# COMMISSIONER OF INCOME TAX, KERALA v. MIS. TARA AGENCIES

- **Citation:** [2007] 8 S.C.R. 136
- **Court:** Supreme Court of India
- **Decided:** 2007-07-09
- **Case number:** Civil Appeal No. 3568 of2001
- **Bench:** Asho~ Bhan, Dal Veer Bhandari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-kerala-v-mis-tara-agencies-23125
- **Pages:** 23

## Headnote

Income Tax Act, 1961:
Section 35-B(JA)-Profits and gains from business-Permissible
C deduction-Export market development allowance-Weighted deductionAY 1979-80-Assessee engaged in purchase of tea of diverse grades and
brands and blending the same by mixing different kinds of tea for the purpose
of export-Assessee,s claim for weighted deduction being a small-scale
exporter under S. 35-B(JA) for the expendJture incurred for its export was
D disallowed by Assessing Officer on the ground that the activity of the assessee
did not amount to manufacture-Assessee 's appeal allowed by Tribunal on
the ground that it was a small-scale industrial unit in the light of certificate
of registration granted to it by the Directorate of Industries-High Court
endorsed the decisio~orrectness of-Held: The assessee 's activity amounted
to "Processing" only and the activity did not amount to either "production"
E or "manufacture"-The term "processing" has not been included in S.
35B(J A) and, therefore, the assessee was not entitled to weighted deduction
under S. 35B(JA).
F
G
H
Words & Phrases:
"Manufacture", "production" and "processing"-Meaning of -
Explained.
The respondent-assessee was a registered firm engaged in the business
of export of tea. The respondent-assessee purchased tea o( diverse grades and
brands and blended the same by mixing different kinds of tea for the purpose
of export.
The respondent-assessee claimed weighted deduction being a smallscale exporter under Section 35-B(lA) of the Income Tax Act, 1961 for the
expenditure incurred for its export for the assessment year 1979-80. The
136
I
-<
.-
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES
137
Income Tax Officer disallowed the claim of the respondent-assessee on the A
ground that the activity of the assessee did not amount to manufacture.
The appeal filed by the respondent-assessee was allowed on the ground
that the respondent-assessee was a small-scale industrial unit in the light of
certificate of registration granted to it by the Directorate of Industries. The
B
said decision was endorsed by the Income Tax Appellate Tribunal and the High
Court Hence the appeal·
\_
The following questions arose before the High Court-
(I) Whether the assessee who was engaged in the purchase of
different qualities of tea and blending the same for the purpose c
of export was entitled to weighted deduction under Section 35B(IA) of the Income Tax Act, 1961 in respect of expenditure
incurred for its export for the assessement year 1979-80?
(2) Whether the business activity of the assessee fell within the
ambit of production, manufacturing or processing?
D
Allowing the appeal, the Court
HELD: I.I. Undoubtedly, the facts of Nilgiri's case are identical to the
facts of the present case and the ratio of Nilgiri 's case is fully applicable to
this case. But it has to hew borne in mind a significant difference in the E
language employed in Section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri's
case and the language of Section 35(1) (B) of the Income Tax Act, 1961 in the
present case. The difference is that the term 'processing' which has been
specifically incorporated in Nilgiri's case has been specifically omitted in the
present case. Similarly, in Chowgule's case, the term 'processing' has been
F
incorporated in the statute and the activities of the assessee both in Chowgule 's
and Nilgiri 's cases were held to be processing and, in these respective cases,
the assessees were held to be entitled to the benefit under the respective
statutes. In the present case the, same benefit cannot be extended to the
respondent-assessee because the word 'processing' has been specifically
· omitted in the statute. The activities of the assessee both in Nilgiri' and G
Chowgule 's amount to processing. The activity of the respondent-assessee in
the present case also amounts to 'processing' Section 35(1)(8) governing the
instant case incorporated the terms 'manufacture' and 'production' and
~,,
J
omitted the term 'process

## Text

_Characters 0–39,930 of 53,077. This is a partial read: ask again with offset=39930 for what follows._

A
COMMISSIONER OF INCOME TAX, KERALA
v.
MIS. TARA AGENCIES
JULY 9, 2007
B
[ASHO~ BHAN AND DAL VEER BHANDARI, JJ.]
Income Tax Act, 1961:
Section 35-B(JA)-Profits and gains from business-Permissible
C deduction-Export market development allowance-Weighted deductionAY 1979-80-Assessee engaged in purchase of tea of diverse grades and
brands and blending the same by mixing different kinds of tea for the purpose
of export-Assessee,s claim for weighted deduction being a small-scale
exporter under S. 35-B(JA) for the expendJture incurred for its export was
D disallowed by Assessing Officer on the ground that the activity of the assessee
did not amount to manufacture-Assessee 's appeal allowed by Tribunal on
the ground that it was a small-scale industrial unit in the light of certificate
of registration granted to it by the Directorate of Industries-High Court
endorsed the decisio~orrectness of-Held: The assessee 's activity amounted
to "Processing" only and the activity did not amount to either "production"
E or "manufacture"-The term "processing" has not been included in S.
