THAT LEVEL OF THE ACTIVITY IN SILVASSA AND DAMAN ARE AFTER IT RECEIVED SLABS. FURTHER WHAT IS PAID TO AH MEDABAD UNIT FOR CARRYING OUT THE REAL MANUFACTURING I.E. MELTING OF MOLYBDEN UM AND IRON WAS JUST MINIMAL I.E. RS.5 TO 6 PER KG. IT IS LESS THAN 2% O F THE VALUE. IT SHOWS THAT ASSESSEE HAS KEPT ENTIRE PROFIT AT SILVASSA FOR CLA IMING HIGHER DEDUCTION UNDER SECTION 80IB. HE SUBMITTED THAT BY INAPPROPRI ATE ALLOCATION OF EXPENDITURE BY AHMEDABAD UNIT TO SILVASSA UNIT MINI MAL PROFIT IS CREATED AT AHMEDABAD UNIT AND SUBSTANTIAL PROFIT IS CREATED AT SILVASSA UNIT FOR CLAIMING HIGHER DEDUCTION. BY THESE PROCESS ASSESSEE HAS SHO WN LOSS AT AHMEDABAD AND PROFIT OF RS.16 CRORES AT SILVASSA UNIT. THE AO IS BOUND TO ACCEPT THE CERTIFICATES OF REGISTRATION BY OTHER DEPARTMENTS S UCH AS EXCISE SALES-TAX OCTROI. THEY ARE ISSUED PRIOR TO ANY ACTIVITY INITI ATED BY THE ASSESSEE WHEREAS THE AO HAS TO VERIFY AS TO WHAT IS ACTUALLY DONE AT THAT UNIT. FURTHER ANY REGISTRATION WITH SALES-TAX OR EXCISE AUTHORITY DOE S NOT NECESSARILY MEAN THAT IT SHOULD BE ACCEPTED UNDER THE INCOME-TAX ACT THAT ASSESSEE IS DOING MANUFACTURING ACTIVITIES. IT HAS BEEN HELD BY HON. SUPREME COURT IN THE CASE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 41 OF K. RAVINDRANATHAN NAIR (SUPRA) AND LAXMI MACHINE WORKS THAT DEFINITION FROM OTHER ACTS CANNOT BE BORROWED FOR THE PURPOSE OF INCOME-TAX ACT. THE LD. DR REFERRED TO UJAGAR PRINTS VS. UNION OF INDIA & OTHERS (1989) 179 ITR 317 (SC) FOR HIGHLIGHTING THE DEFINITION OF MANUFAC TURE AS PER CENTRAL EXCISE & SALT ACT 1944 WHICH WAS LATER FOLLOWED BY HON. K ERALA HIGH COURT IN CIT VS. KANAM LATEX INDUSTRIES (P) LTD. (1993) 203 ITR 542 (KER) WHEREIN IT IS HELD THAT TO FIND OUT WHETHER THERE IS MANUFA CTURE IS TO FIND OUT WHETHER THE CHANGE OR SERIES OF CHANGES BROUGHT ABOUT BY TH E APPLICATION OF PROCESSES TAKE THE COMMODITY TO POINT WHERE COMMERC IALLY IT CAN NO LONGER BE REGARDED AS ORIGINAL COMMODITY BUT IS INSTEAD R ECOGNIZED AS A DISTINCT AND NEW ARTICLE THAT HAS EMERGED AS A RESULT OF THE PROCESSES. HE THEN REFERRED TO THE DECISION OF HON. KERALA HIGH COURT IN CIT VS. OCEANIC PRODUCTS EXPORTS CO. (1996) 213 ITR 293 (KER) WHERE IN ALSO SIMILAR VIEW ABOUT CONCEPT OF MANUFACTURE WAS PROPOUNDED. NEXT REFERENCE MADE BY THE LD. DR IN THE REJOINDER WAS TWO JUDGMENTS OF HON. K ERALA HIGH COURT IN CIT VS. KANAM LATEX INDUSTRIES (P) LTD. (1996) 221 ITR 1 (KER) AND OF HON. MADRAS HIGH COURT IN CIT VS. SACS EAGLES CHICO RY (2000) 241 ITR 319 (MAD) WHEREIN ALSO SIMILAR VIEW WAS TAKEN THAT AFTER SERIES OF PROCESSES IF ORIGINAL COMMODITY GETS CHANGED TO A NEW AND DIS TINCT ARTICLE THEN A MANUFACTURE CAN BE SAID TO TAKE PLACE. MANUFACTURIN G INVOLVES CONSUMPTION OF ONE OR MORE ARTICLES IN ORDER TO PRODUCE A DIFFE RENT ARTICLE. CONSUMPTION IS NECESSARY IN THE PROCESS OF MANUFACTURE AND THER E CANNOT BE ANY MANUFACTURING WITHOUT CONSUMPTION. HE SUBMITTED THA T WHAT IS DONE AT SILVASSA OR DAMAN WAS MERELY PROCESSING AS PRIOR TO SUCH PROCESSING WHAT THE ASSESSEE HAD WAS SLAB OF FERRO MOLYBDENUM ALLOY (FMA IN SHORT) AND EVEN AFTER PROCESSING I.E. BY CRUSHING GRINDING AN D SIEVING IT IS STILL FMA. THIS MERE PROCESSING IS NOT EQUAL TO MANUFACTURING. THE LD. DR THEN TRIED TO ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 42 DIFFERENTIATE THE AUTHORITIES REFERRED TO BY THE LD . AR HE SUBMITTED THAT CONVERSION OF LIMESTONE BY CRUSHING INTO ROLE OR LI MESTONE CRUSHED COULD BE A PROCESS OF MANUFACTURING BUT THAT WAS CONFINED TO PROVISION OF SECTION 32A AND IT CREATED A NEW PRODUCT BUT IN THE PRESENT CASE PRODUCT BEFORE PROCESSING IS FERRO MOLYBDENUM ALLOY AND AFTER PROC ESSING ALSO IT IS THE SAME. ON THE OTHER HAND THE DECISION OF HON. RAJAS THAN HIGH COURT IN CIT VS. LUCKY MINERAL (P) LTD. (1997) 226 ITR 245 (RAJ) IS MORE NEARER TO THE FACTS OF THE PRESENT CASE. THERE ALSO MARBLE- BOULD ER-WORK INTO SLABS WERE SOLD THE CUTTING OF BOULDER INTO SLABS MIGHT HAVE BEEN WITH THE AID OF MACHINERY BUT THE ORIGINAL COMMODITY RETAINS A CONT INUING SUBSTANTIAL IDENTITY THROUGH THE PROCESSING CARRIED OUT BY THE ASSESSEE COMPANY. IT WAS NOT HELD AS MANUFACTURING FOR THE PURPOSE OF SECTIO N 80 HH. THIS JUDGMENT WAS CONFIRMED BY HON. SUPREME COURT IN LUCKY MINMAT (P) LTD. VS. CIT (2000) 245 ITR 830 ) SC. THUS WHERE FINAL PRODUCT A FTER PROCESSING RETAINS THE SAME CHARACTER AND IDENTITY IT WILL NOT AMOUNT TO MANUFACTURE. THE LD. DR ON THE SIMILAR REASONING SOUGHT TO DIFFERENTIATE THE DECISION OF HON. APEX COURT IN ITO VS. ARIHANT TILES AND MARBLES (P) LTD. (2010) 320 ITR 79 (SC) WHEREIN SLABS WERE CUT INTO RAW MARBLES UN EVEN SHAPES WERE REMOVED RESULTING INTO WASTE MATERIAL SQUARED UP B LOCKS WERE MADE THEY WERE SAWN FOR MAKING SLABS SLABS WERE REINFORCED B Y WAY OF FILLING CRACKS BY EPOXY RESINS THEY WERE POLISHED AND CUT INTO RE QUIRED DIMENSION AND FURTHER THEY WERE BUFFED BY SHINERS. THUS FINAL PRO DUCTS WHICH WERE MARKETED WERE RECOGNIZED DIFFERENTLY COMMERCIALLY AS COMPARED TO RAW MARBLE ROCKS. HON. APEX COURT COULD HOLD THAT WHEN PROCESSING RESULTED INTO DIFFERENT MARKETABLE COMMODITY IT WOULD AMOUNT TO MANUFACTURING BUT WHERE COMMODITY RESULTED INTO SAME COMMODITY AS IN THE PRESENT CASE IT WILL NOT AMOUNT TO MANUFACTURE. THE LD. DR SUBMITTE D THAT THE DOCUMENTS ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 43 REFERRED TO BY THE LD. AR IN THE PAPER BOOK ABOUT A LLEGED LABORATORY TESTING ARE NOT IN FACT DATED AND THEY DO NOT REFLECT AS TO WHETHER SUCH TESTING WAS DONE. FOR CARRYING OUT TESTING ASSESSEE SHOULD PRES ERVE EQUIVALENT SAMPLES OF THE ITEM WHICH WAS TESTED SO THAT IN THE EVENT O F DISPUTE THE PARALLEL SAMPLES COULD BE PRODUCED IN THE COURT OF LAW. WITH OUT THERE BEING THE PARALLEL SAMPLES AVAILABLE AND WITHOUT THERE BEING BASIC REGISTER SHOWING WHAT TESTING HAS BEEN DONE AND HOW IT WAS DONE WHA T PROCESS WAS DEPLOYED WHO HAS DONE IT THEN IN ABSENCE OF SUCH RECORD IT CANNOT BE SAID THAT ASSESSEE HAD CARRIED OUT ANY LABORATORY TESTIN G OF THE MATERIAL. FOR THE SAKE OF ARGUMENT IT IS PRESUMED THAT EVEN IF LABORA TORY TESTING IS CARRIED IT DOES NOT MEAN THAT IT WAS A PART OF MANUFACTURING P ROCESS. IT CAN AT BEST BE PREPARATION FOR MANUFACTURING PROCESS WHICH WAS ONL Y DONE AT AHMEDABAD. THUS ASSESSEE HAD NO CONTEMPORARY RECORD OF ALLEGED LABORATORY TESTING AT SILVASSA. THERE ARE NO DETAILS OF ANY EQUIPMENT WIT H WHICH SUCH TESTING COULD BE DONE THERE IS NO METHOD BY WHICH HIGH TEM PERATURE COULD BE ACHIEVED AT SILVASSA FOR TESTING THE PERCENTAGE OF IRON AND MOLYBDENUM IN ANY SAMPLE. HE SUBMITTED THAT IF RAW MATERIAL OF MO LYBDENUM IS IMPORTED THEN TESTING HAS TO BE DONE AS TO WHAT IS THE PERCE NTAGE OF MOLYBDENUM CONTENT IN THE ORE. NO SUCH CERTIFICATE HAS BEEN PR ODUCED SHOWING MOLYBDENUM CONTENT IN THE ORDER IMPORTED FROM ABROA D. THE QUESTION OF ANY REPORT ASKING TO PRODUCE FMA TO CERTIFY PERCENT AGE OF MOLYBDENUM AND IRON WOULD NOT ARISE. THIS CAN BE ONLY AT THE INSTR UCTION OF THE CLIENTS AS TO WHAT PERCENTAGE OF MOLYBDENUM AND IRON IS REQUIRED IN THE PRODUCT THEY INTEND TO PURCHASE WHICH IS DIRECTLY SENT TO AHMED ABAD UNIT WHERE MANUFACTURING PROCESS OF CONVERTING MOLYBDENUM INTO MOLYBDENUM IRON ALLOY KNOWN AS FMA SLABS IS CARRIED OUT. IN FACT AC CORDING TO THE LD. DR IT IS THE MAIN AND ONLY MANUFACTURING PROCESSING AND WHAT IS DONE AT SILVASSA I.E. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 44 CRUSHING GRINDING AND SIEVING IS NOT MANUFACTURING PROCESS. HE ALSO SUBMITTED THAT IF MELTING OR ANY METALLURGICAL PROC ESS AS PROHIBITED BY THE LOCAL AUTHORITIES AT SILVASSA THEN IT CANNOT BE PR ESUMED THAT ASSESSEE WAS MELTING FMA SAMPLE TO FIND OUT MOLYBDENUM AND IRON CONTENTS THEREIN. FROM THIS THE LD. DR INFERRED THAT IN FACT THERE WA S NO LABORATORY EXISTING AT SILVASSA. HE SUPPORTED HIS CONTENTION WITH THE STAT EMENTS OF VARIOUS PERSONS RECORDED DURING THE COURSE OF SURVEY. 12.1 THE LD. DR ALSO SUBMITTED A NOTE IN SUPPORT OF THIS ARGUMENT WHICH IS REPRODUCED BELOW TO HIGHLIGHT HIS ARGUMENTS. IT MAY PLEASE YOUR THIS IS A TYPICAL CASE IN WHICH THE PROVISIONS OF THE SECTION 80IB ENACTED BY THE PARLIAMENT TO PROMOTE INDUSTRIAL DEVELOPMENT OF BACKWARD AREAS AND TO CREATE EMPLOYMENT IN BACKWARD WERE MISUSED BY CREAT ING A 'MAKE BELIEVE' SET UP AT SILVASA (FROM 1999 TO JULY 2005) AND AT DAMAN {FROM 2004 TILL DATE). 2 ASSESSEE COMPANY ELECTRO FERRO ALLOYS PVT. LTD. AHMEDABAD IS INVOLVED IN MANUFACTURING OF FERRO MOLYBDENUM MOLY BDENUM-DI-SULPHIDE AND FERRO SILICO ZIRCONIUM. APART FROM MANUFACTURIN G COMPANY ALSO TRADES IN ROASTED MOLYBDENUM CONCENTRATE MOLYBDENU M-DI-SULPHIDE COLLOIDAL MO$2 ETC. MANUFACTURING OF FERRO MOLYBDEN UM INVOLVES PUTTING TOGETHER OF CERTAIN QUANTITY OF ROASTED MOLYBDENUM CONCENTRATE AND SCRAP OF IRON AND CERTAIN OTHER MINOR METALS AND IGNITING THEM TO MELT AND MIX IN A VESSEL. THE VESSELS FOR MANUFACTURING OF FEMO ALL OY ARE AVAILABLE AT THE MAIN FACTORY AT AHMEDABAD. IT IS UNDISPUTED FACT TH AT THERE IS NO SUCH VESSEL(S) AT SILVASA OR DAMAN. MOLY DI SULPHIDE IS PRODUCED IN A KILN AT AHMEDABAD FACTORY. IT IS NOT THE CLAIM OF THE ASSES SEE AT ANY STAGE OF THE PROCEEDINGS THAT THESE VESSELS KILNS ARE AVAILABLE AT SILVASA / DAMAN UNITS. 3. THE STAND OF THE ASSESSEE HAD BEEN THAT 'FEMO AL LOY SLAB' MANUFACTURED AT AHMEDABAD IS A SEMI FINISHED PRODUC T WHICH IS INPUT ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 45 MATERIAL TO 1HE SLLVASA/DAMAN UNIT. IN SILVASA/DAM AN UNIT THE FEMO SLAB/CAKE IS BROKEN INTO LUMPS CHIPS AND POWDER US ING JAW CRUSHER AND SIEVES AND DISPATCHED TO CUSTOMERS AS PER REQUIREME NT. IT IS ALSO THE STAND OF THE ASSESSEE THAT RAW MATERIALS ARE PURCHASED IN TH E NAME OF SILVASSA / DAMAN UNIT SAMPLING AND AT SILVASA / DAMAN THE TRI AL BATCHES ARE TESTED AT SILVASA/DAMAN AND RESULTS ARE INTIMATED TO AHMEDABA D FOR JOB WORK OF PRODUCTION OF FEMO FOR WHICH JOB WORK CHARGES OF RS .5/- PER KG. WERE PAID. 4. DEPARTMENTS STAND IS THAT THE ASSESSEE HAS CREATED A 'MAKE UP AT SILVASA / DAMAN BY HIRING SMALL PREMISES TO UTILIZE THE PROVISIONS OF 80IB WHERE AS THE ACTUAL MANUFACTURING AND VALUE ADDITIO N WAS TAKING PLACE AHMEDABOD FACTORY AS IT WAS BEING DONE PRIOR TO FY 1799-2000. 