IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri N.S.Saini, Accountant Member and
Shri Mahavir Singh, Judicial Member
ITA No.2089/Kol/2007, 218 &
Assessment Years:2004-05 to
Narendra Tea Co.(P) Ltd., बनाम / Joint Commissioner of 2A, Ganesh Chandra V/s . Income Tax, Range-3, Avenue, Kolkata - 700 013 Siliguri
[PAN No.AABCN 0123 D]
Narendra Tea Co.(P) Ltd., बनाम / Deputy Commissioner 2A, Ganesh Chandra V/s . of Income-tax, Circle- Avenue, Kolkata - 700 013 3,Siliguri
Narendra Tea Co.(P) Ltd., बनाम / Asstt. Commissioner 2A, Ganesh Chandra V/s . of Income-tax, Circle- Avenue, Kolkata - 700 013 3, Hakimpara, Siliguri
अपीलाथȸ /Appellant .. ू×यथȸ /Respondent
आवेदक कȧ ओर से/By Assessee Shri S.K.Tulsiyan, AR राजःव कȧ ओर से/By Revenue Shri Subrat Mishra, CIT-DR सुनवाई कȧ तारȣख/Date of Hearing 11-06-2013
घोषणा कȧ तारȣख/Date of Pronouncement 21-06-2013
आदे श /O R D E R
These are four appeals by assessee are arising out of different orders of Commissioner of Income-tax (Appeals), Siliguri ('CIT(A)' for short) in appeals ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 2
No. 294, 151, 148 & 48/CIT(A)/Slg/06-07,07-08, 08-09 & 09-10 all dated i.e., 25-01-2007, 30-01-2008, 30-01-2009 and 25-01-2010. All the assessments were framed u/s.143(3), 143(3)(ii) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') by JCIT, Range-3, DCIT/ACIT, Circle-3, Siliguri vide their different orders dated 29-12-2006, 28-12-2007, 24-12-2008 and 31-12-2009 for assessment years (AY) 2004-05 to 2007-08. All the appeals are heard together and are being disposed of by way of consolidated order for the sake of convenience.
2. The only common issue in these four appeals of the assessee is against the order of CIT(A) confirming the disallowance of exemption u/s.10A of the Act on the ground that the blending of tea does not amount to manufacture or producing any article for the purpose of claiming exemption. The relevant grounds in AY 2004-05 in ITA No.2089/Kol/2007 reads as under:- "1. That the Ld. C.I.T.(A) erred in having confirmed the disallowance of exemption claimed u/s. 10A of Rs.2,37,70,404/- on the alleged ground that the assessee was blending different types of tea but not manufacturing or producing any articles for the purpose claiming exemption u/s.10A, in spite of the fact that the activities of the appellant company amount to production of goods and are eligible for the exemption u/s.10A.
2. That the Ld. CIT(A) further erred in law in arriving at the conclusion that tea blending does not fall within the meaning of manufacture/produce, whereas it is an admitted position as per several judicial pronouncements that blending of tea is a kind of production.
3. That the Ld. CIT(A) further erred in holding that the assessee' was not covered under the SEZ Act, without properly interpreting the provisions of the said Act and hence his action in denying exemption u/s.10A is bad in the eye of law."
The grounds raised in other appeals are exactly similar, hence, for the sake of brevity, we do not want to reproduce.
ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 3
3. Briefly stated facts are that assessee is a company, engaged in the export of tea. During the course of assessment proceedings, the Assessing Officer noted the factual position, in para-4.19 to 4.24 by observing as under:- "4.19. Now let us analyse whether the assessee company qualifies all the four conditions that are required before an article can be said to be manufactured or produced. The process adopted by the assessee company is that teas, with different attributes like strength of liquor, leaf quality, infusion brightness, colour, etc., are selected after various testing of drawn samples. They are sorted together as per the requirement of the blend. They are cleaned and then blended to suit the buyer specification. If required, the teas are again resorted. The blended teas are checked for the strength, leaf quality, infusion brightness and colour and then sent to the laboratory for check in and standard matching. Thereafter, the teas are packed and sealed or made in to Tea Bags.
