Deputy Commissioner of Vs. Sociedade De Fomento Industrial - Court Judgment

Excerpt:
1. the first issue arising out of this appeal is whether the central subsidy received by the assessee could be deducted from the actual cost of plant and machinery. both the parties are agreed that this issue is covered by the decision of the hon'ble supreme court in case of cit vs.p. j. chemicals ltd. (1994) 210 itr 830 (sc). following the said decision, we decide this issue in favour of the assessee by holding that central subsidy cannot be deducted from the cost of assets.2. the next issue relates to the claim of the assessee in respect of investment allowance. the assessee is engaged in the activity of mining of iron ore. the assessee claimed deduction by way of investment allowance in respect of plant and machinery used in various activities of mining, i.e., extracting the ore from the mines, cutting the same into size, screening of ore, etc. the ao rejected the claim of the assessee. the reason given by him was that the activity of the assessee was merely processing activity and the same did not amount to manufacturing or producing any article or thing. in this connection, he relied on the supreme court decision in the case of chowgule & co. (p) ltd. & anr. vs. union of india & ors. (1981) 47 stc 124 (sc). he also relied on the decision of the tribunal in the case of sesa goa ltd. in ita no. 1752/pn/1987 & 1703/pn/1987. on appeal, the cit(a) accepted the claim of the assessee on the ground that his predecessor had allowed the assessee's claim for asst. yr. 1989-90. aggrieved by the same, present appeal has been preferred by the revenue.3. the learned senior departmental representative has vehemently assailed the order of the cit(a) by arguing that the activity of the assessee neither could be said of manufacturing nor producing of any article or thing and it was merely processing activity as held by the hon'ble supreme court in the case of chowgule & co. (p) ltd. (supra).he also relied upon the decision of the bombay bench of the tribunal in the case of sesa goa ltd. (supra) and the decision of the karnataka high court in the case of v. m. salgaocar bros. (p) ltd. vs. cit (1996) 217 itr 849 (kar) : (1996) 217 itr 849 (kar). he was at great pains to submit that no commercial commodity was brought by the assessee different from what was embedded in the earth.according to him, the assessee has merely extracted the iron ore which was lying under the earth. he also brought to our notice the recent decision of the hon'ble supreme court in the case of cit vs. n. c.budharaja & co. (1993) 204 itr 412 (sc) wherein it has been held that when the word "production" has been used in juxtaposition with the word "manufacture", then it should be understood in the same sense in which the word "manufacture" is used. so according to him, unless a different article emerges out of the activity of the assessee, it cannot be said that the assessee was engaged in the activity of production. in support of his contention, he relied on various decisions, viz., cto vs.bikaner gypsum ltd. (1986) 61 stc 264 (raj), cit vs. lucky minerals (p) ltd. (1996) 87 taxman 215 (raj), state of tamil nadu vs. k. m.natarajan (1981) 48 stc 315 (mad). he also brought to our notice the provisions of expln. to s. 45 of the wt act. according to him, mining activity has been separately mentioned in addition to the manufacture and processing. so, it could not be said that manufacturing and mining was the same thing.4. on the other hand, the learned counsel for the assessee strongly opposed the submission of the learned departmental representative.according to him, the issue is squarely covered by the decision of the supreme court in the case of chrestian mica industries ltd. vs. state of bihar & anr. (1961) 12 stc 150 (sc), wherein the mining activities have been held equal to the production activity. he further argued that the legislature had provided development rebate under s. 33 in respect to the items included in the fifth schedule. he drew our attention to item no. 3 of the fifth schedule which inter alia, includes iron ore.it was his submission that the provisions of the it act under s. 32a are equivalent to the provisions of s. 33. if the legislature had intended to grant development in respect of the plant and machinery used for mining activity then, there is no reason for not granting investment allowance in respect of the same activity. if the legislature did not want to grant investment allowance in respect of the mining activity it could have included such activity in the prohibitive list, i.e., eleventh schedule. he further drew our attention to the provisions of s. 35e which use the words "extraction or production of any minerals".according to him, it shows that the activity of mining amounts to production. he further submitted that the decision of the hon'ble supreme court in the case of chowgule & co. (p) ltd. (supra) is distinguishable on facts of the case. it was also submitted by him that the decision of the supreme court in the case of n. c. budharaja & co.