5. A PEEP INTO THE HISTORY SHOWS THAT THE COMPANY W AS SET UP IN AHMEDABAD. EARLIER IT WAS CALLED ELECTRIC CONTROL G EAR PVT LTD. AND THE NAME WAS CHANGED TO ELECTRO FERRO ALLOYS PVT. LTD. IN 1980 TILL 1998-99 THE ENTIRE PROCESS WAS CARRIED OUT AT AHMEDABAD FACTORY IN THE FINANCIAL YEAR 1999-2000 THE COMPANY SET UP A SINGLE SHED UNIT AT SILVASA AND STARTED CLAIMING THAT SOME OF THE PROCESSES OF CRUSHING AND GRINDING OF THE FINAL PRODUCTS IS TAKING PLACE THERE IN SILVASA PARTLY B Y MACHINES (LIKE JAW CRUSHER GRINDER SIEVES) AND PARTLY BY LABOUR. AT THIS POINT IT MAY BE NOTED THAT GRINDING WAS TAKING PLACE AT AHMEDABAD UNIT. 6. COMPANY CLAIMED 80IB(4) DEDUCTION FOR THE FIRST TIME IN 2000-01 AND THE YEAR WISE PROFIT SHOWN AT AHMEDABAD UNIT AND TH E NEW SILVASA UNIT SINCE 1995-96 ARE AS UNDER: A.Y PROFIT OF AHMEDABAD UNIT 80IB CLAIM (SILVASA UNIT) 1995-96 10 10 421 N.A 1996-97 2 72 363 N.A 1997-98 2 66 247 N.A 1998-99 1 30 660 N.A ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 46 1999-2000 NOT READILY AVAILABLE N.A 2000-01 NIL 10 83 126 2001-02 NIL 5 78 841 2002-03 NIL 11 38 060 2003-04 NIL 2 43 23 939 2004-05 NIL 89 66 912 7. IT MAY BE SEEN FROM THE TABLE ABOVE THAT AFTER THE SILVASA / UNIT WAS SET UP IN 1999-2000 ALL THE PROFITS OF THE ALL THE PROCESSES OF THE COMPANY HAVE BEEN SHIFTED OR TRANSFERRED TO TAKE UNDUE ADVA NTAGE OF 801B PROVISIONS WITH MINIMUM ESTABLISHMENTS AT SILVASA/ DAMAN AS AG AINST THE HUGE ESTABLISHMENTS OF AHMEDABAD FACTORY WHICH WAS EARL IER GENERATING ALL THE PROFITS OF THE COMPANY FROM 1966 TILL 1998-99. IT I S NOT THE CASE OF THE ASSESSEE THAT THE AHMEDABAD UNITS ARE CLOSED. FACTO RY AT AHMEDABAD UNIT IS FUNCTIONING AT THE SOME PACE HANDLING ALL THE RAW MATERIAL PUN .LASED AND PRODUCING THE SAME PRODUCT |S] AS IT W AS DOING EARLIER. IT MAY BE NOTED HERE THAT IT IS NOT THE ARGUMENT OF THE AS SESSEE THAT THE ASSESSEE CAN NOT OPEN PARALLEL UNIT BUT IT IS THE VERY ACT OF S HIFTING THE PROFITS OF OLD UNIT TO THE MAKE BELIEVE SMALL AL SILVASA/DAMAN. IN THE CIRCUMSTANCES IT IS BEYOND LOGIC THAT SMALL SINGLE SHED UNITS AT SILVAS A / DAMAN WITH A SMALL 20HP JAW CRUSHER GRINDER HAVE PRODUCED HUGE PROFIT S AGAINST THE ACTUAL MANUFACTURING ACTIVITY THAT HAS BEEN TAKING PLACE A T AHMEDABAD FACTORY. TO FIND OUT THE TRUTH AND COLLECT THE EVIDENCES A S URVEY U/S.133A WAS CONCLUDED ON 17.01 2006. DURING THE SURVEY AT FACTO RY AT AMRAIWADI [AHMEDABAD] BAVLA HEAD OFFICE AND AT DAMAN (SILV ASA UNIT WAS CLOSED ON THE DATE OF SURVEY) EVIDENCES WERE GATHERED STA TEMENTS WERE RECORDED FROM THE PRIMARY PERSONS WHO WERE HANDLING THE FACT ORY AT AHMEDOBAD AND DAMAN AND ALSO THE LABORERS INCLUDING SHRI ADARSH ZAVERI THE DIRECTOR OF THE COMPANY. PHOTOGRAPHS OF DAMAN FACTORY WERE TOKE N. BASED ON THE EVIDENCES COLLECTED STATEMENTS RECORDED AFTER GIV ING OPPORTUNITY ASSESSMENT ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 47 9 DURING THE ASSESSMENTS FOLLOWING I SSUES AROSE AND THE ARGUMENTS OF THE ASSESSEE COMPANY ARE AS UNDER. 1. THERE ARE 10 OR MORE THAN 10 WORKERS AT SLLVAS A / DAMAN UNIT. 2. THERE WAS LAB AT SILVASA / DAMAN WHERE SAMPLING AND TESTING DONE BY LOB TECHNICIAN. BATCH TRIALS WERE MADE FOR EACH IMP ORTED BACK OF RAW MATERIAL AND THE RESULTS OF BATCH TRIAL TESTS WERE INFORMED TO AHMEDABAD UNIT FOR JOB WORK. 3. PURCHASES WERE MADE BY SILVASSA / DAMAN UNITS AND DISPATCHES/SALES WERE ALSO MADE FROM THERE. 4. CRUSHING AND GRINDING OF FEMO SLAB TOOK PLACE AT SI LVASA / DAMAN USING THE JAW CRUSHER GRINDER SIEVES ETC. TO SUIT THE REQUIREMENTS OF CUSTOMERS. 5. FEMO LUMPS CHIPS AND POWDER PRODUCED BY CRUSHIN G AND GRINDING ARE DIFFERENT PRODUCTS IN CHEMICAL COMPOS ITION (VARYING MO PERCENTAGE) AS PER CERTIFICATES PRODUCED AND CRUSHI NG AND GRINDING IS MANUFACTURING. 10. ASSESSES HAS EDUCED VARIOUS EVIDENCES LIKE ESI / PF TIT DETAILS APPOINTMENT OF LOB TECHNICIAN 2 TEST REPORTS ICE FOR PURCHASE OF MACHINERY FOR DAMAN UNIT EVIDENCE FOR PURCHASE OF LAB EQUIPM ENT. IT HAS PRODUCED CERTIFICATES OF FEMO LUMPS CHIPS AND POWDER ARE DI FFERENT USERS AS TO WHAT PERCENTAGE OF MO IS REQUIRED BY THEM IN THE FACTORI ES. 11. ALL THESE EVIDENCES ARE REBUTTABLE BASED ON TH E FACTS ON THE INFORMATION COLLECTED DURING SURVEY AND THE STATEME NTS RECORDED DURING THE SURVEY. THESE HAVE BEEN ARGUED BY THE SR. DR IN DET AIL BRINGING OUT THE FACTS WHICH STAND AGAINST THE ASSESSEE AND DISAPROVE THE CLAIMS OF THE ASSESSEE. THE SAME ARE BRIEFLY MENTIONED UNDER DURING THE SURVEY ONLY '8 H WORKERS WERE FOUND AT DAMAN UNIT STATEMENTS OF THESE '8' WORKERS WERE RECORDED. PHOTOGRAPH OF 8 WORKERS WERE TOKEN WHICH IS SUBMIT TED TO YOUR HONORS. ASSESSES CLAIMS THAT PRODUCTION IN-CHARGE AND LAB T ECHNICIAN WHO IS A M.SC. CHEMISTRY POSTGRADUATE AS WORKER. IT IS SUBMI TTED THAT THE WORD USED ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 48 IN SUB DOUSE [IV] OF SOI&I2J IS 'WORKER'. A WORKER HAS TO BE GIVEN THE MEANING OF 'WORKER AND SUPERVISORY OR TECHNICAL ST AFF CAN NOT BE WORKERS. II ASSESSEE CLAIMED THAT THERE WAS LAB AT SILVASA / DAMAN. SAMPLING OF AND TESTING OF RAW MATERIAL WAS DONE BEFORE IT WAS SENT TO AHMEDABAD. IT IS ALSO ARGUED THAT THE MATERIAL WAS TESTED BEFORE DIS PATCH. THIS ARGUMENT OF EXISTENCE OF LAB IS BASELESS AND N O EVIDENCE WAS FOUND WHICH WILL SUPPORT THE ARGUMENT OF THE ASSESSEE. (1 } ON THE DAY OF SURVEY AT DAMAN PHOTOGRAPHS OF ENTIRE PREMISES WERE TOKEN C OPIES OF WHICH HOVE BEEN SUBMITTED TO YOUR HONORS. THERE IS NO SUCH LAB ROOM LAB PLACE OR TAB EQUIPMENT FOUND AT DO MAN. (2) THE 50 CALLED LAB EQ UIPMENT (MUFFLE FURNACE WEIGHING BALANCE ETC ) WERE NOT FOUND AT D AMAN. (3) LAB REQUIRES CERTAIN CHEMICALS LIKE HCI. WHICH WERE NOT FOUND AT DAMAN. (4} ALL THE AVAILABLE STOCK WAS TOKEN WHICH IS SUBMITTED IN DE PORTMENT PAPER BOOK IT MAY BE SEEN THAT THERE WAS NO CLOSING STOCK OF ANY CHEMICAL FOUND. WHEN MATERIALS RECEIVED ON REGULAR BASIS AND MATERIALS A RE DISPATCHED ON REGULAR BASIS THERE SHOULD BE SOME STOCK OF CHEMICALS AT T HE PLACE.(5) ADVERTISEMENT AND BIO-DATA OF LAB TECHNICIAN (SUBMI TTED BY ASSESSEE IN PAPER BOOK) DOES NOT PROVE ACTUAL EXISTENCE OF LAB AND CONDUCTING OF TESTS IN THE FACE OF FACTS FOUND. (6) SHRI ADARSH ZAVERI WHO IS DIRECTOR OVERALL IN- CHARGE OF OPERATIONS STATED THAT HE DOES NOT KNOW W HETHER MATERIAL IS UNLOADED AND LOADED AT SILVASA/DAMAN HOW SAMPLES A RE TAKEN (STATEMENT Q.15). (7) MOST IMPORTANTLY QUALITY CONTROL LAB RE QUIRES CERTAIN RECORDS TO BE MAINTAINED. DURING SURVEY (I) NO SAMPLING REGIST ER FOUND (II) NO LOG BOOK OF TESTS AND TEST RESULTS FOUND (III) NO COPI ES TEST REPORT WHICH WERE ALLEGEDLY SENT WITH EACH BATCH WERE FOUND AT DAMAN OR AT AHMEDABAD FACTORY OR AT THE HEAD OFFICE. TWO OR THREE REPORTS ENCLOSED IN PAPER BOOK BY ASSESSEE DO NOT PROVE THE TESTING OF EACH BATCH FOR HUGE TURNOVER OF THE ASSESSEE FOR SO MANY YEARS ESPECIALLY IN VIEW OF T HE FACT THAT NO SUCH REGISTER REPORTS WERE FOUND AT THE TIME OF SURVEY (8) ASSESSEE PURCHASES ROASTED MOLYBDENUM CONCENTRATE FROM PRODUCERS. EA CH SUCH INVOICE ALSO CONTAINS THE PERCENTAGE OF MOLYBDENUM AS CAN BE SEE N FROM ONE OF THE INVOICES FOUND IN ASSESSEES PAPER BOOK AT PAGE 482 . IF PERCENTAGE OF MO IS PROVIDED BY THE WORLD PREMIER SUPPLIERS THERE IS N O NEED TO HAVE A LAB AND TEST THE MATERIALS. THAT IS THE REASON AS TO WHY TH ERE IS NO LAB NO TESTS WERE CONDUCTED WHICH WAS A FACT AND WHICH WAS FOUND DUR ING SURVEY. (NO TESTS NECESSARY FOR FURNISHED PRODUCT SAY STATEMENT OF AT UL D PATEL Q.NO.8). (9) CLAIM THAT PILOT/TRAIL TESTS ARE DONE AT DAMAN (PAG E 319) IS BASELESS AS NO ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 49 SUCH FURNACE FOR CONDUCTING THE TRIAL TESTS WAS FOU ND AT DAMAN. NO REPORTS OR REGISTERS OF TRIAL PILOT TESTS WERE FOUND AT DAM AN AS ALREADY MENTIONED. IV. ASSESSEE CLAIMS THAT THE SLAB/CAKE OF MOLYBDENU M PRODUCED AT AHMEDABAD FACTORY IS SEMI FINISHED AND IT IS THE IN PUT MATERIAL TO DAMAN/SILVASA UNIT. THIS CLAIM IS NOT CORRECT AS PE R THE FACTS EMANATING FROM THE RECORD AS UNDER :- (I) SLABS OF FEMO AS PER STATEMENT OF ADARSH ZAVERI ARE ABOUT 3 FT. WIDE AND WEIGH 300/400 KG. (SEE ANS.NO.15 OF STATEMENT R ECORDED ANNEXURE-1 TO ASSESSMENT ORDER.) THERE IS NO PROOF ANYWHERE THAT THESE SLABS WERE TRANSPORTED AS SLABS TO SILVASA/DAMAN CONTRARY TO THAT THERE IS EVIDENCE TO SHOW THAT THE FEMO WAS TRANSPORTED AS LUMPS OR IN O THER FORMS TO DAMAN. FEMO IS ALWAYS TRANSPORTED IN DRUMS AND THE DRUM SI ZES ARE SUCH THAT THEY CANNOT TAKE 3 FT SLAB OF 300/400 KG. (II) THEREFORE IT IS CLEAR FROM CIRCUMSTANTIAL EVI DENCES THAT FEMO ALLOY AFTER PRODUCTION AT AHMEDABAD WAS TRANSPORTED AFTER BREAKING INTO BOULDERS/LUMPS OR POWDER. THIS CAN BE SEEN FROM THE STATEMENT OF ALL THE EIGHT WORKERS WHOSE STATEMENTS WERE RECORDED ON THE DAY OF SURVEY. IN THEIR ANSWERS THEY STATED THAT THEY RECEIVE STONES FROM AHMEDABAD IN DRUMS (STATEMENTS OF PAGE 432 TO 44 OF PAPER BOOK OF ASSE SSEE). THIS IS ALSO THE FACT FROM STATEMENT OF SACHIDANAND JHA. Q. NO.6. (A NNEXURE-III TO ASSESSMENT ORDER). MOS2 IS ALSO RECEIVED AS POWDER FROM AHMEDABAD AND EXPORTED AS SUCH AS PER THE STATEMENT OF SHRI SACHI DANAND JHA Q. NO.16 AND 17. V. ASSESSEE CLAIMED THAT CRUSHING AND GRINDING IS MANUFACTURING AS PER THE CERTIFICATES ISSUED BY DISTRICT INDUSTRIES CENTRE (DIC) SALES TAX DEPARTMENT ETC. IN THIS CONNECTION IT IS SUBMITTED THAT THESE DOCU MENTS MENTION THE ACTIVITY AS MANUFACTURING TO DISTINGUISH IT FROM TRADING A CTIVITY. BUT THESE CERTIFICATES ALWAYS MENTION IN BRACKETS CRUSHING A ND GRINDING ONLY. FOR AN INDUSTRIAL DEPARTMENT THE ESTABLISHMENT CANNOT BE TRADING ESTABLISHMENT TO GET A DIC CERTIFICATE. FOR THE SAL ES TAX DEPARTMENT THE TAX RATES VARY DEPENDING UPON THE NATURE OF ACTIVITY. S O THE MERE MENTION OF MANUFACTURING IN THESE CERTIFICATES DOES NOT MAKE THE ACTIVITY OF THE ASSESSEE AS MANUFACTURING FOR THE PURPOSE OF INCO ME-TAX. DIC AND THE SALES TAX DO NOT ADMINISTER THE INCOME-TAX. INCOME- TAX ACT HAS TO BE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 50 IMPLEMENTED BY THE INCOME-TAX DEPARTMENT. THE WORDS /PHRASES HAVE TO BE INTERPRETED TO FURTHER THE INTENTION OF THE ACT IN PROVIDING SECTION 80IB AND THE MEANING OF THE SAME CANNOT BE IMPORTED FROM OTH ER ACTS AS HELD BY THE APEX COURT IN LAXMI MACHINE WORKS. VI. ASSESSEE CLAIMED THAT BY CRUSHING AND GRINDING FEMO LUMP FEMO CHIPS AND FEMO POWDER ARE PRODUCED. THESE ARE NEW P RODUCTS HAVING DIFFERENT NAME CHARACTER CHEMICAL COMPOSITION AND THESE ARE PURCHASED BY DIFFERENT USERS. THE ARGUMENT IS NOT CORRECT. CRUSH ING AND GRINDING DOES NOT PRODUCE NEW PRODUCT. IT ONLY RESULTS IN REDUCING TH E SIZE. BASED ON THE SIZE IT MAY BE CALLED LUMPS CHIPS OR POWDER BUT ULTIMA TELY IT IS FEMO ONLY. CRUSHING AND GRINDING REDUCES THE SIZE AND SIEVING SEPARATES THE FEMO INTO DIFFERENT SIZE RANGE IT WILL NOT CHANGE THE CHEMIC AL PROPERTY. THE ARGUMENT OF THE ASSESSEE THAT LUMPS CHIPS AND POWDER CONTAIN DIFFERENT PERCENTAGE OF MO AND SILICA IS NOT RELEVANT AS FAR AS THE USERS ARE CONCERNED. USERS OF THESE (LUMPS CHIPS AND POWDER) ONLY PRESCRIBE THE MINIMUM PERCENTAGE OF MO TO BE 60% AND ANY PERCENTA GE ABOVE THAT PERCENTAGE DOES NOT MAKE ANY DIFFERENCE AS FAR AS C HEMICAL COMPOSITION IS CONCERNED. PLEASE SEE LETTERS OF VARIOUS USERS OF F EMO AT PAGE NUMBERS 396 397 & 398 OF PAPER BOOK FILED BY THE ASSESSEE WHERE IN THE USERS MENTIONED AS TO WHAT THEY REQUIRE WAS 60% MINIMUM M O. THERE IS NO DIFFERENT PERCENTAGE OF MO REQUIREMENTS FOR CUSTOME RS AS CLAIMED BY THE ASSESSEE. LUMPS CHIPS AND POWDER OF FEMO ARE BEING RECEIVED AT SILVASA/DAMAN AS STATED BY THE LABOUR AND ALSO PLANT INCHARGE AT DAM AN DURING THE SURVEY PROCEEDINGS. THIS CAN ALSO BE SEEN FROM THE ELECTRI CITY CONSUMPTION AT AHMEDABAD. THEREFORE IT TRANSPIRES THAT ONLY OCCAS IONAL CRUSHING AND GRINDING WAS ONLY BEING DONE AT SILVASA/DAMAN THAT TOO OF THE RECYCLED MATERIAL COMING OUT OF SIEVING AND NOT THE PRIMARY CRUSHING AND GRINDING WAS TAKING PLACE SILVASA/DAMAN. 