QUESTIONS & ANSWERS
Definition of ‘manufacture’ is ineffective
Manufacture has been defined in the Bill under Sec. 2(29BA) as 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 bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure”. There is a feeling that this amendment will be ineffective because the word ‘manufacture’ wherever it occurs in the context of relief for new industrial undertakings under various sections is followed by the words “or production of an article or a thing”. This amendment of ‘manufacture’ cannot possibly cover ‘production’. Kindly clarify.
The Supreme Court in Vijay Ship Breaking Corporation v CIT (2009) 314 ITR 309 (SC) has held that “the important test, which distinguishes the word ‘production’ from ‘manufacture’ is that the word ‘production’ is wider than the word ‘manufacture’”.
It has further observed that the word ‘production’ cannot derive its colour from the word ‘manufacture’ and that “it is important to note that the word ‘new’ is not used in the definition of the word ‘produce’”.
The reader’s inference is, therefore, correct in that the extended definition of manufacture in the Bill may not make any difference to the law on the subject.
The real test is that there should be significant value addition to the input to deserve any incentive benefit meant for industrial activity even as was conceded by the Board in Circular No. 693 dated November 17, 1994 (1995) 211 ITR (St.) 25 relating to relief for granite industries.
Value addition alone will be an objective test easily capable of identification and ascertainment avoiding controversies and resultant litigation in almost every case.
S. RAJARATNAM
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