COMMISSIONER OF INCOME TAX, KERALA v. M-S. TARA AGENCIES

Citation: [2007] 8 S.C.R. 136

Court: Supreme Court of India

Bench: ASHOK BHAN, DALVEER BHANDARI

Case summary

COMMISSIONER OF INCOME TAX, KERALA v. M-S. TARA AGENCIES.pdf

Judgment text

COMMISSIONER OF INCOME TAX, KERALA v. MIS. TARA AGENCIES JULY 9, 2007 [ASHO~ BHAN AND DALVEER BHANDARI, JJ. ] I Income Tax Act, 1961: - "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 acquires greater significance because, in that case, this Court dealt with Division Bench judgment of the. Bombay High Court in the case of Nilgiri Ceylon Tea Supplying Co. v. State ofBombay (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 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 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 - (i) which have been purchased from a registered dealer on or after the appointed day, or (ii) on the purchase of which the dealer has paid or is liable to pay the purchase tax : Provided that the goods have not been processed or altered in any manner after such purchase. " 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 ofa different kind and quality according to the formula evolved by them, there was plainly and indubitably processing of different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavour than the different brands of tea which went into the mixture. 35. Mr. Parasaran has also placed reliance on Deputy Commissioner of Sales Tax (law), Board of Revenue (Taxes), Ernakulam v. 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 ofthe 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) ofthe Kerala General Sales Tax Act, 1963. This court after examining the relevant cases reached the conclusion that while preparing pineapple slices from the original fruit (pineapple), the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing, and thereafter canning it on 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 · manufacture as no new commodity came into existence. COMMNR. OF INCOMETAX, KERALA v. TARA AGENCIES (DALVEER BHANDARI,J. ) 149 36. In Bharat Forge and Press Industries v.

CCE, (1990] l SCC 532, this court observed that tariff item 26-AA(iv) encompasses all sorts of pipes and tubes. It calls for no distinction between pipes and tubes manufactured out of sheets, rods, bars, plates or billets and those turned out from larger pipes and tubes. It is of no consequence whether the pipes and tubes are - manufactured by rolling, forging, spinning, casting, drawing, annealing, welding or extruding. The expression 'pipe fittings' merely denotes that it is apipe 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 that pipe fittings, though they may have a distinctive name or badge of identification in the market, are not pipes and tubes.

37. The court in this case observed that the "processing" may be an intermediate stage in manufacture and until some change has taken place and the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been manufactured. That does not, however, mean that any operation in the course of such process is not in relation to the manufacture. 38. While interpreting the same exemption notification in Standard Fireworks Industries, Sivakasi and 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 order to properly comprehend the subtle distinction between 'manufacturing" and 'processing'. 40. In Union ofIndia & 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. 41. A Constitution Bench ofthis 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. 42. In Empire Industries Limited& Ors. v. Union ofIndia & Ors.

, [1985] 3 sec 314, it was observed that manufacture is complete as soon as by the application ofone 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 ofthis court in Mis Ujagar Prints & Ors. (//) v. Union ofIndia & Ors. , (1989] 3 SCC 488 and Mis Saraswatl Sugar Miiis & Ors. v. rlaryanaStateBoard& Ors. , [1992] 1SCC418toq~thesameview. 44. In Gramophone Co. ofIndia Ltd. v. Collector o/Customs, Calcutta, 0 . [2000] I SCC 549, this Court examined earlier cases and held that manufacture" implies a change, but every change is not manufacture and yet every change ofan article is the result oftreatment, 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 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. " 45. In Collector of Central Excise, Jaipur etc. v. Rajasthan State Chemical Works, Deedwana, Rajasthan etc. , [1991] 4 SCC 473, the court had defined the word 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 ofone 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. OFINCOMETAX, KERALA v. TARA AGENCIES[DALVEERBHANDARI,J. ] }S} to it, such operation would amount to processing of the commodity. ' )' But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Manufacture thus involves series of processes. Process in manufacture or In relation to manufacture 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 any particular process Is so integrally connected with the ultimate production ofgo,ods that but for that process manufacture ofprocessing ofgoods 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 ofCentral Excise v. Technowe/d Industries, (2003] 11 SCC 798, Met/ex (I) (P) Ltd v. Commissioner ofCentral Excise, New Delhi, (2005] I SCC 271, Aman Marble Industries (P) Ltd. v. Collector ofCentral Excise, Jaipur, [2005] 1 SCC 279 and Shyam Oil Cake Ltd. v. Collector ofCentral Excise, Jaipur, [2005] 1SCC 264, South Bihar Sugar Mills Ltd. & Anr. etc. v. Union ofIndia & Anr. etc. AIR (1968) SC 922, Laminated Packings (P) Ltd v.

