Commissioner of Income Tax vs Sri Meenakshi Asphalts

R. Jayasimha Babu J.

The question, which arises for our consideration in this appeal is as to whether the Tribunal was right in law in holding that the activity of heating

raw bitumen to 300 degrees centigrade, without any addition or chemical change in order to obtain solid bitumen, constitutes ""manufacturing

activity"", entitling the assessee to claim deduction under Sections 80HHA and 80-I of the Income Tax Act, 1961.

The assessee is a small scale industrial undertaking, which makes blown bitumen. The process involved in making it as set out by the assessee is

waste scrap bitumen is heated in a heating tank up to 225 degrees centigrade and is transferred into a reactor, and blown by air compressor, which

raises the temperature up to 300 degrees centigrade. Thereafter, it is kept in a chamber for three to four hours, during which period the water and

oil in the bitumen evaporates. As part of the oil that is so removed does not evaporate fully, a portion of it comes down as processed oil, which is

used again as a fuel.

The assessee admittedly did not regard this process as resulting in a product which was different from the original. The assessee also did not

possess any licence under the Central Excise Act for manufacture.

No new product emerges from the process employed by the assessee. What was bitumen continues to be bitumen, but with lesser quantity of oil

and moisture. The purposes for which it can be used are only the purposes for which the use of bitumen is appropriate.

Learned counsel for the assessee contended that even if the bitumen cannot be regarded as a new product, nevertheless, having regard to the

law laid down by the Supreme Court in the case of ASPINWALL and CO. LTD. Vs. Commissioner of Income Tax, , the assessee should be

regarded being engaged in manufacture.

In the case of ASPINWALL and CO. LTD. Vs. Commissioner of Income Tax, , the Supreme Court dealt with coffee curing and held that

curing of coffee results in manufacture of coffee. The Supreme Court noted (page 328) : "". . . the assessee, after plucking or receiving the raw

coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the

input. The change made in the article results in a new and different article which is recognised in the trade as a new and distinct commodity. The

coffee beans have an independent identity distinct from the raw material from which it was manufactured. A distinct change comes about in the

finished product."" The court in that view, concluded that ""Conversion of the raw berry into coffee beans would be a manufacturing activity.

Heating of the scrap bitumen in order to obtain solid bitumen, by causing the moisture and oil in the scrap bitumen to evaporate or separate,

cannot be compared to curing of coffee and the conversion of raw berry into coffee beans.

We may now make a rapid survey of cases where it has been held that no ""manufacture"" had taken place :

(i) Conversion of chicory root into chicory powder by roasting and powdering does not amount to manufacture, as held by the Supreme Court in

the case of Sacs Eagles Chicory v C.I.T., (2002) 255 ITR 178 .

(ii) Subjecting raw uncut diamonds to a process of cutting and polishing, which yields the polished diamond, has been held to be not amounting to

manufacture, in the case of Commissioner of Income Tax Vs. Gem India Manufacturing Co., by the Supreme Court.

(iii) Foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables, meat or the like cannot be

regarded as a commercially distinct commodity and it cannot be held that such foodstuff is ""manufactured"" or ""produced"", as held by the Supreme

Court, in the case of The Indian Hotels Company Ltd. and Others Vs. The Income Tax Officer, Mumbai and Others, .

(iv) In the case of Union of India (UOI) and Others Vs. J.G. Glass Industries Ltd. and Others, the Supreme Court has held that printing on glass

bottles does not amount to manufacture.

(v) Drilling, trimming and chamfering of brake lining blanks so as to make them usable by owners of motor vehicles and manufacturers of

automobiles, does not amount to manufacture, as held by the Supreme Court in Brakes India Ltd. Vs. Supdt. of Central Excise and Others, .

(vi) In the case of Tata Engineering and Locomotive Co. Ltd. Vs. Union of India, , it was held by the Bombay High Court that cutting, drilling,

fastening of angles, plates, etc., to make columns, beams, etc., will not amount to ""manufacture"".

(vii) Cutting industrial laminated sheets (paper based) and glass epoxy laminated sheets into requisite sizes and punching holes for making them

capable of being fitted as insulators, does not amount to manufacture, as has been held by the Supreme Court in the case of The Collector of

Central Excise, Hyderabad, Vs. M/s. Bakelite Hylam Ltd., .

(viii) Recording of sound by jobber on magnetic cassette tapes or spool magnetic tapes supplied by customer does not amount to manufacture, as

held by the Supreme Court in the case of Prabhat Sound Studios Vs. Additional Collector of Central Excise, .

(ix) Mining of limestone and marble and cutting and sizing the same before it was sold in the market cannot be considered as amounting to

manufacture, as held by the Supreme Court in the case of Lucky Minmat Pvt. Ltd. v. C.I.T., (2000) 245 ITR 830 (SC) .

(x) The apex court has, in the case of Commissioner, Central Excise, Nagpur Vs. Wainganga Sahkari S. Karkhana Ltd., , held that making

trusses, columns and purlins by conducting fabrication work at the site, does not amount to manufacture.

(xi) The Supreme Court in the case of Sterling Foods, A Partnership Firm represented by its Partner Shri Ramesh Dalpatram Vs. State of

Karnataka and Another, held that shrimps, prawns and lobsters even after undergoing process of peeling, deveining, cleaning, freezing and

packing, retain their original identity and do not become different commodities.

(xii) Blending of different quantities of iron ore in the process of loading through mechanical ore handling plant so as to produce ore of contractual

specification, does not amount to manufacture, but amounts to processing as has been held by the Supreme Court in the case of Chowgule and

Co. Pvt. Ltd. and Another Vs. Union of India (UOI) and Others, .

(xiii) In the case of Commissioner of Sales Tax, Lucknow Vs. D.S. Bist and Sons, Nainital, , the apex court approved the decision of this court in

the case of State of Madras v. R. Saravana Pillai [1956] 7 STC 541 wherein it was held that curing of arecanuts does not amount to manufacture,

(xiv) This court in the case of Computer Graphics Pvt. Ltd. Vs. Union of India, has held that cutting and slitting of graphic art films in jumbo rolls

does not amount to manufacture.

(xv) Dehydration of milk to obtain condensed milk has been held by this court as not amounting to manufacture in the case of State of Tamil Nadu

v. Indodan Milk Products [1980] 45 STC 498.

(xvi) This court has held that crushing of stone boulders to obtain blue metal jelly does not amount to manufacture, in the case of State of Tamil

Nadu v. O.P. Aliyar [1992] 87 STC 339.

(xvii) This court has also held in the case of State of Tamil Nadu v. K.M. Natarajan [1981] 48 STC 315 that cleaning and scenting of white ash so

as to form ""sacred ash"" does not amount to manufacture.

The Tribunal was in error in holding that heating of the scrap bitumen which only resulted in separation of oil and water from bitumen, amounts

to a process of manufacturing.

The question referred to us, is therefore answered in favour of the Revenue and against the assessee.