2002 PLP (Trib (PTD)

(d) the working of any limine, oil‑well or other source of mineral deposits not being an undertaking to which .the Fifth Schedule applies; or (ii) any other industrial undertaking which may be approved by the Central Board of Revenue for the purposes of this clause;

6. Thus an industrial undertaking whose imports of raw material for its own consumption have been excluded from the ambit of section 80C is such an undertaking which is engaged in such manufacture of goods and material or the subjection of goods and materials to any process, which substantially changes their original condition. This means that the imports should be raw material which may be so processed that the final product is substantially different from the raw materials thus used. This exclusion, therefore, does not cover the process of labeling or repacking of the same goods or repacking followed after physical process of placing the goods on conveyor belt for reducing moisture. Thus the import of finished goods (or even such semi‑finished goods as the learned A.R. is pleased to term them) are not out of the ambit of section 80C.

7. In this view of the matter, we hold that the CIT(A) was right in maintaining that the provisions of section 80C were applicable to the import of finished goods called semi‑finished goods by the learned A.R. The appeals, therefore, fail on this account. Raw Materials Imparted and subjected to toll manufacturing:

8. On the second issue of toll manufacturing the learned A.R. as produced before us a copy of the agreement with GETZ Pharmaceutical (Pvt.) Ltd., dated 11th day of December, 1990 to show that the; (i) The ownership of raw materials has never been transferred from the assessee Principal to the processor. (ii) The processor is supposed to carry on the tasks by observing the stipulations laid down in the contract and the working instructions placed at the disposal of the processor by the Principal. (iii) It is the responsibility of the Principal to provide adequate quantities of required raw materials and the processor is required to use exclusively the materials placed at his disposal by the Principal. (iv) The Principal on the request of the processor is bound to assist him in the production with his experts. (v) The processor is undertaking the production on behalf of the Principal so that the Principal becomes the owner of the manufactured contract preparations. (vi) The processor does not acquire any right or title with regard to the documents received from the Principal. (vii) The raw material, packaging and semi‑finished products have to be tested according to the Principal's specifications and procedures. (viii) Packaging of the finished products is to start only after the release of such products by the Principal (samples have to be sent by the processor to the Principal and the release decision of the finished products is to be taken by the Principal. (ix) Processor will dispatch to Principal for each batch of manufactured contract preparations: ‑‑ an agreed number of samples taken according to the instructions of Principal. -- in process controls and analysis results. ‑‑ manufacturing records and production. Principal will notify processor of the results of examinations stating at the same time whether the batch in question has been released or rejected. This information should be given as quickly as possible, at the latest three weeks after receipt of the samples. Only after release by Principal will processor deliver the batch to the Principal or to a third person or firm named by Principal, unless any other procedure has been stipulated. (x) On demand of Principal processor Will send to processor every month list containing all materials used in processing, semi -manufactured goods and finished contract preparations which were in stock on the last day of the month. To be specified in this list are also all entries and outgoing contract preparations and materials during the month. This list is to be sent to the Principal at the latest by 4th day of the following month.

9. The contract which inter alia provides as above, if read in totality leaves no doubt that the raw materials imported by the assessee have been used by the industrial undertaking for its own consumption and only a facility with processor has been utilized at fixed charges. Where the assessee himself is engaged in manufacturing activity, and such toll manufacturing is resorted to by him in addition to or beyond his own capacity or available facilities but under his specifications and controls and without divesting with the ownership of the raw materials or entitlement to the end products which themselves are subject to this quality control, then such manufacturing could be said as its own manufacturing. It has been stated at bar by the learned A.R. that in the case of the processor the processing charges, received by it have been accepted for assessment purposes in that 'case. In this view of the matter, it is held that the authorities below were not justified in holding that the raw materials imported and subjected to toll manufacturing in the circumstances discussed supra were not used for' its own consumption by the industrial undertaking. Application of provisions of section 80C such imported raw materials was, therefore, not justified. The orders of the authorities below on this account are hereby set aside to be made de novo in accordance with law so as to exclude from the ambit of section 80C the import of raw material field hereinabove to have been used for own consumption; assessment in this regard may be made under the normal procedure of determining business income. Disallowances out of Profit and Loss Account:

10. So far as the disallowances out of profit and loss expenses are concerned the assessee rightly claims that these have been disallowed without giving any reasons by the DCIT and have been confirmed by the CIT(A) saying that these are as per history of the case. The learned A.R. has a point that no disallowance can be made without pointing out defects in the maintenance of that account. In view of this position the disallowances made by the DCIT in both the years as contested before us out of repair and maintenance, out of travelling and conveyance 'and out of printing and stationery are set aside to be re‑examined and allowed in accordance with law.

11. Consequently both the appeals succeed to the extent and in the manner indicated above. C.M.A./M.A.K./219/Tax(Trib.) Appeal accepted.