In a recent case, the Calcutta High Court allowed the deduction under section 80-ic(2)(a)(i) of the Income Tax Act for the manufacture of Mouth Freshener ( Pan Masala Without Tobacco )
Unicorn Industries, the appellant assessee established an undertaking in an industrial area situated in Khasra No.786/1064 notified by the Central Board of Direct Taxes by Notification No.41 [F. NO.142/35/2003-TPL] dated 06.02.2004 under Section 80-IC(2)(a) of the Income Tax Act, 1961.
The unit was established by the appellant/assessee for the manufacture of a mouth freshener ( Pan Masala ) not containing any tobacco or catechu. The aforesaid unit commenced production with effect from 27.06.2006. The appellant/assessee obtained registration under the Central Excise Act, 1944, the Central Sales Tax Act and also under other applicable laws.
As per Form B ( certificate of registration ) under Rule 5(1) of the Central Sales Tax Rules, the raw materials used for manufacturer of mouth freshener ( Pan Masala ) are “Fennel, sugar-coated fennel, sugar crystal, scented betel nuts, dry dates, coriander seeds, menthol, flower of lime, Jinan, saffron, elachi powder.” The Assessing Officer noted the consumption of raw materials “Betel nut, crystal lime, fennel, menthol, flower gulkand, dry dates, sugar crystal, sugar fennel, coriander seeds, paraffin glycerine and sugar-coated fennel.”
The assessee claimed deduction under Section 80-IC(2)(a) of the Income Tax Legislation which was rejected by the Assessing Officer on grounds, firstly, that the process applied by the assessee does not amount to the manufacturer and secondly, the product of the assessee does not find mention in Schedule 14.
The assessee filed separate appeals before the Commissioner of Income Tax (Appeals) which were allowed and it was held that the process applied by the assessee amounts to manufacture and the assessee is entitled to deduction under Section 80-IC(2)(a).
Aggrieved with the orders of the Commissioner of Income Tax (Appeals), the revenue filed separate appeals before the Income Tax Appellate Tribunal, which have been allowed by the impugned orders.
The ITAT held that the process applied by the assessee is manufacture but the product of the assessee shall stand excluded for deduction in view of part B of the Thirteenth Schedule to the Act.
The appellant/assessee has established its unit in an area notified by the Central Board of Direct Taxes by notification no. 41 dated 06.02.2004 under Section 80-IC(2)(a). The product manufactured by the appellant/assessee is a mouth freshener ( Pan Masala ) and its ingredients/raw materials do not include tobacco in any form
It was contended that the provisions of section 80-IC(2) are plain and unambiguous. While clause (a) of Sub-section (2) of Section 80-IC applies to an undertaking or enterprise manufacturing or producing any article or thing, established within a specified period in an area notified by the Central Board of Direct Taxes, Clause (b) applies to undertaking or enterprise producing any article or thing specified in the 14th Schedule.
It was observed Clause (a) of sub-section (2) further makes it clear that it applies to any industrial undertaking or enterprise that begins to manufacture or produce any article or thing not being any article or thing specified in the 13th Schedule. Therefore, clause (a) of subsection (2) of Section 80IC applies to any undertaking or enterprise established in an area notified by the Central Board of Direct Taxes to manufacture or produce any article or thing except those specified in the 13th Schedule.
A division bench comprising Justice Surya Prakash Kesarwani and Justice Rajarshi Bharadwaj observed that the word ‘pan masala’ used in Entry 1 of Part B is not incorporated in Part-A of the 13th Schedule (for the state of Sikkim). Once the Legislature has not included pan masala in Part-A for the State of Sikkim, then it was not open for the ITAT to read the aforesaid entry-1 of Part-B in Entry-1 of Part-A. The finding recorded by the ITAT that the item manufactured by the appellant/assessee is included in tobacco products, is baseless and beyond the provisions of Section 80IC(2) read with the 13th Schedule to the Act, 1961.
The Court set aside the impugned orders of the Income Tax Appellate Tribunal, “B” Bench. Both the substantial questions of law are answered in favour of the assessee and against the revenue. It was held that the appellant assessee is entitled to deduction under Section 80-IC(2)(a)(i) read with Section 80-IC(3) of the Act, 1961.
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