2013 (5) TMI 124 - HC - Income Tax

Notification U/s 80IB(4) - Manufacturing activity - Held that - the process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence - Deduction allowed - Decided in favor of assessee.

Summary

Issues:
1) Whether reliance on specific rules and notifications is justified for assessing manufacturing activity under Section 80HHC, 80I, and 80IA.
2) Whether bottling of gas into cylinders qualifies as production/manufacturing activity for tax deductions.

Analysis:

1) The primary issue in these appeals revolves around determining whether the activity of bottling LPG Gas constitutes production or manufacturing activity for the purpose of claiming deductions under Section 80HHC, 80I, and 80IA of the Income Tax Act, 1961. The Tribunal, in its order, concluded that the said activity does amount to production/manufacturing, citing precedents such as the decision in Writ Petition No.9455 of 2011 involving Hindustan Petroleum Corporation Ltd. and the subsequent order by the Electricity Ombudsman. Additionally, reference was made to a judgment by the Gujarat High Court, which affirmed that bottling of LPG Gas qualifies as manufacturing activity. The revenue, however, disputes this classification, pointing to a previous judgment by the Gujarat High Court that did not consider gas bottling as manufacturing under the Gujarat Sales Tax Act, 1969.

2) The Tribunal's decision was based on the premise that the bottling of LPG Gas is a specialized process that results in the creation of a new marketable product. The Tribunal emphasized that the term "production" in Section 80HH, 80I, and 80IA is broader than "manufacture," encompassing activities that bring forth a new product. By considering the process of bottling gas into cylinders as transformative and commercially viable, the Tribunal concluded that a new product indeed emerges from this process. The Tribunal's reliance on the decisions of the High Court and the Electricity Ombudsman, despite the absence of certain regulations during the relevant assessment year, was deemed valid as it was based on factual findings and legal interpretations.

3) Ultimately, the High Court upheld the Tribunal's findings, dismissing the appeals and refraining from awarding costs. The Court reasoned that since the Tribunal had established a factual basis for its decision and had appropriately applied legal principles, there was no justification for entertaining the proposed legal questions challenging the classification of gas bottling as a manufacturing activity for tax deduction purposes. The judgment affirms the Tribunal's determination and emphasizes the significance of factual findings and legal interpretations in tax-related disputes.