w w w . L a w y e r S e r v i c e s . i n



M/s. DXN Herbal Manufacturing (India) Pvt. Ltd. v/s Income Tax Officer


Company & Directors' Information:- R K MANUFACTURING CO LTD [Active] CIN = L27209WB1984PLC037758

Company & Directors' Information:- R K MANUFACTURING CO LTD [Active] CIN = L27209GJ1984PLC098951

Company & Directors' Information:- INDIA MANUFACTURING CORPORATION PRIVATE LIMITED [Active] CIN = U24100DL2010PTC198947

Company & Directors' Information:- DXN MANUFACTURING (INDIA) PRIVATE LIMITED [Active] CIN = U24233PY2001PTC001607

Company & Directors' Information:- S I A MANUFACTURING PRIVATE LIMITED [Active] CIN = U74120UP2013PTC057004

Company & Directors' Information:- S K M MANUFACTURING PRIVATE LIMITED [Active] CIN = U17200DL2011PTC223768

Company & Directors' Information:- S T S MANUFACTURING PRIVATE LIMITED [Active] CIN = U28112TZ2006PTC012940

Company & Directors' Information:- A S P MANUFACTURING COMPANY PVT LTD [Active] CIN = U27109WB1991PTC051461

Company & Directors' Information:- A K MANUFACTURING PVT LTD [Active] CIN = U51909MN1988PTC003110

Company & Directors' Information:- I T A C (INDIA) MANUFACTURING CO LTD [Dissolved] CIN = L51109WB1982PLC034689

Company & Directors' Information:- J D MANUFACTURING CO PVT LTD [Active] CIN = U51909WB1996PTC079825

Company & Directors' Information:- A S P MANUFACTURING COMPANY PVT LTD [Not available for efiling] CIN = U36900WB1991PTC005146

Company & Directors' Information:- B R D MANUFACTURING PRIVATE LIMITED [Active] CIN = U51109WB1997PTC085188

Company & Directors' Information:- R J S MANUFACTURING PRIVATE LIMITED [Active] CIN = U27104DL1997PTC090521

Company & Directors' Information:- B U MANUFACTURING PVT LTD [Active] CIN = U51109WB1982PTC035271

Company & Directors' Information:- M M MANUFACTURING PVT LTD [Active] CIN = U26922WB1993PTC059837

Company & Directors' Information:- J. C. MANUFACTURING INDIA PRIVATE LIMITED [Active] CIN = U21099WB2020PTC236821

Company & Directors' Information:- S B MANUFACTURING PRIVATE LIMITED [Strike Off] CIN = U31506WB1999PTC088567

Company & Directors' Information:- K. V. J. MANUFACTURING INDIA PRIVATE LIMITED [Active] CIN = U29308DL2017PTC320213

Company & Directors' Information:- N S Q HERBAL PRIVATE LIMITED [Active] CIN = U24100HR2015PTC056721

Company & Directors' Information:- A T E MANUFACTURING CO PRIVATE LIMITED [Amalgamated] CIN = U28999GJ1973PTC002296

Company & Directors' Information:- J P MANUFACTURING AND CO PVT LTD [Strike Off] CIN = U51226WB1982PTC034927

Company & Directors' Information:- D. K. MANUFACTURING (INDIA) LIMITED [Strike Off] CIN = U37200WB2011PLC170403

Company & Directors' Information:- R G HERBAL PVT LTD [Strike Off] CIN = U24231CH1989PTC009039

Company & Directors' Information:- M S R G HERBAL PVT LTD [Active] CIN = U45202CH1989PTC009089

Company & Directors' Information:- S M MANUFACTURING COMPANY PRIVATE LIMITED [Active] CIN = U34300HR1997PTC057824

Company & Directors' Information:- G K MANUFACTURING PRIVATE LIMITED [Strike Off] CIN = U34300PB2012PTC036073

Company & Directors' Information:- P & B MANUFACTURING PRIVATE LIMITED [Active] CIN = U29254TN2010PTC076696