12. TO SUMMARISE THE MATERIAL IS DIRECTLY BEING RE CEIVED AT AHMEDABAD FROM NAVSHEVA PORT IN THE SAME TRUCK(S) WHICH START AT MUMBAI. NO LOAD/UNLOADING IS TAKING PLACE AT SILVASA/DAMAN. NO LOADING/UNLOADING CHARGES ARE DEBITED AT SILVASA/DAMAN. THE LABOURERS AT DAMAN/SILVASA ARE NOT INVOLVED IN LOADING AND UNLOADING. NO RECORD OF SAMPLING NO RECORDS OF ANY TESTS CONDUCTED AT SILVASA/DAMAN FOUND DURING T HE SURVEY. NO LOG REGISTERS OF ANY TESTS WERE PRODUCED BY THE ASSESSE E DURING THE PROCEEDINGS. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 51 NO REGISTERS OF PILOT BATCH TESTS FOUND DURING THE PROCEEDINGS AT ANY STAGE.(2 OR 3 ALLEGED SINGLE PAPER REPORTS ENCLOSED IN PAPER BOOK CANNOT BE GIVEN ANY CREDIENCE AS THESE WERE NOT FOUND. THE JO INT INSPECTION REPORTS OF SOME OF THE CUSTOMERS AT PAGE 404 OF PAPER BOOK DO NOT MENTION AS TO WHERE THE TESTS WERE CONDUCTED AT AHMEDABAD OR SILVASA/DA MAN. THESE LETTERS OF THE CUSTOMERS IT MAY BE NOTICED THAT ARE DATED AFTE R THE SURVEY ON 17.01.2006. THEREFORE THE VERACITY AND PURPOSE OF BRINGING THESE REPORTS ON RECORD MAY BE UNDERSTOOD. WHY ORDER OF THE CIT(A) IS WRONG LD. CIT(A) CONCLUDED IN HIS ORDER STATING THAT I F IND. HE DID NOT SUBSTANTIATE HIS FINDINGS WITH ANY DOCUMENT. AS ALR EADY DISCUSSED VARIOUS DOCUMENTS PRODUCED BY THE ASSESSEE IN THE PAPER BOO K DOES NOT ESTABLISH ANYTHING. THESE DOCUMENTS ARE INSUFFICIENT TO CONCL USIVELY PROVE CLAIM OF THE ASSESSEE. THESE ARE DISJOINTED AND CONCOCTED TO SUP PORT SELF SERVING STATEMENTS OF THE ASSESSEE. ASSESSEE COMPANY ONLY M ADE A SMALL ESTABLISHMENT AT SILVASA/DAMAN BY PLACING A SMALL J AW CRUSHER GRINDER TO MAKE BELIEVE THAT CRUSHING AND GRINDING IS TAKING P LACE. ACTUAL MANUFACTURING OF FEMO IS TAKING PLACE AT AHMEDABAD AS IT WAS TAKING PLACE PRIOR TO 1998-99. MAJOR CRUSHING AND GRINDING IS AL SO TAKING PLACE AT AHMEDABAD. ONLY OCCASIONAL OR RESIDUAL CRUSHING & G RINDING OF RECYCLED MATERIAL WAS TAKING PLACE AT SILVASA/DAMAN. THEREFO RE ENTIRE PROFITS OF THE COMPANY ARE ATTRIBUTABLE TO AHMEDABAD FACTORY ONLY. ASSESSEE COMPANY HAS WRONGLY CLAIMED DEDUCTION UNDER SECTION 80IB(3) FOR SILVASA/DAMAN UNITS. DEPARTMENT HAS RAISED THE GROUNDS IN DETAIL BRING O UT THE FACTS OF THE CASE SUPPORTED BY CASE LAWS YOUR HONOR MAY ADJUDICATE O N ALL THE GROUNDS. 13. CLARIFYING HIS STAND FURTHER THE LD. AR SUBMIT TED THAT NO SHOW CAUSE NOTICE HAS BEEN ISSUED TO THE ASSESSEE AS TO WHY TH E SILVASSA UNIT HAS HIGHER PROFIT AS COMPARED TO AHMEDABAD UNIT. THE AO HAS NO T MADE OUT ANY CASE THAT SILVASSA UNIT WAS RESULT OF SPLITTING OF AHMED ABAD UNIT. DURING THE COURSE OF SURVEY INVENTORY OF EVERYTHING HAS NOT B EEN TAKEN. THEREFORE IT CANNOT BE INFERRED THAT LABORATORY TESTING EQUIPMEN T OR CHEMICALS WERE NOT AVAILABLE. BECAUSE OF STOPPAGE OF MANUFACTURING AT SILVASSA DUE TO WIDENING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 52 OF ROADS BY THE LOCAL AUTHORITIES THE WORK HAD BECO ME UNORGANIZED AT SILVASSA. THE CASE LAWS CITED BY THE LD. DR ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF ASSESSEE. THE CASE OF THE ASSESSEE IS S QUARELY COVERED BY THE DECISION OF HON. SUPREME COURT IN THE CASE OF ITO V S. ARIHANT TILES AND MARBLES (P) LTD. (SUPRA). 14. THE LD. AR FURTHER SUBMITTED THAT FMA LUMP FMA CHIPS AND FMA POWDER HAVE DIFFERENT PHYSICAL AND CHEMICAL PROPERT Y AND HAVE DIFFERENT USES. HE REFERRED TO FOLLOWING CHART IN THE PAPER B OOK: SL.NO. RAW MATERIAL FINISHED GOODS FINISHED GOODS FINISHED GOODS 1 COMMERCIAL NAME FE.MO.SLAB FE.MO.LUMP FE.MO.CHIP FE.MO.POWDER 2 CHARACTER (PROPERTIES) CHEMICALLY THE MATERIAL IS NOT HONOGENOUS. ITS MELTING TEMPERATURE IS ABOVE 2000 DEGREES C. CHEMICALLY IT HAS HIGH MO. AND LOW C.SI. & FE. (IRON) ITS MELTING TEMPERATURE IS 1700 DEGREES C. CHEMICALLY IT HAS LOWER MO. AND HIGHER C.SI. & FE. ITS MELTING TEMPERATURE IS 1300 DEGREES C. CHEMICALLY IT HAS LOWEST MO. AND HIGHEST C. SI. & FE. ITS MELTING TEMPERATURE IS 1100 DEGREES C. 3 USES NOT SALEABLE IT IS USED BY STEEL PLANTS PRIMARY STEEL MELTED BY ARC FURNACE IT IS USED IN FOUNDRIES & CASTING UNITS MELTED BY INDUCTION FURNACE IT IS USED IN ELECTRODE INDUSTRY & SINTER METALLURGY. 14.1 THE LD. AR REFERRED TO A LETTER FROM CLIMAX MO LYBDENUM COMPANY WHICH IS AN INTERNATIONAL CONCERN DEALING IN MOLYBD ENUM ACCORDING TO WHICH CONVERSION OF FMA SLABS INTO LUMP. CHIPS AND POWDER IS CONSIDERED AS MANUFACTURING ACTIVITIES. RELEVANT PORTION FROM THAT LETTER IS REPRODUCED BELOW :- ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 53 THESE LARGE SLABS OF FERRO MOLYBDENUM ARE CRUSHED IN JAW CRUSHERS AND GRINDERS TO PRODUCE FERRO MOLYBDENUM LUMPS CHIPS A ND POWDER. THESE PRODUCTS EACH HAVE DIFFERENT PROPERTY AND ARE KNOWN IN THE MARKET AS FERRO MOLYBDENUM LUMP. FERRO MOLYBDENUM CHIP AND FERRO MO LYBDENUM POWDER. THESE PRODUCTS GO INTO DIFFERENT MARKETS. N ORMALLY FERRO MOLYBDENUM LUMPS ARE USED IN THE STEEL INDUSTRY. FE RRO MOLYBDENUM CHIPS ARE USED BY CASTING UNITS AND FOUNDRIES. FERRO MOLY BDENUM POWDER IS USED IN THE ELECTRODE AND SINTER METALLURGY MARKETS. THI S CRUSHING OF LARGE SLABS OF FERRO MOLYBDENUM INTO LUMPS CHIPS AND POWDER IS CONSIDERED A MANUFACTURING ACTIVITY. WE HAVE SUCH A MANUFACTURING PLANT IN THE UK AND UT ILIZE THE SERVICE OF TWO OTHER MANUFACTURERS IN THE UNITED STATES. IN THESE COUNTRIES THE CRUSHING GRINDING AND SIEVING ACTIVITY OF FERROW MOLY SLABS INTO LUMPS CHIPS AND POWDER IS CONSIDERED A MANUFACTURING ACTIVITY. 14.2 THE LD. AR THEN REFERRED TO A LETTER FROM VARD HMAN SPECIAL STEELS TO THE EFFECT THAT THEY ARE USING MOLYBDENUM LUMPS AND CANNOT USE FMA SMALLER SIZE OF POWDER OR CHIPS. THIS IS PLACED AT PAGE 396 OF THE PAPER BOOK. THE CONTENTS ARE REPRODUCED AS UNDER :- M/S ELECTRO FERRO ALLOYS (P) LTD. 208 ADITYA BUILDING NEAR KHADAYATA COLONY MITHAKHALI SIX ROADS AHMEDABAD-380006 DEAR SIRS WE ARE A STEEL PLANT HAVING AN ELECTRIC ARC FURNACE WITH 32 MT CAPACITY. WE REGULARLY REQUIRE FERRO MOLYBDENUM LUMPS OF SIZE 20 TO 80 MM FOR PRODUCTION OF ALLOW STEEL STAINLESS STEEL. THE SPEC IFICATION IS AS UNDER : MOLY 60% MIN. SI: 1.5% MAX. C :0.1% MAX. S :0.1% MAX ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 54 P :0.1% MAX. SIZE:20-80 MM WE CANNOT USE FERRO MOLY IN SMALLER SIZE SUCH AS PO WDER OR SMALL CHIPS. PLEASE GIVE US YOUR OFFER AS EARLY AS POSSIBLE. THANKING YOU FOR VARDHMAN SPECIAL STEELS SD/- PUNEET GUPTA) EXECUTIVE (MATERIALS) 14.3 SIMILARLY LETTER FROM TATA WAS REFERRED WHICH IS PLACED AT PAGE 397 OF THE PAPER BOOK TO THE EFFECT THAT THEY CAN ONLY USE FMA CHIPS OF THE SIZE BELOW 10MM FOR MAKING SPECIAL GRADE FOR EXH. MANIFO LD & TURBINE HSG. CASTINGS.THE CONTENTS OF THE LETTER ARE AS UNDER :- TO ELECTRO FERRO ALLOYS (P) LTD. 208 ADITYA NR. KHADYATA COLONY MITHAKHALI SIX ROAD AHMEDABAD-380006. ATTN: MR. ANANT RAMESH SIR WE ARE MANUFACTURING S.G. IRON CASTINGS & HAVING ME DIUM FREQUENCY INDUCTION FURNACE OF 3MT CAPACITY. WE REGULARLY REQ UIRE FERRO MOLYBDENUM CHIPS OF SIZE BELOW 10MM FOR MAKING SPEC IAL GRADE FOR EXH. MANIFOLD & TURBINE HSG. CASTINGS. THE SPECIFICATION IS AS UNDER :- MOLY 60% MIN. SI : 1.6% MAX. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 55 C: 01.% MAX. S :0.1% MAX. P :0.1% MAX. WE CANNOT USE LARGER SIZE FERRO MOLY LUMPS OF 20-10 0 MM AS THE MELTING TEMPERATURE BECOMES VERY HIGH ALSO WE CANNOT USE FE RRO MOLY POWDER BECAUSE OF ITS LOSSES ALONG WITH STAG. THANKING YOU YOURS FAITHFULLY FOR TATA MOTORS LTD. SD/ S.R. KOPARKAR DIVISIONAL MANAGER (MATERIALS) 14.4 IT WAS ALSO CLARIFIED THEREIN THAT THEY CANNOT USE FMA POWDER IN ITS PLACE BECAUSE LOSS ALONG WITH STAGS WOULD BE HIGH A ND LUMP CANNOT BE USED BECAUSE IT WILL REQUIRE VERY HIGH MELTING TEMPERATU RE. 14.5 THEN A REFERENCE WAS MADE TO A LETTER FROM D & H WELDING ELECTRODES (INDIA) LTD. PLACED AT PAGE 399 OF THE P APER BOOK WHO IS USING FMA POWDER AND FURTHER THAT FMA OF LARGER SIZE AS L UMP OR CHIPS CANNOT BE USED IN MAKING ELECTRODES. THE CONTENTS OF WHICH AR E AS UNDER :- M/S ELECTRO FERRO ALLOYS (P) LTD. 208 ADITYA BUILDING NEAR KHADIGATE COLONY ALLISBRIDGE AHMEDABAD (GUJ). DEAR SIR ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 56 WE REGULARLY REQUIRE FERRO MOLYBDENUM ELECTRODE GRA DE POWDER USED IN THE MANUFACTURE OF SPECIAL GRADE ELECTRODE. THE SPE CIFICATION IS AS UNDER :- MOLY 60% MIN. SI: 1.5% MAX. C :0.05% MAX. S :0.05% MAX P :0.05% MAX. SIZE:-60 MESH WE CANNOT USE FERRO MOLY IN LARGER SIZE SUCH AS LUM PS OR CHIPS. PLEASE GIVE US YOUR OFFER AS EARLY AS POSSIBLE. THANKING YOU YOURS FAITHFULLY FOR D & H WELDING ELECTRODES (INDIA) LTD. SD/ SANAT JAIN GENERAL MANAGER FINANCE 14.6 SIMILARLY CERTIFICATE FROM GKN SINTER METALS L TD. IS PLACED AT PAGE 401. THEY ARE USING FMA POWDER AND FURTHER IN THEIR PLACE LUMP OR CHIPS CANNOT BE USED. THE CONTENTS OF WHICH ARE AS UNDER :- TO WHOMSOEVER IT MAY CONCERN WE ARE A SINTER PRODUCTS MANUFACTURER. WE PRODUCE S INTER BEARINGS & PARTS AND OTHER SINTER PARTS. ALL OUR RAW MATERIALS ARE V ERY FINE POWDERS. WE USE FERRO MOLYBDENUM POWDER. IT IS BELOW 325 MESH SIZE AND CALLED FERRO MOLYBDENUM SINTERED METALLURGY GRADE. WE CANNOT USE FERRO MOLYBDENUM IN ANY LARGER SIZE S UCH AS LUMPS OR CHIPS OR EVEN A COURSE POWDER BECAUSE ONLY THE FINE POWDE R UNIFORMLY BLENDS WITH OUR OTHER RAW MATERIALS TO FORM A HOMOGENEOUS MIXTU RE WHICH IS CRICITAL. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 57 FOR GKN SINTER METALS LTD. SD/ N.L. CHANDRACHUD EXE-VICE PRESIDENT METL). 