S. 80-IB – Deduction allowed for manufacturing not for processing

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ITAT HYDERABAD

Venkateswara Feeds & Feeds v. ACIT

IT Appeal NoS. 493 (Hyd.) of 2005

1013 & 1014 (Hyd.) of 2006 and

869 & 870 (Hyd.) of 2008

[Assessment Years 2001-02 to 2005-06]

APRIL 26, 2012

One has to examine the stages through which the mash feed is converted into pellet feed. In deciding the issue whether there had been any manufacture of pellet feed. It was to be held that there had been only processing while the production of pellet feed was done by following various stages, namely, (i) batch weighing, (ii) grinding, (iii) mixing, (iv) conditioning with steam, (v) pelleting, (vi) cooling, (vii) crumbling and, finally (viii) packing.

The difference between the pellet feed and mash feed, is difference in the quality of the feed and did not throw any light on the manufacture and is of no significance while discussing whether there is manufacture for the purpose of claiming deduction under section 80-IB.

The question is whether ‘Mash Feed’ undergoes any process of manufacture to produce an article or thing called ‘Pellet’, which is different and distinct from the input material. In instant case though the original commodity has undergone certain degree of change still it has not lost its original identity and hence, it cannot be said that it amounts to manufacture. The words ‘manufacture’ and ‘produce’ applied to bringing into existence something which is different from its components.

In the conversion, whether the identity of the commodity before and after it undergoes various processes/changes remains the same, in manufacturing a new and different article must emerge from the original substance and new substance does not mean that merely a change in the substance is effected. Manufacture and production implies that something is brought into existence which is different from its components. Moreover, the ‘term’ processing is distinguishable from the term ‘manufacture’ and mere processing does not amount to change loosing its original identity whereas in manufacturing, the original articles loose their identity. In the case under consideration, doing something to substance to change or alter their form can be termed as processing and does not amount to manufacture as a production of a new substance does not mean merely to produce some change in the substance. There is no change in the basic component except a physical change in the structure and shape in the form of pellet as no new substance comes into existence.

In view of the above discussion, it can be concluded that the activity followed by the assessee-firm is a processing activity and it is not entitled for the deduction under section 80-IB and assessee’s claim under section 80-IB is to be dismissed.