Company & Directors' Information:- B. V. H. MANUFACTURING INDIA PRIVATE LIMITED [Active] CIN = U74999GJ2018FTC100633

Company & Directors' Information:- M S HERBAL (INDIA) PRIVATE LIMITED [Strike Off] CIN = U29234RJ1999PTC015366

Company & Directors' Information:- R A MANUFACTURING COMPANY PRIVATE LIMITED [Strike Off] CIN = U36900HR2012PTC047669

Company & Directors' Information:- K. P. HERBAL PRIVATE LIMITED [Strike Off] CIN = U24239GJ2002PTC041681

Company & Directors' Information:- A K R MANUFACTURING PRIVATE LIMITED [Active] CIN = U19200RJ2012PTC041177

Company & Directors' Information:- C N C MANUFACTURING PRIVATE LIMITED [Strike Off] CIN = U64204DL2015PTC281449

Company & Directors' Information:- E G HERBAL PRIVATE LIMITED [Strike Off] CIN = U52312KL2014PTC035927

Company & Directors' Information:- HERBAL INDIA PVT LTD [Strike Off] CIN = U24233PB1980PTC004118

    T.C.(A) Nos. 341 & 342 of 2007

    Decided On, 21 June 2018

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE T.S. SIVAGNANAM & THE HONOURABLE MR. JUSTICE N. SESHASAYEE

    for the Appellant: K. Ravi, Advocate. For the Respondent: S. Rajesh, Advocate.



Judgment Text


T.S. Sivagnanam, J.

1. These appeals by the assessee are directed against the common order passed by the Income Tax Appellate Tribunal Chennai "C" Bench in ITA.Nos.2045 & 2046/Mds/2006, for the Assessment Years 2003-2004 & 2004-2005 dated 25.01.2007.

2. The assessee was engaged in the business of manufacturing Ayurvedic drugs, after obtaining licence from various statutory authorities. The assessee filed the income tax returns for the relevant assessment years and the Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as "Act"]. In determining the income, the Assessing Officer disallowed the claim for deduction made by the assessee under Section 80IB of the Act, on the ground that the petitioner/appellant is not engaged in any manufacturing activity and instead, it was only doing trading of mushroom powders in capsules. The appeals filed before the Commissioner of Income-tax Appeals [CIT(A)], did not yield any results to the assessee and the order of the Assessing Officer was confirmed citing the same reasons. Thereafter, the assessee preferred appeals before the Tribunal and the Tribunal concurred with the views expressed by the Assessing Officer and CIT(A) and dismissed the appeals.

3. The assessee's case is that the Central Excise Department raised demands for the relevant years and the assessee had paid the central excise duty before the due date for filing of the returns and that the Central Excise demand was paid under protest, as the petitioner was contesting the valuation and showed it as assets in its accounts filed under the Income Tax Act. In the return of income, the said amount was not claimed as a deduction, as the assessee had paid the amount to the Central Excise Department under protest and preferred appeals before the Central Excise authorities. The assessee's further case is that the liability being a crystallized liability, it is allowable as deduction. During the course of assessment proceedings, the assessee made a claim for deduction, which was not acceded to and the claim was rejected. Later, the assessee appeared to have filed the returns and its claim for deduction was brought before the Assessing Officer, but the same was not considered by the Assessing Officer, aggrieved over which, preferred appeals before CIT(A) and the CIT(A) confirmed the order of the Assessing Officer, rejecting the claim for deduction on the ground that the claim was made by filing the revised returns. This was confirmed by ITAT, which concurring with the views expressed by the Assessing Officer and CIT(A), and dismissed the appeals filed by the assessee. The Tribunal, while concurring with the rejection of the claim for deduction under Section 43 of the Act, held that the claim sought by the assessee was not available to the assessee on the ground that no fresh evidence has been placed before the Tribunal, except the verbal arguments.

