REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8036 OF 2009 (Arising out of S.L.P.(C) No.9812/2008)

Income Tax Officer, Udaipur ...Appellant(s)

Versus

M/s Arihant Tiles & Marbles (P) Ltd. ...Respondent(s)

W I T H

CIVIL APPEAL NOS.8037 TO 8044 OF 2009 (Arising out of S.L.P.(C) Nos.1685, 1691, 2577, 3711, 5283,  

16674, 20789 & 20619 of 2009)

J U D G M E N T

S.H. KAPADIA, J.

Leave granted.

In this batch of Civil Appeals, a common question  

of  law  which  arises  for  determination  is:  whether  

conversion of marble blocks by sawing into slabs and  

tiles  and  polishing  amounts  to  "manufacture  or  

production  of  article  or  thing”  so  as  to  make  the  

respondent(s)-assessee(s)  entitled  to  the  benefit  of  

Section 80IA of the Income Tax Act, 1961, as it stood at  

the material time.

The lead matter is Civil Appeal arising out of  

S.L.P.(C)  No.9812/2008  in  the  case  of  Income  Tax  

Officer, Udaipur Vs. M/s. Arihant Tiles & Marbles (P)

Ltd.   

The assessee, during the relevant Assessment Year  

2001-2002,  was  engaged  in  the  business  of  

manufacture/production of polished slabs and tiles which  

the assessee exported (partly).  The prime condition for  

allowing deduction under Section 80IA, as it stood at  

the  material  time,  was  that  industrial  undertakings  

should manufacture or produce any article or thing, not  

being  any  article  or  thing  specified  in  the  list  in  

Eleventh Schedule of the Income Tax Act, 1961.   

The question before us is: whether on facts and  

circumstances of the case(s) the activities undertaken  

by  the  respondent(s)  herein  would  fall  within  the  

meaning  of  the  words  "manufacture  or  production”  in  

Section 80IA of the 1961 Act?

To answer the above issue, it is necessary to  

reproduce the details of stepwise activities undertaken  

by the assessee(s) which read as follows:-

"i) Marble  blocks  excavated/extracted  by the  mine owners being in raw  uneven shapes have to be properly  sorted out and marked;

ii) Such blocks are then processed on  single  blade/wire  saw  machines  using advanced technology to square  them by separating waster material;

iii) Squared  up  blocks  are  sawed  for  making slabs by using the gang saw  machine  or  single/multi  block  cutter machine;

iv) The  sawn  slabs  are  further

reinforced by way of filling cracks  by epoxy resins and fibre netting;

v) The slabs are polished on polishing  machine; the slabs are further edge  cut into required dimensions/tiles  as  per  market  requirement  in  prefect  angles  by  edge  cutting  machine  and  multi  disc  cutter  machines;

vi) Polished slabs and tiles are buffed  by shiner.”

In  addition  to  the  above  activities,  it  may  also  be  

noted  that  the  assessee(s)  has  been  consistently  

regarded  as  a  manufacturer/producer  by  various  

Government  Departments  and  Agencies.   The  above  

processes  undertaken  by  the  respondent(s)  have  been  

treated as manufacture under the Excise Act and allied  

tax laws.

At the outset, we may point out that in numerous  

judgments of this Court, it has been consistently held  

that  the  word  "production”  is  wider  in  its  scope  as  

compared to the word "manufacture”.  Further, Parliament  

itself  has  taken  note  of  the  ground  reality  and  has  

amended the provisions of the Income Tax Act, 1961 by  

inserting Section 2(29BA) vide Finance Act, 2009, with  

effect from 1st April, 2009.   

We quote herein-below the relevant provisions of  

Section  2(29BA)  as  also  the  relevant  provisions  of  

Section 80IA(2)(iii) of the Income Tax Act, 1961.

"2(29BA)   "manufacture”   with  its  grammatical  variations,  means  a

change  in  a  non-living  physical  object or article or thing,-

(a)  resulting in transformation of  the object or article or thing  into a new and distinct object  or article or thing having a  different name, character and  use; or

(b) bringing  into  existence  of  a  new  and  distinct  object  or  article  or  thing  with  a  different chemical composition  or integral structure;”

"80IA(2) (iii) it manufactures or produces  any article or thing, not being any article  or  thing  specified  in  the  list  in  the  Eleventh Schedule, or operates one or more  cold storage plant or plants, in any part  of India.”

The Authorities below rejected the contention of  

the assessee(s) that its activities of polishing slabs  

and  making  of  tiles  from  marble  blocks  constituted  

"manufacture” or "production” under Section 80IA of the  

Income Tax Act.  There was difference of opinion in this  

connection between the Members of the ITAT.  However, by  

the impugned judgment, the High Court has accepted the  

contention  of  the  assessee(s)  holding  that  in  the  

present  case,  polished  slabs  and  tiles  stood  

manufactured/produced  from  the  marble  blocks  and,  

consequently, each of the assessee was entitled to the  

benefit of deduction under Section 80IA.  Hence, these  

Civil Appeals have been filed by the Department.

