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TMI Blog2012 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... stom duty paid during the year and included in the value of closing inventory - Held that:- Following the order in Berger Paints India Ltd. Versus CIT [2004 (2) TMI 4 - SUPREME COURT] allow deduction for entire amount of excise duty and custom duty paid by the assessee irrespective of the excise duty and custom duty included in the valuation of assessee’s closing stock at the end of the accounting year. The assessee gets relief accordingly - in favour of assessee. Expenditure on 20-Point Programmes - Disallownce of expenditure u/s 37(1) - Held that:- the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India solely for the welfare of the oppressed classes of Society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government’s development initiatives. Thus even if an expense is incurred voluntarily, it may still be construed as ‘wholly and exclusively’. Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the manufacturing of LPG takes place in the refineries and not at bottling plant. Once LPG is manufactured in the refinery, for industrial and bulk users, it is sold in tanks and tankers; but for the domestic use, it is sent to bottling plants. The major activity carried out at bottling plant is refilling and bottling of the LPG into smaller cylinders. Accordingly, the Assessing Officer held that there is no manufacturing involved in the said bottling plant. 4.1 On appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer on identical reasons. 5 Before us, the learned senior counsel for the assessee has explained the process of bulk LPG unloading, storage, handling and filling in cylinders. He has further contended that the Hon ble jurisdictional High Court, in the case of the assessee, while deciding the dispute of electricity tariff charged by the Maharashtra State Electricity Distribution Co Ltd (MSEDCL) vide decision dated 19.1.2012 in Writ Petition No. 9455 of 2011 in case of M/s Hindustan Petroleum Corporation Ltd (HPCL) vs MSDCEL has held that the activity of a gas bottling plant is a manufacturing activity. He has pointed out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule C II, sales of petroleum products including liquefied petroleum gas manufactured or produced by the any of the companies or corporations are exempt. The ld Sr counsel has thus submitted that LPG cylinder is a different commercial product than the bulk LPG. He has contended that the decision of honourable Gujarat High Court relied upon by the Assessing Officer as well as CIT(A) has been distinguished by the honourable jurisdictional High Court while deciding the case of the assessee on the issue of electricity tariff. Thus, the ld Sr counsel has submitted that the various process carried out with respect to the commodity as a marketable commodity which is different from its original and therefore, the process has taken place to transform the commodity into a commercially different commodity. 5.7 On the other hand, the learned CIT- D.R. has submitted that the Cylinders Rules 2004 framed under Explosives Act came into force from the year 2004 are not relevant and applicable for the assessment year under consideration. He has further contended that input is gas and output is also gas and there is no change in the main commodity. Filling the gas cylinder is only a mode of sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be followed. 6 We have considered the rival submissions as well as relevant material on record. Liquefied Petroleum Gas (in short LPG) is one of the petroleum fuels; however, we are concerned with LPG used as domestic and non-domestic fuel, particularly for kitchen use. There is no dispute that the LPG is produced in the refinery cannot be directly supplied to the consumer for domestic use because of various reasons of handling, storage and safety. LPG bottling or filling the gas in the cylinder is not a simple activity and cannot be performed under normal conditions. This is a highly technical and complex activity which requires precise functions of technically expert persons or machines. 6.1 Even prior to the process of filling the gas into cylinder, there are certain measures to ensure that the cylinder is entirely empty; without any air or other particles, dirt and grease or any other substance. In order to prepare the cylinder ready to fill up with the gas, the air inside the cylinder is removed by using vacuum pumps and then filled with a few grams of LPG The cylinders will then be washed by medium pressure water jets to remove all the dirt and grease from the cy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and considered. The Petitioner had relied upon the Judgment in the case of Bharat Petroleum Corporation Ltd v/s. State of Gujarat Others wherein Hindustan Petroleum Corporation Limited was also a party and the said Judgment is in respect of the Gas Bottling Plant. Special Civil Application No.6220 of 2001 was filed by the Hindustan Petroleum Corporation Limited. In the said Judgment, the question whether the activity of a Gas Bottling Plant is the manufacturing activity or not, was specifically raised. There the High Court had considered the provisions of The Indian Explosives Act, 1884 and the Gas Cylinder Rules 1981 (Rules which were in force prior to the making of Gas Cylinder Rules, 2004). The High Court has clearly held that the activity of a Gas Bottling Plant is a manufacturing activity. I respectfully agree with the aforesaid Judgment of the Gujarat High Court. 22 Unfortunately, the learned Ombudsman has not considered all these Judgments and has dismissed the representation of the Petitioner. Hence, on the second point, as to whether the Petitioner carries on a manufacturing activity when it is running its Gas Bottling Plant, the matter deserves to be remanded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der challenge, the Court is of the view that the respondent authorities are not justified in collecting / adjusting and/or enforcing the recovery of electricity duty at the rate of 100% by reclassifying the electrical energy consumed by the petitioner for their activities. The Court has at length discussed this issue in Special (Civil Application No. 5400 qf 2001 decided today and for the reasons stated and findings recorded therein, the petitions deserve to be allowed and are accordingly allowed. 