35B(J A) and, therefore, the assessee was not entitled to weighted deduction
under S. 35B(JA).
F
G
H
Words & Phrases:
"Manufacture", "production" and "processing"-Meaning of -
Explained.
The respondent-assessee was a registered firm engaged in the business
of export of tea. The respondent-assessee purchased tea o( diverse grades and
brands and blended the same by mixing different kinds of tea for the purpose
of export.
The respondent-assessee claimed weighted deduction being a smallscale exporter under Section 35-B(lA) of the Income Tax Act, 1961 for the
expenditure incurred for its export for the assessment year 1979-80. The
136
I
-<
.-
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES
137
Income Tax Officer disallowed the claim of the respondent-assessee on the A
ground that the activity of the assessee did not amount to manufacture.
The appeal filed by the respondent-assessee was allowed on the ground
that the respondent-assessee was a small-scale industrial unit in the light of
certificate of registration granted to it by the Directorate of Industries. The
B
said decision was endorsed by the Income Tax Appellate Tribunal and the High
Court Hence the appeal·
\_
The following questions arose before the High Court-
(I) Whether the assessee who was engaged in the purchase of
different qualities of tea and blending the same for the purpose c
of export was entitled to weighted deduction under Section 35B(IA) of the Income Tax Act, 1961 in respect of expenditure
incurred for its export for the assessement year 1979-80?
(2) Whether the business activity of the assessee fell within the
ambit of production, manufacturing or processing?
D
Allowing the appeal, the Court
HELD: I.I. Undoubtedly, the facts of Nilgiri's case are identical to the
facts of the present case and the ratio of Nilgiri 's case is fully applicable to
this case. But it has to hew borne in mind a significant difference in the E
language employed in Section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri's
case and the language of Section 35(1) (B) of the Income Tax Act, 1961 in the
present case. The difference is that the term 'processing' which has been
specifically incorporated in Nilgiri's case has been specifically omitted in the
present case. Similarly, in Chowgule's case, the term 'processing' has been
F
incorporated in the statute and the activities of the assessee both in Chowgule 's
and Nilgiri 's cases were held to be processing and, in these respective cases,
the assessees were held to be entitled to the benefit under the respective
statutes. In the present case the, same benefit cannot be extended to the
respondent-assessee because the word 'processing' has been specifically
· omitted in the statute. The activities of the assessee both in Nilgiri' and G
Chowgule 's amount to processing. The activity of the respondent-assessee in
the present case also amounts to 'processing' Section 35(1)(8) governing the
instant case incorporated the terms 'manufacture' and 'production' and
~,,
J
omitted the term 'processing'. Therefore, the respondent-assessee cannot be
extended the benefit of Section 35(1)(8) of the Income Tax Act, 1961.
H
[Para 59) (156-C-G)
138
SUPREME COURT REPORTS
[2007) 8 S.C.R.
A
1.2. The processing is only an intermediate stage of production and/or
manufacture. The processing of tea of the respondent-assessee fails short of ·
either manufacturing or production. Therefore, because of the language of
Section 3S(t)(B) of the Income Tax Act, the respondent-assessee cannot be
extended the benefit which has been extended to the assessee in Ni/giri 's and
B Chowgu/e's cases. (Para 60) (156-G)
Chowgu/e & Co. (P) Ltd. v. Union of India, (1981) 1 SCC 653 and
Nilgiri Ceylon Tea Supplying Co. v. State of Bombay, (1959) 10 STC 500,
distinguished.
C
· G.A. R~nderian Ltd. v. Commissioner of Income Tax, (1984) 145 ITR387,
Deputy Commissioner of Agricultural Income-tax & Sales Tax v. Mis.
Palampadam Plantations Ltd., AIR (1969) SC 930, D.D. Shah & Bros. v. Union
of India (2006) 283 ITR (Raj), Deputy Commissioner of Sales Tax (law) v. Ml
s. PIO Food Packers, (19801 Supp. SCC 174, Bharat Forge and Press
Industries v. CCE, ( 1990) 1 SCC 532, StandardFireworks Industries, Sivakasi
D v. CCE, AIR (1987) SC 600, Union of India v. J.O. Glass Industries Ltd., (1988)
2 SCC 32, Mis. Devi Das Gopal Krishan v. State of Punjab AIR (1967) SC
1895, Empire Jndustires Limited v. Union of India, (198513 SCC314, Mis.
Ujagar Prints & Ors. (III) v. Union of India, (198913 SCC 488, Mis. Saraswati
Sugar Mills v. Haryana State Board, (1992) 1 SCC 418, Gramophone Co. of
E India Ltd. v. CCE, (2000) 1 SCC 5459, CCE v. Rajasthan State Chemical Works,
(199114 SCC 473, CCE v. Techoweld Industries, (2003111SCC798, Maltex
(/) (P) Ltd. v. CCE, (2005) 1 sc;c 27, Aman Marble Industries (P) Ltd. v. CCE,
(2005) 1 SCC, Shyam Oil Cake Ltd. v. CCE, (2005) l SCC 264, South Bihar
Sugar Mills Ltd. v. Union of India, AIR (1968) SC 922, Laminated Packings
(P) Ltd. v. CCE, (1990) 4 SCC 51, Deputy Commissioner of Sales Tax v. Mis.
p
COCO Fibres, (1992) Supp. (1) SCC 290, Commissioner of Sales Tax v.