4. The above tax case appeals have been admitted on the following substantial questions of law :

" 1. In the facts and circumstances of the case, whether the Appellate Tribunal was right in holding that the appellant is not entitled to the claim under u/s. 80IB?

2. In the facts and circumstances of the case, whether the Appellate Tribunal was right in denying the claim made u/s.43B when in fact the question of the payment itself was not disputed?

3. In the facts and circumstances of the case, whether the Appellate Tribunal was right in holding that the violation of the principles of the natural justice by the lower authorities has not resulting a injury to the appellant?"

5. The first question to be considered is whether the ITAT was right in holding that the assessee is not entitled to claim deduction under Section 80IB. The Tribunal taking note of the activities done by the assessee, held that the activities did not bring in any article or articles into existence and the mushroom powder even after capsulation remains the same and there is no transformation of mushroom powder into a new article. Further, the Tribunal observed that once the capsule is removed, only the mushroom powder emerges out of it and filling the mushroom powder into gelatin capsules, no new and distinct or separate product comes into existence and even there is no change in the basic identity of the product and taste of the product. The ITAT referred to the dictionary meaning of the word "manufacture'" or "production" as they were not defined under the Income Tax Act at that relevant point of time, since Section 2BA stood inserted by the Finance Act No.2 of Act, 2009 with retrospective effect from 01.04.2000. To be noted, the assessment years which we are concerned are 2003-2004 and 2004-2005. Further, the Tribunal opined that the mushroom powder can be consumed in bulk form nakedly without being put into any enclosure or it can be consumed without putting into the gelatine capsules. Further, putting the mushroom powder into the capsule is for the purpose of smoothening its marketability, which is nothing but a process which does not amount to manufacture or production of a thing or article so as to fulfill the conditions stipulated for availing the benefit under Sec.80IB of the Act.

6. The learned counsel for the assessee placed reliance on the decision of the Hon'ble Supreme Court in Aspinwall & Co. Ltd. Vs. Commissioner of Income-tax, (2001) 118 Taxman 771, for explaining the meaning of the word "manufacture" which has not been defined under the Act. Further, it is submitted that the Assessing Officer was solely guided by the statement recorded from the employee of the assessee, who had concluded that there is no process of manufacturing involved and all that the asseessee does was capsulation of mushroom powder. It is submitted that the said employee was not made available for cross-examination and therefore the statement given by him and such statement recorded by the Inspection Officer should be eschewed, or in the alternate, the matter has to be remanded to the Assessing Officer and an opportunity should be afforded to the assessee for the purpose of cross-examining the said employee.

7. The learned counsel for the Revenue strenuously sought to sustain the order passed by the Tribunal by referring to the various observations contained in the order and submitted that as there is no new article or product which comes into existence, the Tribunal has rightly held that there is no manufacture, and consequently denied the benefit under Section 80IB of the Act. Further, the learned counsel referred to the other findings recorded by the Tribunal as well as the findings of the CIT(A) and the Assessing Officer.

8. As pointed out earlier, at that relevant point of time, the word "manufacture" was not defined in the Act, and that the Hon'ble Supreme Court in Aspinwall case considered the question as to whether the assessee's activity of curing of coffee amounts to manufacturing and the assessee is entitled to provision under Section 32A of the Income-tax Act, 1961. Answering this question, the Hon'ble Supreme Court, pointed out that the word "manufacture" has not been defined in the Act and in the absence of the definition, it has to be given a meaning as it is understood in common parlance. It is to be understood that the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations, whether by hand labour or machines. Further, if the change made in the article results in a new and different article, then it would amount to manufacturing activity.