4.20 Blending of different grades of tea may on blending result in bringing the tea of a particular specification but it can not be held to involve the process of manufacture, because there is no change or transformation of one commodity into another. Moreover, the tea, which is derived, as a result of the blending activity cannot be regarded as a commercially new commodity. What is produced as a result of blending is commercially the same article, namely, tea, though with different combinations than those which are blended, hence, it cannot be said that any process of manufacture is involved in blending of tea. Consequently, the resultant commodity emerging out of the process does not have a distinct name, character or use. Thus, the process merely results in changes of colour, infusion brightness, strength and leaf quality and it does not result in bringing into existence a new commodity having a distinct identity.
4.21 Tea trade has three different stages. First is the producing of tea leaves by the owner of the garden, second stage is manufacture of tea from green leaves, and lastly, sorting and grading tea, as it, comes in different groups and different quantities not of uniform quality. The blending becomes an important part of tea marketing. If blending becomes an integral part of manufacturing process, the activity falls within the purview of section 10A of the I.T. Act, 1961. But, if a trader, who after blending the teas of various varieties sells it in saleable packets, such blending being a process for the purpose of marketing only, does not amount to manufacture or production of tea. In such event, since blending of tea does not bring into existence a new manufactured or produced commodity which is so essential to avail benefit under section 10A of the I.T. Act, 1961, the exemption would not be available to the assessee.
4.22 It is true that blending of tea of different qualities by their purchaser brings in some qualitative change and a particular brand of tea carrying uniformity in its appearance, taste and chemical contents rules the market as a blend or mixture of tea. So far as making of tea from green tea leaves is concerned, it may amount to manufacture or production of tea. The existing commodity i.e., the green tea leaves, which after undergoing the process applied to it by the manufacturer, undergoes such change that it becomes a new commodity i.e., tea, a commodity different from the raw material as distinctly known in the commercial world from its raw material. Such ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 4
process amounts to manufacture of tea. However, the blending of different teas, by a trader, into different specifications for marketing through different brands remains processing for bringing some qualitative change but not bringing into existence any distinct tea as a new article or thing; a necessary condition to be fulfilled to qualify as a 'manufacturer' or a 'producer'.
4.23 In the instant case, the assessee company only applied the process to make it marketable tea. The assessee company remains a trader in tea, who markets its merchandise in packed form. Thus, the blending of different qualities of tea possessing different chemical and physical composition so as to produce the specified blend of tea does not involve an act of manufacture of tea. What is brought about as a result of blending remains tea though of different specification than the tea which is blended. Therefore it cannot be said to be manufacturing or producing of tea. As already noticed the assessee-company was not engaged in growing tea, so that he might be called producer of tea, nor he was engaged in manufacturing of potable tea from green leaves, which could not be use as otherwise potable drink. In such event, a conclusion can be reached that assessee-company is engaged merely in processing and not manufacture or production of tea.
4.24 In view of the afore discussed, blending of different teas by a trader of tea who has purchased the tea from different parties does amount to processing of tea but falls short of manufacturing process and it does not amount to manufacturing or producing any article or thing within the meaning of section 10A of the I.T. Act, 1961. Consequently, the assessee-company could not be held to have fulfilled the condition for availing the benefit of exemption under section 10A of the I.T. Act, 1961."
4. Further, Assessing Officer decided the issue that blending of different tea by assessee, which has produced the tea from different variety and processing of tea but not manufacturing or producing the tea. The relevant finding of u/s. 10A of the Act is recorded in para-4.27 of the assessment order, by observing as under:-
"4.27 As a result of the afore said discussion, we can conclude that the expression 'manufacture' or 'producing' any article or thing under section 10A of the I.T. Act, 1961 does not include any processing of goods, which does not bring out new or commercially distinct commodity. Therefore, blending of different tea by the assessee company which has purchased the readymade tea from different parties amounts to processing of the tea but fall short of manufacturing or producing the tea. Thus, the assessee company, merely by blending tea, has not manufactured or produced any article or thing within the meaning of section 10A of the I.T. Act, 1961. In view of the aforementioned discussions, the assessee is disallowed from claiming exemption under section 10A of the I.T. Act, 1961 amounting to Rs.2,37,70,404.09. The total income of the assessee is recomputed accordingly."
Aggrieved, assessee preferred appeal before CIT(A).
ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 5
5. CIT(A) also discussed the facts as under:-
"The assessee has taken three grounds in the appeal but the sole issue is the disallowance of exemption claimed of Rs.2,37,70,404/- u/s. 10A of the Act. The assessee is a Private Ltd Co. having its registered office in Kolkata. During the relevant period, the Company was engaged in purchasing different varieties of tea from the market, blending these into specified quality and then exporting it to the buyers abroad. The assessee had set up its blending unit at Falta SEZ Kolkata during the Fin Yr. 2003-04 and claimed deduction under sec. 10A of the IT Act, 1961 for the entire profit of Rs.2,37,70,404.09 derived by it from the activities carried on from the said unit during the Asst. yr. 2004-05. But the AO disallowed the deduction claimed u/s. 10A on the ground that the aforesaid activity i.e., blending of different varieties of tea is a processing of tea but does not amount to manufacturing or producing any article or thing within the meaning of section 10A of the Act. The AO in her order has mentioned that the assessee was an exporter of tea and during the yare they claimed exemption u/s. 10A and 10B and also claimed deduction u/s. 80HHc of the I.T. Act. The AO further mentioned that assessee was blending different types of tea but they were not manufacturing or producing any articles for the purpose claiming exemption u/s. 10A.
At the time of assessment as well as during the hearing of this appeal, the Ld. A/R of the assessee explained that the activities of the Assessee Company is that tea of various qualities are selected with different attributes which contributes a different characteristics to the final products. The attribute includes strength of liquor, leaf quality, infusion brightness, colour etc., These attributes are selected after various testing of drawn samples. Various tea have different attributes, when blended together these should have each attribute in a manner which confirm to the final character of the product which the buyer requires. These are sorted together as per the requirement of the blend and then cleaned for removal of various fibres, iron particles and various other foreign bodies like string, wool, stalk etc.,
After the tea are sorted and cleaned, these are put into a hopper which then sends them to a conveyor. From the conveyor, these are sent to the tower blending system which blends the tea. This results in the changing of character of the tea to the buyer specification. If required, these are re-sorted. Tea, when finally blended are checked for their strength, leaf quality, infusion brightness, colour and then these are sent to the laboratory for checking of various chemicals, moisture and standards matching. If it is found that the final product has the characteristics that are in conformity to the buyer standard and after further clearing the various tests, these are weighted in electro mechanical system and packed in inner liner and the mouth is sealed with heater and then put in a jute bag or in paper sacks after which it is sealed or made into Tea Bags."
6. CIT(A) confirmed the disallowance of exemption by observing as under:- " I have gone through the assessment order and the written submission filed by the A.R. In this case though the Ld. AR tried to distinguish the fact of the decisions cited by the Ld. AO in her assessment order but he could not cite any decision which has a ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 6
direct bearing with the fact of the instant case. Since under the I.T. Act, the term blending has not been defined but, the Ld. AO, with the help of various court decisions, established that blending process cannot be termed either as manufacturing or producing of any articles. Contrary to her findings, the decisions cited by the Ld. AR are not even remotely related to the definition.
The SEZ Act, 2005 does not applicable for the relevant period. Therefore, whatever definition of blending is given thereon, cannot be applied to the assessee's case for the year under appeal.
The details of activities of the assessee company cannot be said to be a manufacturing activities or producing of any article or thing. After all, whatever process they follow tea remain tea, no distinct new product is generated. There may be some qualitative change of the tea in respect of taste, flavor, liquor etc., but no new item is generated out of the processing being done by the assessee.
Regarding utilization of modern machinery and electronic weighment system, it can may be stated that the end result is important, not the processing, due to which result was created. Even after utilizing all those modern facilities, there was no change in the final result apart from some qualitative changes. So, it is not a manufacturing activity or producing a new item, for the purpose of exemption u/s. 10A of the I.T. Act."
Aggrieved, now assessee is in second appeal before us.
7. At the outset, Ld. Counsel for the assessee stated that the issue is squarely covered in favour of assessee by the decision of Special Bench of this Tribunal in ITA No.1463/Kol/2007 AY 2004-05 in the case of Madhu Jayanti International Ltd. V. DCIT dated 20-07-2012, wherein the Special Bench after considering all the case laws has decided this issue vide paras 35 to 37, which is reproduced as under:-
"35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of Commerce & Industry, Govt. of India. The assessee claimed exemption u/s. 10B of the Act for AYs 2000-01 onwards, which was granted upto the AY 2003-044. However, for the AY 2004-05, exemption was declined for the reasons that by the Finance Act 2000, the definition of 'manufacture' which included 'processing' contained in section 10B of the Act was deleted w.e.f. 01.04.2001. The argu9emnt of the department is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 7
as 'manufacture' or 'production' of an article qualifying for exemption. We are of the considered view that the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s. 10A of the Act and units in the free trade zone provided u/s. 10A of the Act and the exemption available to 100% EOU u/s.10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature is correct. We find that Hon'ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies. Supra relied on by the Ld. CIT, DR, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article but is only processing. We find that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU, it would defeat the very object of section 10B of the Act.
36. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word 'manufacture' as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1966, Tea (Marketing) Control Order, 2003, etc., We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment n Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act. Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term 'manufacture' under the common parlance, and it includes processing, blending, packaging etc., In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e., blending packing and export of tea in the free trade zone shall also be entitled to enjoy tax exemption under Section 10A of the Act.
37. Accordingly, we answer the question referred in favour of the assessee by holding that the assessee who are in the business of blending and processing of tea and export thereof in 1000% EOUs are manufacturer / producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessee who are in the business of blending and processing of tea in respect of undertakings in free trade zones are manufacture / producer of tea for the purpose of claiming exemption u/s. 10A of the Act. We have examined and discussed the facts in the case of Madhu Jayanti International ltd., and found that there is blending of tea and consequently assessee is eligible for exemption u/s. 10B of the Act as prayed for. There appeal for the AY 2004-05 is allowed. As regards other appeals and that of the interveners., the matter are restored back to the Division Bench, with direction to decide those appeals in the light of principle laid down herein, so far as the claim for relief u/s. 10A or 10B of the Act in accordance with law."
ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 8
8. We find from the above that assessee is engaged in the business of purchase of different varieties of bulk tea from tea gardens / auction house / market and blend the same and exported. The assessee has also set up a new industrial undertaking for the purpose of manufacturing blending of tea under Special Economic Zone (SEZ for short) scheme of the Government of India in terms of Export-Import Policy of 2002 to 2007. This unit is set up in Falta SEZ at Falta, District South 24-Parganas in the State of West Bengal. This unit was granted permission by Govt. of India, Ministry of Commerce and Industry, SEZ Scheme for the manufacture of bulk tea / packet tea vide letter of Permission No. 11299 dated 21-03-2003, whereby "All the facilities and privileges admissible and subject to the provisions of the SEZ Scheme as envisaged in Export Import Policy /Handbook of Produces (Vol I), 2002-2007".This is also certified by Development Commissioner, Falta SEZ as on 27-05-2005. We find that AO in AY 2004-05 has admitted that the activity of the assessee is that of blending of tea and merely blending of tea amounts to processing of tea and it thus fall short of manufacturing or producing of thing within the meaning of Section 10A of the Act. We find that this issue is answered by the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. (supra). Further, the AO in AY 2004-05 has admitted the blending of tea after verifying the details. Similarly in AY 2005-06 also noted the fact in assessment order that the unit is buying different varieties of tea from the market and after blended the same export the blended tea. Further, in AY 2006-07 also the AO from the details noted that the assessee is engaged in blending different types of tea and then exporting it. This issue of the assessee is occurring in earlier years also and the CIT(A) has confirmed the disallowance made by AO in earlier years. The issue is now pending with the Tribunal, thus, to maintain judicial consistency, the claim of the assessee is rejected as all the facts and circumstances are same as in earlier years. Further, in AY 2007-08, the Assessing Officer noted that assessee's claim of exemption u/s. 10A of the Act has been the subject-matter of ITA No.2089/K/07,218,1007/K/09 & 1005/K/11 A.Ys 04-05 to 07-08 Narendra Tea Co. (P) Ltd. V. ACIT Cir-3, SLG Page 9
all the assessment orders passed since AYs 2004-05 to 2006-07 in respect of the assessee and their actions were also subsequently upheld by CIT(A). The matter however, remains pending before the Tribunal. In view of the above position admitted by AO, that assessee is carrying on the activity of blending of tea consistently, on factual aspects, which Revenue has not objected. It is not the case of the Revenue that there is no blending. In such circumstances, respectfully following the Special Bench decision cited in the case of Madhu Jayanti International Ltd. (supra), we allow the claim of assessee for all the years.
9. In the result, all the four appeals of assessee are allowed.
Order is pronounced in the open court on 21st June, 2013
Sd/- Sd/- (N.S.Saini) (Mahavir Singh) Accountant Member Judicial Member Kolkata,
Date: 21st June, 2013
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण कोलकाता / DR, ITAT, Kolkata
6. गाड[ फाइल / Guard file.
By order/आदे श से,
आयकर अपीलीय अिधकरण,