Jagannath Cotton Company, (1995) 5 SCC 527, Ashirwad /spat Udyog v.
State Level Committee, (1998) 8 SCC 85, State of Maharashtra v. Mahalaxmi
Stores, (2003) 1 SCC 70, Aspinwall & Co. Ltd. v. Commissioner of Income
Tax, {2001) 7 SCC 525, Mis. J.K. Cotton Spinning & Weaving Mills Co. Ltd.
v. Sales Tax Officer, (1965) l SCR 900, CCE v. Kiran Spinning Mills, (19981
G 2 SCC 348, Park Leather Industry (P) Ltd. v. State ofU.P., (2001) 3 SCC 135
and Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes,
(1965) 16 STC, referred to.
Anheuser-Busch Brewing Assn. v. United States, (1907) 52 L. Ed. 336,
H East Texas Motor Freight Lines v. Frozen Food Express, 100 L. ED. 917 and
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES
139
Bay Bottle Gas Co. v. Michigan Dept. of Revenue, 74 N.W. 2d 37, 39, 344 A
i Mich, 326, referred to.
j
Black's Law Dictionary 5th Edition, Halsbury's Laws of England 3rd
Ed. Vol. 29 p. 23, Oxford Dictionary, Chambers 21st Century Dictionary,
Collins Cobulid English Dictionary and New Webster's Dictionary of the
English Language (Deluxe Encyclopedia Edition), referred to.
B
2. Since the legislature in its wisdom has not used the term 'processing'
)_
in Section 35(8) (lA) of the Act, it would be erroneous to incorporate the
word in the Section and then interpret the statute. In this view of the matter
Chowgule 's case and Nilgiri 's case dealt with by this Court al."e clearly C
distinguishable because of the language of the statutes.
·'
(Para 61) (157-A)
Chowgule & Co. (P) Ltd. v. Union of India, (1981) 1 SCC 653. and
Nilgiri Ceylon Tea Supplying Co. v. State of Bombay, (1959) 10 STC 500,
distinguished.
D
3.1. The intension of the legislature has to be gathered from the
language used in the statute which means that attention should be paid to
what has been said as also to what has not been said.
(Para 62) (157-B)
3.2. Therefore, the legal position seems to be clear and consistent that
it is the bounden duty and obligation of the Court to interpret the statute as
it is. It is contrary to all rules of construction to read words into a statute
which the legislature in its wisdom has deliberately not incorporated.
(Para 67) (157-Gl
Union of India v. Deoki Nandan Aggarwal, (1992) Supp. I SCC 323,
State of Kera/av. Mathai Verghese, 11986) 4 SCC 746 and Gwalior Rayons
Silk Mfg. (Wvg.) Co. Ltd v. Custodian of Vested Forests, Pa/ghat, (1990( Supp.
sec 785, relied on.
Pinnerv. Everett, (1969) 3 All ER257, r~ferred to.
4. On clear construction and interpretation of Section 358 (IA) of the
Act, it is clear that the respondent's activity amounts to "processing" only
and the activity does not amount to either "Production" or "manufacture".
E
F
G
The term "processing" has not been included in Section 358 (lA) of the Act H
140
SUPREME COURT REPORTS
(2007) 8 S.C.R.
. A and, therefore, the respondent is not entitled to weighted deduction under
Section 358(1A) of the Act. [Para 68) [158-A]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3568 of2001.
From the Judgment and Order dated 18.1.2000 of the High Court of
B Kerala at Emakulam in ITR No. IO of 1996.
Mohan Parasaran, ASG., Arijit Prasad, K.K. Senthilvelan, Gaurav
Dhingra, Nitesh Rasa, D.L. Chidanand and Sushma Suri for the Appellant.
Bhargava V. Desai, Siddarth Chowdhary, Rahul Gupta and Reema Sharma
C for the Respondent.
The Judgment of the Court was delivered by
DAL VEER BHANDARI, J. l. This appeal is directed against the judgment
dated 18th January, 2000 passed in ITR No. IO of 1996 by the High Court of
D Kerala at Emakulam.
2. The short question which arises for adjudication by this court is
whether the respondent assessee who is engaged !n purchase of different
qualities of tea and blending the same for the purpose of export is entitled
to weighted deduction under section 358 (IA) of the Income Tax Act, 1961
E (hereinafter referred to as "the Act") in respect of expenditure incurred for its
export for the assessment year 1979-80.
3. Brief facts which are necessary to dispose of this appeal are as under:
The assessee is a registered firm engaged in the business of export of
F tea. · The respondent assessee purchases tea of diverse grades and brands
and blends the same by mixing different kinds of tea. In this appeal, we are
called upon to examine whether the business activity of the respondent
assessee falls within the ambit of production, manufacturing or processing?