9. In the instant case, the petitioner/assessee was dealing with Ayurvedic drug preparation. The Tribunal has rendered its finding that the mushroom powder can be consumed in bulk form nakedly without being put into any enclosures or by putting into the gelatine capsules. We find that there is no material, based on which, such finding was recorded by the Tribunal and to say the least, it is the personal opinion of the Tribunal. The Tribunal lost sight of a very important fact that the assessee has obtained licences from various statutory authorities namely licence in Form-25-D issued by the Government of Pondicherry, Food and Drug Administrative Department. This licence authorises the petitioner to manufacture/sale of Ayurvedic drugs including Siddha and Unani Drugs. The manufacturing process has to be supervised by the technical staff as in the licence and the names of the drugs are (a) Reishi Gano (RG), Capsule and (2) Ganocelium (GL), Capsule. Its packing size are 4,10,15,20,30,60,90 & 100. The licence contains various conditions. There is an annexure to licence, which states the list of Ayurvedic Proprietory Preparation, which has been permitted and the composition of the capsule which is as follows :

1.Cap. REISHI GANO (RG)

Each capsule contains,

CHATRAKH : 250 mg (Ganoderma)

BHUCHATRA : 20 mg (Shitake)

2.Cap. GANOCEILIUM (GL)

Each capsule contains,

CHATRAKH : 425 mg (G.Mycelium)

BHUCHATRA : 25 mg (Shitake)

Packing Size : 4,10,20,30,60,90 & 100 capsule.

10. The petitioner's licence is further renewed on 14.01.2004 and to that effect Form 26-D was issued. Similarly, such renewal was effected on 17.01.2006 as well. The Government of Pondicherry, Food and Drugs Administration, issued a Certificate of Good Manufacturing Practices (GMP) to the petitioner vide certificate dated 21.04.2004. The said certificate was consistently granted to the petitioner in the year 2006, vide certificate dated 06.6.2006. The petitioner has obtained the registration under the provisions of the Central Excise Act in Form RC dated 23.02.2004. They have also obtained a licence from the Ministry of Commerce & Industry, Government of India for foreign collaboration. The petitioner has been issued a factory licence by the Chief Inspectorate of Factories, Government of Pondicherry which states that the licence is granted to the assessee for using the said premises as a factory, and not employing more than 250 persons and the installed motive power not exceeding 354 H.P. for the purpose of manufacturing Ayurvedic medicine, and the name of the finished products is also mentioned in the licence. The petitioner has obtained the licence under the provisions of Pondicherry Village and Commune Panchayat Acts, 1973 as a manufacturing unit. The petitioner has obtained the requisite approval for energisation of the 250 KVA transformer for their manufacturing unit. The list of equipments are also appended to the said approval. The petitioner has obtained the consent under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 and Rules made thereunder for the purpose of operating their plot for manufacture of Ayurvedic drugs to the capacity of 5,00,000 capsules per day.

11. It is not in dispute that the manufacturing unit is located in an Industrial area. Though all these licences were obtained by the petitioner, none of the three authorities including the Tribunal, have made an attempt to examine from that angle as to whether the process done by the assessee would tantamount to manufacture, especially when the word "manufacture" was not defined under the Act at that relevant time. As pointed out earlier, the order passed by the Tribunal rejecting the claim under Section 80IB is based on its personal opinion and not borne out by any records. Recently, the Hon'ble First Bench of this Court, in the case of M/s.Chettinad Builders P.Ltd., Vs. The Deputy Commissioner of Income Tax in TCA.No.261 of 2017, has considered a similar term, the word "manufacture". The assessee therein was engaged in the preparation of ready mix concrete and it was pointed out that preparation of ready mix concrete resulted in transformation of stone, chips, sand, cement, fly ash and other articles into a new and distinct object having a different name, character and use, and once the ready mix concrete is prepared, the ingredients used lose its original character and never can be restored to its original character. So far as the product dealt by the petitioner is concerned, mushroom powder was put in the gelatine capsules and the process of manufacture has been described by the assessee, during his submission made before the Assessing Officer. This submission has been outrightly rejected by the Assessing Officer as well as CIT(A) and ITAT, largely based upon the statement given by the employee of the assessee that too behind the back of the assessee. The various licences granted to the petitioner clearly states that the products consists of more than one material in a particular proportion. The process has been explained by the petitioner and it undoubtedly involves a sterile process and it would be incorrect to state that the entire process is reversible, as stated by the Tribunal. The Tribunal in its impugned order has stated that if the product is taken out of a gelatin capsule, it will retain its original character. For this finding, there is no material before the Tribunal.