(supra) has been considered by various high courts and still those courts have allowed the investment allowance in respect of mining activity. in support of his contention, he relied on various decisions, viz., cit vs. mercantile construction co. (1994) 74 taxman 41 (cal), empire industries ltd. & anr. vs. union of india & ors. (1986) 162 itr 846 (sc), cit vs. singareni collieries co. (1997) 90 taxman 185 (ap), cit vs. best chem & limestone industries (p) ltd. (1994) 210 itr 883 (raj), ito vs. g. n. agrawal (huf) (1993) 44 itd 332 (pn), aditya minerals (p) ltd. vs. ito 4.1 in reply, the learned senior departmental representative submitted that the decision of the hon'ble supreme court in the case of chrestian mica industries ltd. (supra) is distinguishable on facts. he further submitted that the activity of crushing does not bring in any new material. he further submitted that the andhra pradesh high court in the case of singareni collieries (p) ltd. (supra) went by definition of the word 'production' and not by the meaning assigned by the supreme court in the case of n. c. budharaja. it was further stated by him that the delhi high court decision has not been approved by the supreme court in the case of n. c. budharaja.5. rival submissions as well as the case law referred to by the parties have been considered carefully. in the present case, the question to be considered is whether the activity of mining carried on by the assessee would result into the production of iron ore for claiming deduction by way of investment allowance under s. 32a.5.1 various activities are carried on by the assessee, viz., (i) extraction of ore from the mine; (ii) conveying the ore to the dressing plant; (iii) washing, screening and dressing the ore; (iv) conveying of the ore from the mine site to the river side; (v) transport of the ore from river side to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stock piles according to its physical and chemical composition; and (vii) blending of the ore from different stock piles with a view to producing ore of the required specification and loading it into the ship by means of the mechanised ore handling plant. therefore, the question before us is whether the assessee has produced iron ore within the meaning of s. 32a for claiming the investment allowance.5.2 for this purpose, one has to ascertain the meaning of the word 'production' used by the legislature in cl. (b) of s. 32a(2). in order to ascertain the meaning of the word 'production' used in s. 32a one must know the context in which it is used. the word 'may' have different meanings and what meaning has been attributed to the word can be known only from the context. reference may be made to the following observations of their lordships of the apex court in the case of reserve bank of india vs. peerless general finance & investment co.ltd. "interpretation must depend on the text and the context. they are the basis of interpretation. one may well say if the text is the texture, context is what gives the colour. neither can be ignored. both are important. that interpretation is best which makes the textual interpretation match the contextual." 5.3 there is another aspect of the matter. the provisions of s. 32a being beneficial provisions are to be construed liberally as held by the apex court in the case of bajaj tempo ltd. vs. cit (1992) 196 itr 188 (sc). the following observations of their lordships are noteworthy : "the provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since the provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance the objective of the provision and not to frustrate it." 5.4 therefore, the dispute between the parties has to be resolved keeping in view the aforesaid observations of their lordships of the hon'ble supreme court. the conditions for granting investment allowance are provided in sub-s. (2) of s. 32a. one of the conditions is that new plant and machinery should be installed in an industrial undertaking for the purposes of business of manufacture or production of any article not specified in the eleventh schedule. the dispute before us centres round the meaning of the word 'production' used by the legislature in cls. (ii) and (iii) of sub-s. 2(b) of s. 32a. we are not concerned with the meaning of the word 'manufacture' in the present case.5.5 it is pertinent to note that the provisions of s. 32a were inserted in the act by the finance act, 1976. prior to 1976, the assessee was entitled to similar allowance, i.e., development rebate under s. 33.the provisions of ss. 33 and 32a are more or less similar. the condition for the grant of development rebate was provided in cl. (b) of s. 33(1)(b). that clause provided that plant or machinery must be installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list of the fifth schedule. that would impliedly mean that the article or thing mentioned in the fifth schedule was either constructed or manufactured or produced within the ambit of s. 33. the provisions of fifth schedule shows that various ores and minerals were included in that list. for example, sr. no. 3 included coal, lignite, iron ore, bauxite, manganese ore, dolemite, limestone, magnesite and mineral oil.this shows that the legislature intended to give relief in respect of