Collector of Central Excise, Guntur, [1990) 4 SCC 51, Deputy Commissioner ofSales Tax (Law), Board ofRevenue (Taxes), Ernakulam v. Mis COCO Fibres, [1992) Supp I SCC 290, Commissioner of Sales Tax: Orissa & Anr. v. Jagannath Cotton Company & Anr. , [1995) 5 SCC 527, Ashirwad /spat Udyog & Ors. v. State Level Committee & Ors. , [1998) 8 SCC 85, State ofMaharashtra v. Maha/axmi Stores, [2003) 1SCC 70, Aspinwall & Co. ltd v. Commissioner ofIncome Tax, Ernakulam, [200I] 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 Industry (P) Ltd & Anr. v. State ofUP & 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 152 SUPREME COURT RE. PORTS (2007) 8 S. C. R. 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 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 manufactured and produced.

The respondent further contended that after receipt of the blend sheet, the workers at the warehouse gather the required variety of tea and the required quantities as set out in the blend sheet. The process undergoes is as under: (i) Spread out in the warehouse by opening; (ii) Chest (Boxes) and emptied first few in full and then balance in half by rotation (Spreading & Bulking). After the bulking, the entire quantity of different variety of tea is gathered at one place in a tomb structure and then the bulk is broken in a circle with the central shell empty for movement by workers in rounds for mixing and the entire mixture is blended by: (a) manual 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 oftea is complete, the samples are drawn and sent for testing and matching with the buyers approved samples of tea. Manually blended tea and the finished product is required to match the type ofsamples 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. After the process of manufacture and production of the final tea by blending, COMMNR. OFINCOMETAX, KERALAv. TARAAGENCIES[DALVEERBHANDARI,J. ) 153 the entire originality of the different varieties of tea is Jost and a new product . 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. It is further contended that the packing of tea is done manually and also by machines. Electrical packing and weighing is also carried out. The automation to a great extent was not available at the. relevant time and as such this was also carried out partly manually. 50. Mr. Desai, appearing on behalf of the respondent assessee also strongly reli~d on the judgment ofthis court in Chowgule 's case and submitted that in view of the clear findings in the said judgment, the controversy involved in this case is no longer res integra. According to Mr. Desai, the present case is squarely covered by the decision in Chowgule's case and consequently the respondent assessee is entitled to the weighted deduction under section 35B (IA) of the Act. 51. The respondent has also relied upon the decision in G. A.

Renderian Ltds case (supra). In the said case, the assessee carried on the business of purchasing tea of different qualities, blending the same by mixing one type with another and selling it. The assessee claimed that it was an industrial company within the meaning of section 2(7)(c) of the Finance Act, 1978 and was entitled to concessional rate oftax. The Tribunal disallowed the claim on the ground that there was no processing as the end product remained the same and the entire process was manual. The High Court while placing reliance on the decision in Chowgules case (supra) came to the conclusion that the activity of the assessee amounted to processing. The court while setting aside the judgment of the Tribunal, observed as under: "The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and ·perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change.