17. A part from the said reasoning, one more point which is in favour of the petitioners is that as per the definition of industrial undertaking given in Section 2(bh) of the Act, the petitioners activities foil within the ambit of this definition. The Government of India in exercise of power conferred by Sections 5 and 7 of the Indian Explosives Act, l884 has made Rules known as Gas Cylinder Rules, 1981. The Rule-2, subsequently defines the expression manufacturing of gas which means filling of a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder. Thus, filling of LPG Gas cylinder is evidently a process of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... energy as provided by Section-3(1) and Clause 5(a) of the Schedule to the Act and as such the respondents had initially correctly levied duty at 20% of the consumption charges. 18. The petitioners claim is further supported by the decision of this Court in the case of Vadilal Gas Pvt. Ltd. Vs. State of Gujarat (Special Civil Application No.9691 of 2000 decided on 25.11.2009) wherein the Court after considering the nature of the process undertaken by the petitioner took the view that the petitioner unit is a manufacturing unit within the definition of the Act and hence the petitioners require to pay only 10% duty charges and not 60% charges as demanded by the respondent. 7.3 Further, as per notification number 627 issued under section 80 IB dated 4.8.99, Gas distribution and bottling activities, being treated as manufacture or producing industry. As considered by the honourable Gujarat High Court as well as hon ble jurisdictional High Court, the Gas cylinder Rule 2004 issued under Explosive Act 1884 defined manufacturing of gas under section 2(xxxii) as under: manufacture of gas means filling of a cylinder with any compressed gas and also includes transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed the claim regarding right to use technical knowhow under section 37 (1) and also denied the claim for 1/6th under section 35 AB on the ground that the assessee is in appeals. Thus, the learned senior counsel has submitted that if the claim under section 35AB is allowed for 1/6th of the amount, then the assessee does not press the allowance of the claim at 100% under section 37 (1). 9.2 The learned A.R. has no objection, if the ground number 1 for the assessment year 1993-94 is dismissed as not pressed. 10 Accordingly, we dismiss the ground number 1 for the assessment year 1993-94 being not pressed and the Assessing Officer is directed to allow the claim under section 35AB to the extent of 1/6th of the amount for the assessment year 1993-94, 1994-95 and 1995-96 as it was allowed in the first year. 11 The next ground raised by the assessee for the assessment year 1993-94, 1994- 95 and 1995-96 as under: On the facts and in the circumstances of the case and in law Commissioner of Income Tax(Appeals) erred in disallowing the appellant s claim of excise/custom duty paid of ₹ 7,40,51,245/- and included in closing inventory u/s 43B. 11.1 The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly. 14 Following the earlier order of this Tribunal, we decide this issue in favour of the assessee and against the revenue. 15 The next ground raised by the assessee for the assessment year 1993-94, 1994- 95 and 1995-96 is regarding disallowance of expenditure on 20 point programme. We reproduce the ground number 2 for the assessment year 1993-94 as under: On the facts and in the circumstances of the case and in law, , Commissioner of Income Tax(Appeals) erred in disallowing the expenditure incurred u/s 37(1) toward 20 point programme amounting to ₹ 41,86,000/- 16 We have heard the ld Sr counsel as well as the ld DR and considered the relevant material on record. At the outset, we note that this issue has been considered and decided by this Tribunal in assessee's own case for the assessment year at 1989-90 in paras 7 to 10 as under: 7. We find that as held by Hon ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836, while the basic requirements for invoking sections 37(1) and 80G are quite different , but nonetheless the two sections are not mutually exclusive . Thus, there are overlapping areas b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee s business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170, Hon ble Madras High Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. 9. Let us now take a look at the undisputed facts of this case. The assessee is a company owned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is not even disputed or challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of the business may yet be expended wholly and exclusively for the purpose of the trade. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as wholly and exclusively . Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure. Keeping all these factors in mind, as also entirety of the case, we are not inclined to sustain the disallowance of ₹ 10,55,648 as expenditure incurred on implementation 20-Point Programrnes. We are, therefore, of the considered view that the authorities below indeed erred in law in declining deduction of expenses incurred on 20-Point Programmes which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society and as a responsible corporate citizen. 17 Following the earlier order of this Tribunal, we decide this issue in favour of the assessee and against the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Dividend is I in fact a payment to its shareholders and not to itself. It is settled by several judgments of the Supreme Court that even when 100% shares are held by GOl, (100% Government Company) the company is not the Government or a Government department but is a separate corporate legal entity. There is no joint Ownership between the Company and its shareholders and the company is a separate Corporate Legal Entity. Dividend once declared has to be paid to. the shareholders and even if it remains unclaimed it has to be deposited in separate account form which shareholders can claim. Capital raised from shareholders is used for the purpose of business and Dividend is paid to maintain the goodwill and to service the capital already raised and not to create any new capital base or capital asset. Therefore Dividend is a revenue expenditure and not a capital expenditure. 23 The additional ground raised against the validity of reopening is involved only for the assessment year 1992 93 and 1993-94. The additional ground regarding the dividend paid as allowable business expenditure is raised for all the 4 years. 24 At the time of hearing on the Ld Senior counsel has submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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