Holding

The conversion of marble blocks into polished slabs and tiles is a manufacture or production within the meaning of Section 801A, making the assessee eligible for the deduction.

Summary

The Income Tax Officer appealed against the deduction claimed by Arihant Tiles & Marbles (P) Ltd. under Section 801A of the Income Tax Act, 1961 for the assessment year 2001‑2002. The assessee converted raw marble blocks into polished slabs and tiles through a series of processes – sorting, sawing, cutting, crack‑filling, polishing and edge‑cutting – and exported the finished products. The issue was whether such conversion amounted to “manufacture or production of an article or thing” within the meaning of Section 801A, thereby qualifying for the deduction. The Supreme Court held that the multi‑stage transformation created a new and distinct commodity, satisfying the statutory definition of manufacture/production, and that the activity was recognised as manufacturing by various tax authorities. Relying on the definition of “manufacture” in Section 2(29BA) (inserted by the Finance Act, 2009) and precedents such as Sesa Goa, Budharaja and Lucky Minmat, the Court concluded that the respondents were entitled to the deduction. Consequently, the Department’s appeals were dismissed.

Issues considered

Does the conversion of marble blocks into polished slabs and tiles constitute ‘manufacture or production of an article or thing’ under Section 801A of the Income Tax Act, 1961?

Legislation cited

Finance Act, 2009s. 2(29BA)
Income Tax Act, 1961s. 2(29BA), s. 801A

Subjects

manufactureproductionSection 801Aincome‑tax deductionmarble processingindustrial undertakingexcise dutytax law interpretationdefinition of manufactureSection 2(29BA)

Judgment

[2009] 16 (ADDL.) S.C.R. 21
i
INCOME TAX OFFICER, UDAIPUR A
' v.
MIS. ARIHANT TILES AND MARBLES (P) LTD.
(Civil Appeal No. 8036 of 2009)
DECEMBER 2, 2009
B
[S.H. KAPADIA, J.M. PANCHAL AND H.L. DATTU, JJ.J

Income Tax Act, 1961 - s.801A - Assessment Year
2001-2002 - Assessee engaged in conversion of marble
blocks into polished slabs and tiles which it exported (partly) c
- Whether conversion of marble blocks into polished slabs
and tiles amounts to "manufacture or production of article or
thing" so as to make assessee entitled to benefit of deduction
under s.801A - Held, Yes - On facts, not only there was
manufacture but also an activity which was something beyond D
manufacture and which brought a new product into existence.

Words and Phrases - "manufacture" and "production" -
' Connotation of, in context to s. 801A of the Income Tax Act,
1961.
E
The assessees-respondents, during the relev_ant
Assessment Year 2001-2002, were engaged in the
,, conversion of marble blocks into polished slabs and tiles
which they exported (partly).
F
The question which arose for consideration in the
present appeals was whether conversion of marble
blocks into polished slabs and tiles amounts to
"manufacture or production of article or thing" so as to
make the respondents-assessees entitled to benefit of
G
deduction under s.SOIA of the Income Tax Act, 1961, as it
1 stood at the material time.

Dismissing the appeals filed by the Department, the
Court
21 H
22 SUPREME COURT REPORTS [2009] 16 (ADDL.) $.C.R.

A HELD: 1.1. The present case not only concerns with
cutting of marble blocks into slabs but also concerns with
the activity of polishing and ultimate conversion of the
blocks into polished slabs and tiles. From the process
indicated, it is found that there are various stages through
B which the blocks have to go through before they become
polished slabs and tiles. In the circumstances, on the
facts of the cases in hand, there is certainly an activity
which will come in the category of "manufacture" or
"production" under s.801A of the Income Tax Act, 1961.
C [Para 15] (30-G-H; 31-A]