The respondent assessee would be entitled to weighted deduction under
G section 35B{IA) pf the Act in case the goods exported were manufactured or
produced in small scale industrial undertaking but, in case it falls short of
production or manufacture, then the respondent would not be entitled to the
benefit under section 358( l A) of the Act. The said benefit, according to the
relevant statute, is restricted to only goods produced or manufactured in the
small scale industrial undertaking for export. The benefit cannot be extended
H in case the goods are merely processed by the small scale industrial undertaking.
:
COMMNR. OF INCOME TAX, KERALA 11. TARA AGENCIES [DAL VEER BHANDARI, J.] 141
"
In order to derive benefit under section 358 {lA) the goods have to be e~ther A
I
"\
manufactured or produced by the small scale industrial undertaking.
i
4. Section 358 (lA) was introduced with effect from Ol.04.1978 and the
J
respondent assessee claimed entitlement to weighted deduction being a small
t
scale exporter. The Income Tax Officer disallowed the claim of the respondent
B
assessee.
5. The respondent assessee aggrieved by the said order preferred an
'.;.
appeal before the Commissioner of Income Tax (Appeals). The appeal filed by
the respondent assessee was allowed on the ground that the respondent
assessee was a small scale industrial unit in the light of certificate of registration c
granted to .it by the Directorate of Industries, Kerala State. The respondent
was engaged in purchasing different kinds of tea and blending the same for
the purpose of export and was entitled to the weighted deduction under
section 358 (lA) of the Act.
' 6. In an appeal filed by the appellant against the decision of the D
Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal
endorsed the view of the Commissioner oflncome Tax (Appeals). The Tribunal
in its order relied on the decisions of the Calcutta High Court in G.A. Renderian
ltd v. Commissioner of Income-Tax, West Bengal-I(l984) (145) ITR 387 and
also of this court in Chowgule & Co. (P) ltd. & Anr. v. Union of India &
Ors., [1981] l SCC 653 and held that the respondent assessee was entitled to E
weighted deduction under section 358 (IA) of the Act.
7. The Revenue challenged the judgment of the Tribunal before the
High Court. The High Court upheld the judgment of the Tribunal. The Revenue,
aggrieved by the impugned judgment of the High Court, has preferred this F
appeal.
8. In order to properly comprehend the controversy involved in this
case, it would be proper to reproduce section 358 (IA) & (2) as introduced
by the Finance Act, 1978:
(IA) Notwithstanding anything contained in sub-section (I), no G
deduction under this section shall be allowed in relation to any
expenditure incurred after the 31st day of March, 1978, unless the
....
following conditions are fulfilled, namely:-
(a)
the assessee referred to in that sub-section is engaged in:-
H
142
SUPREME COURT REPORTS
(2007] 8 S.C.R.
'"'
A
(i) the business of export of goods and is either a small scale
'°'
exporter or a· holder of an Export House Certificate; or
y
(ii) the business of provision of technical know-how, or the
rendering of services in connection with the provision of technical
~
know how, to persons outside India; and
' '
B
(b) the expenditure referred to in that sub-section is incurred by the
[
assessee wholly and exclusively for the purpose of the business
referred to in sub-clause ( l) or, as the case may be, sub-clause
~
(ii) of clause (a).
c
Explanation-For the purpose of this sub-section
(a)
"small-scale exporter" means a person wh.o exports goods
manufactured or produced in any small scale industrial undertaking
or undertakings owned by him;
Provided that such persons do not own any industril,ll undertaking
D
which is not a small-scale industrial undertaking.
(b) "Export House Certificate" means a valid Export House Certificate
issued by the Chief Controller of Imports and Exports, Government
of India;
(c)
"provision of technical know-how" has the meaning a5signed to
E
it in sub-section (2) of Section 80MM;
(d) "small-scale industrial undertaking" has the meaning assigned to
it in clause (2) of the Explanation below sub-sect.ion (2) of section
32A.
F
(2) Where a deduction under this section is claimed and allowed for
any assessment year in respect of any expenditure referred to in sub-
\
section (l ), deduction shall not be allowed in respect of such
expenditure under any other provision of this Act for the same or any
other assessment year."
G
9. All the three stages, namely, production, manufacturing and
processing of tea can be enumerated as under. The tea is produced in the tea
gardens. This .first stage is called production of tea. The second stage is
manufacture of tea. In this stage, the tea leaves are plucked from the tea
I
bushes and by mechanical process, tea leaves are· converted to tea. This
-\ .-
H
second stage is considered manufacturing of tea. The third stage is blending
1 •
)
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES [DAL VEER BHANDARI, J.] 143 .
of different qualities of tea in order to smoothen its marketability. This third A
stage is considered processing of tea .
10. The controversy involved in this case revolves around construction
and meaning oftenns "manufacture", "production" and "process", therefore,
we deem it appropriate to de.al with these tenns in detail as enumerated in
various dictionaries and by the decided cases to properly comprehend the B
distinction in these tenns.
MANUFACTURE
11. The term manufacture has not been defined in the Income Tax Act,
1961.
c::
12. The tenn manufacture has been defined in section 2(f) of the Central
Excise Act, 1944. Parts (i) and (ii) of section 2(f) read as under:-
2(t). 'Manufacture' includes any process-
(i)
incidental or ancillary to the completion of a manufactured product;
and
(ii) which is specified in relation to any goods in the Section
or Chapter notes of the Schedule to the Central Excise Tariff Act,
1985 as amounting to manufacture".