Incidentally, it may be noted that some of the

assessees before us are also job workers duly registered  

under  the  provisions  of  the  Excise  Act/Rules  framed  

thereunder.   It  may  also  be  clarified  that  in  these  

cases, we are concerned with assessees who are basically  

factory owners and not mine owners.  This distinction is  

of some relevance when we analyse the various judgments  

cited before us fairly by the learned counsel on behalf  

of the Department.

The  main  judgment  on  which  the  Department  has  

placed reliance is the judgment of this Court in Lucky  

Minmat Pvt. Ltd. Vs. Commissioner of Income Tax, Jaipur,  

reported  in  (2001)  9  SCC  669.   In  that  case,  the  

following question came up for consideration before the  

Tribunal:

"Whether  on  the  facts  and  in  the  circumstances  of  the  case,  the  Tribunal  was  justified in holding that business activity of  the assessee was in the nature of manufacturing  or production so as to be entitled for relief  under  Section  80HH  of  the  Income  Tax  Act,  1961.”

The assessee in that case had the business of mining of  

limestones and marble blocks which thereafter were cut  

and sized before being sold in the market.  It was held  

by this Court that the assessee was essentially in the  

business of mining of limestone.  It was held that the  

activity of excavation will not constitute manufacture  

or  production.   It  was  further  held  that  even  the  

activity of cutting and sizing of marble blocks after

excavation would not come within the ambit of expression  

'manufacture'  or  'production'.   In  the  circumstances,  

this Court held that the assessee was not entitled to  

the  benefit  of  Section  80HH  of  the  Income  Tax  Act.  

However, this Court distinguished the judgment of the  

Rajasthan  High  Court  in  the  case  of  CIT  vs.  Best  

Chemical and Lime Stone Industries Pvt. Ltd., reported  

in 210 ITR 883 (Raj.).  In that case, M/s Best Chemical  

was engaged in the business of extracting limestone and  

its sale thereafter after converting it into lime and  

limedust or concrete which was held to be an activity of  

manufacture or production.  The activity of conversion  

into lime and limedust, according to this Court, in the  

case  of  Lucky  Minmat  Pvt.  Ltd.  (supra)  certainly  

constituted a manufacturing process.  It was clarified  

in  the  said  case  that  mere  mining  of  limestone  and  

marble and cutting the same before it was sold will not  

constitute "manufacture” or "production” but conversion  

into lime and limedust could constitute the activity of  

manufacturing or production.  This distinction has not  

been  taken  into  account  by  the  Department  while  

rejecting  the  claim  of  the  assessee(s)  for  deduction  

under Section 80IA of the Income Tax Act, 1961.

There  is  one  more  judgment  of  which  Shri  

Bhattacharya,  learned  Additional  Solicitor  General,  

appearing  on  behalf  of  the  Department,  has  placed  

reliance.   That  is  the  judgment  of  this  Court  in

Rajasthan  State  Electricity  Board Vs.  Associated  

Industries & Anr., reported in AIR 2000 SC 2382.  In  

that  case,  the  only  question  that  arose  for  

consideration  was  whether  pumping  out  water  from  the  

mines came within the meaning of the word manufacture,  

production, processing or repair of goods so as to claim  

exemption  from  duty  under  Notifications  issued  under  

Section  3(3)  of  the  Rajasthan  Electricity  Duty  Act,  

1962.   In  that  case,  the  first  respondent  was  a  

registered  public  limited  company,  engaged  in  

excavating stones from collieries and thereafter cutting  

and  polishing  them  into  slabs.   The  Rajasthan  State  

Government levied excise duty under the provisions of  

the  Act.   A  Notification  dated  23rd March,  1962  was  

issued  by  the  State  under  Section  3(3)  of  the  Act  

granting exemption from tax on the energy consumed by a  

consumer in any industry in the manufacture, production,  

processing or repair of goods and by or in respect of  

any mine as defined in the Indian Mines Act, 1923.  This  

notification was later on superseded on 2nd March, 1963  

by which electricity duty came to be remitted in certain  

cases.  One more notification was issued on 1st November,  

1965 once again superseding earlier notifications.  By  

clause  (c)  of  the  said  notification,  the  State  of  

Rajasthan reduced the duty on the energy consumed in  

industries, other than those mentioned in clause (a) of  

the  notification  which  are  in  the  manufacture,

production, processing or repair of goods.   