But it is only when the change, or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognis~d as a new and distinct article that a manufacture can be said to take place'. The test that is required to be applied is: does the processing ofthe original commodity bring into existence acommercially different and distinct commodity? '; 52. In G. A. Renderian Ltd (supra), while relying upon the decision of this court in Indian Copper Corporation Ltd v. Commissioner ofCommercial Taxes, Bihar & Ors. , [196S] 16 STC 259, this court observed as under: "In this light, the Supreme Court observed that th~ operation conducted by the assessec in that case should be considered to be "processing".

In the instant case before us this observation fully applies and if the operation conducted by the assessee in that case before the Supreme Court amount to processing then in this case also the operation which Is conducted by the assessee would also amount to processing. " S3. According to the respondent assessee, the controversy involved in • this case is squarely covered by a three Judge Bench judgment of this court in Chowgule 's case (supra). The learned coμnsel for the appellant also placed reliance on 'chowgu/e 's case in support of'hls'submissions. It may be pertinent to mention that a number of subsequgnt judgments have either relied upon, referred to, or distinguished the said judgment of Chowgule 's ease (supra) without properly appreciating the facts of this case, therefore, we deem it appropriate to deal with the facts of this case in extenso from the judgment. 54. The assessee, Chowgule & Co.

, was a private limited company carrying on business of mining iron ore and selling it in the export market after dressing, washing, screening and blending it. SS. The entire activity of the assessee in Chowgu/e 's case can broadly be classified into seven different operations, one following upon the other, namely, (i) extraction of ore from the mine; (ii) conveying the ore to the dressing plant; (iii) washing, screening and dressing the ore; (iv) conveying of the ore from the mine site to the river side; (v) transport of the ore from the river side to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stock piles according to its physical and chemical composition, and (vii) blending of the ore from different stock piles with a view to produce ore of the required specifications and loading it into the ship by means of the mechanized ore handling plant.

The question was whether goods purchased by the assessee for use in the above operations could be said to be goods purchased for use "in the manufacture or processing of goods for sale or in mining" so as to attract the lower rate of sales tax under section . 8(1)(b) ofthe Central Sales Tax Act, 1956. The relevant part ofsection 8(1)(b) at the material time is as under: "8. (I) Every dealer, who is in the course of inter-State trade or commerce- COMMNR. OFINCOMETAX, KERALAv. TARAAGENCIES[DALVEER BHANDARI,J. ] 155 (a) sells to the government any goods; or (b) sells to a registered dealer other than the government goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, which shall be 3 per cent of his turnover. (3) The goods referred to in clause (b) of sub-section (I) (b) ..... are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being.

intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of !! =lectricity or any other form of power. " 56. Chowgu/e & Co. in the aforementioned case made an application to get benefit ofsection 8(3)(b) and Rule 13 ofthe Central Sales Tax Act, 1956. According to the ratio of this case, blending of ore in the course of loading through the mechanical ore handling plant amounted to processing. In section 8(3)(b), the legislature in its wisdom had incorporated terms 'manufacture' and 'processing'. Therefore, when the Chowgule & Co. did not get the desired relief from the courts below, then the company ultimately approached this court. This court examined the case in great detail and came to a definite conclusion that the activity of Chowgule & Co.

amounted to processing and consequently, the assessee was found to be entitled to the benefit only because the term processing was incorporated in section 8(3)(b) ofthe statute in Chow'gules case. 57. In Chowgules case the court specifically examined a case decided by a Division Bench of the Bombay High Court in Nilgiri's case. In this case, the Division Bench of Bombay High Court held that blending of different kinds of tea does not amount to processing. The Revenue, in support of its arguments, placed reliance on the said Nilgiris judgment. Jhis court in Chowgules case comprehensively examined Nilgiris judgment and observed as under: "Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case as laying down the correct law.

When different brands of tea were mixed by the assesses in Nilgiri Tea Company case for the purpose of producing a tea mixture of a · · different kind and quality according to a fonnula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavour than the different brands of tea which went into the mixture. " 58. In view of the specific language of the Statutes in Ni/giri's case (supra) and Chowgu/e's case (supra), the term 'processing' has been specifically incorporated in the statute, therefore, the assessees were justi. fiably·held to be entitled to the benefit. 59. "Undoubtedly, the facts of Nilgiri's case are identi"cal to the facts of the present case and the ratio of Nilgiri's case is fully applicable to this case.