14.7 THE LD. AR REFERRED TO STANDARD AND TECHNICAL NOTE RECEIVED FROM METALLURGICAL DEPARTMENT OF THE ASSESSEE COMPANY WH ICH PROVIDED FOLLOWING DIFFERENCE BETWEEN CHEMICAL AND PHYSICAL PROPERTY OF LUMP CHIPS AND POWDER AS UNDER :- GRAIN SIZE IS AN IMPORTANT FACTOR IN DETERMINING T HE MECHANICAL PROPERTY OF A MATERIAL. COARSE GRAINED MATERIALS HAVE LOWER YIELD STRESSES THAN FINE GRAINED MATERIAL. MOLY IS A STRONG CARBIDE FORMER A ND THESE CARBIDES PROMOTE FINE GRAINED STRUCTURE. HENCE MATERIAL HAVI NG HIGHER MOLY % POSSESSES HIGHER YIELD STRESS AND CRITICAL SHEAR ST REES. HENCE WHEN A FE MOLY SLAB IS CRUSHED THE PARTS ON THE TOP PART OF THE SLAB REDUCE IN SIZE I.E. BREAK EASILY BECAUSE IT HAS LOW ER MOLY CONTENT. THIS RESULTS IN A CHANGE IN CHEMISTRY FROM THE LARGE SIZ ED LUMPS WHICH DO NOT BREAK EASILY BECAUSE THEY CONTAIN THE HIGHER MOLY % WHICH HAS HIGHER CRITICAL SHEAR STRESS. THUS CRUSHING RESULTS IN A C HANGE IN CHEMICAL COMPOSITION OF A BETEROGENEOUS SLAB WHEN DIFFERENT SIZES ARE SEPARATED. 14.8 SIMILAR COMMENTS FROM CLIMAX MOLYBDENUM CO. W ERE REFERRED TO WHICH WE FOR THE SAKE OF CONVENIENCE REPRODUCE AS U NDER:- A) WE FIND THE MOLY CONTENT OF THE BLOCK IS HIGHLY VAR IABLE AND NOT NECESSARILY LINKED TO THE POSITION OF THE BLOCK. TH E FLUID DYNAMICS OF THE MOLTEN MASS THE COOLING RATES AND THE FREEX ING POINTS OF ALL THE DIFFERENT COMPONENTS VIZ. SILICON CARBON COPP ER IRON AND MOLY PLAY A PART IN THE CHEMICAL CONTENT. WE WOULD EXPECT TO FIND MOLY CONTENT VARYING BETWEEN 60% TO 75% AT THE EXTR EMES PARTICULARLY VARYING AT THE EDGES OR ALONG FRACTURE D AND BOTTOM. B) IT IS CORRECT THAT LOWER MOLY % & HIGHER SI % MATER IAL IS SOFTER AND SO GRINDS OF BREAKS FASTER WHEN CRUSHED IN A JA W CRUSHED. THE SMALLER SIZE MATERIAL LIKE CHIPS OR POWDER CONTAINS HIGHER % AND ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 58 C% AND LOWER MOLY %. IN GENERAL WE CAN FIND MOLY % AROUND 6% TO 7% HIGHER IN THE LUMPS AS COMPARED WITH CHIPS/PO WDER IN THE SAME LOT BEING CRUSHED. FURTHER GRINDING OF THE CHI PS WOULD FURTHER REDUCE THE MONY% AND INCREASE SI%. C) SEPARATING SIZE TESTING CHEMICALLY IN A LA B AND THEN MIXING IN THE CORRECT PROPORTION CAN INSURE THE MATERIAL BEING SE NT TO A CUSTOMER IS AS PER THEIR SPECIFICATION. ONE CAN ACH IEVE THAT BY MOLY MATERIAL CONTAINING HIGHER MOLY% WITH THAT CON TAINING LOWER MOLY% IN THE RIGHT RATIO GET FERRO MOLY AS PER SPEC IFICATIONS OF CHEMISTY AND SIZE FOR THE CUSTOMER. 14.9 THE LD. AR THEN REFERRED TO PAGE 857 OF THE PA PER BOOK WHICH IS A MAIL FROM TREIBACHER INDUSTRIES AG EUROPES 2 ND LARGEST FERRO MOLY MANUFACTURER WHEREIN FOLLOWING NOTE WAS HIGHLIGHTED:- THANK YOU VERY MUCH FOR YOUR MAIL. YES WE CAN CON FIRM THAT LARGER PARTICLES OF CRUSHED FEMO SHOWN HIGHER MOLY CONTENT THAN FINE MATERIAL. THE VARIATION YOU INDICATED ITS QUITE GOOD WITH OUR OWN EXPERIENCE. PLEASE GIVE US SOME MORE INFORMATION ABOUT YOUR COMPANY AC TIVITIES IN FERRO ALLOY PRODUCTION. WE ARE A FERRO MOLYBDENUM MANUFACTURER IN INDIA. WE WANTED TO GET SOME PRACTICAL INFORMATION FROM YOU. WHEN WE CRUSH LARGE SLABS/BLOCKS OF FERRO MOLY TO LUMPS CHIPS (1-10 MM) AND POWDER WE FIND THE CHEMISTRY CHANGES: FERRO MOLY LUMPS : 70% MOLY FERRO MOLY CHIPS :65% MOLY FERRO MOLY POWDER :60% MOLY 14.10 THEN REFERENCE WAS MADE TO PAGES 390 391 & 392 OF THE PAPER BOOK WHICH SHOWED THAT MOLY CONTENTS IN LUMP WAS ABOUT 6 8-88% THAT IN CHIPS WAS ABOUT 57.49% AND THAT IN POWDER 54.14%. FINALLY A REFERENCE TO PAGE 605 OF THE PAPER BOOK WAS MADE WHICH IS TEST REPORT FROM QUALITY SYSTEMS ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 59 AND CALIBRATIONS (P) LTD.. PUNE BASED CONCERN WHICH HAS TESTED THE MOLY CONTENTS AND SIZE OF THE FMA LUMP CHIPS AND POWDER . FOR THE SAKE OF CONVENIENCE THAT REPORT IS REPRODUCED AS UNDER :- M/S ELECTRO FERRO ALLOYS P. LTD. NO.D1832 TO 183 4 SURVEY NO.12/1-2 BILDING NO.2 DATE 28.05.2006 HAYAT INDL. ESTATE RINGARWADA PAGE 1 OF 1 DAMAN. CHALLAN NO.NIL DT.6.5.06 DESCRIPTION: A=10-100 MM = LUMP B=1-10MM=CHIPS C=-60 MESH=POWDER FERRO MOLY SLAB WAS CRUSHED BY JAW CRUSHER AND SIEV ED TO THE ABOVE GRADES. WITNESSED BY MR. P.V. JAHAGINDER OF M/S ELCA CHEMICAL COMPOSITION: TEST METHOD : IS 1559-1961 & IS 1559-1988 PT 1& 2 ELCA NO. DETAILS OF ITEMS *SI % *MO% D-1832 LUMPS 1.28 67.88 D-1833 CHIPS 1.41 60.22 D-1834 POWDER 3.12 55.60 --------------------------------------------------- ----------------------------------------- CHECKED BY FOR ELCA QUALITY SYSTEMS & CALIBRATIONS (P) LTD. SD/- N. KALYAN CEO (AUTHORISED SIGNATORY) 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE UNDISPUTED FACTS ARE THAT ASSESSEE IS MELTING MOLYBDENUM ORE AND IRON AT AHMEDABAD FORMIN G SLABS WHICH AT DIFFERENT LEVELS HAVE DIFFERENT PROPORTION OF MOLYB DENUM AND IRON DUE TO ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 60 THEIR DIFFERENT SPECIFIC GRAVITY. MOLYBDENUM DUE TO HIGHER SPECIFIC GRAVITY SETTLES IN DIFFERENT PROPORTION AT DIFFERENT LEVELS IN A RECTANGULAR SLAB. THESE FMA SLABS ARE SENT TO SILVASSA AND ALSO TO DAMAN WH ERE THEY ARE CRUSHED THROUGH JOW CRUSHER GRINDED THROUGH MACHINES AND T HEREAFTER SIEVED TO SEPARATE THEM INTO RUBBLES CHIPS AND POWDER. THESE ITEMS ARE SOLD TO DIFFERENT CUSTOMERS. 15.1 THERE IS NO DISPUTE THAT RUBBLES CHIPS AND PO WDER ARE USED BY DIFFERENT INDUSTRIES IN THE MANUFACTURING OF THEIR PRODUCTS. MOLYBDENUM HAS A CATALYTIC ACTION FOR FURTHER CHEMICAL REACTION. T HE IRON CONTENT IN THE ALLOY ACTS AS A REGULATOR FOR THE CATALYST. IN ANY CASE THE DIFFERENT DEGREE OF CHEMICAL SENSITIVITY OF MOLYBDENUM AND IRON IF COMB INED IN DIFFERENT PROPORTION IS NOT ESTABLISHED BY THE ASSESSEE BUT T HERE IS NO DOUBT ABOUT DIFFERENCE IN PHYSICAL PROPERTY OF THREE FINAL PROD UCTS OBTAINED ON CRUSHING GRINDING AND SIEVING OF FMA SLAB. IN THIS REGARD TH E DISPUTED AREAS ARE - (1) WHETHER ASSESSEE HAD TEN OR MORE WORKERS AS IT IS RUNNING WITH THE AID OF POWER; (2) WHETHER ASSESSEE HAD ANY LABORATORY AT SILVASSA WHICH WAS TO BE CONSIDERED AS NECESSARY PRELUDE FOR INITIATING MANU FACTURING PROCESS OR WHETHER ENTIRE LABORATORY TESTING WAS DONE AT AH MEDABAD; (3) WHETHER IT CAN BE SAID THAT WHAT WAS DONE AT AH MEDABAD WAS ONLY OUTSOURCING OF JOB WORK IN THE FORM OF MELTING OF M OLYBDENUM AND IRON OR WHETHER AHMEDABAD UNIT WAS CARRYING OUT THE MAJOR PART OF MANUFACTURING PROCESS LEAVING THE LESS IMPORTANT PR OCESS OF GRINDING CRUSHING AND SIEVING TO SILVASSA UNIT WHICH IF CONS IDERED IN ISOLATION WOULD OR WOULD NOT AMOUNT TO MANUFACTURING; (4) WHAT IS THE RELEVANCE OF STATEMENT OF VARIOUS P ERSONNEL RECORDED BY THE REVENUE DURING THE COURSE OF SURVEY AND ON WHIC H LD. DR HEAVILY ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 61 RELIED UPON AND WHICH INDICATED THAT ONLY GRINDING CRUSHING WAS DONE AT SILVASSA AND THERE WERE NO INSTRUMENTS OR FACILI TY FOR CARRYING OUT ANY LABORATORY TESTING; (5) WHETHER THERE IS ANY CASE FOR HOLDING THAT SILV ASSA UNIT WAS A RESULT OF SPLITTING OF AHMEDABAD UNIT. 15.2 WE WILL TAKE UP ALL THESE DISPUTED AREAS AND F IND OUT AS TO WHAT WAS THE REAL STATE OF AFFAIRS. (1) WHETHER ASSESSEE COMPANY HAD EMPLOYED TEN OR MO RE WORKERS. IN OUR CONSIDERED VIEW THIS ASPECT HAS BEEN TOTALLY THRASHED OUT BY LD. CIT(A) WHEREIN HE CONSIDERED THAT AFTER INCLUSION O F PRODUCTION CHEMIST PRODUCTION SUPERVISOR AND PRODUCTION MANAGER THERE WILL BE 10 WORKERS IN ADDITION TO CASUAL WORKERS. IN THIS REGARD LD. CIT( A) HAS HELD AS UNDER :- 13.1 THE AOS OBSERVATION REGARDING EMPLOYMENT OF LESS THAN 10 WORKERS IS TOTALLY INCORRECT IN VIEW OF THE FACT THAT IN RE MAND PROCEEDINGS IT WAS FOUND BY THE AO THAT THE APPELLANT HAS MORE THAN 10 EMPLOYEES AND THAT IT HAS ALSO GOT TWO CASUAL WORKERS. THE VARIOUS COURTS AS CITED BY THE LD. AR HAVE HELD THAT THE CASUAL WORKERS ARE TO BE CONSIDE RED FOR THE PURPOSE OF SECTION 80-I AND EVEN THE SUPERVISORY STAFF IS ALSO TO BE CONSIDERED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80-I. THE DECISI ONS REFERRED TO BY THE APPELLANT ARE VERY MUCH IN SUPPORT OF THE EXPLANATI ON GIVEN BY THE AR.: NO CONTRARY MATERIAL HAS BEEN PRODUCED BEFORE US. O N THE OTHER HAND HON. KARNATAKA HIGH COURT IN CIT VS. K. G. YEDIYURAPPA & CO. (1985) 152 ITR 152 (KAR) HELD THAT CASUAL WORKERS ARE ALSO TO BE C OUNTED FOR FINDING OUT WHETHER UNDERTAKING EMPLOYED 10 OR MORE WORKERS. TH IS DECISION WAS FOLLOWED BY THE ITAT MUMBAI BENCH IN THE CASE OF A CIT VS. RICHA CHADDHA (2002) 282 ITR(AT) 001 WHEREIN IT IS HEL D THAT CASUAL WORKERS SHOULD ALSO BE COUNTED FOR ARRIVING AT NUMBER OF PE RSONS EMPLOYED BY THE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 62 UNDERTAKING. IT HELD THAT WORKERS MEANS A PERSON EM PLOYED DIRECTLY OR THROUGH ANY AGENCY WHETHER FOR REMUNERATION OR NOT FOR ANY MANUFACTURING PROCESS. WORKER ACCORDING TO SECTION 21 OF THE FACT ORY ACT 1948 INCLUDES A PERSON WHO IS EMPLOYED NOT ONLY IN MANUFACTURING PR OCESS BUT ALSO IN CLEANING ANY PART OF THE MACHINERY OR PREMISES USED FOR MANUFACTURING OR IN ANY KIND OF WORK INCIDENTAL TO OR CONNECTED WITH MA NUFACTURING PROCESS. A MANUFACTURING PROCESS CONSIST OF CHAIN OF ACTIVITI ES SUCH AS STORAGE BRINGING MATERIAL TO MANUFACTURING SITE MAIN MANUFACTURING PROCESS SORTING PACKING STORAGE ETC. THEN ALL THE WORKERS INVOLVED IN THESE ACTIVITIES SHOULD BE CONSIDERED FOR COUNTING THE REQUISITE NUMBER. TE MPORARY AND CASUAL WORKERS APART FROM PERMANENT WORK FORCE ARE REQUIRE D TO BE COUNTED FOR FINDING OUT THE REQUISITE NUMBER. IN VIEW OF THIS WE REJECT THE CONTENTION OF LD. DR OPPOSING THE ARGUMENT OF THE ASSESSEE THAT I T HAD EMPLOYED 10 OR MORE WORKERS. 