12A. Clause (f) gives an inclusive definition of the tenn 'manufacture'.
According to the dictionary, the term 'manufacture' means a process
which results· in an alteration or change in the goods which are
subjected to the process of manufacturing leading to the production
D
E
of a commercially new article. In determining what constitutes F
'manufacture' no hard and fast rule can be applied and each case must
be decided on its own facts having regard to the context in which the
term is used in the provision under consideration."
13. The term "manufacture" has been defined by the Black Law
'
Dictionary (5th Edition) as under:
G
'
"Manufacture : The process or operation of making goods or any
material produced by hand, by machinery or by other agency; anything
made from raw materials by the hand, by machinery, or by art. The
production of articles for use from raw or prepared materials by giving
such materials new forms, qualities, properties or combinations, whether· H
144
SUPREME COURT REPORTS
[2007] 8 S.C.R.
A
by hand labor or machine."
14. The word manufacture has been defined in Halsburys Laws oi
England, 3rd Ed. Vol. 29 p.23 as under:-
"Manufacture has been defined as a manner of adapting natural
B
materials by the hands of man or by man-made devices or machinery
and as "the making of an article or material by physical labour or
applied power"; but the practice is to accept as manufacture a wider
range of industrial activities than such a definition would suggest. It
includes articles made in situ as well as articles made in a factory."
C
15. The Supreme Court of the United States of America has defined the
term "manufacture" a century ago in Anheuser-Busch Brewing Assn. v. United
States, (1907) 52 L Ed. 336. The definition has been followed in subsequent
American, English and Indian cases. The definition reads as under:
"Manufacture implies a change, but every change is not manufacture.
D
and yet every change in an article is the result of treatment, Jabour
E
F
G
H
. and manipulation. But something more is necessary ... There must be
transformation; a new and different article must emerge, "having a
distinctive name, character or use,."
PRODUCT/ON
16. In Blacks.Law Dictionary (5th Edition), the term "production" has
been defined as under:
"Production. Process or act of producing. That which is produced or
made; i.e. goods. Fruit of labor, as the productions of the earth,
comprehending all vegetables and fruits; the productions of intellect,
or genius, as poems and prose compositions; the productions or art,
as manufactures of every kind."
17. The term "produce", as defined in the New Websters Dictionary of
the English Language (Deluxe Encyclopedic Edition), is as follows:
"Produce, To bring forth into existence; to bring about; to cause or
effect, esp. intellectually or creatively; to give birth to; to bear, furnish,
. yield; to make accrue; to bring about the performance of, as a movie
:··or play; to extend, as a line.- v.i. To bring forth or yield appropriate
offspring, products, or consequences."
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES [DAL VEER BHANDARI, J.] J 45
"
18. This Court in Deputy Commissioner of Agricultural Income-tax & A
Sales Tax, Central, Zone, Ernakulam v. Mis Palampadam Plantations Ltd.,
AIR (1969) SC 930 had considered the meaning of the term "produce" used
in the Kerala General Sales Tax Act, 1963. The expression used was the person
who sells goods produced by him by manufacture, agriculture, horticulture or
otherwise".
B
19. The expression "produced" was given a wider meaning than the
word "manufacture" pointing out that the word "produced" will include an
activity of manufacturing the materials by applying human endeavour on
some existing raw material, but the word "produce" may include securing
certain produce from natural elements, for example, by growing.plants on soil, C
or by operating mines and the like or for example, by milching the cow the
milkman produce milk though he has not applied any process on any raw
material for the purpose of bringing into existence the thing known as milk.
20. The word "production" or "produce", when used in juxtaposition
with the word manufacture ~akes in bringing into existence new goods by a D
process which may or may not amount to manufacture. It also takes in all the
by-products, intermediate products and residual products which emerge in
the course of manufacture of goods.
·
PROCESS:
21. According to Oxford Dictionary one of the meanings of the word
"process" is "a continuous and regular action or succession of actions taking .
place or carried on in a definite manner and leading to the accomplishment
of some result."
·E
22. In Chambers 21st Century Dictionary, the term "process" has been F
defined as under:
"Process: 1. a series of operations performed during manuf~cture,
etc. 2. a series of stages which a product, etc. passes through, resulting
in the development or transformation of it."
23. In Collins Cobuild English Dictionary, the term process has been
defined as under:
·
"A process is series of actions which are carried out in order to
achieve a particular result.
G
H
146
' .
SUPREME COURT REPORTS
(2007) 8 S.C.R.
"A process is a series of things which happen naturally and result
in a biological or chemical change.
When raw materials or foods are processed, they are treated
chemically or industrially before they are used or 'sold."
B
24. The tenn "process" as defined in the New Websters Dictionary of
c
the English Language [Deluxe Encyclopedia Edition] is as under:
"Process, To treat or prepare by some particular process; to convert,
as an agricultural commodity, into marketable fonn by some special
treatment; Produced or treated by some artificial means; as, process
sugar; of or pertaining to photographic reproduction that involves
photo-engraving or photomechanical means; relating to special effects
obtained in motion pictures through the use of special filming
techniques."