machinery installed for producing ores and the word 'production' was never used in restricted sense. sec. 32a instead of providing the list of articles for allowing investment allowance has provided the list of articles in respect of which investment allowance cannot be allowed if manufactured or produced by the assessee. the legislature was very well aware of the fifth schedule prior to insertion of s. 32a of the act. if it had not intended to grant investment allowance in respect of machineries used for producing ores it could have included the items of ore in the eleventh schedule.5.6 in this connection, we would like to refer provisions of s. 35e which provides for deduction in respect of certain expenditure incurred by an assessee who is engaged in any operation relating to prospecting for, or extraction or production of, any mineral specified in the seventh schedule. seventh schedule refers to various ores including iron ore. conjoint reading of s. 35e with seventh schedule shows that the legislature has used the word 'production' with reference to various ores including iron ore. the deduction under s. 35e has been allowed by the legislature if the assessee is engaged in the production of iron ore.5.7 in view of the aforesaid discussions, we are of the view that the legislature has used the word 'production' in ss. 32a and 35e in wider sense and, therefore, the activity carried on by the assessee would fall within the ambit of the word 'production' used by the legislature in s. 32a.5.8 let us consider this issue also in the light of the case law referred to by the parties. the issue whether the word 'production' would take within its ambit the activity of mining is, in our opinion, covered by the decision of the apex court in the case of chrestian mica industries ltd. (supra) wherein it was held that processing of mining mica is a process of production. in that case, sale of mica produced or manufactured in the state of bihar was chargeable to tax under the provisions of bihar st act. since the assessee was engaged in the processing of producing of mica from mines, sales of mica produced by the assessee was held to be taxable by the sto. however, the board of revenue held that process of mining mica could not be said to be a process of production or manufacture. the dispute ultimately reached upto the supreme court. in the absence of any definition of production in the bihar st act, the hon'ble supreme court approved the dictionary meaning of the word 'production' as appealing in oxford english dictionary which is reproduced as under : "'production' means that the thing which is produced; a thing that results from any action, process of effort, a product; a product of human activity or effort." on the basis of this definition, the apex court held that the activity of mining mica i.e., winning of crude mica from the earth, cutting, grading, sorting, splitting, etc. carried on by the assessee fell within the process of production.5.9 in the present case, seven activities are involved in mining of iron ore as discussed in the earlier paragraph. in our considered opinion, the iron ore as finally obtained by assessee after carrying on various activities came into existence on account of efforts - manual as well as mechanical. the final product is also commercially different article than it was embedded in the earth. the item which is extracted from the earth is in the crude form which cannot be used commercially.this is called bun of mine (rom). the constituents of this item are iron ore and gangue. the gangue percentage is also different from piece to piece. as such, it is not of the commercial value. the gangue, i.e., waste material has to be removed from the crude ore. this requires sophisticated mining machinery and hauling trucks. the process of separating iron ore minerals from rom is called beneficiation. this raw ore is extracted in various sizes. all lumpy ore above the size of 30 mm has to be crushed into small particles varying in size upto 30 mm.after crushing raw ore is mixed with water by pumps (normally in the portion of 2 tons of water for every ton of ore) and intensively scrubbed by drum scrubber to achieve separation of gangue from raw ore without degradation in size. the pulp obtained from this process is then screened by various types of vibrating screens of desired sizes (10 mm). this 10 mm materials is fed to a spiral classifier where size below 0.15 mm is separated and the +0.15 mm is dewatered. after screening and dressing, the ore is conveyed from mine site to the desired place and stocked in different stock piles according to its physical and chemical compositions. thereafter, it is blended to achieve the required specification. all this process is an integrated process as held by the supreme court in the case of chowgule & co. (p) ltd. (supra). in our opinion, the item so produced is clearly different from the ore lying under the earth. the activity carried on by the assessee, therefore, in our opinion, constitutes a process of production.5.10 the decision of the hon'ble supreme court in the case of chowgule & co. (p) ltd. (supra) heavily relied upon by the revenue is also