15.3 (2) WHETHER ASSESSEE HAD ANY LABORATORY T ESTING FACILITIES AT SILVASSA. IN ORDER TO SUPPORT HIS ARGUMENT THAT INITIATION OF MANUFACTURING PROCESS WOULD REQUIRE LABORATORY TESTING AND ASSESSEE HAD L ABORATORY FACILITIES AT SILVASSA THE LD. AR HAS PRIMARILY RELIED ON CERTAI N CERTIFICATES RECEIVED FROM HIS CUSTOMERS. FROM THESE CERTIFICATES WE ARE NOT C ONVINCED THAT SUCH TESTING WAS DONE AT SILVASSA. IT ONLY INDICATES THAT TESTIN G OF FINAL PRODUCT WAS DONE SHOWING PERCENTAGE OF MOLYBDENUM AND IRON IN THE SA MPLE. NO CERTIFICATE OF ANY TESTING OF MOLYBDENUM ORE WHICH IS BASIC RAW MA TERIAL REQUIRED FOR MAKING FMA IS PRODUCED BEFORE US. MOLYBDENUM ORE WO ULD CONTAIN MOLYBDENUM AND OTHER IMPURITIES. NO CONTEMPORARY AN D BASIC RECORD OF LABORATORY TESTING CARRIED OUT AT SILVASSA WAS PROD UCED BEFORE. WE ARE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 63 UNABLE TO PERSUADE OURSELVES TO BELIEVE THAT ANY KI ND OF LABORATORY TESTING COULD BE DONE OF COMMERCIAL SAMPLES WITHOUT THERE B EING A PRIMARY RECORD CONTAINING DETAILS OF THE SAMPLES ON WHICH TEST WAS DONE. TO WHOM THE PRODUCT WHOSE SAMPLE WAS TESTED WAS SOLD; WHO CARRI ED OUT THE TESTING; WHO SIGNED THE TESTING REPORT AND WHETHER IT WAS DISPAT CHED AND WHETHER ANY OFFICIAL COPY OF SUCH REPORT IS AVAILABLE. IN ONE C ASE A REPORT OF 2002 WAS SHOWN TO US IN THE PAPER BOOK BUT IT WAS A LETTER R ECEIVED FROM THE CLIENT TO THE ASSESSEE. LABORATORY TESTING REPORT MEANS THE T ESTING DONE AND REPORT PREPARED IN-HOUSE. IT SHOULD ALSO INDICATE THE PROC ESS EMPLOYED FOR TESTING AND THE TEMPERATURE ACHIEVED FOR DETERMINING THE PE RCENTAGE OF CONTENTS. NOT ONLY THERE WAS ABSENCE OF CONTEMPORARY AND BASI C RECORD THERE IS INHERENT CONTRADICTION IN THE FACTS PRESENTED BY TH E ASSESSEE IN THE SENSE THAT ON ONE HAND IT WAS VEHEMENTLY ARGUED AND SUPPORTED WITH CERTIFICATES THAT MELTING OF MOLYBDENUM AND IRON HAS TO BE GOT DONE A T AHMEDABAD DUE TO PROHIBITION IMPOSED BY LOCAL AUTHORITIES TO CARRY O UT SUCH MELTING IN METALLURGICAL PROCESS AT SILVASSA AND ON THE OTHER HAND IT WAS ARGUED THAT SUCH PROCESS IN FACT AND INDEED WAS CARRIED OUT AT SILVASSA IN THE FORM OF METALLURGICAL LABORATORY TESTING. WE ARE NOT CONVIN CED THAT SUCH PROCESS IN THE FORM OF LABORATORY TESTING COULD BE CARRIED OUT AGAINST THE EXPRESS PROHIBITION IMPOSED BY THE AUTHORITIES UNLESS ASSES SEE COULD SHOW THE BASIC RECORDS OF LABORATORY TESTING SUPPORTED BY THE AFFI DAVITS OF CONCERNED OFFICIALS THAT SUCH TESTING WAS INDEED DONE AT SILV ASSA EVEN THOUGH IT WAS ILLEGAL. WE CANNOT ACCEPT ONE PROPOSITION THAT MELT ING COULD NOT BE CARRIED OUT AT SILVASSA DUE TO RESTRICTIONS IMPOSED BY THE LOCAL AUTHORITIES AND OTHER PROPOSITION THAT MELTING WAS INDEED CARRIED OUT FOR TESTING. IN-SPITE OF REPEATED QUESTIONS BY THE DEPARTMENT TO SHOW THE EQ UIPMENT WITH WHICH SUCH TESTING WAS CARRIED OUT AT SILVASSA ASSESSEE R EMAINED SILENT. THEREFORE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 64 WE HAVE ONLY OPTION TO HOLD THAT ASSESSEE FAILED TO PRODUCE EVIDENCE TO SHOW THAT ANY LABORATORY EXISTED AT SILVASSA WHERE MELTI NG OF FINAL PRODUCE WAS CARRIED OUT FOR TESTING THE PROPORTIONS OF THEIR CO NTENTS. FURTHER ASSESSEE COULD NOT PRODUCE ANY EVIDENCE THAT ANY TESTING WAS CARRIED OUT OF MOLYBDENUM ORE TO FIND OUT THE PERCENTAGE OF MOLYBD ENUM IMPURITIES. AS A RESULT WE HOLD THAT ANY LABORATORY TEST OR EXISTEN CE OF LABORATORY AT SILVASSA COULD NOT BE ESTABLISHED BY THE ASSESSEE. WE MAY AD D THAT LABORATORY TESTING AS SUCH IS NOT A MANUFACTURING PROCESS BUT IT CAN B E SAID TO BE A PRELUDE TO MANUFACTURING PROCESS AND THEREFORE A NECESSARY IN TEGRAL PART OF ENTIRE PROCESS OF MAKING FMA. 15.4 (3) WHETHER IT WAS ONLY OUTSOURCING AT AHME DABAD OR MAIN MANUFACTURING WAS DONE AT AHMEDABAD . ACCORDING TO THE LD. DR MAIN MANUFACTURING WAS DONE AT AHMEDABAD IN THE FORM OF MIXING AND MELTING OF MOLYBDENUM AND IRON O RE MAKING INTO A SLAB. ON THE OTHER HAND THE LD. AR HAS STRESSED THE POIN T THAT SILVASSA UNIT HAS OUTSOURCED THE PROCESS OF MELTING THE TWO ORES AT A HMEDABAD UNIT FOR WHICH NECESSARY PAYMENTS WERE DONE AND SUCH PAYMENT WAS D ONE AT PAR WITH SIMILAR PAYMENT TO OTHER INDUSTRIES. IN OTHER WORDS THE CLAIM OF LD. AR IS THAT NO UNDER-PRICING OF PROCESS CARRIED OUT AT AHM EDABAD UNIT WAS DONE. IN OUR CONSIDERED VIEW THE DEPARTMENT HAS NOT BEEN ABL E TO PROVE THAT THERE WAS ANY UNDER-PRICING OF THE WORK DONE AT AHMEDABAD. NO BILLING INSTANCES HAVE BEEN PRODUCED TO SHOW THAT PRICE FOR THE PROCE SS CARRIED AT AHMEDABAD UNIT WAS HIGHER AS COMPARED TO THE SAME PROCESS IF CARRIED AT OTHER UNIT. IN OTHER WORDS THERE IS NO EVIDENCE THAT PAYMENT MADE TO AHMEDABAD UNIT FOR THE PROCESS CARRIED OUT THERE WAS NOT AT ARMS LENG TH PRICE. ON THE OTHER HAND THE LD. AR HAS BEEN ABLE TO SHOW THAT PRICE P AID TO AHMEDABAD UNIT ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 65 WAS AT PAR WITH THE INDUSTRY PRICE. FURTHER ACCOUNT ING RECORDS MAINTAINED AT SILVASSA DID INDICATE THAT THE PURCHASES OF MOLYBD ENUM ORE WAS RECORDED IN THAT UNIT. SALE PRICES WERE ALSO RECORDED IN THAT U NIT AND PAYMENT FOR PROCESS CARRIED OUT AT AHMEDABAD WAS DEBITED IN THE ACCOUNT OF THAT UNIT. IN ABSENCE OF ANY MATERIAL IT CANNOT BE HELD THAT ENTIRE MAINT ENANCE OF ACCOUNT OR CLAIM OF CERTAIN PROCESS CARRIED OUT AT SILVASSA WAS A SM OKE SCREEN AND IT WAS ONLY AHMEDABAD UNIT WHICH CARRIED OUT EVERYTHING. WHILE DISCUSSING UNDISPUTED FACTS WE HAVE FOUND THAT DEPARTMENT HAS ACCEPTED TH E POSITION THAT CRUSHING GRINDING AND SIEVING WERE ACTUALLY DONE AT SILVASSA . IN OUR CONSIDERED VIEW ENTIRE SEQUENCE OF PROCESS FROM PURCHASING OF RAW M ATERIAL MIXING IRON SCRAP MELTING FORMING SLAB CRUSHING GRINDING S IEVING TESTING AND PACKING ARE PARTS OF ENTIRE PROCESS IN THE MANUFACTURING OF RUBBLES CHIPS AND POWDER OF FMA. A COMBINATION OF FEW PROCESSES MAY BECOME M ANUFACTURING OF INTERMEDIATE PRODUCT BUT FOR THAT MATTER COMBINATIO N OF THE REST OF THE PROCESSES CANNOT BE HELD AS NOT FORMING MANUFACTURI NG PROCESS. IN THE MANUFACTURING OF A FINAL PRODUCT THERE CAN BE SEVER AL INTERMEDIATE STAGES DIFFERENT COMMODITIES ARE FORMED AT INTERMEDIATE ST AGE. THEY COULD BE MANUFACTURING PROCESS BY THEMSELVES. THESE INTERMED IATE PRODUCTS CAN HAVE THEIR INDEPENDENT IDENTITY AND MARKETABILITY. IN OU R VIEW MIXING IRON SCRAP WITH MOLYBDENUM OR MELTING IT AT HIGH DEGREE TEMPER ATURE OF 1800 DEGREE CENTIGRADE AND FORMING OF THE SLAB IS ONE STAGE WHE RE ONE INTERMEDIATE PRODUCT IS FORMED. IT HAS DIFFERENT IDENTITY AND ST RUCTURE. IT CAN BE SOLD AS SUCH AND CAN BE PURCHASED BY THOSE WHO WOULD USE IT AS RAW MATERIAL FOR MAKING OTHER PRODUCTS OF FINER QUALITY. THEREFORE THE CLAIM OF THE ASSESSEE THAT IT HAD OUTSOURCED A PART OF MANUFACTURING PROC ESS TO AHMEDABAD UNIT CANNOT BE REJECTED UNLESS IT IS FOUND OUT BY THE AO THAT ALL THE ACTIVITIES AT SILVASSA WERE ONLY A SMOKE SCREEN. SINCE IT WAS NO T A CASE AND BOOKS OF ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 66 SILVASSA UNIT ARE ACCEPTED THEN THE TRANSACTION CAR RIED OUT BY IT WITH AHMEDABAD UNIT CANNOT BE REJECTED WITHOUT THERE BEI NG ANY MATERIAL IN SUPPORT OF SUCH REJECTION. 15.5 (4) WHETHERSILVASSA UNIT WAS FORMED BY SPL ITTING OF AHMEDABAD UNIT. IN OUR CONSIDERED VIEW NO. ASSESSEE HAD PRODUCED E VIDENCE OF PURCHASE OF NEW MACHINERY LIKE JAW CRUSHER AND GRINDER WHICH IS NOT DISPUTED BY THE REVENUE. THERE IS NO EVIDENCE TO SHOW THAT ANY MACH INERY WAS TRANSFERRED FROM AHMEDABAD TO SILVASSA. IT CANNOT BE SAID THAT IT WAS A CASE OF SPLITTING OF PROCESS AND THEREFORE SPLITTING OF UNIT. AHMEDA BAD UNIT HAS BEEN CARRYING OUT THIS PROCESS INCLUDING GRINDING AND CRUSHING AS BEFORE AND MELTING OF MOLYBDENUM AND IRON SCRAP TO FORM SLABS AS BEFORE. IT IS ONLY THE ADDITIONAL UNIT WHICH IS ESTABLISHED AT SILVASSA AND WHICH HAS OUTSOURCED A PART OF ITS PROCESS TO AHMEDABAD UNIT ON ACCOUNT OF RESTRICTION S IMPOSED ON METALLURGICAL PROCESSING AT SILVASSA BY LOCAL AUTHO RITIES. FOR THIS REASON ALONE IT CANNOT BE SAID THAT WHATEVER RESIDUAL PRO CESS IS DONE AT SILVASSA WAS NOT MANUFACTURING. 15.6 (5) RELEVANCE OF STATEMENTS RECORDED BY THE SU RVEY TEAM. THE AO HAS ENCLOSED WITH THE ASSESSMENT ORDER COPIE S OF STATEMENTS OF VARIOUS EMPLOYEES RECORDED DURING THE COURSE OF SUR VEY. ON THE BASIS OF STATEMENT THE LD. AO AND LD. DR HAVE STRONGLY ARGU ED THAT NO LABORATORY EXISTED AT SILVASSA. NO TESTING WAS CARRIED OUT AT SILVASSA AND ONLY CRUSHING GRINDING AND SIEVING WAS DONE AT SILVASSA. THE ASSE SSEE HAS SOUGHT TO RETRACT THIS STATEMENT BY FILING AFFIDAVITS OF THOSE EMPLO YEES AND REFERRED TO SEVERAL ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 67 DECISIONS FOR THE PROPOSITION THAT STATEMENT RECORD ED DURING THE COURSE OF SURVEY CANNOT BE RELIED UPON UNLESS SUPPORTED BY OT HER EVIDENCES. IN OUR CONSIDERED VIEW ARGUMENTS ON THIS ASPECT ARE OF ACA DEMIC NATURE. FOR PROVING WHETHER ANY LABORATORY EXISTING OR NOT BAS IC RECORDS ARE NECESSARY AND WE HAVE HELD ABOVE THAT ASSESSEE HAS FAILED TO ESTABLISH THAT SUCH A LABORATORY EXISTING AT SILVASSA AND ANY TESTING WAS DONE AT SILVASSA. WE THEREFORE IGNORE THIS ASPECT OF THE ARGUMENT EMPHA SIZED BY THE LD. DR AND COUNTERED BY THE LD. AR. 15.7 (6) WHETHER CRUSHING GRINDING SIEVING DONE AT SILVASSA CAN BE CALLED TO BE MANUFACTURING PROCESS. THIS IS THE MOST CRUCIAL AND RELEVANT ASPECT OF ENT IRE DISCUSSION. AS HELD ABOVE WHAT WAS DONE AT AHMEDABAD WAS AN INTERMEDIA TE STAGE. IT WAS A MANUFACTURING PROCESS IN ITSELF AND WHAT IS DONE AT SILVASSA IS THE FINAL STAGE AND IT HAS TO BE SEEN WHETHER IT CAN ALSO BE A MANU FACTURING PROCESS. BOTH THE SIDES CITED LARGE NUMBER OF AUTHORITIES IN RESP ECT OF THEIR ARGUMENTS. BEFORE APPLYING THE PRINCIPLES LAID DOWN IN THOSE A UTHORITIES WE FURTHER ANALYZE AS TO THE EXACT NATURE OF PROCESSING DONE A T SILVASSA. 15.8 AHMEDABAD UNIT DISPATCHES FMA SLABS WHICH ARE OF VERY LARGE SIZE 100MM TO 400MM. THESE ARE RECTANGLE SLABS OF DIFFER ENT SHAPES HAVING BUMPS OR TOUGHS RESULTING FROM MELTING AND COOLING PROCESS. IT HAS EDGES AND AS SUCH IT CANNOT BE USED BY VARIOUS INDUSTRIES TO WHOM ASSESSEE SELLS FMA. AT SILVASSA THESE SLABS ARE CRUSHED BY JAW CRU SHERS. THEN GRINDED TO MAKE GRANULES AND DURING PROCESS OF GRINDING SMALL PIECES CALLED CHIPS AND POWDER IS FORMED. SIZE OF GRANULES IS ABOUT 4 TO 10 MM SIZE OF CHIPS IS OF ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 68 ABOUT 1 TO 3 MM AND POWDER CONTENTS OF FMA OF VERY SMALL SIZE OF LESS THAN 1 MM. IT IS INFORMED BY THE METALLURGICAL ENGINEERS OF THE ASSESSEE COMPANY DURING THE COURSE OF HEARING THAT IN THE SL AB AT VARIOUS LEVEL DIFFERENT PROPORTION OF IRON AND MOLYBDENUM IS SETT LED. WHERE PERCENTAGE OF MOLYBDENUM IS HIGHER GRANULES ARE FORMED WHILE CRUS HING AS IT GIVES HIGHER STRENGTH TO THE ALLOY AND BECOMES DIFFICULT TO FURT HER CRUSH UNLESS LARGER FORCES IS APPLIED. WITH CALCULATED FORCE APPLIED GR ANULES AND CHIPS AND POWDER ARE FORMED. ALL THE THREE ITEMS CONTAIN DIFF ERENT PROPORTION OF IRON AND MOLYBDENUM. ALL THE THREE PRODUCTS ARE PURCHASE D BY DIFFERENT INDUSTRIES DEPENDING UPON THEIR REQUIREMENTS OF CAT ALYST. IT IS INFORMED TO US THAT LUMPS AND GRANULES ARE USED BY STEEL PLANTS C HIPS ARE USED BY FOUNDRY AND CASTING UNITS AND POWDER IS USED BY ELECTRODE I NDUSTRIES. ALL THESE INDUSTRIES USE CATALYSTS AGENT CONTAINING DIFFERENT PERCENTAGE OF IRON AND MOLYBDENUM. THEREFORE WHEN WE COMPARE THE SLABS RE CEIVED FROM AHMEDABAD UNIT WITH GRANULES CHIPS AND POWDER FORM ED AT SILVASSA UNIT WE NOTICE THAT THE FOUR ITEMS I.E. INITIAL MATERIAL I.E. FMA AND FINAL PRODUCTS GRANULES CHIPS AND POWDER FORMED AT SILVASSA VARY IN PHYSICAL AND CHEMICAL COMPOSITION. THEY ARE DIFFERENT COMMODITIES EVEN TH OUGH THEIR NAME IS FMA. COMMON NAME AS SUCH DOES NOT MAKE THE COMMODIT Y SAME AS IT IS USED BY VARIOUS INDUSTRIES DEPENDING UPON THE SIZES AND THE CHEMICAL COMPOSITIONS WOULD VARY AS PER SIZE. THE LD. DR HAS MERELY FOCUSED HIMSELF ON THE COMMONNESS OF THE NAME. PRIOR TO CRUSHING AC CORDING TO HIM WAS FMA AND AFTER CRUSHING GRINDING AND SIEVING AGAIN IT IS FMA. THUS ACCORDING TO THE LD. DR INITIAL RAW MATERIAL AND FI NAL PRODUCT BEING THE SAME THERE CANNOT BE ANY MANUFACTURING ACTIVITY IN THE W HOLE PROCESS OF CRUSHING GRINDING AND SIEVING. BUT REALLY THE ACT DOES NOT S TOP AT THIS. WE HAVE TO SEE WHAT IS THE PHYSICAL SIZE AND WHAT IS THE CHEMICAL COMPOSITION OF END ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 69 PRODUCT AND WHERE IT IS USED. AS OBSERVED ABOVE PH YSICAL SIZES OF THE THREE PRODUCTS VARY. THEY ARE NOT REPLACEABLE BY EACH OTH ER. WHERE GRANULES ARE USED CHIPS OR POWDER CANNOT BE USED. SIMILARLY WHER E OTHER TWO ARE USED GRANULES CANNOT REPLACE THEM. IT IS SIMPLY BECAUSE OF PROPERTY OF CHEMICAL ACTIVATION AS CATALYST DIFFERENT INDUSTRIES USE THE DIFFERENT PRODUCT. THERE IS NO MATERIAL TO HOLD THAT STEEL INDUSTRY OR FOUNDRY INDUSTRY COULD USE POWDER OR ELECTRODE INDUSTRIES CAN CARRY ON WITH THE WORK WITH GRANULES OR CHIPS. WE THEREFORE HOLD THAT WHEN SLABS ARE CRUSHED GR INDED AND SIEVED THREE DIFFERENT PRODUCTS ARE FORMED WHICH ARE COMMERCIALL Y DIFFERENT IN USE BECAUSE OF THEIR DIFFERENT PHYSICAL AND CHEMICAL PR OPERTIES. 