12. The learned counsel for the assessee relied on the judgment of the Hon'ble Supreme Court in Civil Appeal No.9295 of 2017 dated 03.8.2017, [Commissioner of Income Tax-I, Mumbai Vs. Hindustan Petroleum Corporation Ltd.,], wherein the question which fell for consideration was whether the assessee who was engaged in the process of bottling Liquified Petroleum Gas (LPG) cylinders mentioned for domestic use is entitled to claim the benefit of Sections 80HH, 80-I and 80-IA of the Income Tax Act, 1961. The admissibility of benefit under the said provisions depended upon the question as to whether bottling of LPG is an activity which amounts to production or manufacturing for the purposes of the aforesaid provisions of the Act. The assessee contended that the said provisions namely Sections 80HH, 80-I and 80-IA of the Act use the expression "manufacture" or "production". Therefore, whenever industrial undertaking is either manufacturing or producing an article, it would be entitled to the benefit of the aforesaid provisions, subject to satisfying other conditions laid down in those sections. Further, it is contended that the word "production" is wider than the word "manufacture" and any activity which makes a product marketable and usable to the consumer would be covered by the word "production". In support of such contentions, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Income Tax Officer Vs. Arihant Tiles and Marbles P. Ltd., (2010) 321 ITR 79 (SC) wherein the Hon'ble Supreme Court held that the word " production" is wider in ambit and has a wider connotation that the word "manufacture". Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Vadilal Chemicals Ltd., Vs. State of Andhra Pradesh & Ors, (2005) 6 SCC 292. The assessee sought to distinguish the decision of the Gujarat High Court in State of Gujarat Vs. Kosan Gas Company,1992 87 STC 236. While answering the question, the Hon'ble Supreme Court pointed out that on a reading of the aforesaid provisions of the Act, it becomes clear that after reading these provisions that an assessee whose process amounts either to "manufacture" or "production", i.e., one of these two and not both would become entitled to the benefit enshrined therein. Noting the type of activity done by the assessee/Hindustan Petroleum Corporation, it was held by the Assessing Officer not amounting to manufacture, as it does not being into existence new identifiable and distinguishable case. It was pointed out that no distinction was drawn between manufacture and production and the matter was not looked into from the angle as to whether the aforesaid provisions would amount to production or not. The decision of the Gujarat High Court in Kosan Gas Company case was distinguished by observing that the case was decided in the context of the Gujarat Sales Tax Act, 1969, which defines manufacture under Section 2(16) and keeping in view of the said definition of manufacture under the said Act and the issue was as to whether the process amounted to manufacture or not and in the said case, the question as to whether it amounts to production did not arise for consideration. Thus, it is held that the bottling of Liquified Petroleum Gas (LPG) was considered to be processing and for such reason, the order passed by ITAT was confirmed and the appeal filed by the Revenue was dismissed. The decision in Hindustan Petroleum Corporation Ltd., case (HPCL) was sought to be distinguished by the Revenue by contending that the Hon'ble Supreme Court has rendered a decision taking note of the complex process involved in the bottling of LPG cylinders. However, it is to be noted that the Hon'ble Supreme Court while noting the activity carried out in the bottling plants, laid emphasis on the words viz., manufacturer and producers. Therefore, the legal principle laid down in HPCL case would apply with full force to the case of the assessee on hand.

13. Interestingly, the claim made by the Assessee for deduction under Section 43B was not only the subject matter for the present Assessment year, but for the subsequent Assessment years as well. The assessee made a claim that they have paid Central Excise Duty and therefore, entitled for deduction under Section 43B(A).