distinguishable on facts of the case. in that case, the supreme court was never concerned about the meaning of the word 'production'. the only question with which the hon'ble supreme court was concerned was whether the activity of blending of various types of ores constituted an activity of manufacturing or processing. that case arose under the provisions of central st act, 1956. according to s. 8 of that act, the assessee was entitled to purchase plant and machinery on the concessional rate of tax if such machinery was required to be used in the activity of mining or manufacture. the assessee applied to the sto for inclusion of 36 items of goods in the certificate of registration on the ground that these items of goods were required for use in mining ore and processing activity. the sto allowed some of the items and the remaining items were disallowed on the ground that those were not required either for mining activities or for manufacturing activities.on representation, the revisional authority held that the process of mining ended with stacking of ore at the mining site after extraction, washing, screening and dressing. since according to him, the balance items were required for the purpose of blending of ore, he confirmed the order of the sto as the activity of blending did not amount to manufacture. the dispute ultimately reached upto the supreme court. it is in this context that the supreme court decided the issue. the supreme court was not concerned with the first six activities as they formed part of mining activities. it was only whether the single activity of blending of ore could be treated as manufacturing activity.in this connection, it was held that what was produced as a result of blending was commercially the same articles, viz., ore though with different specification than the ore which is blended. however, the supreme court further held that this activity was a processing activity. however, in the present case we are not concerned whether the activity amounts to manufacture or not. we are only concerned with the question whether the integrated activities carried on by the assessee amount to production of iron ore or not. therefore, in our opinion, the said decision is distinguishable.5.11 in the case of n. c. budharaja & co. (supra), the hon'ble supreme court was concerned whether dams, canals, buildings, bridges, etc., could be considered as an article or thing. it was held by the court that such items could not be said to be an article or thing as these were immovable properties. while deciding this issue, their lordships made some observations on the meaning of the word 'production' and 'manufacture'. in this connection, the following observations were made : "the word 'production' or 'produce' when used in juxtaposition with the word 'manufacture', takes in bringing into existence new goods by a process which may or may not amount to manufacture." the emphasis of the learned senior departmental representative was to the extent that goods which emerge out of process must be new and different. we have already held that the final product obtained by the assessee is entirely different commercial item from the crude ore lying under the earth. therefore, the test laid down by the supreme court in the above case is fully satisfied. recently, the hon'ble andhra pradesh high court in the case of singareni collieries co. (supra) had to consider this issue. the issue before the court was whether the winning or excavating coal could be considered as an activity of production.the hon'ble court after considering the decision of the apex court in the case of n. c. budharaja & co. (supra), held the activity of winning or excavating coal from the mines could be described as production activity. similarly, the calcutta high court in the case of mercantile construction (1994) 74 taxman 41 has to consider the similar issue. it was held by that court that raising of coal from the mine with human skill and labour constituted the activity of production of coal. the karnataka high court in the case of cit vs. gogte minerals (1996) 89 taxman 541 (kar) had to consider whether the activity of mining for excavating iron ore could be said to be an activity of production. the supreme court decision in the case of chowgule & co. (p) ltd. (supra) was considered by that court. ultimately, it was held that the activity of the assessee for excavating the iron ore amounted to the process of manufacture and there was a complete transformation of material from one form to another altogether. so there are ample authorities in favour of the assessee. even assuming that a different view is possible, the view which is favourable to the assessee has to be adopted in view of the supreme court judgment in the case of cit vs.vegetable products ltd. (1973) 88 itr 192 (sc).5.12 in view of the above discussion, we hold that the activities carried on by the assessee amounted to activities of production, inasmuch as a different commercial item emerged as a result of integrated activity of mining. therefore, the assessee is entitled to investment allowance in respect to the machineries installed and used for the purpose of such activities.

