Facts of the Case

The assessee was engaged in the business of manufacture and sale of marble products.

After purchasing marble blocks or slabs, the assessee undertook various processes including:

  • Cutting of blocks into slabs.
  • Applying fibre support to strengthen slabs.
  • Filling holes and cracks using chemicals, marble powder and matching materials.
  • Multi-stage polishing through specialized machines.
  • Application of tin oxide and other materials to provide shine.
  • Cutting slabs into marketable sizes, tiles, moulded and edged pieces.
  • Designing, shaping, moulding and edging according to customer specifications.
  • Re-treatment of scratches, cracks and holes with chemicals.
  • Producing thinner marble slabs by additional cutting processes.

The assessee claimed that these activities transformed raw marble into a commercially distinct and marketable product and therefore constituted manufacturing.

Issues Involved

  1. Whether the processing activities undertaken by the assessee on marble blocks and slabs amounted to a manufacturing process under the Income-tax Act.
  2. Whether the finished marble products emerging after multiple stages of treatment were commercially different from the raw marble blocks/slabs originally purchased.
  3. Whether the assessee was entitled to benefits available to manufacturing or production undertakings.

Petitioner’s (Revenue’s) Arguments

  • The Revenue argued that the activities carried out by the assessee did not amount to manufacture.
  • Reliance was placed on the judgment of the Madras High Court in CIT v. Vijay Granite Pvt. Ltd. (267 ITR 606), where cutting and polishing of granite slabs was held not to amount to manufacture or production.
  • It was contended that the assessee was merely processing marble and not creating a new product.

Respondent’s (Assessee’s) Arguments

  • The assessee submitted that marble blocks/slabs underwent numerous sophisticated and technical processes before becoming marketable products.
  • The activities involved chemical treatment, filling cracks, polishing, moulding, edging, designing and finishing operations.
  • The final products possessed distinct commercial identity, utility and marketability different from the raw material purchased.
  • Reliance was placed upon judicial precedents recognizing similar activities as manufacture or production.

Court Findings

The Delhi High Court upheld the Tribunal’s decision and held that the assessee's activities constituted a manufacturing process.

The Court observed:

  • Mere purchase and resale of marble slabs would stand on a different footing.
  • In the present case, the marble underwent several technical and chemical processes.
  • Labour, machinery, chemicals and specialized treatments were extensively employed.
  • The final products were commercially different from the original marble blocks/slabs.
  • Applying the test laid down by the Supreme Court in Aspinwall & Co. Ltd. v. CIT (251 ITR 323), a new and distinct product emerged after processing.

The Court therefore concluded that the assessee was engaged in manufacturing activity.

Important Clarifications by the Court

1. Test of Manufacture

The Court reiterated the principle laid down by the Supreme Court that manufacture occurs when raw materials undergo transformation resulting in a new and distinct product possessing different characteristics, identity or utility.

2. Processing Beyond Simple Cutting

The Court clarified that the assessee's activities were not limited to mere cutting of marble blocks. The process involved:

  • Fibre reinforcement,
  • Chemical treatment,
  • Filling cracks and holes,
  • Multi-stage polishing,
  • Moulding,
  • Edging,
  • Finishing and shaping.

Therefore, the operations amounted to manufacture.

3. Wider Meaning of Production

The Court noted that the term “production” carries a wider meaning than “manufacture”, as recognized by the Supreme Court.

4. Distinction from Vijay Granite Case

The Court distinguished the Madras High Court decision in Vijay Granite Pvt. Ltd., observing that the facts in the present case involved substantially more processes than mere cutting and polishing.

Court Order

  • The Delhi High Court held that the activities undertaken by the assessee amounted to a manufacturing process.
  • The Tribunal's order was affirmed.
  • No substantial question of law arose for consideration.
  • The Revenue's appeal was dismissed.

Sections Involved

  • Section 80-IB of the Income-tax Act, 1961
  • Section 10B of the Income-tax Act, 1961 (discussed through precedents)
  • Definition and scope of "Manufacture" and "Production" under the Income-tax Act


Link to Download the Order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:3184-DB/VJM11082009ITA5192009.pdf

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