14. The Revenue resisted this claim on the ground that the assessee had not claimed the expenditure in the books of accounts, but shown only as advance received in the balance sheet. Therefore, the deductions should not be allowed.

15. The correctness of this0 order for the Assessment Year 2009-2010 was put to challenge before the Division Bench of this Court in TCA.No.730 of 2015 [Commissioner of Income Tax Vs. M/s.DXN Herbal Manufacturing Industries Pvt. Ltd.,] and the Division Bench by judgement dated 07.9.2015, dismissed the appeal filed by the Revenue. The operative portion of the order reads as follows :

" 6. The Revenue filed a further appeal to the Tribunal raising a specific ground in ground No.2 to the effect that if the assessee had not claimed the expenditure in its books of accounts, but had shown the same only as advance receivable in the balance sheet, the deduction could not have been allowed. The grievance of the Revenue is that without considering the said ground of attack, the Tribunal dismissed the appeal of the Revenue.

7. As rightly pointed out by the Tribunal in paragraph 5 of its order, the assessee has actually paid the said amount as excise duty in the relevant previous year for enabling them to move the goods out of their factory. This payment was made pursuant to an order passed by this Court. The fact that the assessee has taken up the matter on appeal to the Supreme Court on their litigation with the Department of Central Excise, would not make the payment a non payment. The heading, under which, the assessee has incurred expenditure is only a duty payment. Therefore, the Tribunal was right in holding that the assessee satisfied both the statutory provisions of Section 37 and 43B.

8. Mr.J.Narayanasamy, learned Standing Counsel pointed out that even the third ground raised by the Department to the effect that the assessee failed to produce any order of excise duty or demand notice of any other statutory authorities for proving the liability was not considered by the Tribunal.

9. But, we do not think that the Department can ask for anything more than the factum of payment. The actual payment of the amount was not disputed even in the order of the Assessing Officer. What the Assessing Officer has recorded is that no order or demand of excise duty served upon the assessee was produced. But, the Assessing Officer has recorded the fact that even in the order of the High Court, it was mentioned that the goods moved out of the factory after payment. The point that was raised by the Assessing Officer was that there was no demand on the part of the Department. The crystallization of demand may not really be a ground to suspect the actual payment. In any case, it is a question of fact. Hence, we are of the considered view that the question of law raised by the Department does not arise for consideration."

16. In our considered view, the decision of the Division Bench in TCA.No.730 of 2015 is an answer to question No.1, which has been framed for consideration. In other words, unless there is a manufacturing unit, the question of payment of excise duty does not arise. For the subsequent years, the assessee's claim has been accepted and the Revenue's appeals have been dismissed. Therefore, the petitioner's earlier assessment order cannot be sustained. We support this finding with some more additional reasons. In the assessment year, the Assessing Officer has culled out the admitted facts. On perusal of the order, it is seen that the Assessing Officer has accepted that the petitioner has obtained the Central Excise Registration Certificate dated 23.02.2004 for manufacturing of excisable goods. Further, it is admitted that a copy of the return dated 07.12.2005 for excisable goods and availment of CENVAT credit for the month of November 2005, to the Superintendent of Central Excise, Range II-B was produced. Further the Assessing Officer states that the return shows that it classified the goods under CETSH No.3004.90.11, on which excise duty was paid along with necessary description of receipts and consumption of principle inputs and finished products were cleared and waste and scrap arising during process were not cleared, but destroyed.

17. The above factual finding which has been recorded in the Assessment Order and termed to be a admitted fact is sufficient to hold that the petitioner was engaged in the manufacturing process and there is also proof to show that payment of excise duty was made by the assessee and consequently, the finding of the Tribunal has to be held unsustainable.