Judgment:
1. The first issue arising out of this appeal is whether the central subsidy received by the assessee could be deducted from the actual cost of plant and machinery. Both the parties are agreed that this issue is covered by the decision of the Hon'ble Supreme Court in case of CIT vs.

P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC). Following the said decision, we decide this issue in favour of the assessee by holding that central subsidy cannot be deducted from the cost of assets.

2. The next issue relates to the claim of the assessee in respect of investment allowance. The assessee is engaged in the activity of mining of iron ore. The assessee claimed deduction by way of investment allowance in respect of plant and machinery used in various activities of mining, i.e., extracting the ore from the mines, cutting the same into size, screening of ore, etc. The AO rejected the claim of the assessee. The reason given by him was that the activity of the assessee was merely processing activity and the same did not amount to manufacturing or producing any article or thing. In this connection, he relied on the Supreme Court decision in the case of Chowgule & Co. (P) Ltd. & Anr. vs. Union of India & Ors. (1981) 47 STC 124 (SC). He also relied on the decision of the Tribunal in the case of Sesa Goa Ltd. in ITA No. 1752/Pn/1987 & 1703/Pn/1987. On appeal, the CIT(A) accepted the claim of the assessee on the ground that his predecessor had allowed the assessee's claim for asst. yr. 1989-90. Aggrieved by the same, present appeal has been preferred by the Revenue.

3. The learned Senior Departmental Representative has vehemently assailed the order of the CIT(A) by arguing that the activity of the assessee neither could be said of manufacturing nor producing of any article or thing and it was merely processing activity as held by the Hon'ble Supreme Court in the case of Chowgule & Co. (P) Ltd. (supra).

He also relied upon the decision of the Bombay Bench of the Tribunal in the case of Sesa Goa Ltd. (supra) and the decision of the Karnataka High Court in the case of V. M. Salgaocar Bros. (P) Ltd. vs. CIT (1996) 217 ITR 849 (Kar) : (1996) 217 ITR 849 (Kar). He was at great pains to submit that no commercial commodity was brought by the assessee different from what was embedded in the earth.

According to him, the assessee has merely extracted the iron ore which was lying under the earth. He also brought to our notice the recent decision of the Hon'ble Supreme Court in the case of CIT vs. N. C.Budharaja & Co. (1993) 204 ITR 412 (SC) wherein it has been held that when the word "production" has been used in juxtaposition with the word "manufacture", then it should be understood in the same sense in which the word "manufacture" is used. So according to him, unless a different article emerges out of the activity of the assessee, it cannot be said that the assessee was engaged in the activity of production. In support of his contention, he relied on various decisions, viz., CTO vs.

Bikaner Gypsum Ltd. (1986) 61 STC 264 (Raj), CIT vs. Lucky Minerals (P) Ltd. (1996) 87 Taxman 215 (Raj), State of Tamil Nadu vs. K. M.Natarajan (1981) 48 STC 315 (Mad). He also brought to our notice the provisions of Expln. to s. 45 of the WT Act. According to him, mining activity has been separately mentioned in addition to the manufacture and processing. So, it could not be said that manufacturing and mining was the same thing.

4. On the other hand, the learned counsel for the assessee strongly opposed the submission of the learned Departmental Representative.

According to him, the issue is squarely covered by the decision of the Supreme Court in the case of Chrestian Mica Industries Ltd. vs. State of Bihar & Anr. (1961) 12 STC 150 (SC), wherein the mining activities have been held equal to the production activity. He further argued that the legislature had provided development rebate under s. 33 in respect to the items included in the Fifth Schedule. He drew our attention to item No. 3 of the Fifth Schedule which inter alia, includes iron ore.

It was his submission that the provisions of the IT Act under s. 32A are equivalent to the provisions of s. 33. If the legislature had intended to grant development in respect of the plant and machinery used for mining activity then, there is no reason for not granting investment allowance in respect of the same activity. If the legislature did not want to grant investment allowance in respect of the mining activity it could have included such activity in the prohibitive list, i.e., Eleventh Schedule. He further drew our attention to the provisions of s. 35E which use the words "extraction or production of any minerals".

According to him, it shows that the activity of mining amounts to production. He further submitted that the decision of the Hon'ble Supreme Court in the case of Chowgule & Co. (P) Ltd. (supra) is distinguishable on facts of the case. It was also submitted by him that the decision of the Supreme Court in the case of N. C. Budharaja & Co.