The  basic  controversy  which  arose  for  

determination in the said case was whether the activity  

of  pumping  out  water  from  the  mines  came  within  the  

meaning  of  the  words  "manufacture”,  "production”,  

"processing or repair of goods”.    While disposing of  

the matter, this Court, vide paragraphs 1 and 10, stated  

that  the  specific  case  of  the  company  was  that  the  

electrical  energy  was  consumed  for  pumping  out  water  

from  mines  to  make  mines  ready  for  mining  activity.  

This  aspect  is  very  important.   It  needs  to  be  

highlighted  that  the  case  of  the  company  was  that  

pumping out water from mines to make the  mines ready  

for mining activity came within the ambit of the term  

"manufacture”.   This  argument  was  rejected  by  this  

Court,  after examining various judgments of this Court  

on the connotation of the word "manufacture”.  In our  

view,  the  judgment  of  this  Court  in  Rajasthan  State  

Electricity Board has no application to the facts of the  

present case.  Even if  one reads paragraph 17 of the  

said judgment in the light of paragraphs 1 and 10, it is  

very  clear  that  the  only  activity  which  came  up  for  

consideration before this Court in the case of Rajasthan  

Electricity Board (supra) was the activity of pumping  

out  water  from  a  mine  in  order  to  make  the  mine  

functional.  In the present case, we are not considered  

with such activity.  Therefore, in our view the judgment

of this Court in Rajasthan Electricity Board (supra) has  

no application to the facts of the present case.

In the case of  Aman Marble Industries Pvt. Ltd.  

vs. Collector of Central Excise, reported in 157 ELT 393  

(SC),  the  question  that  arose  for  consideration  was  

whether  cutting  of  marble  blocks  into  marble  slabs  

amounted  to  manufacture  for  the  purposes  of  Central  

Excise Act.  At the outset, we may point out that in the  

present case, we are not only concerned with the word  

"manufacture”,  but  we  are  also  concerned  with  the  

connotation of the word "production” in Section 80IA of  

the Income Tax Act, 1961, which, as stated herein-above,  

has  a  wider  meaning  as  compared  to  the  word  

"manufacture”.   Further, when one refers to the word  

"production”,  it  means  manufacture  plus  something  in  

addition thereto.  The word "production” was not under  

consideration  before  this  Court  in  the  case  of  Aman  

Marble Industries Pvt. Ltd. (supra).  Be that as it may,  

in  that  case,  it  was  held  that  "cutting”  of  marble  

blocks  into  slabs  per  se  did  not  amount  to  

"manufacture”.     This  conclusion  was  based  on  the  

observations made by this court in the case of Rajasthan  

State  Electricity  Board  (supra).   In  our  view,  the  

judgment of this Court in Aman Marble Industries Pvt.  

Ltd.(supra) also has no application to the facts of the  

present case.  One of the most important reasons for  

saying so is that in all such cases, particularly under

the Excise law, the Court has to go by the facts of each  

case.  In each case one has to examine the nature of the  

activity undertaken by an assessee.  Mere extraction of  

stones may not constitute manufacture.  Similarly, after  

extraction, if marble blocks are cut into slabs per se  

will not amount to the activity of manufacture.   

In the present case, we have extracted in detail  

the process undertaken by each of the respondents before  

us.  In the present case, we are not concerned only with  

cutting of marble blocks into slabs.  In the present  

case  we  are  also  concerned  with  the  activity  of  

polishing  and  ultimate  conversion  of  blocks  into  

polished slabs and tiles.  What we find from the process  

indicated herein-above is that there are various stages  

through which the blocks have to go through before they  

become polished slabs and tiles.  In the circumstances,  

we are of the view that on the facts of the cases in  

hand, there is certainly an activity which will come in  

the  category  of  "manufacture”  or  "production”  under  

Section 80IA of the Income Tax Act.  As stated herein-

above,  the  judgment  of  this  Court  in  Aman  Marble  

Industries Pvt. Ltd. was not required to construe the  

word "production” in addition to the word "manufacture”.  

One has to examine the scheme of the Act also while  

deciding  the  question  as  to  whether  the  activity  

constitutes  manufacture  or  production.   Therefore,  

looking to the nature of the activity stepwise, we are

of  the  view  that  the  subject  activity  certainly  

constitutes  "manufacture  or  production”  in  terms  of  

Section  80IA.   In  this  connection,  our  view  is  also  

fortified by the following judgments of this Court which  

have been fairly pointed out to us by learned counsel  

appearing for the Department.

In the case of  Commissioner of Income Tax vs.  

Sesa Goa Ltd., reported in 271 ITR 331 (SC), the meaning  

of the word "production” came up for consideration.  The  

question which came before this Court was whether the  

ITAT  was  justified  in  holding  that  the  assessee  was  

entitled to deduction under Section 32A of the Income  

Tax Act, 1961, in respect of machinery used in mining  

activity ignoring the fact that the assessee was engaged  

in extraction and processing of iron ore, not amounting  

to manufacture or production of any article or thing.  