But we have to bear in mind a significant difference in the language employed in section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri's case and the language of section 35(1)(8) of the Income Tax in the present case. The difference is that the tenn 'processing' which has been specifically incorporated in Nilgiri 's case has been specifically omitted in the present case. Similarly, in Chowgule's case, the tenn 'processing' has been incorporated in the statute and the activities of the assessees 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, same benefit cannot be extended to the respondent assessee because the word 'processing' has been specifically omitted in the statute.. The activities of the assessees both in Nilgiri 's and Chowgule 's cases amount to processing.

The activity of the respondent assessee in the present case also amounts to processing. Section 35(I)(b) governing the instant case incorporated the terms 'manufacture' and 'production' and omitted the tenn 'processing'. Therefore, the respondent assessee cannot be extended the benefit of section 35(1)(B) of the Income Tax Act. 60. The processing is only an intermediate stage of production and/or manufacture. The processing of tea of the respondent assessee falls short of either manufacturing or production, therefore, because of the language of section 35(1)(8) of the Income Tax Act~ the respondent assessee cannot be extended the benefit which has been extended to the assessees in Nilgiri 's and Chowgule 's cases. COMMNR. OF INCOMETAX, KERALA v. TARAAGENCIES (DALVEERBHANDARI,J. ] 157 61. Since the legislature in its wisdom has not used the term 'processing' 'r in section 35(l)(B) of the Act, it would be erroneous to incorporate the word in the section and then interpret the Statute.

In this view of the matter Chowgule 's case and Nilgiri 's case dealt with by this court in Chowgule 's case are clearly distinguishable because of the language of the statutes. 62. The intention of the legislature has to be gathered from the language used in the statue which means that attention should be paid to what has been said as also to what has not been said. 63. In Union ofIndia & Anr. v. Deoki Nandan Aggarwal, [1992] Supp 1 SCC 323, a three-Judge Bench of this court held that it is not the duty of the court either to enlarge the scope of legislation or the intention of the legislature, when the language of the provision is plain. The court cannot rewrite the legislation for the reason that it had no power to legislate. The power to legislate has not been collferred on the courts. The court cannot add words to a statute or read words into it which are not there. 64. In State ofKera/av. Mathai Verghese & Ors.

, [1986] 4 SCC 746, this court has reiterated the well settled position that the court can merely interpret the section; it cannot re-write, recast or redesign the section. In interpreting the provision the exercise undertaken by the court is to make explicit the intention ofthe legislature which enacted the legislation. It is not for the court to reframe the legislation for the very good reason that the powers to legislate have not been conferred on the court. 65. In Gwalior Rayons Silk Mfg. (Wvg. ) Co. Ltd v. Custodian of Vested Forests, Pa/ghat & Anr. , [1990] Supp SCC 785, the court rightly observed that in seeking legislative intention judges not only listen to the voice of the legislature but also listen attentively to what the legislature does not say. > 66. House of Lords in Pinner v. Everett, [1969] 3 All ER 257 aptly ... ;; observed that we have been warned again and again that it is wrong and dangerous to proceed by substituting some other words for the words of the statute.

67. Therefore, the legal position seems to be clear and consistent that it is the bounden duty and obligation of the court to interpret the statute as J 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. A 68. On clear construction and interpretation of section 358(1A) of the Act, we are clearly of the opinion that the respondents activity amounts to "processing" only and th. e activity does not amount to either "production" or "manufacture". The term "processing" has not been included in section 35· B(IA) of the Act, therefore, the respondent is not entitled. for weighted B deduction under section 358(1 A) of the Act. 69. Consequently, this appeal is allowed and the impugned judgment is set aside and, in the facts and circumstances of the case, we direct the parties to bear their own costs. v. s. s. Appeal allowed. '