(supra) has been considered by various High Courts and still those Courts have allowed the investment allowance in respect of mining activity. In support of his contention, he relied on various decisions, viz., CIT vs. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal), Empire Industries Ltd. & Anr. vs. Union of India & Ors. (1986) 162 ITR 846 (SC), CIT vs. Singareni Collieries Co. (1997) 90 Taxman 185 (AP), CIT vs. Best Chem & Limestone Industries (P) Ltd. (1994) 210 ITR 883 (Raj), ITO vs. G. N. Agrawal (HUF) (1993) 44 ITD 332 (Pn), Aditya Minerals (P) Ltd. vs. ITO 4.1 In reply, the learned Senior Departmental Representative submitted that the decision of the Hon'ble Supreme Court in the case of Chrestian Mica Industries Ltd. (supra) is distinguishable on facts. He further submitted that the activity of crushing does not bring in any new material. He further submitted that the Andhra Pradesh High Court in the case of Singareni Collieries (P) Ltd. (supra) went by definition of the word 'production' and not by the meaning assigned by the Supreme Court in the case of N. C. Budharaja. It was further stated by him that the Delhi High Court decision has not been approved by the Supreme Court in the case of N. C. Budharaja.

5. Rival submissions as well as the case law referred to by the parties have been considered carefully. In the present case, the question to be considered is whether the activity of mining carried on by the assessee would result into the production of iron ore for claiming deduction by way of investment allowance under s. 32A.5.1 Various activities are carried on by the assessee, viz., (i) extraction of ore from the mine; (ii) conveying the ore to the dressing plant; (iii) washing, screening and dressing the ore; (iv) conveying of the ore from the mine site to the river side; (v) transport of the ore from river side to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stock piles according to its physical and chemical composition; and (vii) blending of the ore from different stock piles with a view to producing ore of the required specification and loading it into the ship by means of the mechanised ore handling plant. Therefore, the question before us is whether the assessee has produced iron ore within the meaning of s. 32A for claiming the investment allowance.

5.2 For this purpose, one has to ascertain the meaning of the word 'production' used by the legislature in cl. (b) of s. 32A(2). In order to ascertain the meaning of the word 'production' used in s. 32A one must know the context in which it is used. The word 'may' have different meanings and what meaning has been attributed to the word can be known only from the context. Reference may be made to the following observations of their Lordships of the apex Court in the case of Reserve Bank of India vs. Peerless General Finance & Investment Co.

Ltd. "Interpretation must depend on the text and the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored.

Both are important. That interpretation is best which makes the textual interpretation match the contextual." 5.3 There is another aspect of the matter. The provisions of s. 32A being beneficial provisions are to be construed liberally as held by the apex Court in the case of Bajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188 (SC). The following observations of their Lordships are noteworthy : "The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since the provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance the objective of the provision and not to frustrate it." 5.4 Therefore, the dispute between the parties has to be resolved keeping in view the aforesaid observations of their Lordships of the Hon'ble Supreme Court. The conditions for granting investment allowance are provided in sub-s. (2) of s. 32A. One of the conditions is that new plant and machinery should be installed in an industrial undertaking for the purposes of business of manufacture or production of any article not specified in the Eleventh Schedule. The dispute before us centres round the meaning of the word 'production' used by the legislature in cls. (ii) and (iii) of sub-s. 2(b) of s. 32A. We are not concerned with the meaning of the word 'manufacture' in the present case.

5.5 It is pertinent to note that the provisions of s. 32A were inserted in the Act by the Finance Act, 1976. Prior to 1976, the assessee was entitled to similar allowance, i.e., development rebate under s. 33.

The provisions of ss. 33 and 32A are more or less similar. The condition for the grant of development rebate was provided in cl. (B) of s. 33(1)(b). That clause provided that plant or machinery must be installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list of the Fifth Schedule. That would impliedly mean that the article or thing mentioned in the Fifth Schedule was either constructed or manufactured or produced within the ambit of s. 33. The provisions of Fifth Schedule shows that various ores and minerals were included in that list. For example, Sr. No. 3 included coal, lignite, iron ore, bauxite, manganese ore, dolemite, limestone, magnesite and mineral oil.

