M/S POLYFLEX (INDIA) PVT. LTD.versusTHE COMMISSIONER OF INCOME TAX & ANOTHER

                         [2022] 10 S.C.R. 127                              127


               M/S POLYFLEX (INDIA) PVT. LTD.                              A
                                   v.
    THE COMMISSIONER OF INCOME TAX & ANOTHER
                   (Civil Appeal No. 8260 of 2022)
                        NOVEMBER 17, 2022                                  B
          [M. R. SHAH AND M. M. SUNDRESH, JJ.]
       Income Tax Act – s.80-IB – Deduction under – Appellant-
assessee manufactured ‘polyurethane foam,’ which is used as
automobile seat – The assessee filed its return of income for the
                                                                           C
assessment year 2003-04 and claimed deduction u/s. 80-IB –
Assessing officer disallowed the deduction u/s. 80-IB of the Act –
CIT(A) upheld the order of the assessing officer – However, ITAT
set aside the assessment order as well as the order passed by the
CIT(A) – High Court set aside the order passed by the ITAT and
restored the order passed by the assessing officer denying the             D
deduction/benefit claimed u/s.80-IB of the Act – On appeal, held:
The assessee shall not be eligible for the benefit u/s. 80- IB of the IT
Act if it is found that the articles and/or goods manufactured by the
assessee do not fall and/or classifiable under Eleventh Schedule of
the Act – The assessee is manufacturing polyurethane foam and
                                                                           E
supplying the same in different sizes/designs to the assembly operator,
which ultimately is being used for car seats – Merely because the
assessee is using the chemicals and ultimately what is manufactured
is polyurethane foam and the same is used by assembly operators
after the process of moulding as car seats, it cannot be said that
the end product manufactured by the assessee is car seats/automobile       F
seats – Polyurethane foam is an article classifiable in the Eleventh
Schedule (entry 25), considering s. 80- IB(2)(iii), the assessee shall
not be entitled to the benefit u/s. 80-IB – The High Court has rightly
held so and has rightly set aside the order passed by the ITAT.
      Dismissing the appeal, the Court                                     G
       HELD: 1. The assessee shall not be eligible for the benefit
under Section 80- IB of the IT Act if it is found that the articles
and/or goods manufactured by the assessee do not fall and/or
classifiable under Eleventh Schedule. According to the revenue,
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                                  127
128           SUPREME COURT REPORTS                     [2022] 10 S.C.R.


A     the assessee is manufacturing polyurethane foam which falls under
      the Eleventh Schedule. However, it is the case on behalf of the
      assessee that the final product manufactured and sold by the
      assessee is automobile seats/car seats which is other than the
      manufacture of polyurethane foam. By the impugned judgment
      and order, the High Court has specifically observed and held that
B
      what is manufactured and sold by the assessee is polyurethane
      foam which is manufactured by injecting two chemicals, namely,
      Polyol and Isocyanate and the polyurethane foam which is
      manufactured by the assessee is used as ingredient for
      manufacture of automobile seats. The assessee is manufacturing
C     polyurethane foam and supplying the same in different sizes/
      designs to the assembly operator, which ultimately is being used
      for car seats. The assessee is not undertaking any further process
      for end product, namely, car seats. The polyurethane foam which
      is supplied in different designs/sizes is being used as ingredient
      by others, namely, assembly operators for the car seats. Merely
D
      because the assessee is using the chemicals and ultimately what
      is manufactured is polyurethane foam and the same is used by
      assembly operators after the process of moulding as car seats, it
      cannot be said that the end product manufactured by the assessee
      is car seats/automobile seats. There must be a further process
E     to be undertaken by the very assessee in manufacturing of the
      car seats. No further process seems to have been undertaken by
      the assessee except supplying/selling the polyurethane foam in
      different sizes/designs/shapes which may be ultimately used for
      end product by others as car seats/automobile seats. In view of
      the above, when the articles/goods which are manufactured by
F
      the assessee, namely, polyurethane foam is an article classifiable
      in the Eleventh Schedule (entry 25), considering Section 80-
      IB(2)(iii), the assessee shall not be entitled to the benefit under
      Section 80-IB of the IT Act. [Paras 7, 8 & 10][133-F-H; 134-A-E,
      F-G]
G           Commissioner of Income Tax, Madras v. Vinbros and
            Company, (2015) 14 SCC 483; Commissioner of Income
            Tax-I, Mumbai v. Hindustan Petroleum Corporation
            Limited, (2017) 15 SCC 254 : [2017] 7 SCR 631 –
            referred to.
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 M/S POLYFLEX (INDIA) PVT. LTD. v. THE COMMISSIONER                          129
            OF INCOME TAX & ANOTHER