18. We may note that even as per statement given by the employee of the petitioner to the officials of the Department when they inspected the unit, the process involved in the production activity was described. The same has been quoted in paragraph No.6 of the order passed by the Tribunal, which would clearly show that the bulk powders are filled in the power hopper and the empty gelatine capsules are filled in capsules hopper of semi-automatic filling machine, and the filling machine would be operated by machine operators and it will be set in such a manner to achieve the weight required for filing each capsules, that the prescribed weight for RG capsule is 270 mg and GL capasule is 450 mg. During production process, it should be ensured that the temperature and humidity are within the limits and the weight of the filled capsules are within the limit. Simultaneously, quality control would carry out necessary tests like disintegration test, microbiological test, moisture content test, stability test, weight test parameters and specification test etc, of the filled capsules, for which, separate records are maintained in the production department. Thereafter, the capsules are polished and quality check was done in Polishing Section, which also maintains a separate job record. Thereafter sorting and inspection is done, followed by a Quality Check Inspector and personnel, who would reject and remove the defective capsules, after which, the product, the sorted out capsules are sent to Counting and Bottling Section, then to Labelling Section, Batch Printing Section, Shrink Pack Section and Packing Section. Further it is stated that all the above manufacturing process of each section in production shall be done in the specified temperature and humidity as well as quality control and testing and manufactures as per schedule T of Drugs and Cosmetics Rules, 1945. In our view, the statement given by the employee of the assessee, would in fact substantiate the stand taken by the assessee with regard to the manufacturing process adopted by them. Therefore, for such reasons also, we hold that no prejudice was caused to the assessee on account of not making available his former employee for cross-examination.

19. We agree that the submissions of the learned counsel for the assessee that the end product is not the same product which was fed into the machines at the first instance as it paced in a gelatine capsule, which is consumed by the user. In Commissioner of Income-tax Vs. N.C.Budharaja & Co., (1993) 70 Taxman 312 SC, it was held that the word "production" has wider connotation than the word "manufacture", while every manufacture can be characterised as production, every production need not amount to manufacture. It was pointed out that the word production or produce when used in juxtaposition with the word "manufacture" takes in bringing into existence new good by a process which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products, which emerge in the course of manufacture of goods. In the absence of definition for the word "article" as is not defined in the Act or the Rules, it must be understood in its normal connotation in the sense in which it is understood in the commercial world.

20. The assessee specifically contended before the Tribunal that the bulk powder cannot be consumed directly as it may lead to inaccurate intake and the dose may be influenced by many factors such as size of spoon, density of the powder, humidity, degree of setting fluffiness due to agitation and processing pattern. Hence, administration of drug in capsule form is required. The assessee also demonstrated the various advantages of putting the drug in capsule form and thus submitted, the preparation of capsule is very important activity of the manufacturing process.

21. The Department stated that the assessee was importing bulk mushroom powder and putting it in gelatine capsules. As per the agreement with the foreign company, the foreign company has exclusive expertise and know how in respect of the product and the foreign company is fully guarded itself in the product said to be manufactured by the assessee.

22. Upon hearing all these submissions, the Tribunal came to the conclusion that the activity does not bring any new article or product and the mushroom powder even after capsulation remains the same and if it is removed from the capsule, the mushroom powder emerges out of it. It is not known as to how the Tribunal rendered such a finding as there was no material available before the Tribunal that there is no change in the composition of the drug on capsulation. As already pointed out, the Tribunal gave a finding wholly unsubstantiated by any material that the bulk form of the drug can be nakedly consume without putting them in an enclosure such as gelatine capsule. It is relevant to note that the agreement between the assessee and the International parent company dated 26.4.2004 states that the Indian Company (assessee) has set up a factory at Pondicherry with an intent to manufacture similar products and has requested the foreign company to make available the know-how to the Indian Company and after negotiations, the foreign company has agreed to make available the know how on the terms and conditions set out in the agreement. The agreement specifically states that the foreign company shall supply to the Indian company all materials such as know how of materials, such as process sheets, calculation sheets, standards and other information as is necessary to understand the utilisation of the said know how and to implement the same in the manufacture of the said product.