This shows that the legislature intended to give relief in respect of machinery installed for producing ores and the word 'production' was never used in restricted sense. Sec. 32A instead of providing the list of articles for allowing investment allowance has provided the list of articles in respect of which investment allowance cannot be allowed if manufactured or produced by the assessee. The legislature was very well aware of the Fifth Schedule prior to insertion of s. 32A of the Act. If it had not intended to grant investment allowance in respect of machineries used for producing ores it could have included the items of ore in the Eleventh Schedule.

5.6 In this connection, we would like to refer provisions of s. 35E which provides for deduction in respect of certain expenditure incurred by an assessee who is engaged in any operation relating to prospecting for, or extraction or production of, any mineral specified in the Seventh Schedule. Seventh Schedule refers to various ores including iron ore. Conjoint reading of s. 35E with Seventh Schedule shows that the legislature has used the word 'production' with reference to various ores including iron ore. The deduction under s. 35E has been allowed by the legislature if the assessee is engaged in the production of iron ore.

5.7 In view of the aforesaid discussions, we are of the view that the legislature has used the word 'production' in ss. 32A and 35E in wider sense and, therefore, the activity carried on by the assessee would fall within the ambit of the word 'production' used by the legislature in s. 32A.5.8 Let us consider this issue also in the light of the case law referred to by the parties. The issue whether the word 'production' would take within its ambit the activity of mining is, in our opinion, covered by the decision of the apex Court in the case of Chrestian Mica Industries Ltd. (supra) wherein it was held that processing of mining mica is a process of production. In that case, sale of mica produced or manufactured in the State of Bihar was chargeable to tax under the provisions of Bihar ST Act. Since the assessee was engaged in the processing of producing of mica from mines, sales of mica produced by the assessee was held to be taxable by the STO. However, the Board of Revenue held that process of mining mica could not be said to be a process of production or manufacture. The dispute ultimately reached upto the Supreme Court. In the absence of any definition of production in the Bihar ST Act, the Hon'ble Supreme Court approved the dictionary meaning of the word 'production' as appealing in Oxford English Dictionary which is reproduced as under : "'production' means that the thing which is produced; a thing that results from any action, process of effort, a product; a product of human activity or effort." On the basis of this definition, the apex Court held that the activity of mining mica i.e., winning of crude mica from the earth, cutting, grading, sorting, splitting, etc. carried on by the assessee fell within the process of production.

5.9 In the present case, seven activities are involved in mining of iron ore as discussed in the earlier paragraph. In our considered opinion, the iron ore as finally obtained by assessee after carrying on various activities came into existence on account of efforts - manual as well as mechanical. The final product is also commercially different article than it was embedded in the earth. The item which is extracted from the earth is in the crude form which cannot be used commercially.

This is called Bun of Mine (ROM). The constituents of this item are iron ore and gangue. The gangue percentage is also different from piece to piece. As such, it is not of the commercial value. The gangue, i.e., waste material has to be removed from the crude ore. This requires sophisticated mining machinery and hauling trucks. The process of separating iron ore minerals from ROM is called beneficiation. This raw ore is extracted in various sizes. All lumpy ore above the size of 30 mm has to be crushed into small particles varying in size upto 30 mm.

After crushing raw ore is mixed with water by pumps (normally in the portion of 2 tons of water for every ton of ore) and intensively scrubbed by drum scrubber to achieve separation of gangue from raw ore without degradation in size. The pulp obtained from this process is then screened by various types of vibrating screens of desired sizes (10 mm). This 10 mm materials is fed to a spiral classifier where size below 0.15 mm is separated and the +0.15 mm is dewatered. After screening and dressing, the ore is conveyed from mine site to the desired place and stocked in different stock piles according to its physical and chemical compositions. Thereafter, it is blended to achieve the required specification. All this process is an integrated process as held by the Supreme Court in the case of Chowgule & Co. (P) Ltd. (supra). In our opinion, the item so produced is clearly different from the ore lying under the earth. The activity carried on by the assessee, therefore, in our opinion, constitutes a process of production.