                        Case Law Reference                                   A
[2017] 7 SCR 631                  referred to                 Para 3.8
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8260
of 2022.
      From the Judgment and Order dated 25.02.2014 of the High Court         B
of Karnataka at Bangalore in ITA No. 623 of 2007.
     Preetesh Kapur, Sr. Adv., Ms. Sheena Taqui, Ms. Radhika Gupta,
Dhvanit Chopra, Ms. Akansha Saini, Shiv Vinayak Gupta, Mrs. Bina
Gupta, Advs. for the Appellant.
     Balbir Singh, ASG, Arijit Prasad, Ashok Kumar Panda, Sr. Advs.,         C
Rupesh Kumar, Ms. Monica Benjamin, Prahlad Singh, Devashish
Bharukha, Raj Bahadur Yadav, Advs. for the Respondents.
      The Judgment of the Court was delivered by
      M. R. SHAH, J.
                                                                             D
       1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 25.02.2014 passed by the High Court of Karnataka at
Bengaluru in Income Tax Appeal No. 623/2007, by which the High Court
has allowed the said appeal preferred by the Revenue, the assessee has
preferred the present appeal.
                                                                             E
      2. The facts leading to the present appeal in nutshell are as under:
       That the appellant – assessee is having a manufacturing unit at
Pune in which the appellant – assessee is manufacturing ‘polyurethane
foam,’ which is ultimately used as automobile seat. The assessee filed
its return of income for the assessment year 2003-04 and claimed             F
deduction under Section 80-IB of the Income Tax Act (for short, ‘IT
Act’). The assessing officer disallowed the deduction under Section 80-
IB of the IT Act by observing that the nature of the business of the
assessee is “manufacturer of polyurethane foam seats” which falls under
entry 25 to the Eleventh Schedule of the IT Act and therefore the assessee
shall not be entitled to deduction under Section 80-IB. However, it was      G
the case on behalf of the assessee that different sizes of polyurethane
foam are used as automobile seats and therefore the end product can be
said to be the automobile seat which is different than the polyurethane
foam and therefore the same does not fall under entry 25 to the Eleventh
Schedule of the IT Act. However, the assessing officer did not accept        H
130            SUPREME COURT REPORTS                          [2022] 10 S.C.R.


A     the same by observing that as ‘polyurethane foam’ is made of Polyol
      and Isocyanate and other components, the deduction under Section 80-
      IB of the IT Act cannot be given to the assessee-company as Section
      80-IB(2)(iii) states that the benefit of deduction under the said section
      cannot be given if the assessee manufactures or produces any article or
      thing specified in the list in the Eleventh Schedule of the IT Act.
B
              2.1 The assessee preferred an appeal before the Commissioner
      of Income Tax (Appeals) (for short, ‘CIT(A)) against the assessment
      order. The CIT(A) upheld the order of the assessing officer. The CIT(A)
      observed that the two chemicals, namely, Polyol and Isocyanate used in
      the manufacture of polyurethane foam seats assemblies were the basic
C     ingredients of polyurethane foam and therefore the case would squarely
      fall in what is specified in the Eleventh Schedule.
             2.2 Against the order of the CIT(A), the Assessee filed an appeal
      before the Income Tax Appellate Tribunal (for short, ‘ITAT’). The ITAT
      set aside the assessment order as well as the order passed by the CIT(A)
D     and allowed the appeal filed by the assessee by observing that
      polyurethane foam was neither produced as a final product nor is an
      intermediate product nor is a by-product by the assessee and the same
      was used as automobile seat and therefore does not fall within entry 25
      to Eleventh Schedule of the IT Act and therefore the assessee shall be
E     entitled to claim deduction under Section 80-IB of the IT Act. The order
      passed by the ITAT has been set aside by the High Court, by the impugned
      judgment and order specifically observing that what is manufactured by
      the assessee is polyurethane foam in different sizes/designs and there is
      no further process undertaken by the assessee to convert it into automobile
      seats and therefore what is manufactured by the assessee is polyurethane
F     foam falling in entry 25 to Eleventh Schedule and therefore the assessee
      shall not be entitled to deduction claimed under Section 80-IB of the IT
      Act. Consequently, the High Court has allowed the appeal preferred by
      the revenue and has quashed and set aside the order passed by the
      ITAT and has restored the assessment order denying the deduction
G     claimed under Section 80-IB of the IT Act. The impugned judgment and
      order passed by the High Court is the subject matter of present appeal.
             3. Shri Preetesh Kapur, learned Senior Advocate has appeared
      on behalf of the assessee and Shri Balbir Singh, learned Additional
      Solicitor General of India has appeared on behalf of the revenue.
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 M/S POLYFLEX (INDIA) PVT. LTD. v. THE COMMISSIONER                            131
      OF INCOME TAX & ANOTHER [M. R. SHAH, J.]