23. The factual matrix clearly demonstrates that what has been done by the assessee is manufacture. The decision relied on by the Revenue in the case of Sacs Eagles Chicory Vs. Commissioner of Income Tax, (2002) 255 ITR 178 SC is distinguishable on facts as the activity which was the subject matter of the said case was making powder from chicory roots and the appeal by the assessee was dismissed as the assessee failed to satisfy the test laid down in Aspinwall & Co. Ltd., case. The learned counsel for the Revenue relied upon the decision of the Division Bench of this Court in Commissioner of Income-tax Vs. Madurai Pandian Engg. Corpn. Ltd., (1999) 239 ITR 375 (Madras). The question was whether the business of tyre retreading done by the assessee amounts to production of a new article and whether the assessee was entitled to relief under Sections 80J and 80HH of the Act.

24. This Court held that the common thread which runs in all the decisions is that only when a new distinct commodity commercially accepted as such, comes into existence as a result of processing, that a commodity can be said to have been manufactured and in the said context, retreading of tyres did not result in the production of an articles for the purpose of Section 80HH of the Act. The said decision is clearly distinguishable on facts. In the assessee's case, the product which emerges after the process of manufacture is commercially a distinct commodity, can be of consumption as such containing a requisite amount of ingredients in the appropriate percentage, preserved in proper form as contained in the licence issued under the authorised enactments as well as the technical logo shared by the foreign company.

25. For the above reasons, the Question No.1 is in favour of the assessee and against the Revenue.

26. Question No.2 is framed by the order dated 20.0

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3.2007, is to the effect that whether ITAT was right in denying the claim under Section 43B, in fact, the question of payment itself was not disputed. The Assessing Officer rejected the claim on the ground that the payment was not made at the time of filing the return, but was made only during the course of assessment and that such step could not have taken unless the revised return had been filed. To that effect, the Assessing Officer, referred to the decision of the Supreme Court in Goetze (India) Ltd., Vs. Commissioner of Income Tax, (2006) 157 Taxman 1 (SC) and same was the view taken by CIT(A). However, ITAT proceeded on a slightly different angle, not on the ground that the petitioner had not filed the revised return that being entitled to the claim of the benefit under Section 43B, i.e., to say, on the ground that while the assessee is not in a position to spell out the nature of the liability, and it was making only verbal argument without stating the nature of expenditure and that the assessee has not produced any order of the Excise Department, through which the liability stated to have emerged and it also opined that, to avail deduction, the payments are required to be actually paid within the time stipulated to the proviso to Section 43B of the Act. In the previous paragraphs, we have noted the admitted facts recorded by the Assessing Officer, which clearly shows the assessee has availed the CENVAT credit and paid the excise duty. That apart, the assessee won the case for the subsequent year 2009-2010 in T.C.A.No730 of 2015, which was filed by the Revenue against the assessee. Thus, the substantial question of law No.2 is answered in favour of the assessee and against the Revenue. 27. This leaves us with only one question whether the Appellate Tribunal was right in holding that violation of principles of the natural justice by the lower authorities has not resulted an injury to the appellant. The settled legal position is that every lack of opportunity cannot be construed as to be a violation of principle of natural justice. The aggrieved person has to establish before the court or the forum that on account of not providing an opportunity to him, he was put to prejudice. In fact, though the assessee took a stand that its former employee should be made available for cross-examination,he contested the matter before the Assessing Officer by placing facts to substantiate their case that they are engaged in the process of manufacturing and excise duty has been paid. 28. Thus, in the absence of any proof produced to show that the statement obtained from the employee has caused prejudice to the assessee, the Tribunal has to only justify the decision taken by the Assessing Officer and CIT(A). We further hold at best that the statement given by the former employee of the assessee is not conclusive and it would not bind the assessee. Furthermore, the statement is stated to have been recorded at the time of inspection and one can easily perceive the mood in which the employee would have been. 29. For the reasons stated in the previous paragraph, we are of the view that the question of law No.3 is answered in favour of the Revenue and against the assessee. 30. Accordingly, these tax case appeals are allowed in part. No costs.
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