25. Mr. Mohan Parasaran, learned Additional Solicitor General appearing
D on behalf of the appellant submitted that the activity of the respondent,
namely, blending of tea, packaging and selling the .same does not amount to
manufarture or production of a commercially new and different product.
According to Mr. Parasaran, the activity of the respondent assessee can at
the most amount to processing of tea. According to him, the processing is
E an intennediate stage of the final product. Therefore, the respondent assessee
is not entitled to the weighted deduction under section 358 (IA) of the Act
because under the said section, the benefit has been confined to the exporters
engaged in the export of goods manufactured or produced in any small scale
industrial undertaking owned by them. According to Mr. Parasaran, there is
no doubt that the assessee has a small scale undertaking but its activity does
F not fall either in the category of manufacturing or producing. The benefit
under this section can be extended to the assessee .if the goods exported are
either manufactured or produced and not when the goods are merely processed.
G
26. Mr. Parasaran in support of his arguments relied on various decided
cases of this court and the other courts.
27. In East Texas Motor Freight Lines v. Frozen Food Express 100 L
Ed. 917, the Supreme Court of United States of America held that the
processing of chicken in order to make them marketable, but without changing · ·"
their substantial identity, did not tum chicken from agriculture commodities
into manufactured commodities. The Indian courts have been influenced by
H the definition of processing as given in this case and some other American
I
·;<
y
~
-
COMMNR OF INCOME TAX, KERALA v. TARA AGENCIES [DAL VEER BHANDARI, J.] 14 7
cases while dealing with the terms "manufacture", "production" and a process". A
'(
28. In Bay Bottle Gas Co. v. Michigan Dept. of Revenue 14 N.W. 2d 37,
39, 344 Mich. 326, while dealing with the term 'process', the court observed
as under:
To "process" means to subject, especially raw material, to a process B
of manufacturing, development, preparation for the market, etc.; to
convert into marketable form, as livestock by slaughtering, grain by
milling, cotton by spinning, milk by pasteurizing, fruits and vegetables
by sorting and repacking."
29. According to the Marine Products Export Development Authority c
Act (1972), [s.3(1)], 'processing' in relation to marine produces includes the
preservation of such products such as canning, freezing, drying, salting,
smoking, peeling or filleting and any other method of processing which the
autnority may, by notification in the Oazette of India, specify in this behalf.
According to section 2(C) of the State Financial Corporation Act 195 I, the D
expression 'processing of goods' includes any art or process for producing,
preparing or making an article by subjecting any material to a manual,
mechanical, chemical, electrical or any other like operation.
30. Mr. Parasaran placed reliance on the decision in D.D. Shah & Bros.
v. Union of India & Anr., reported in (2006) 283 ITR 486 (Raj.). In this case, E
similar question arose for consideration before the Rajasthan High Court
whether the blending of different types of tea by the assessee amounts to
production of a thing or an article by an industrial undertaking within the
meaning of the expression as used in section 80-18 of the Act.
31. The High Court in the said judgment has dealt with the terms F
>
"manufacture", "production" and "process" in great detail. The High Court
in the said judgment arrived at a definite finding that blending though does
not amount to manufacturing of goods but it clearly amounts to processing ·
of goods in the sense that it brings some change in the goods.
32. It may be pertinent to mention that reference of Chowgu/e case G
acquires greater significance because, in that case, this Court dealt with a
Division Bench judgment of the. Bombay High Court in the case of Nilgiri
)
Ceylon Tea Supplying Co. v. State of Bombay (1959) IO STC 500. This Court
observed that the judgment of the Bombay High Court did not lay down the
correct law because it held that the activity of the assessee did- not amount H
148
SUPREME COURT REPORTS
(2007) 8 S.C.R.
A
to processing.
33. Details of relevant Statute are us under:
Section 8 of the Bombay Sales Tax Act, 1953, so far as is "subject to
the provisions of section 7, there shall be levied a sales tax on the turnover
B of sales of goods specified in column I of Schedule B at the rate, if any,
specified against them in column 2 of the said Schedule, after deducting from
such turnover
(a)
sales of goods -
c
(i)
which have been purchased from a registered dealer on or after
the appointed day, or
(ii)
on the purchase of which the dealer has paid or is liable to pay
the purchase tax :
Provided that the goods have not been processed or altered in any
D manner after such purchase."
34. This Court held that the different brands of tea which were mixed
by the assessee in Nilgiri 's case for the purpose of producing a tea mixture
of a different kind and quality according to the formula evolved by them, there
E
was plainly and indubitably processing of different brands of tea, because
these brands of tea experienced, as a result of mixing, qualitative change, in
that the tea mixture which came into existence was of different quality and
flavour than the different brands of tea which went into the mixture.