       3.1 Shri Preetesh Kapur, learned counsel appearing on behalf of         A
the assessee has vehemently submitted that when on appreciation of the
entire evidence on record and after considering the process undertaken
by the assessee and after considering the fact that the end product was
automobile seat, the ITAT allowed the appeal and held that the assessee
is entitled to claim deduction under Section 80-IB of the IT Act, the
                                                                               B
same was not required to be interfered with by the High Court.
        3.2 It is submitted that the relevant pre-condition for the assessee
to be eligible for the benefit under Section 80-IB of the IT Act in the
present case is that the final product manufactured and sold by the
assessee ought not to have an article classifiable in the Eleventh Schedule.
It is submitted that the final product manufactured by the assessee is not     C
polyurethane foam, but automobile seat in which polyurethane foam is
used. It is submitted that the learned ITAT returned a categorical finding
of fact that the final product manufactured by the assessee is automobile
seat in which polyurethane foam is used. It is submitted that if that be so,
the manufactured item shall not come within any of the entry of Eleventh       D
Schedule and therefore the assessee shall be entitled to deduction under
Section 80-IB of the IT Act.
        3.3 It is submitted that in fact the assessee received orders for
supply of automobile seats and even paid the sales tax as automobile
seats. It is submitted that the final product is commercially distinct from    E
polyurethane foam.
        3.4 It is submitted that the High Court ought to have appreciated
that in fact in assessee’s own case in respect of the very same product,
in relation to classification for the purposes of payment of excise duty,
the CEGAT has observed that the product manufactured by the assessee           F
can never be said to be known in trade parlance as articles of
polyurethane foam and hence cannot be classified as polyurethane foam.
It is submitted that the order passed by the CEGAT had attained finality.
It is submitted that therefore once the articles/goods manufactured cannot
be classified as polyurethane foam under the Excise Act, the same cannot
be treated and/or considered as polyurethane foam under the IT Act.            G
       3.5 It is submitted that in the present case the Tribunal noted in
detail the elaborate manufacturing process undertaken by the assessee
whereby the final product, namely, car seats are manufactured. It is
submitted that after elaborating the process, the Tribunal has returned a
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132             SUPREME COURT REPORTS                          [2022] 10 S.C.R.


A     finding of fact that the said process clearly results in the emergence of a
      final product which is commercially distinct and different from
      polyurethane foam and is known in the market as car seats and not as
      polyurethane foam.
             3.6 It is submitted that the High Court has reversed the decision
B     of the ITAT without even noticing the above process or the CEGAT’s
      order and also without giving any reason as to how the above finding of
      fact was perverse. It is submitted that at no stage the department has
      denied that the final product sold by the assessee is the car seat.
             It is further submitted that it is a settled position of law that the
C     moment a commercially distinct commodity, known in trade parlance by
      a different name and having a different use, comes into being, it ceases
      to be classifiable as the raw material/ingredient from which it is made.
              3.7 It is further submitted by Shri Preetesh Kapur, learned counsel
      appearing on behalf of the assessee that entry 25 of Eleventh Schedule
D     specifically talks about “latex foam sponge and polyurethane foam” and
      it does not talk about the “latex foam sponge and polyurethane foam
      preparations” and/or items and/or articles made from the aforesaid foam.
      It is submitted that whenever the legislature wanted, there is a specific
      entry like entry 2 and 3 in which it is specifically mentioned “tobacco
      and tobacco preparations and cosmetics and toilet preparations”. It is
E     submitted therefore that when the final product is automobile seat and
      the polyurethane foam loses its characteristics which is used as ingredient,
      the assessee shall be entitled to deduction under Section 80-IB of the IT
      Act.
             3.8 Making the above submissions and relying upon the decisions
F     of this Court in the cases of Commissioner of Income Tax, Madras v.
      Vinbros and Company, (2015) 14 SCC 483 and Commissioner of
      Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Limited,
      (2017) 15 SCC 254, it is prayed to allow the present appeal.
             4. Shri Balbir Singh, learned ASG appearing on behalf of the
G     revenue has vehemently submitted that what is manufactured by the
      assessee is polyurethane foam in different shapes/designs and what is
      sold is different sizes/designs of polyurethane foam which ultimately is
      being used by the assembly operator for manufacturing of car seats/
      automobile seats and the same is used as ingredient and after the process
      of moulding etc., the seats are manufactured. It is submitted that
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 M/S POLYFLEX (INDIA) PVT. LTD. v. THE COMMISSIONER                            133
      OF INCOME TAX & ANOTHER [M. R. SHAH, J.]