The High Court in that case, while dismissing the appeal  

preferred  by  the  Revenue,  held  that  extraction  and  

processing of iron ore did not amount to "manufacture”.  

However, it came to the conclusion that extraction of  

iron  ore  and  the  various  processes  would  involve  

"production”  within  the  meaning  of  Section  

32A(2)(b)(iii)  of  the  Income  Tax  Act,  1961  and  

consequently, the assessee was entitled to the benefit  

of investment allowance under Section 32A of the Income  

Tax Act.  In that matter, it was argued on behalf of the  

Revenue that extraction and processing of iron ore did

not produce any new product whereas it was argued on  

behalf of the assessee that it did produce a distinct  

new product.  The view expressed by the High Court that  

the  activity  in  question  constituted  "production”  has  

been affirmed by this Court in Sesa Goa's case saying  

that the High Court's opinion was unimpeachable.  It was  

held by this Court that the word "production” is wider  

in ambit and it has a wider connotation than the word  

"manufacture”.  It was held that while every manufacture  

can  constitute  production,  every  production  did  not  

amount to manufacture.   

In our view, applying the tests laid down by this  

Court in Sesa Goa's case (supra) and applying it to the  

activities  undertaken  by  the  respondents  herein,  

reproduced  herein-above),  it  is  clear  that  the  said  

activities would come within the meaning of the word  

"production”.

One more aspect needs to be highlighted.  By the  

said judgment, this Court affirmed the decision of the  

Karnataka  High  Court  in  the  case  of  Commissioner  of  

Income Tax vs. Mysore Minerals Ltd,  (2001) 250 ITR 725  

(Kar).

In the case of  Commissioner of Income Tax Vs.  

N.C. Budharaja & Co., reported in 204 ITR 412 (SC), the  

question which arose for determination before this Court  

was  whether  construction  of  a  dam  to  store  water  

(reservoir)  can  be  characterised  as  amounting  to

manufacturing or producing an article.  It was held that  

the word "manufacture” and the word "production” have  

received  extensive  judicial  attention  both  under  the  

Income Tax as well as under the Central Excise and the  

Sales  Tax  laws.   The  test  for  determining  whether  

“manufacture” can be said to have taken place is whether  

the commodity, which is subjected to a process can no  

longer  be  regarded  as  the  original  commodity  but  is  

recognised in trade as a new and distinct commodity.  

The word "production”, when used in juxtaposition with  

the word "manufacture”, takes in bringing into existence  

new goods by a process which may or may not amount to  

manufacture.  The word "production” takes in all the  

byproducts, intermediate products and residual products  

which emerge in the course of manufacture of goods.

Applying the above tests laid down by this Court  

in Budharaja's case (supra) to the facts of the present  

cases, we are of the view that blocks converted into  

polished slabs and tiles after undergoing the process  

indicated above certainly results in emergence of a new  

and distinct commodity.  The original block does not  

remain the marble block, it becomes a slab or tile.  In  

the  circumstances,  not  only  there  is  manufacture  but  

also an activity which is something beyond manufacture  

and  which  brings  a  new  product  into  existence  and,  

therefore, on the facts of these cases, we are of the  

view that the High Court was right in coming to the

conclusion  that  the  activity  undertaken  by  the  

respondents-assessees  did  constitute  manufacture  or  

production in terms of  Section 80IA of the Income Tax  

Act, 1961.

Before  concluding,  we  would  like  to  make  one  

observation.  If the contention of the Department is to  

be accepted, namely that the activity undertaken by the  

respondents herein is not a manufacture, then, it would  

have  serious  revenue  consequences.   As  stated  above,  

each of the respondents is paying excise duty, some of  

the  respondents  are  job  workers  and  the  activity  

undertaken  by  them  has  been  recognised  by  various  

Government Authorities as manufacture.  To say that the  

activity will not amount to manufacture or production  

under  Section  80IA  will  have  disastrous  consequences,  

particularly in view of the fact that the assessees in  

all the cases would plead that they were not liable to  

pay excise duty, sales tax etc. because the activity did  

not constitute manufacture.  Keeping in mind the above  

factors, we are of the view that in the present cases,  

the  activity  undertaken  by  each  of  the  respondents  

constitutes  manufacture  or  production  and,  therefore,  

they would be entitled to the benefit of Section 80IA of  

the Income Tax Act, 1961.

For  the   afore-stated  reasons,  Civil  Appeals  

filed by the Department stand dismissed with no order as  

to costs.

                                       ..................J.                      (S.H. KAPADIA)

                                       ..................J.                      (J.M. PANCHAL)

                                       ..................J.                      (H.L. DATTU) New Delhi, December 02, 2009.