1.2. The blocks converted into polished slabs and
tiles after undergoing the process indicated certainly
results in emergence of a new and distinct commodity.
The original block does not remain the marble block, it
D 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, the activity undertaken by the respondents-
E assessees did constitute manufacture or production in
terms of s.801A of the Income Tax Act, 1961. [Paras 20] (33-
A-C]
1.3. If the contention of the Department is to be
F accepted, riamely that the activity undertaken by the
respondents is not a manufacture, then, it would have
serious revenue consequences. Each of the respond.::nts
is paying excise duty, some of the respondents :'e job
workers and the activity undertaken by them has been
recognised by various Government Authorities as
G manufacture. To say that the activity will not amount to
manufacture or production under s.801A will have
disastrous consequences, particularly in view of the fact
that the assessees in all the cases would plead that they

H
{

INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES 23
AND MARBLES (P) LTD.
were not liable to pay excise duty, sales tax etc. because A
the activity did not constitute manufacture. Keeping in
mind the above factors, it is clear 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 s.801A of the B
Income Tax Act, 1961. [Para 22] [33-D-G]

1· Rajasthan State Electricity Board v. Associated
Industries & Anr. AIR 2000 SC 2382 and Aman Marble
Industries Pvt. Ltd. vs. Collector of Central Excise 157 ELT
393 (SC), held inapplicable. C

Commissioner of Income Tax vs. Sesa Goa Ltd. 271 ITR
331 (SC) and Commissioner of Income Tax vs. N. C.
Budharaja & Co., 204 ITR 412 (SC), relied on.
D
.... Lucky Minmat Pvt. Ltd. vs. Commissioner of Income
Tax, Jaipur (2001) 9 SCC 669; CIT vs. Best Chemical and
Lime Stone Industries Pvt. Ltd. 210 ITR 883 (Raj.) and
Commissioner of Income Tax vs. Mysore Minerals Ltd,
(2001) 250 ITR 725 (Kar), referred to.
E
Case Law Reference:
(2001) 9 sec 669 referred to Para 11

210 ITR 883 (Raj) referred to Para 11
F
AIR 2000 SC 2382 held inapplicable Para 12

157 ELT 393 (SC) held inapplicable Para 14

271 ITR 331 (SC) relied on Para 16

(2001) 250 ITR 725 (Kar.) referred to Para 18 G

204 ITR 412 (SC) relied on Para 19

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
8036 of 2009.
H
24 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R.

-'
A From the Judgment & Order dated 30.5.2007 of the High
Court of Judicature for Rajasthan at Jodhpur in D.B. Income Tax
Appeal No.83 of 2006.

WITH
B C.A. Nos. 8037, 8038, 8039, 8040, 8041, 8042, 8043, 8044
of 2009.
,;
B. Bhattacharya, ASG, Arijit Prasad, Rupesh Kumar, B.V.
Balaram Das for the Appellant.
c Shyam Divan, Sanjay Jhanwar, Prakul Khurana, Milind
Kumar, K. Sampath, R.P. Garg, Anjay Kothari, Rani Chhabra
for the Respondent.

The Judgment of the Court was delivered by
D
S.H. KAPADIA, J. 1. Leave granted. >

2. 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
E "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.
.
F 3. 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.

4. The assessee, during the relevant Asses::.ment Year
2001-2002, was engaged in the business of manufacture/
G
production of polished slabs and tiles which the assessee
exported (partly). The prime condition for allowing deduction "1
under Section 801A, 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
H
INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES 25
AND MARBLES (P) LTD. [S.H. KAPADIA, J.]
,. list in Eleventh Schedule of the Income Tax Act, 1961. A

5. The question before us is: whether on facts and ·
I
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 801A of t~e 1961 Act? B

6. 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 c
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; D

(iii) Squared up blocks are sawed for making slabs by
using the gang saw machine or single/multi block
cutter machine;
E
(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 F
edge cutting machine and multi disc cutter
machines;
(vi) Polished slabs and tiles are buffed by shiner."
G
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 m.anufacture under the
H
26 SUPREME COURT REPORTS (2009] 16 (ADDL.) S.C.R.

A Excise Act and allied tax laws.

7. 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
8 ,..
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.