35. Mr. Parasaran has also placed reliance on Deputy Commissioner of
F
Sales Tax (law), Board of Revenue (Taxes), Ernakulam v. Mis PIO Food
Packers, [1980] Supp. SCC 174. The court in this case also dealt with the
distinction of "manufacture" and "processing". In the said case, the appeals
were filed against the order of the Kerala High Court holding that the turnover
of pineapple fruits purchased for preparing pineapple slices tor sale in sealed
cans is not covered by section 5-A(l)(a) of the Kerala General Sales Tax Act,
G 1963. This court after examining the relevant cases reached the conclusion
that while preparing pineapple slices from the original fruit (pineapple), the
commodity continues to possess its original identity, notwithstanding the
removal of inedible portions, the slicing, and thereafter canning it on addin~
sugar to preserve it. The court was of the opinion that in canning the·
pineapple, the processing is definitely involved but it would not amount to ·
H manufacture as no new commodity came into existence.
..:.
-'
-
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES (DAL VEER BHANDARI, J.) 149
36. In Bharat Forge and Press Industries v. CCE, (1990] l SCC 532, this A
court observed that tariff item 26-AA(iv) encompasses all sorts of pipes and
tubes. It calls for no distinction between pipes and tubes manufactured out
of sheets, rods, bars, plates or billets and those turned out from larger pipes
and tubes. It is of no consequence whether the pipes and tubes are
manufactured by rolling, forging, spinning, casting, drawing, annealing, welding B
or extruding. The expression 'pipe fittings' merely denotes that it is a pipe or
tube of a particular length, size or shape. 'Pipe fittings' do not cease to be
pipes and tubes, they are only a species thereof. They are merely intended
as accessories or supplements to the larger pipes and tubes. They are pipes
and tubes made out of pipes and tubes. There is no change in their basic
physical properties and there is no change in their end use. It cannot be said C
that pipe fittings, though they may have a distinctive name or badge of
identification in the market, are not pipes and tubes.
37. The court in this case observed that the "processing" may be an
intermediate stage in manufacture and until some change has taken place and
the commodity retains a continuing substantial identity through the processing D
stage, we cannot say that it has been manufactured. That does not, however,
mean that any operation in the course of such process is not in relation to
the manufacture.
38. While interpreting the same exemption notification in Standard E
Fireworks Industries, Sivakasi and Anr. v. Collector of Central Excise,
Madurai, AIR 1987 l SC 600, this Court held that cutting of steel wires and
the treatment of paper is a process for the manufacture of goods in question.
39. Now, we deem it appropriate to deal with some cases in which the
term "manufacturing" has been construed and interpreted by this court in F
order to properly comprehend the subtle distinction between 'manufacturing"
and 'processing'.
40. In Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors., [1998]
2 SCC 32, this Court has laid down a two-fold test for determining whether
the process is 'manufacturing'. First, whether by the said process a different
commercial commodity comes into existence or whether the identity of the
original commodity ceases to exist. Secondly, whether the commodity which
was already in existence will serve no purpose but for the said process.
Applying the two-fold test, it was held that printing on bottles does not
amount to manufacture.
G
H
150
SUPREME COURT REPORTS
[2007) 8 S.C.R.
A
41. A Constitution Bench of this court in Mis Devi Das Gopa/ Krishnan
etc. v. State of Punjab & Ors., AIR (1967) SC 1895 observed that if by a
process a different . identity comes into existence then it can be said to be
'manufacture'. When oil is produced out of the seeds the process certainly
transforms raw material into different article for use.
B
42. In Empire Industries Limited & Ors. v. Union of India & Ors., [1985]
c
3 sec 314, it was observed that manufacture is complete as soon as by the
application of one or more processes, the raw material undergoes some change
and a new article is brought into existence having a distinct name and
character would amount to manufacture.
43. A Constitution Bench of this court in Mis Ujagar Prints & Ors. (//)
v. Union of India & Ors., ( 1989] 3 SCC 488 and Mis Saraswatl Sugar Miiis
& Ors. v.rlaryanaStateBoard& Ors., [1992] 1 SCC418toq~thesameview.
44. In Gramophone Co. of India Ltd. v. Collector o/Customs, Calcutta,
. D [2000] I SCC 549, this Court examined earlier cases and held that 0 manufacture"
implies a change, but every change is not manufacture and yet every change
of an article is the result of treatment, labour and manipulation. But something
more. is necessary and there must be transformation; a new and different
article must emerge having a distinctive name, character and use. In this case,
the word 'manufacture' has various shades of meanings but unl.ess defined
E under the Act, it is to be interpreted in the context of the object and the
language used in the section. It would not be applicable in cases where only
processing activity is ~arried out. Further, such production activity must be
by an industrial undertaking."
F
45. In Collector of Central Excise, Jaipur etc. v. Rajasthan State
G
H
Chemical Works, Deedwana, Rajasthan etc., [1991] 4 SCC 473, the court had
defined the word manufacture as under:
"Manufacture implies a change but every change is not manufacture,
yet every change of an article is the result of treatment, labour and
manipulation. Naturally, manufacture is the end result of one or more
processes through which the original commodities are made to pass.