16. NOW WE CONSIDER HOW THE COURTS HAVE DEALT WITH SIMILAR ISSUES AND HOW UNDER WHAT CONDITIONS THEY HAVE DEALT CERTAIN P ROCESS AS MANUFACTURE OR PRODUCTION. BOTH THE PARTIES HAVE REFERRED TO SEVER AL JUDGMENTS WHICH MORE OR LESS CONFIRM TO THE SAME PROPOSITION AS TO WHAT SHOULD BE MANUFACTURE AND WHAT SHOULD NOT. 16.1 ITAT (CHENNAI BENCH) IN VINBROS AND CO. VS. ITO (2008) 297 ITR (AT) 280 (ITAT CHENNAI) HELD THAT WHERE AFTER CARRY ING ON PROCESS A DIFFERENT COMMODITY EMERGES IT WOULD BE A MANUFACTU RE. IN THAT CASE THE ISSUE WAS WHETHER UNDERTAKING WAS CARRYING OUT ANY MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THINGS FOR THE PURPOSE OF DEDUCTION U/S 80IB. THE RAW MATERIAL USED WAS RECTIFIED SPIRIT AND WHAT WERE MANUFACTURED WERE BEAR WINE AND OTHER ALCOHOLIC SPIRITS. IT WAS HELD THAT THE END PRODUCT WAS QUITE DIFFERENT THAN THE RECTIFIED SPIRIT WHICH WAS CONVERTED INTO BEAR WINE AND OTHER ALCOHOLIC SPIRITS EVEN THOUGH BASICALLY T HEY WOULD BE ALCOHOLIC. THE RAW MATERIAL INCLUDING RECTIFIED SPIRIT ARE NOT FIT FOR CONSUMPTION BY ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 70 HUMAN BEING BUT THE END PRODUCT BEING IMFL POTABLE AND IS SO RECOGNIZED IN THE TRADE. 16.2 IN ACIT VS. NATIONAL LAMINATION INDUSTRIES (20 07) 295 ITR (AT) (ITAT AHMEDABAD) HELD THAT WHERE RAW MATERIAL USED WAS CRGO COILS WHEREAS ITEMS WHICH EMERGED AFTER VARIOUS PROCESSES IS CALLED TRANSFORMER CORE. IT WAS UNDISPUTED THAT CRGO COILS CANNOT BE U SED IN A TRANSFORMER UNLESS ALL THE PROCESSES ARE COMPLETED AND THE END PRODUCT AS SUCH IS FORMED. THUS THERE CANNOT BE ANY DISPUTE THAT DUE TO VARIO US PROCESSES THE PRODUCT SO FOUND I.E. THE CORE OF THE TRANSFORMER IS OF A D ISTINCT NAME AND USE. BY THIS PROCESS THE RAW MATERIAL LOOSES ITS IDENTITY AND N EW PRODUCT COMES INTO EXISTENCE WHICH IS COMMERCIALLY RECOGNIZED AS A NEW PRODUCT. THE ASSESSEE WAS HELD ENTITLED TO DEDUCTION U/S 80 IB. 16.3 IN CIT VS. JAMAL PHOTO INDUSTRIES (I) P. LTD. (2006) 285 ITR 209 (MAD) THE HONBLE MADRAS HIGH COURT HELD THAT THE EXPRESSION MANUFACTURE INVOLVES THE CONCEPT OF CHANGES AFFECTED TO A BASIC RAW MATERIAL RESULTING IN THE EMERGENCE OF A FINISHED PRODUCTS INTO A NEW COM MERCIAL COMMODITY. IT IS NOT NECESSARY THAT ORIGINAL ARTICLE OR MATERIAL SHOULD HAVE LOST ITS IDENTITY COMPLETELY. ALL THAT IS REQUIRED IS TO FIND OUT WHE THER AS RESULT OF OPERATION/PROCESS CARRIED OUT A TOTALLY DIFFERENT COMMODITY HAS BEEN PRODUCED HAVING ITS OWN NAME IDENTITY AND CHARACTE R OR END USE. IN THAT CASE THE ASSESSEE USED NEGATIVE FILMS AND EXPOSED THEM INTO PRINTED POSITIVE PHOTOS. THE ASSESSEE WAS HELD AS INVOLVED IN MANUFA CTURING ACTIVITIES AS THE FINAL PHOTOS WERE DIFFERENT THAN THE ORIGINAL OR NE GATIVE. 16.4 IN CIT VS. PREMIER TOBACCO PACKERS P. LTD. (20 06) 284 ITR 222 (MAD) THE HONBLE MADRAS HIGH COURT HELD THAT THE WORD MANUFACTURE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 71 SHOULD BE GIVEN A MEANING AS IS UNDERSTOOD IN A COM MON PARLANCE. IT IS TO BE UNDERSTOOD TO MEAN THE PRODUCTION OF AN ARTICLE FOR USE DIFFERENT FROM THE RAW MATERIAL BY GIVING THEM A NEW QUALITY OR COMBIN ATION WHETHER BY HAND LABOUR OR MACHINES WHICH RESULTS INTO A NEW AND DIS TINCT ARTICLE IS PRODUCES. IT WOULD AMOUNT TO MANUFACTURING ACTIVITIES. IN THA T CASE THE ASSESSEE WAS PROCESSING AND REDRYING THE VIRGINIA FLAVORED TOBAC CO (VFT) CONVERTED INTO LAMINA N.R.STAMPS WHICH WERE USED IN MANUFACTURE OF CIGARETTE. THE RAW MATERIAL I.E. VIRGINIA FLAVORED TOBACCO (VFT) CANN OT BE USED DIRECTLY FOR MANUFACTURE OF CIGARETTE. THE END PRODUCT I.E. VIR GINIA AND LAMINA ARE DIFFERENT FROM VFT. THEREFORE CONVERSION OF VFT IN TO LAMINA N.R.STAMPS WOULD BE MANUFACTURING ACTIVITY. 16.5 IN CIT VS.JANSONS & CO.(2006) 283 ITR 175 (ALL ) THE HONBLE ALLAHABAD HIGH COURT HELD THAT WORD PRODUCTION H AS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. WHILE EVERY MANUFACTUR E CAN BE CHARACTERIZED AS PRODUCTION EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE. IN THAT CASE THE ASSESSEE USED TO PURCHASE KORAMAL FROM KA RKHANEDARS IN PIECES CARRIED OUT PROCESS OF WELDING POLISHING LACQUERI NG ENGRAVING AND CREAMING ETC. CONVERTED INTO A FINISHED PRODUCT SA LEABLE IN THE MARKET. IT WAS HELD TO BE PRODUCING THE GOODS WITHIN THE MEANI NG OF SECTION 35B (A). 16.6 IN SHIP SCRAP TRADERS AND OTHERS VS. CIT (2001 ) 125 ITR 806 (BOM) THE HONBLE BOMBAY HIGH COURT HELD THAT EXPRESSION MANUFACTURE IN ORDINARY ACCEPTANCE IS OF WIDE CONNOTATION. IT MEAN S MAKING OF ARTICLE OR MATERIAL COMMERCIALLY DIFFERENT FROM THE BASIC COMP ONENT BY PHYSICAL LABOUR OR MECHANICAL PROCESS. THE WORD PRODUCTION O R PRODUCE WHEN USED IN JUXTAPOSITION WITH MANUFACTURE TAKES IN BRINGING I NTO EXISTENCE OF NEW ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 72 GOODS BY THE PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IN THAT CASE THE ASSESSEE WAS ENGAGED IN SHIP BREAKING OL D SHIPS WERE BROUGHT FOR THE PURPOSE OF BREAKING. MOST OF THE SHIPS ARE IMPO RTED FROM INTERNATIONAL MARKETS. WHAT IS PURCHASED IS SHIP AND NOT MERELY S CRAP. THUS SHIPS I.E. RAW MATERIAL HAS A SEPARATE IDENTITY WHICH IS AN INPUT IN THE SHIP BREAKING INDUSTRY. IN THE COURSE OF BRAKING ACTIVITIES THE S HIP LOOSES ITS IDENTITY AND RESULTS IN PRODUCTION OF SEVERAL ITEMS SUCH AS (1) FERROUS METALS (I) RE- ROLLABLE STEEL (II) MELTING STEEL (III) CAST IRON S CRAP (2) NON-FERROUS METALS LIKE (I) ALUMINIUM (II) BRASS (III) COPPER (3) NON -METALLIC ITEMS LIKE (I) PVC MATERIAL (II) WOODEN MATERIAL ETC. THESE ITEMS ARE USED AS RAW MATERIAL IN OTHER INDUSTRIES. THUS SCRAP AND STEEL OBTAINED BY DISMANTLING AND BREAKING OF THE SHIP MUST BE REGARDED AS DIFFERENT COMMERCIA L COMMODITY FROM THE SHIP ITSELF AND THIS ACTIVITY WOULD AMOUNT TO MANUF ACTURE. THE ASSESSEE WAS HELD TO BE ENTITLED TO DEDUCTION U/S 80 HHA AND 80 I. 16.7 IN CIT VS. ABDUL AHAD NAJAR (2001) 248 ITR 744 (J & K) THE HONBLE JAMMU & KASHMIR HIGH COURT IN THE CONTEXT OF SECTION 80 J HELD THAT DICTIONARY MEANING OF MANUFACTURE IS TO TRANSF ORM OR FASHION NEW MATERIALS INTO A CHANGED FORM FOR USE. IN COMMON PA RLANCE MANUFACTURE MEANS PRODUCTION OF ARTICLES FROM THE RAW OR PREPAR ED MATERIALS BY GIVING THOSE NEW FORMS QUALITIES PROPERTIES OR COMBINATI ON WHETHER BY HAND- LABOUR OR BY MACHINERY. IN OTHER WORDS IT MEANS MA KING OF ARTICLES OR MATERIALS COMMERCIALLY DIFFERENT FROM BASIC COMPONE NT BY PHYSICAL LABOUR OR MECHANICAL PROCESS. IN THAT CASE THE ASSESSEE U SED TO PURCHASE TREES AND CUT THEM INTO LOG AND PLANKS. THESE LOGS AND PLANKS WERE DIFFERENT FROM STANDING TREES. A COMMON MAN WHO WANTS TO PURCHASE LOGS OR PLANKS WOULD NOT PURCHASE A STANDING TREE. THE MOST PRIMARY FORM IN WHICH TIMBER SOLD IN ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 73 THE MARKET IS IN THE FORM OF LOG AND PLANKS. THUS CUTTING OF TIMBER AND CONVERSION OF TIMBER OBTAINED THERE-FROM INTO LOGS AND PLANKS CAN BE DONE EITHER BY MANUAL LABOUR OR BY MECHANICAL PROCESS AN D THIS ACTIVITY WOULD AMOUNT TO MANUFACTURING PROCESS. 16.8 IN CIT VS. DARSHAK LTD. (2001) 247 ITR 489 (KA R) THE HONBLE KARNATAKA HIGH COURT HELD THAT MANUFACTURE WOULD IM PLY A CHANGE AND TRANSFORMATION. A NEW AND DIFFERENT ARTICLE MUST EM ERGE HAVING A DISTINCT AND DIFFERENT CHARACTER AND USE. IN THAT CASE THE A SSESSEE WAS TRANSFORMING THE BLANK GLASSWARE INTO DECORATIVE GLASSWARE WITH PROCESS WHICH WAS IRREVERSIBLE AND END PRODUCT WAS DISTINCT AND DIFFE RENT IN CHARACTER.IT WAS MARKETED AS A COMMODITY DIFFERENT FROM PLAIN GLASS. THE ASSESSEE WAS HELD TO BE ENTITLED TO THE BENEFIT OF SECTION 80 I. 16.9 IN CIT VS.ECO TECH FOUNDATIONS AND CONSTRUCTIO N (2000) 241 ITR 90 (KER) THE HONBLE KERALA HIGH COURT HELD THAT TEST FOR DETERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN PLACE IS WHET HER COMMODITY WHICH IS SUBJECTED TO THE PROCESS OF MANUFACTURE CAN NO LONG ER BE REGARDED AS ORIGINAL COMMODITY BUT IS RECOGNIZED IN THE TRADE A S A NEW AND DISTINCT COMMODITY. IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE EXECUTION OF PILL FOUNDATION WORK AND IT WAS HELD THAT THE ASSESSEE I S NOT ENGAGED IN ANY MANUFACTURING ACTIVITIES. 16.10 IN CIT VS. LUCKY MINERALS (P) LTD. (1977) 226 ITR 245 (RAJ) THE HONBLE RAJASTHAN HIGH COURT HELD THAT THE WORD MAN UFACTURE IMPLIES CHANGE BUT EVERY CHANGE IS NOT MANUFACTURE ALTHOUGH EVERY CHANGE IN ARTICLE IS A RESULT OF TREATMENT LABOUR AND MANIPULATION. TO BRING ABOUT THE CHANGE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 74 QUALIFYING AS MANUFACTURE SOMETHING MORE IS NECESS ARY AND THAT SOMETHING IS TRANSFORMATION OF THE ORIGINAL RAW MATERIAL INTO A NEW DISTINCT AND DIFFERENT ARTICLE HAVING NEW IDENTITY NAME CHARACT ER OR USE. WHERE THE COMMODITY RETAINS A CONTINUING SUBSTANTIAL IDENTITY EVEN THROUGH THE PROCESSING STAGE IT CANNOT BE SAID THAT IT HAS BEEN MANUFACTURED. 16.11 IN ROMIT KUMAR SHARMA (2009) 309 ITR 344 (AAR ) THE AUTHORITY FOR ADVANCE RULING HELD THAT THE ESSENCE OF MANUFAC TURING IS THAT WHAT IS MADE SHALL BE A DIFFERENT THING FROM THAT OUT OF WH ICH IT IS MADE DESPITE THE ORIGINAL MATERIAL NOT LOSING ITS IDENTITY COMPLETEL Y. IN THAT CASE THE ASSESSEE WAS PROCESSING RAW-CASTING AND ITS PRIMARY JOB WAS TO PROVIDE MILLING TOOLING AND GRINDING OF THE SURFACE OF THE NEW CAST INGS OF THE REAR COVER AND DIFFERENTIAL HOUSING OF A TRACTOR. THE PROCESSING W AS DONE THROUGH A SPECIAL PURPOSE MACHINE SPECIAL JIGS AND JAGS AND TOOLS. P URSUANT TO PROCESSING FRESH CASTINGS WERE MANUFACTURED TO HAVE COMPATIBIL ITY INTO TRACTOR PARTS. IT WAS HELD THAT MECHANICAL PROCESS SO APPLIED TO RAW- CASTINGS WOULD BRING INTO EXISTENCE OF A COMMERCIALLY NEW GOODS. THE RAW -CASTINGS PASSED THROUGH INSPECTION DRILL TOOLING AND MILLING PROCE SS ON MACHINERIES ON ITS ROUGH SURFACES THEIR CONTOURS WERE CHISELLED AND R EFINED. PURSUANT THERETO THE RAW CASTS UNDERWENT SUBSTANTIAL CHANGE RESULTIN G INTO COMMERCIALLY DIFFERENT PRODUCT WITH DISTINCTIVE NAME CHARACTER AND USE CALLED MACHINE CASTINGS. IT WAS HELD THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE OR PRODUCTION OF ARTICLES DIFFERENT FROM RAW-CASTINGS ENTITLED TO DEDUCTION U/S 80 IC (2). 