therefore, by no stretch of imagination, it can be said that the assessee is   A
manufacturing and selling automobile seats. It is submitted that what is
manufactured and sold is the polyurethane foam which is manufactured
by using two chemicals Polyol and Isocyanate.
      4.1 It is submitted that the High Court has specifically observed
and held that except manufacture of polyurethane foam which is                 B
manufactured by injecting two chemicals, there is no further process
undertaken by the assessee. It is submitted that as rightly observed by
the High Court the assessee produces the polyurethane foam seats which
are used for making end product to be fixed in different vehicles. It is
submitted that the assessee as such is not manufacturing the end product,
namely, automobile seats to be fixed in the vehicles. For the aforesaid,       C
Shri Balbir Singh, learned ASG has taken us to the findings recorded by
the CIT(A) and has submitted that after considering the detailed process
undertaken by the assessee, the CIT(A) opined that the assessee is not
the manufacturer of the car seats and what is manufactured is the
polyurethane foam which is being sold in different designs/shapes/sizes.       D
       4.2 It is submitted that therefore as the assessee is manufacturing
polyurethane foam which falls under entry 25 of the Eleventh Schedule
and therefore considering Section 80-IB(2)(iii), the assessee shall not be
entitled to deduction under Section 80-IB of the IT Act. It is submitted
that therefore the impugned judgment and order passed by the High              E
Court is not required to be interfered with.
       5. We have heard learned counsel for the respective parties at
length.
      6. The short question which is posed for the consideration of this
Court is, “whether the assessee is eligible for the benefit under Section      F
80-IB of the IT Act?”
      7. The assessee shall not be eligible for the benefit under Section
80-IB of the IT Act if it is found that the articles and/or goods
manufactured by the assessee do not fall and/or classifiable under
Eleventh Schedule. According to the revenue, the assessee is                   G
manufacturing polyurethane foam which falls under the Eleventh
Schedule. However, it is the case on behalf of the assessee that the final
product manufactured and sold by the assessee is automobile seats/car
seats which is other than the manufacture of polyurethane foam.
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134            SUPREME COURT REPORTS                          [2022] 10 S.C.R.


A            8. By the impugned judgment and order, the High Court has
      specifically observed and held that what is manufactured and sold by
      the assessee is polyurethane foam which is manufactured by injecting
      two chemicals, namely, Polyol and Isocyanate and the polyurethane foam
      which is manufactured by the assessee is used as ingredient for
      manufacture of automobile seats. The assessee is manufacturing
B
      polyurethane foam and supplying the same in different sizes/designs to
      the assembly operator, which ultimately is being used for car seats. The
      assessee is not undertaking any further process for end product, namely,
      car seats. The polyurethane foam which is supplied in different designs/
      sizes is being used as ingredient by others, namely, assembly operators
C     for the car seats. Merely because the assessee is using the chemicals
      and ultimately what is manufactured is polyurethane foam and the same
      is used by assembly operators after the process of moulding as car seats,
      it cannot be said that the end product manufactured by the assessee is
      car seats/automobile seats. There must be a further process to be
      undertaken by the very assessee in manufacturing of the car seats. No
D
      further process seems to have been undertaken by the assessee except
      supplying/selling the polyurethane foam in different sizes/designs/shapes
      which may be ultimately used for end product by others as car seats/
      automobile seats.
             9. So far as the reliance placed upon the decisions of this Court in
E     the cases of Vinbros and Company (supra) and Hindustan Petroleum
      Corporation Limited (supra), relied upon by the learned counsel
      appearing on behalf of the assessee is concerned, the same shall not be
      applicable to the facts of the case on hand and/or the same shall not be
      of any assistance to the assessee in view of the findings recorded
F     hereinabove.
             10. In view of the above when the articles/goods which are
      manufactured by the assessee, namely, polyurethane foam is an article
      classifiable in the Eleventh Schedule (entry 25), considering Section 80-
      IB(2)(iii), the assessee shall not be entitled to the benefit under Section
G     80-IB of the IT Act. The High Court has rightly held so and has rightly
      set aside the order passed by the ITAT and has rightly restored the order
      passed by the assessing officer denying the deduction/benefit claimed
      under Section 80-IB of the IT Act. We are in complete agreement with
      the view taken by the High Court and that of the assessing officer,
      confirmed by the CIT(Appeals).
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 M/S POLYFLEX (INDIA) PVT. LTD. v. THE COMMISSIONER                       135
      OF INCOME TAX & ANOTHER [M. R. SHAH, J.]

      11. In view of the above and for the reasons stated above, the      A
present appeal fails and the same deserves to be dismissed and is
accordingly dismissed. However, there shall be no order as to costs.

Ankit Gyan                                            Appeal dismissed.
(Assisted by : Rahul Rathi, LCRA)
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