8. We quote herein-below the relevant provisions of
C Section 2(29BA) as also the relevant provisions of Section
801A(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
0 orthing,-

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

"801A(2) (iii) it manufactures or produces any article or
F
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."

9. The Authorities below rejected the contention of the
G assessee(s) that its activities of polishing slabs and making of
tiles from marble blocks constituted "manufacture" or
"production" under Section 801A 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
H
INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES 27
AND MARBLES (P) LTD. [S.H. KAPADIA, J.]
). High Court has accepted the contention of the assessee(s) A
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 801A. Hence, these Civil Appeals
have been filed by the Department. B
10. 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
c
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.

11. The main judgment on which the Department has D
placed reliance is the judgment of this Court in Lucky Minmat
...
Pvt. Ltd. Vs. Commissioner of Income Tax, Jaipur, reported
in (2001) 9 sec 669. In that case, the following question came
up for consideration before the Tribunal:
E
"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
"4 80HH of the Income Tax Act, 1961."
F
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 G
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 H
28 SUPREME COURT REPORTS (2009] 16 (ADDL.) S.C.R. )-

" A 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, Mis Best Chemical
was engaged in the business of extracting limestone and its
B 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
c 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
0
deduction under Section 801A of the Income Tax Act, 1961.

12. 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
E 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
F repair of goods so as to claim exemption from duty under
Notifications issued under Section 3(3) of the Raj~sthan
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
G 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,
H processing or repair of goods and by or in respect of any mine
INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES 29
AND MARBLES (P) LTD. [S.H. KAPADIA, J.]

)..
as defined in the Indian Mines Act, 1923. This notification was A
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 o.[lce again
superseding earlier notifications. By clause (c) of the said
notification, the State of Rajasthan reduced the duty on the B
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.
~

13. The basic controversy which arose for determination
in the said case was whether the activity of pumping out water c
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 D
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 E
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 F
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
G

no application to the facts of the present case.

14. In the case of Aman Marble Industries Pvt. Ltd. vs.
Collector of Central Excise, reported in 157 ELT 393 (SC), the
H

·,.
30 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R

A 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
B connotation of the word "production" in Section 801A 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
f
plus something in addition thereto. The word "production" was
c 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
D
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
E 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.

F 15. 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
G 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
H certainly an activity which will come in the category of
Jin
INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES 31
AND MARBLES (P) LTD. [S.H. KAPADIA, J.]
,_ "manufacture" or "production" under Section 80IA of the Income A
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 B
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
801A. In this connection, our view is also fortified by the following
judgments of this Court which have been fairly pointed out to c
us by learned counsel appearing for the Department.

16. 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 D
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 E
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 F
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 G
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 tr.;s Court in Sesa Goa's
case saying that the High Court's opinion was unimpeachable. H
32 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R.

A 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 ts
manufacture.
B
17. 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".
c
18. 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). ·
D
19. 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
E
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 ...
F 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
G may not amount to manufacture. The word "production" takes
in all the by products, intermediate products and residual
products which emerge in the course of manufacture of goods.

20. Applying the above tests laid down by this Court in
H Budharaja's case (supra) to the facts of the present cases, we
~
INCOME TAX OFFICER, UDAIPUR v. ARIHANT TILES1I 33
AND MARBLES (P) LTD. [S.H. KAPADIA, J.] 1
)._ !

are of the view that blocks converted into polished slabs and A
tiles after undergoing the process indicated above certainly
results in emergence of a new and distinct commodity. The
1 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 B
which brings a new product into existence and, therefore, ·on
the facts of these cases, we are of the view that the High Court
'f was right in coming to the conclusion that the activity
undertaken by the respondents-assessees did constitute
manufacture or production in terms of Section 801A of the c
Income Tax Act, 1961.

21. 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 D
"' 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 E
production under Section 801A 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 F
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 BOIA
of the Income Tax Act, 1961.
G
22. For the afore-stated reasons, Civil Appeals filed by the
Department stand dismissed with no order as to costs.
B.B.B. Appeals of Department dismissed.