5.10 The decision of the Hon'ble Supreme Court in the case of Chowgule & Co. (P) Ltd. (supra) heavily relied upon by the Revenue is also distinguishable on facts of the case. In that case, the Supreme Court was never concerned about the meaning of the word 'production'. The only question with which the Hon'ble Supreme Court was concerned was whether the activity of blending of various types of ores constituted an activity of manufacturing or processing. That case arose under the provisions of Central ST Act, 1956. According to s. 8 of that Act, the assessee was entitled to purchase plant and machinery on the concessional rate of tax if such machinery was required to be used in the activity of mining or manufacture. The assessee applied to the STO for inclusion of 36 items of goods in the certificate of registration on the ground that these items of goods were required for use in mining ore and processing activity. The STO allowed some of the items and the remaining items were disallowed on the ground that those were not required either for mining activities or for manufacturing activities.

On representation, the revisional authority held that the process of mining ended with stacking of ore at the mining site after extraction, washing, screening and dressing. Since according to him, the balance items were required for the purpose of blending of ore, he confirmed the order of the STO as the activity of blending did not amount to manufacture. The dispute ultimately reached upto the Supreme Court. It is in this context that the Supreme Court decided the issue. The Supreme Court was not concerned with the first six activities as they formed part of mining activities. It was only whether the single activity of blending of ore could be treated as manufacturing activity.

In this connection, it was held that what was produced as a result of blending was commercially the same articles, viz., ore though with different specification than the ore which is blended. However, the Supreme Court further held that this activity was a processing activity. However, in the present case we are not concerned whether the activity amounts to manufacture or not. We are only concerned with the question whether the integrated activities carried on by the assessee amount to production of iron ore or not. Therefore, in our opinion, the said decision is distinguishable.

5.11 In the case of N. C. Budharaja & Co. (supra), the Hon'ble Supreme Court was concerned whether dams, canals, buildings, bridges, etc., could be considered as an article or thing. It was held by the Court that such items could not be said to be an article or thing as these were immovable properties. While deciding this issue, their Lordships made some observations on the meaning of the word 'production' and 'manufacture'. In this connection, the following observations were made : "The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture', takes in bringing into existence new goods by a process which may or may not amount to manufacture." The emphasis of the learned Senior Departmental Representative was to the extent that goods which emerge out of process must be new and different. We have already held that the final product obtained by the assessee is entirely different commercial item from the crude ore lying under the earth. Therefore, the test laid down by the Supreme Court in the above case is fully satisfied. Recently, the Hon'ble Andhra Pradesh High Court in the case of Singareni Collieries Co. (supra) had to consider this issue. The issue before the Court was whether the winning or excavating coal could be considered as an activity of production.

The Hon'ble Court after considering the decision of the apex Court in the case of N. C. Budharaja & Co. (supra), held the activity of winning or excavating coal from the mines could be described as production activity. Similarly, the Calcutta High Court in the case of Mercantile Construction (1994) 74 Taxman 41 has to consider the similar issue. It was held by that Court that raising of coal from the mine with human skill and labour constituted the activity of production of coal. The Karnataka High Court in the case of CIT vs. Gogte Minerals (1996) 89 Taxman 541 (Kar) had to consider whether the activity of mining for excavating iron ore could be said to be an activity of production. The Supreme Court decision in the case of Chowgule & Co. (P) Ltd. (supra) was considered by that Court. Ultimately, it was held that the activity of the assessee for excavating the iron ore amounted to the process of manufacture and there was a complete transformation of material from one form to another altogether. So there are ample authorities in favour of the assessee. Even assuming that a different view is possible, the view which is favourable to the assessee has to be adopted in view of the Supreme Court judgment in the case of CIT vs.

Vegetable Products Ltd. (1973) 88 ITR 192 (SC).

5.12 In view of the above discussion, we hold that the activities carried on by the assessee amounted to activities of production, inasmuch as a different commercial item emerged as a result of integrated activity of mining. Therefore, the assessee is entitled to investment allowance in respect to the machineries installed and used for the purpose of such activities.