16.12 IN CIT VS. STERLING FOODS (GOA) (1995) 213 IT R 851 (BOM) HONBLE BOMBAY HIGH COURT HELD THAT THE 3 EXPRESSIONS NAMEL Y PROCESSING ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 75 MANUFACTURE AND PRODUCTION USED IN VARIOUS TAXING S TATUTES ARE NOT INTER- CHANGEABLE EXPRESSIONS. THEY ARE OFTEN USED IN JUXT APOSITION. BUT THEY CONVEY DIFFERENT CONCEPTS AND REFER TO DIFFERENT AC TIVITIES. PROCESSING IS MUCH WIDER CONCEPT. EVERY PROCESS DOES NOT AMOUNT T O MANUFACTURE. IT IS ONLY WHEN PROCESS RESULTS INTO THE EMERGENCE OF A N EW AND DIFFERENT ARTICLE HAVING DISTINCTIVE NAME CHARACTER AND USE THAT MA NUFACTURING CAN BE SAID TO HAVE TAKEN PLACE. SIMILARLY PRODUCTION IS WIDER THAN MANUFACTURE. 16.13 THE HONBLE SUPREME COURT IN ITO VS. ARIHANT TILES AND MARBLES (P) LTD. (2010) 320 ITR79 (SC) CONSIDERED THE CASE OF A N ASSESSEE WHICH WAS ENGAGED IN CUTTING OF MARBLE BLOCKS INTO SLABS. IT WAS APPLYING SEVERAL STEPWISE ACTIVITIES ON THE MARBLE BLOCKS. IT WAS F OUND THAT MARBLE BLOCKS WERE CONVERTED INTO POLISHED SLABS AND TILES BUT OR IGINAL BLOCK DID NOT REMAIN THE SAME IT BECAME SLABS OR TILES. SUCH ACT IVITY RESULTED INTO EMERGENCE OF A NEW AND DISTINCT COMMERCIAL COMMODIT Y AND ONLY AMOUNT TO MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80 IA . 16.14 IN INDIAN CINE AGENCIES VS. CIT (2009) 308 IT R 98 (SC) HONBLE SUPREME COURT CONSIDERED THE CASE OF AN ASSESSEE WH O CONVERTED JUMBO ROLLS OF PHOTOGRAPHY FILMS INTO SMALL FLATS AND ROL LS IN DESIRED SIZES. IT WAS HELD THAT IT AMOUNTED TO MANUFACTURE OR PRODUCTION FOR THE PURPOSE OF ALLOWANCES U/S 32AB 80 HH AND 80 I OF THE ACT. 16.15 IN CIT VS. PRABHUDAS KISHORDAS TOBACCO PRODUC TS P. LTD. (2006) 282 ITR 568 (GUJ) HONBLE GUJARAT HIGH COURT CONSIDERED THE CASE OF A TOBACCO DEALER WHO WAS BUYING TENDU LEAVES AND TOBACCO. ASS ESSEE HAD HIRED CONTRACT WORKERS WHO ROLLED THE LEAVES INTO BIDIS W HICH WAS SOLD UNDER ITS BRAND NAME. IT WAS HELD THAT TENDU LEAVES AND TOBAC CO WHICH WERE USED AS ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 76 INPUTS DO NOT RETAIN THEIR INDEPENDENT IDENTITY AFT ER THE BIDIS ARE PRODUCED AFTER UNDERGOING VARIOUS PROCESSES. COMMERCIALLY T HE FINAL PRODUCT IS KNOWN AS DIFFERENT COMMODITY AND HAS A SEPARATE MAR KET. IT WAS HELD THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF BIDIS ENTITLED TO DEDUCTION U/S 80 HH AND 80 I. 16.16 THE HONBLE SUPREME COURT IN CIT VS. EMPTY PO LY-YARN (P) LTD. (2010) 320 ITR 665 (SC) CONSIDERED THE CASE OF AN I NDUSTRIAL UNDERTAKING WHICH WAS USING POY (PARTIALLY ORIENTED YARN) AS IN PUT CRIMPS BULKINESS ETC. ARE INTRODUCED BY THE PROCESS CALLED THERMO ME CHANICAL PROCESS WHICH CONVERTED POY INTO TEXTURISED YARN. THE THERMO MECH ANICAL PROCESS BRINGS ABOUT A STRUCTURAL CHANGE IN THE YEARN ITSELF WHICH IS ONE OF THE IMPORTANT TESTS TO BE SEEN WHILE JUDGING WHETHER A PROCESS IS MANUFACTURING OR NOT. IT WAS HELD THAT TWISTING AND TEXTURISING OF POY AMOUN TS TO MANUFACTURING FOR THE PURPOSE OF SECTION 80IA. 16.17. THE CONCEPT OF MANUFACTURE WAS FURTHER EXPLA INED BY HONBLE SUPREME COURT IN CIT VS. ORACLE SOFTWARE INDIA LTD. (2010) 320 ITR 546 (SC) WHERE IT WAS HELD THAT AFTER OPERATION/PROCESS RENDERED A COMMODITY FIT FOR USE FOR WHICH IT WOULD OTHERWISE NOT BE FIT TH E OPERATION OR THE PROCESS WOULD FALL WITHIN THE MEANING OF THE WORD MANUFACTU RE. IN THAT CASE THE ASSESSEE WAS UNDERTAKING AN OPERATION WHICH RENDERE D THE BLANK CD FIT FOR USE FOR THE PURPOSE FOR WHICH IT WOULD OTHERWISE NO T BE FIT. THE BLANK CD WAS AN INPUT. BY DUPLICATING THE PROCESS UNDERTAKEN BY THE ASSESSEE THE RECORDABLE MEDIA OR THE PROGRAMMES WERE EMBEDDED TH EREIN FROM MASTER MEDIA AND THUS BLANK CD WAS CONVERTED INTO RECORDED CD BY SUCH AN INTEGRATED PROCESS. THE DUPLICATING PROCESS CHANGED THE BASIC CHARACTER OF A ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 77 BLANK CD WHICH BECAME MARKETABLE FOR A SPECIFIC USE . WITHOUT SUCH PROCESSING BLANK CDS WOULD BE NOT FIT FOR THEIR I NTENDED PURPOSES. IT WAS HELD THAT IT WOULD AMOUNT TO MANUFACTURE IN TERMS O F SECTION 80IA READ WITH SECTION 33B. 16.18 THE HONBLE SUPREME COURT IN CIT VS. TARA AGE NCIES (2007) 292 ITR 444 (SC) WAS CONSIDERING THE CASE OF AN ASSESSEE W HO WAS MIXING DIFFERENT KINDS OF TEA AND MAKING DIFFERENT TYPE OF BLENDED T EA. IT WAS HELD THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING. IT CAN A T BEST BE SAID TO BE PROCESSING. 16.19 THERE ARE VARIOUS OTHER AUTHORITIES WHICH HA VE ALREADY BEEN REFERRED TO ABOVE WHILE CONCISING THE ARGUMENTS OF THE PARTI ES. SINCE THESE AUTHORITIES MORE OR LESS CONFIRM THE VIEWS REFERRED TO ABOVE W E DO NOT CONSIDER IT NECESSARY TO REFER TO THEM SEPARATELY. 17. AFTER CAREFUL STUDY OF ALL THE ABOVE AUTHORITIE S REFERRED TO BY THE PARTIES AND ALSO AS ABOVE WE CAN CULL OUT THE FOLL OWING PRINCIPLES: (A) THE ASSESSEE USES AN INPUT APPLIES CERTAIN PRO CESS AND OUTPUT IS OBTAINED. (B) THE PROCESS CAN BE MANUAL OR THROUGH MACHINERIE S OR COMBINATION OF THE TWO. (C) OUTPUT IS DIFFERENT THAN THE INPUT IN PHYSICAL SHAPE OR COMPOSITION OR IN USE. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 78 (D) THE OUTPUT IS KNOWN BY A DIFFERENT NAME IN THE COMMERCIAL WORLD AS COMPARED TO THE INPUT. (E) IT IS NOT MATERIAL THAT PHYSICAL OR CHEMICAL C OMPOSITION OF THE INPUTS AND OUTPUTS SHOULD BE DIFFERENT. WHAT IS MA TERIAL IS THE USE OF THE OUTPUTS AND CANNOT BE REPLACED BY THE INPUTS. 18. WHEN WE APPLY THE ABOVE PRINCIPLES TO THE INPUT PROCESS AND OUTPUT CARRIED OUT BY THE ASSESSEE WE FIND THAT - (I) THE INPUT IS THE FMA SLABS BROUGHT FROM AHMEDAB AD UNIT. IT IS A SEMI-FINISHED PRODUCT HAVING VERY LARGE SIZE OF 1 00 MM TO 400 MM. IT HAS VARYING CONTENTS OF MOLYBDENUM IRON AND SIL ICON WHICH VARY ACCORDING TO THE TIME GIVEN FOR FREEZING TO THE M ELTED MIXTURE OF IRON MOLYBDENUM AND SILICON AND ALSO TO PERCENTAG E OF SILICON AND IRON MELTED WITH MOLYBDENUM. AS PER THE CERTIFICATE S RELIED UPON BY THE LEARNED AR AND NOT CONTROVERTED BY THE REVENUE THE FLUID DYNAMIC OF THE MOLTEN MASSES I.E. MOLYBDENUM IRON AND SILI CON DEPENDS UPON COOLING RATES AND FREEZING OF THE DIFFERENT COMPONE NTS CONTAINED IN THE MIXTURE. THIS CAN CHANGE THE MOLYBDENUM FROM 60 % TO 75% AT THE EXTREME I.E. FROM THE TOP TO THE BOTTOM. MOLYBD ENUM HAS HIGHER SPECIFIC GRAVITY WHICH SETTLES DOWN FASTER AS COMPA RED TO OTHER COMPONENTS I.E. SILICON AND IRON. THEREFORE IF HIG HER TIME IS ALLOWED FOR FREEZING GREATER QUANTITY OF MOLYBDENUM WILL S ETTLE DOWN AT THE BOTTOM AND LESSER QUANTITY AT THE TOP. THEREFORE T HE SLABS I.E. THE INPUT CONTAINS VARYING AMOUNT OF MOLYBDENUM IN ITS DIFFER ENT PARTS. THE LOWER PART OF THE SLABS CONTAINS HIGHER QUANTITY OF MOLYBDENUM AS ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 79 COMPARED TO THE HIGHER PART OF THE SLAB WHICH HAS L ESSER QUANTITY OF MOLYBDENUM. (II). THE PROCESS APPLIED TO THE SLABS IS CRUSHING GRINDING AND FINALLY SIEVING. WHEN FMA SLABS ARE CRUSHED THROUGH A CRUSHER THE PARTS HAVING HIGHER CONTENTS OF MOLYBDENUM CONVERT INTO RUBBLES OR LUMPS BECAUSE THEY CANNOT BE EASILY BROKEN. THE MID DLE PART OF THE SLABS CONTAINS LESSER QUANTITY OF MOLYBDENUM AND TO P PART OF THE SLABS GETS CONVERTED INTO POWDER AT CONTENTS EVEN FURTHER LESSER QUANTITY OF MOLYBDENUM. THEREFORE THE PROCESS AS APPLIED CREAT ES THE PRODUCTS WHICH HAVE DIFFERENT SIZE AND DIFFERENT CHEMICAL CO MPOSITION CONTAINING DIFFERENT PROPORTION OF MOLYBDENUM IRON AND SILICON. THEY HAVE DIFFERENT NAMES. THEY HAVE DIFFERENT COMM ERCIAL USE. THE LARGER PIECES ARE CALLED LUMPS OR RUBBLES. THEY CON TAIN HIGHER PERCENTAGE OF MOLYBDENUM. POWDER CONTAINS LESSER Q UANTITY OF MOLYBDENUM. THEY ARE VERY FINE GRANULES OF LESS THA N 1 MM IN SIZE. THE LUMPS HAVE HIGHER DEGREE OF MELTING POINT WHICH IS 1700 DEGREE CENTIGRADE CHIPS HAVE LOWER MELTING POINT WHICH IS 1300 DEGREE CENTIGRADE WHEREAS POWDERS HAVE FURTHER LOWER MELTI NG POINT WHICH IS 1100 DEGREE CENTIGRADE. (III). THE 3 PRODUCTS OBTAINED AFTER APPLYING THE ABOVE PROCESS ARE KNOWN WITH DIFFERENT COMMERCIAL NAMES LIKE FMA LUMP S FMA CHIPS AND FMA POWDER. THEY ARE USED BY DIFFERENT IN DUSTRIES.THE LUMPS/GRANULES ARE USED BY IRON INDUSTRIES CHIPS A RE USED BY FOUNDRY INDUSTRIES AND POWDERS ARE USED BY ELECTRODE INDUST RIES. THE SLABS BROUGHT FROM AHMEDABAD UNIT ARE AS SUCH NOT REGARDE D AS SALEABLE ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 80 EXCEPT TO SIMILAR INDUSTRIES WHICH WOULD CONVERT TH E SLABS INTO LUMPS CHIPS AND POWDER. 19. THUS APPLYING THE ABOVE PRINCIPLES TO THE FACTS OF PRESENT CASE WE EASILY COME TO THE CONCLUSION THAT WHAT THE ASSESSE E IS DOING AT SILVASA IS MANUFACTURING. FOR ARRIVING AT THIS CONCLUSION WE N EED NOT GO INTO THE DISPUTED ISSUE AS TO WHETHER THE ASSESSEE IS HAVING ANY LABORATORY OR TESTING FACILITY AT SILVASA OR WHETHER RAW MATERIAL AS SUCH WAS DIRECTLY IMPORTED TO SILVASA OR WAS DIRECTLY TAKEN TO AHMEDABAD. IN BRI EF THE PROCESS OF CRUSHING GRINDING AND SIEVING FMA SLABS INTO LUMPS CHIPS AND POWDER CREATES THREE END PRODUCTS WHICH HAVE DIFFERENT PHY SICAL SHAPES DIFFERENT CHEMICAL COMPOSITION OF IRON MOLYBDENUM AND SILICO N AND HAVE DIFFERENT CHEMICAL PROPERTIES SUCH AS DIFFERENT MELTING POINT S AND ARE USED BY DIFFERENT INDUSTRIES. THEIR USE IS NOT INTER-CHANGE ABLE IN THE PLACE OF LUMPS CHIPS OR POWDER OR SLABS AS SUCH CANNOT BE USED. TH ESE END PRODUCTS ARE KNOWN BY DIFFERENT NAMES IN COMMERCIAL WORLD AND TH EREFORE THE PROCESS EMPLOYED BY THE ASSESSEE WOULD AMOUNT TO MANUFACTUR E AND THEREFORE THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 80 IB. WE ACCORDINGLY CONFIRM THE ORDER OF THE LEARNED CIT(A) ON THIS POINT. 20. THUS ABOVE DISCUSSION DISPOSES OF THE APPEALS O F THE REVENUE FOR ASST. YEAR 2000-01 2001-02 2002-03 2003-04 AND 2 004-05 WHICH ARE AS PER ABOVE DISCUSSION DISMISSED BY UPHOLDING THE ORD ER OF LD. CIT(A). C.O. NO.171/AHD/2008 IN ITA NO.2339/AHD/2008 ASST. YEAR 2005-06 (ASSESSEES C.O.) 21. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN IT S CROSS OBJECTION :- ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 81 (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN REJECTING THE ASSESSEES CLAIM THAT FOR QUANTIFI CATION OF DEDUCTION U/S 80IB THE CREDIT BALANCES IN THE FOLLO WING THREE ACCOUNTS WERE REQUIRED TO BE CONSIDERED AS INCOME D ERIVED FROM THE ELIGIBLE BUSINESS. (I) EXCISE INCOME (II) INTEREST ON FD AND LC (III) INSURANCE CLAIM RECEIVED FOR DAMAGES ON GOODS (2) WITHOUT PREJUDICE ON THE FACTS AND CIRCUMSTANCES O F THE CASE IN RESPECT OF THE INTEREST INCOME ASSESSEES CLAIM OF FULL INCLUSION SHOULD HAVE BEEN ACCEPTED IN PRINCIPLE AND IT WAS N OT SUFFICIENT TO GRANT RELIEF BY WAY OF ONLY NETTING OFF INTEREST IN COME AGAINST EXPENDITURE. (3) THE RESPONDENT CRAVES LEAVE TO ADD ALTER AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BE FORE OR DURING THE COURSE OF HEARING OF THE SAME. ASSESSEES CROSS OBJECTION 21.1 THE FIRST ISSUE IS ABOUT EXCISE INCOME. IT WAS CLAIMED THAT EXCISE DUTY ELEMENT IS PART OF THE CLOSING STOCK. THUS WHEREVER EXPENSES OF EXCISE DUTY IS CLAIMED IT REDUCES THE PROFIT THEN IF EXCISE INC OME IS RECEIVED THEN IT WOULD GO TO REDUCE THE COST BY SET OFF AGAINST THE EXCISE EXPENSES. HENCE EXCISE DUTY REFUND IS PART OF PROFIT OF THE INDUSTR IAL UNDERTAKING. 21.2 WE HAVE HEARD THE PARTIES. THE ISSUE IS NOW CO VERED BY THE DECISION OF HON. DELHI HIGH COURT IN THE CASE OF DHEVCHAND P REMCHAND (2009) 317 ITR 353 (DEL) WHEREIN IT IS HELD THAT REFUND OF EXC ISE DUTY WAS PIVOTED ON THE MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESS EE. THE ASSESSEE AT THE TIME OF PAYMENT OF EXCISE DUTY DEBITED IT IN THE P ROFIT AND LOSS ACCOUNT AND UPON THE RECEIPT OF THE REFUND CREDITED THE PROFIT AND LOSS ACCOUNT. THE NET ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 82 EFFECT WOULD BE NIL AND THEREFORE THERE IS NO REA SON TO EXCLUDE THE EXCISE DUTY IN ARRIVING AT PROFIT DERIVED FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80IB. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR O F THE ASSESSEE. 21.3 THE NEXT ISSUE IS ABOUT INTEREST ON F.D. AND N SC. IT WAS CLAIMED THAT ASSESSEE HAS TO OPEN A LETTER OF CREDIT FOR IMPORTI NG MATERIAL AND FOR THAT PURPOSE IT HAS TO MAKE FD WITH THE BANKS ON WHICH I NTEREST IS EARNED. THEREFORE ACCORDING TO THE ASSESSEE SUCH INTEREST IS DIRECTLY CONNECTED WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE AO AND THE LD. CIT(A) DID NOT ACCEPT THE ABOVE CONTENTION. IN OUR CONSIDERED VIEW THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED BECAUSE INTEREST ON FD E VEN FOR LETTER OF CREDIT PURPOSES CANNOT BE CALLED TO BE DERIVED FROM INDUST RIAL UNDERTAKING. THERE HAS TO BE A DIRECT NEXUS. SINCE THERE IS NO DIRECT NEXUS THE CLAIM OF ASSESSEE CANNOT BE ALLOWED. IT WAS THEN CLAIMED THAT EFFECT OF NETTING SHOULD BE ALLOWED TO THE ASSESSEE. IN OUR CONSIDERED VIEW THE NETTING OF INTEREST EARNED AGAINST INTEREST EXPENSES COULD BE ALLOWED FOR THE PURPOSE OF EXCLUSION ONLY TO THE EXTENT INTEREST EXPENDITURE IS DIRECTLY RELA TABLE TO EARNING OF INTEREST INCOME. WHERE ASSESSEE HAS BORROWED FUNDS AND PAID INTEREST AND DEPOSITED SUCH BORROWED FUNDS INTO F.D. THEN NETTING WOULD BE ALLOWED BUT WHERE BORROWED FUNDS ARE UTILIZED ELSEWHERE THERE CANNOT BE DIRECT NEXUS OF INTEREST EARNING AND INTEREST EXPENDITURE. NETTING TO THAT EXTENT CANNOT BE ALLOWED. FOR THE PURPOSES OF FINDING OUT NEXUS WE R ESTORE THE MATTER BACK TO THE FILE OF AO. THIS ISSUE IS ALLOWED FOR STATISTIC AL PURPOSES. 21.4 THE THIRD ITEM IS ABOUT INSURANCE RECEIPT FOR DAMAGES ON GOODS. THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF HON. D ELHI HIGH COURT IN CIT VS. SPORTKIND INDIA LTD. (2010) 324 ITR 283 (DEL) WHERE IN IT IS HELD THAT IF ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 83 ASSESSEE RECEIVES INSURANCE ON DAMAGES THERE IS DEF INITELY A NEXUS WITH THE BUSINESS. THE COMPENSATION AMOUNT RECEIVED BY THE A SSESSEE COMPANY FROM INSURANCE COMPANY HAS TO BE TAKEN INTO ACCOUNT IN D ETERMINING THE PROFITS AND GAINS OF INDUSTRIAL UNDERTAKING. ACCORDINGLY TH IS PART OF THE CLAIM OF ASSESSEE IS ALLOWED. 21.5 THE LAST ISSUE IN THE CROSS OBJECTION IS ABOUT NETTING OF INTEREST. AS WE HAVE HELD ABOVE THE NETTING OF INTEREST CAN BE A LLOWED ONLY TO THE EXTENT INTEREST EXPENDITURE IS DIRECTLY RELATABLE TO THE E ARNING OF INTEREST. IF SUCH NEXUS IS ESTABLISHED THE EFFECT OF NETTING CAN BE G IVEN. FOR WORKING OUT SUCH NETTING EFFECT WE RESTORE THE MATTER BACK TO THE F ILE OF AO. 21.6 AS A RESULT THE CROSS OBJECTION OF THE ASSESSE E IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2339/AHD/2008 ASST. YEAR 2005-06 (REVENUES APPEAL) 22. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL :- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.4 5 5 192/- ON MOTOR CAR PURCHASED IN THE NAME OF THE DIRECTOR OF THE COMPANY. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB AT RS.14 85 74 625/- (3) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN OMITTING TO GIVE DIRECTION AS GIVEN BY THE CIT(A) IN THE ASST. YEARS 2003-04 & 2004-05 TO RECALCULATE THE DEDUCTIO N U/S 80IB ON THE BASIS OF REALLOCATION OF EXPENSES AS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 84 (4) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING TO EXCLUDE ONLY NET INTEREST INCOME FROM THE BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB. (5) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT DEPB INCOME IS DERIVED FROM THE UNDERT AKING. (6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. (7) IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EFFECT. 22.1 THE FIRST ISSUE OF THIS APPEAL RELATES TO DISA LLOWANCE OF DEPRECIATION ON MOTOR CAR PURCHASED IN THE NAME OF DIRECTOR OF THE COMPANY. TATA INDICA MOTOR CAR WAS PURCHASED DURING THE YEAR AT RS.4 55 192/- IN THE NAME OF SHRI ADARSH JHAVERI DIRECTOR OF THE ASSESSEE COMPA NY WHICH CLAIMED DEPRECIATION THEREON. AS LEGAL OWNERSHIP DID NOT VE ST IN THE COMPANY THE AO DISALLOWED THE CLAIM. THE LD. CIT(A) ALLOWED THE CLAIM FOLLOWING THE DECISION IN THE CASE OF MYSORE MINERALS LTD. 239 IT R 775 WITH THE FOLLOWING OBSERVATIONS :- 5.2 ON CONSIDERATION OF THE FACTS OF THE APPELLANT S CASE IT IS NOTICED THAT THE MOTOR CAR WAS PURCHASED THOUGH IN THE NAME OF T HE APPELLANTS DIRECTOR IT WAS PURCHASED OUT OF THE FUNDS OF THE APPELLANT COMPANY AND IT IS ALSO NOT IN DISPUTE THAT THE MOTOR CAR WAS PURCHASED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THUS THE MOTOR CAR BEING BUSINESS AS SET OF THE APPELLANT AND PURCHASED FOR THE PURPOSE OF BUSINESS AND USED AS S UCH BY THE APPELLANT IN VIEW OF THE DECISION IN THE CASE OF MYSORE MINERALS 239 ITR 775 REFERRED TO ABOVE AND OTHER DECISIONS CITED BY THE LD. AR I HO LD THAT THE DISALLOWANCE MADE BY THE AO ON THIS GROUND IS NOT JUSTIFIED AND HENCE THE SAME IS DIRECTED TO BE DELETED. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 85 22.2 IN THE PRESENT CASE IT IS NOT DISPUTED THAT IN VESTMENT WAS MADE BY THE ASSESSEE IN PURCHASE OF THE MOTOR CAR. IT IS SHOWN AS ASSET IN THE BALANCE SHEET OF THE COMPANY. IF EXPENDITURE FOR RUNNING TH E VEHICLE WAS INCURRED BY THE ASSESSEE THE ASSESSEE IS DE FACTO OWNER OF THE VEHICLE. IT IS NOT DISPUTED THAT IT WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. HON. RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MOHD. B UX SHOKAT ALI (NO.2) (2002)256 ITR 357 (RAJ) HELD THAT WHERE VEHICLE WAS PURCHASED BY THE FIRM USED BY IT FOR THE PURPOSE OF ITS BUSINESS BUT IT W AS REGISTERED IN THE NAME OF ONE OF THE PARTNERS THEN THE FIRM WOULD BE ENTITLED TO DEPRECIATION ON VEHICLE. HON. DELHI HIGH COURT IN THE CASE OF CIT VS. BASTI SUGAR MILLS CO. LTD. (2002) 257 ITR 88 (DEL) HELD THAT WHERE VEHICL E WAS OWNED AND USED BY THE ASSESSEE BUT NO REGISTRATION WAS DONE IN ITS NAME STILL THEN ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION ON SUCH VEHICLE. THEREFORE ASSESSEE HAS RIGHT TO CLAIM DEPRECIATION THEREON. THIS GROUND OF REVENUE IS ACCORDINGLY REJECTED. 22.3 GROUND NO.2 RELATES TO THE CLAIM OF DEDUCTION UNDER SECTION 80IB. THIS ISSUE HAS BEEN DISCUSSED IN DETAIL IN ASST. YE AR 2003-04. FOLLOWING OUR REASONINGS GIVEN THEREIN WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THIS GROUND OF REVENUE. 22.4 3 RD GROUND RELATES TO FAILURE OF LD. CIT(A) IN GIVING ANY DIRECTION FOR RELOCATING EXPENSES AS SUBMITTED BY THE ASSESSEE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. THERE IS NO MATERIAL ON REC ORD TO SUGGEST THAT THIS ISSUE WAS CONSIDERED BY THE AO IN THE ASSESSMENT OR DER OR AGITATED BEFORE LD. CIT(A). ONCE NECESSARY FACTS ARE NOT ON RECORD THE QUESTION OF ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 86 CONSIDERING THAT EXPENDITURE SHOULD BE RELOCATED DO ES NOT ARISE. THIS GROUND IS ACCORDINGLY REJECTED. 22.5 4 TH GROUND IS REGARDING NETTING OF INTEREST FOR THE PU RPOSE OF ELIGIBLE DEDUCTION UNDER SECTION 80IB. WHILE DISPOSING OF TH E CROSS OBJECTION OF ASSESSEE WE HAVE RESTORED THIS ISSUE TO THE FILE O F AO FOR FINDING OUT NEXUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENDITUR E AND TO THE EXTENT NEXUS IS ESTABLISHED NETTING SHOULD BE ALLOWED. ACCORDIN GLY THIS GROUND IS RESTORED TO THE FILE OF AO AND IS ALLOWED FOR STATI STICAL PURPOSES. 22.6 5 TH GROUND RELATES TO THE DECISION OF THE LD. CIT(A) T O THE EFFECT THAT DEPB INCOME IS DERIVED FROM THE UNDERTAKING. THE IS SUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON. SUPREM E COURT IN LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) WHEREIN IT IS HELD THAT DEPB DOES NOT FORM PART OF THE NET PROFIT FOR THE PURPOSES OF SEC TION 80IB. ACCORDINGLY THIS GROUND OF REVENUE IS ALLOWED. 22.7 OTHER TWO GROUNDS ARE ACADEMIC IN NATURE AND HENCE THEY ARE REJECTED. 23. APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED A ND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE RESULT - ITA NO.4523/AHD/2007 ASST. YEAR 2000-01 (REVENUES APPEAL) IS DISMISSED. ITA NO.4524/AHD/2007 ASST. YEAR 2001-02 (REVENUES APPEAL) IS DISMISSED. ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 87 ITA NO.4525/AHD/2007 ASST. YEAR 2002-03 (REVENUES APPEAL) IS DISMISSED. ITA NO.4526/AHD/2007 ASST. YEAR 2003-04 (REVENUES APPEAL) IS DISMISSED. ITA NO.4527/AHD/2007 ASST. YEAR 2004-05 (REVENUES APPEAL) IS DISMISSED. ITA NO.2339/AHD/2008 ASST. YEAR 2005-06 (REVENUES APPEAL) IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . CO NO.171 IN ITA NO.2339/AHD/2007 ASST. YEAR 2005-0 6 (ASSESSEES CO) IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICA L PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 25/3/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD DATED : 25/3/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ITA NOS.4523-4527 & 2339 & CO 171 ASST. YEARS 2000-01 -2005-06 88 1.DATE OF DICTATION 9/2/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 21/2/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..