I-T - Process of packaging can be considered as manufacturing activity if it is a complicated technical process: ITAT
By TIOL News Service
NEW DELHI, JULY 21, 2018: THE ISSUE IS - Whether process of packaging can be considered as manufacturing activity and is eligible for deduction u/s 80IC if it is a complicated technical process completed with the aid of various kinds of machines and assessee is also registered as manufacturer under the various laws. YES IS THE VERDICT.
Facts of the case
The assessee firm, engaged in the business of manufacturing of plastic packaging materials since 1998 at its unit located in Baddi, Himachal Pradesh. Since its manufacturing facility was located in Baddi Industrial area which was notified by the Ministry of Commerce & Industry, therefore, assessee was eligible for making a claim u/s 80IC for its manufacturing activity. It was noted by the AO that team of Income tax official visited the assessee’s premises and godowns where the business activities of the assessee was being carried out. On inspection it was observed that no manufacturing activity was done by the assessee firm. The assessee was only engaged in packaging for M/s. Gillette India Ltd. and it was only doing a job work. Thus, AO held that assessee was not engaged in any manufacturing activity, and therefore, deduction u/s.80IC was not applicable. On appeal, CIT(A) allowed the claim of deduction u/s 80IC.
Tribunal held that,
++ the AO heavily relied upon the statements of two of the employees of the assessee firm wherein they stated that they are doing the job work of packaging of loose products in boxes for which they are being paid job charges from M/s. Gillette India Ltd. and apart from that they have also said that raw material are also available by M/s. Gillette India Ltd. which the assessee firm is packing them. Based on these statements, AO has come to the conclusion that assessee is not involved in the manufacturing of packaging; therefore, assessee is not eligible for deduction u/s.80IC. Before the Assessing Officer, the assessee had stated the process of packaging and repackaging is a complicated technical process which involves control of thermal and pneumatic power specified time regulation and it is not merely packaging of a product in a boxes. From the perusal of a note and the activities carried out and the chart showing process of manufacturing, it is seen that assessee has duly explained the manufacturing activity;
++ the assessee has also given the details of the raw material purchased, product flow chart and the entire process of packing of articles. From the further perusal of the record, it is seen that assessee has shown turnover from various activities. Apart from that, it is undisputed fact that assessee firm has been categorized under the Central Excise Tariff Act as a manufacturer, because it manufactures dyes and moulds for making and designing the packaging materials. It has also granted approval from District Industries Center, Solan. All those details of approval, certificates and notification issued in the case of the assessee have been placed in the paper book. The entire facts and material which has been placed before the AO has not been rebutted and AO has tried to draw inference that mere packaging does not amount to manufacturing. If assessee is making packaging material as per the requirement of the product with the aid and help of various kinds of machines and it is also registered as manufacturer under the various laws, then such a general inference based on statement of employees cannot be given much credence. Thus, no substantial merits was found in the grounds raised by the Revenue that assessee is not engaged in the manufacturing of packaging material. Therefore, grounds raised by the Revenue is dismissed.
(See 2018-TIOL-1112-ITAT-DEL)
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