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Commissioner Of Income Tax, Goa v. Sesa Goa Ltd. .
Factual and Procedural Background
The Revenue filed Civil Appeal No. 7456 of 2004 before the Supreme Court of India challenging a judgment of the Bombay High Court. The High Court had dismissed the Revenue’s appeal and held that although extraction and processing of iron ore does not constitute “manufacture,” it does amount to “production” within the meaning of Section 32-A(2)(b)(iii) of the Income-tax Act, 1961, thereby entitling the assessee to investment allowance on the mining machinery. After condoning delay and granting leave, the Supreme Court heard the matter together with several special-leave petitions and a related civil appeal involving Section 80-I, which is similarly worded. The present order resolves all these matters.
Legal Issues Presented
- Whether extraction and processing of iron ore constitute “production” (or “manufacture”) of an article or thing for the purpose of claiming investment allowance under Section 32-A of the Income-tax Act, 1961.
- In the connected appeal, whether the same activity qualifies as “production” for deductions under Section 80-I of the Act, whose language mirrors Section 32-A(2)(b)(iii).
Arguments of the Parties
Revenue's Arguments
- Extraction and processing of iron ore do not result in a new or commercially different product; therefore, they fall outside “manufacture” and “production.”
- Relied on the definition of “ore” in Stroud’s Judicial Dictionary and Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985.
- Invoked the Supreme Court decision in Minerals and Metals Trading Corporation of India Ltd. v. Union of India (1972) 2 SCC 620 to emphasize that no new product emerges.
Assessee's Arguments
- The High Court correctly relied on earlier Supreme Court and High Court precedents holding that mining operations amount to “production.”
- Other provisions of the Income-tax Act—especially Section 33(1)(b)(B) read with Item 3 of the Fifth Schedule and Section 35-E—expressly treat mining of ores as “production,” indicating Parliament’s intent to include mining within that term in Section 32-A as well.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Chrestien Mica Industries Ltd. v. State of Bihar (1961) 12 STC 150 (SC) | Gave a broad dictionary-based meaning of “production.” | Adopted to conclude that mining, being “human activity producing a thing,” fits within “production.” |
| CIT v. N.C. Budharaja & Co. 1994 Supp (1) SCC 280; 204 ITR 412 | Held that “production” is wider than “manufacture.” | Relied upon to show that an activity can be “production” even if it is not “manufacture.” |
| CIT v. Singareni Collieries Co. Ltd. (1996) 221 ITR 48 (AP) | Mining activities constitute “production.” | Cited with approval; forms part of the accepted line of High Court authority. |
| Khalsa Brothers v. CIT (1996) 217 ITR 185 (Cal) | Same principle as above. | Seen as supporting precedent; Revenue had not successfully challenged it. |
| CIT v. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal) | Same principle as above. | Affirmed as part of settled law on the subject. |
| CIT v. Univmine (P.) Ltd. (1993) 202 ITR 825 (Del) | Same principle as above. | Reinforced the High Courts’ consistent view accepted by the Supreme Court. |
| Minerals and Metals Trading Corpn. of India Ltd. v. Union of India (1972) 2 SCC 620 | Relied on by Revenue to argue no new product is produced. | The Court found it irrelevant because “production” does not require a commercially new product. |
Court's Reasoning and Analysis
The Supreme Court began by outlining the statutory framework of Section 32-A, which grants investment allowance for plant installed in an industrial undertaking engaged in “construction or manufacture or production of any article or thing,” excluding only items in the Eleventh Schedule. Because mineral ore is not excluded, the decisive question was whether the business of mining amounts to “production.”
Adopting the dictionary-based meaning of “production” endorsed in Chrestien Mica Industries and the expansive interpretation in N.C. Budharaja & Co., the Court held that “production” is broader than “manufacture” and covers activities that bring into existence a thing as a result of human effort, irrespective of whether the end-product is commercially new. Mining plainly fits this description because ore is “a thing” obtained through human endeavor.
The Court then noted a consistent line of High Court decisions—Singareni Collieries, Khalsa Brothers, Mercantile Construction, and Univmine—all holding that mining amounts to “production.” The Revenue had not overturned any of those rulings, signalling that the position was already settled.
Contrary authorities cited by the Revenue, including dictionary definitions and excise-tariff classifications, were deemed irrelevant because the statutory word “production” does not hinge on the creation of a new commercial product. Furthermore, parallel provisions in Sections 33 and 35-E of the Act explicitly regard mining as “production,” underscoring that Parliament used the term consistently across the statute.
Accordingly, the Court concluded that extraction and processing of iron ore constitute “production” under Section 32-A(2)(b)(iii). It expressly left open the separate question whether such activity is “manufacture.”
Holding and Implications
Civil Appeal No. 7456 of 2004 and the connected special-leave petitions and civil appeal are dismissed.