The nature and extent of processing may vary from . one class to
another. There may be several stages of processing, a different kind
of processing at each stage. With each process suffered the original
commodity experiences a change. Whenever a commodity undergoes
. a change as a result of some operation performed on it or in regard
)'
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES [DAL VEER BHANDARI, J.] } S}
to it, such operation would amount to processing of the commodity. A '
But it is only when the change or a series of changes take the
commodity to the point where commercially it can no longer be regarded
as the original commodity but instead is recognised as a new and
distinct article that a manufacture can be said to take place.
Manufacture thus involves series of processes. Process in B
manufacture or In relation to manufacture impli~s not 'only the
production but the various stages through which the raw material is
subjected to change by different operations. It Is the cumulative effect
of the various processes to which the raw material is subjected to,
manufactured product emerges.· Therefore, each step towards such
production would be a process In relation to the manufacture. Where C
any particular process Is so integrally connected with the ultimate
production of go,ods that but for that process manufacture of processing
of goods would be impossible or commercially inexpedien~ that process
is one in relation to the manufacture."
46. In the following cases, this court has dealt with and construed the
terms "manufacturing", "production" and "processing". Collector of Central
Excise v. Technowe/d Industries, (2003] 11 SCC 798, Met/ex (I) (P) Ltd v.
Commissioner of Central Excise, New Delhi, (2005] I SCC 271, Aman Marble
Industries (P) Ltd. v. Collector of Central Excise, Jaipur, [2005] 1 SCC 279
D
and Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur, [2005] 1 SCC E
264, South Bihar Sugar Mills Ltd. & Anr. etc. v. Union of India & Anr. etc.
AIR (1968) SC 922, Laminated Packings (P) Ltd v. Collector of Central
Excise, Guntur, [1990) 4 SCC 51, Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam v. Mis COCO Fibres, [1992) Supp I
SCC 290, Commissioner of Sales Tax: Orissa & Anr. v. Jagannath Cotton F
Company & Anr., [1995) 5 SCC 527, Ashirwad /spat Udyog & Ors. v. State
Level Committee & Ors., [1998) 8 SCC 85, State of Maharashtra v. Maha/axmi
Stores, [2003) 1 SCC 70, Aspinwall & Co. ltd v. Commissioner of Income Tax,
Ernakulam, [200 I] 7 SCC 525, Mis J.K. Cotton Spinning & Weaving Mills Co.
Ltd v. Sales Tax Officer, Kanpur & Anr., [1965] 1 SCR 900, Collector of
Central ExCise v. Kiran Spinning Mills, [198) 2 SCC 348, Park leather G
Industry (P) Ltd & Anr. v. State of UP & Ors., [2001) 3 SCC 135.
47. Mr. Bhargava Desai, learned counsel appearing on behalf of the
respondent assessee submitted that the respondent buys various varieties of
p~cked tea of different grades and prices in public auction covering various
tea gardens. These diverse varieties of tea are all different in size, liquor and H
152
SUPREME COURT RE.PORTS
(2007) 8 S.C.R.
A other characteristics of tea. The respondent assessee has to make purchases
in order to m~et the requirement of blending to achieve the same quality, taste
and fonn of tea which the respondent has to sell to its customers.
48. The respondent further submitted that once enough quantity is
available of the required types of tea for blending and the respondent is able
B to manufacture the required quantity for the "Standard tea" or approved
sample, the respondent produces a small sample in required proportions on
the table and subsequently a blend sheet is prepared indicating the measure
of proportion of each variety of tea and the said blend sheet is given to the
manufacturing warehouse of the respondent where a large. blend is
C manufactured and produced. The respondent further contended that after
receipt of the blend sheet, the workers at the warehouse gather the required
variety of tea and the required quantities as set out in the blend sheet. The
process undergoes is as under:
(i)
Spread out in the warehouse by opening;
D
(ii)
Chest (Boxes) and emptied first few in full and then balance in
half by rotation (Spreading & Bulking). After the bulking, the
entire quantity of different variety of tea is gathered at one place
in a tomb structure and then the bulk is broken in a circle with
the central shell empty for movement by workers in rounds for
E
mixing and the entire mixture is blended by:
F
(a) manual hanct mixing
(b) by shoveling; and
(c) sometimes by machine, depending on the need, quantity and
urgency.
49. It is further contended that the blending workers are trained to blend
tea uniformly. After the process of mixing and blending of tea is complete, the
samples are drawn and sent for testing and matching with the buyers approved
samples of tea. Manually blended tea and the finished product is required to
G match the type of samples given to the surveyors. Once the surveyor approves
the tea both in liquor and appearance, only then is the respondent permitted
to pack the tea in the required packs as approved by the buyers. This finished
product is totally different from the various blen4ed tea in respect of colour,
texture, liquor, appearance, characteri~tic and even pricing. The said final
product cannot be marketed unless manufactured and produced by this process.
H After the process of manufacture and production of the final tea by blending,
COMMNR. OF INCOME TAX, KERALA v. TARA AGENCIES [DAL VEER BHANDARI, J.) 153
the entire originality of the different varieties of tea is Jost and a new product A
. of tea is produced. This is entirely experts job and cannot be done by
anybody. The experts have the knowledge, experience and expertise in blending
and the proportions based on tastes, colour, size, texture and the source and
origin of the tea garden etc.