Direct Effect: The assessee is entitled to investment allowance under Section 32-A (and correspondingly, deductions under Section 80-I) for machinery used in mining operations. The Revenue’s challenge fails, and the High Court’s decision stands.
Broader Implications: The judgment affirms that mining and processing of mineral ore amount to “production” for various deduction provisions in the Income-tax Act. It consolidates earlier High Court views into authoritative Supreme Court precedent, though it deliberately refrains from deciding whether such activities amount to “manufacture.”
Order
Civil Appeal No. 7456 of 2004
1. Heard the learned counsel for the parties.
2. Delay condoned.
3. Leave granted.
4. The following question raised at the instance of the Revenue in an appeal before the Bombay High Court was answered in favour of the assessee:
“Whether on the facts and in the circumstances of the case, ITAT was justified in holding that the assessee is entitled to deduction of investment allowance under Section 32-A of the Income Tax Act, 1961 in respect of machinery used in mining activity ignoring the fact that the assessee is engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing?”
5. The High Court, 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 meaning of Section 32-A(2)(b)(iii) of the Income Tax Act, 1961 (for short “the Act”) entitling the assessee to investment allowance under the said provision.
6. According to the Revenue, which is in appeal before us, the High Court erred in its conclusion as it failed to consider that extraction and processing of iron ore did not produce any new product. The definition of the word “ore” in Stroud's Judicial Dictionary, Vol. 3, 5th Edn., has been relied upon in this context. Reliance has also been placed upon the decision of this Court in Minerals and Metals Trading Corpn. of India Ltd. v. Union of India (1972) 2 SCC 620, (1973) 1 SCR 997 and on Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985.
7. Learned counsel for the assessee, on the other hand, has contended that the High Court had correctly relied upon earlier decisions of this Court in arriving at the conclusion it did. We have also been referred to other provisions of the Act, which are substantially phrased in the same manner as Section 32-A(2)(b)(iii) of the Act, wherefrom, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining of ores within the meaning of the word “production”.
8. At the outset, it may be noted that Section 32-A(2)(b)(iii) makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessee's business under Section 32-A(1) if the plant is installed after 31-3-1976 in an industrial undertaking for the purpose of the business of construction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976 in the assessee's industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to “production” and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. (1996) 221 ITR 48 (AP), the Calcutta High Court in Khalsa Bros. v. CIT (1996) 217 ITR 185 (Cal) and CIT v. Mercantile Construction Co. (1994) 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P) Ltd. (1993) 202 ITR 825 (Del) The Revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled.
9. The reasoning given by the High Courts, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This Court had, as early as in 1961, in Chrestien Mica Industries Ltd. v. State of Bihar (1961) 12 STC 150 (SC) defined the word “production”, albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning “amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort”. From the wide definition of the word “production”, it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word “production” since ore is “a thing”, which is the result of human activity or effort. It has also been held by this Court in CIT v. N.C Budharaja & Co. 1994 Supp (1) SCC 280, (1993) 204 ITR 412 that the word “production” is much wider than the word “manufacture”. It was said:
“The word ‘production’ has a wider connotation than the word ‘manufacture’. While every manufacture can be characterised as production, every production need not amount to manufacture. …
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. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.”
10. It is, therefore, not necessary, as has been sought to be contended by the learned counsel for the Revenue, that the mined ore must be a commercially new product. The decisions and other authorities on the definition of the word “ore”, as cited by the appellant, are irrelevant.
11. Learned counsel appearing on behalf of the assessee, correctly submitted that other provisions of the Act, particularly Section 33(1)(b)(B) read with Item 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as “production”. Section 35-E also speaks of production in the context of mining activity. The language of these sections is similar to the language of Section 32-A(2). There is no reason for us to assume that the word “production” was used in a different sense in Section 32-A.
12. We are, therefore, of the opinion that extraction and processing of iron ore amounts to “production” within the meaning of the word in Section 32-A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of Section 32-A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to “manufacture” is left open.
13. The civil appeal is, accordingly, dismissed but without any order as to costs.
SLP (C) No. 15724 of 2004, SLP (C) No. 18232 of 2004, SLP (C) No. 18525 of 2004, SLP (C) No. 18537 of 2004 and SLP (C) No. 9437 of 2004
14. Following the decision given by us today in CIT v. Sesa Goa Ltd. (Civil Appeal No. 7456 of 2004) the special leave petitions are dismissed.
Civil Appeal No. 3967 of 2003
15. The provision required to be construed in this appeal is Section 80-I of the Income Tax Act, 1961, the relevant extracts of which are substantially identical to the provisions of Section 32-A(2)(b)(iii) of the Income Tax Act, 1961 which have been construed by us in the order delivered by us today in CIT v. Sesa Goa Ltd. (Civil Appeal No. 7456 of 2004). Following the decision in Sesa Goa Ltd. (supra), the civil appeal is dismissed.
16. No costs.
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