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TMI Blog2017 (8) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Gujarat Sales Tax Act, 1969 defines manufacture and, therefore, the entire case was examined keeping in view the said definition of manufacture and the issue was as to whether the process amounted to manufacture or not. As pointed out above, the question as to whether it amounts to production as well did not arise for consideration. The AO committed manifest error in relying upon the said decision inasmuch as the provisions with which we are concerned in the instant case use the words manufacture or production and are not limited to manufacture alone. Here, the case set up by the assessees is not that bottling of LPG is processing as distinguished from manufacture or production . We may, at this juncture, refer to the judgment of this Court in Commissioner of Income Tax, Madras v. Vinbros and Company (2012 (9) TMI 802 - SUPREME COURT) where bottling and blending of alcohol is held to be manufacture or production for the purpose of Section 80-IB of the Act. - Decided in favour of assessee. - Civil Appeal No. 9295 of 2017, Civil Appeal No. 9296 of 2017, Civil Appeal No. 9297 of 2017, Civil Appeal No. 9298 of 2017, Civil Appeal No. 9299 of 2017, Civil Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther cylinder. On that basis, it was concluded by the Tribunal that the activity of filling of cylinder with compressed gas amounts to production or manufacture for the purposes of Sections 80HH, 80-I and 80-IA of the Act as well. The High Court has concurred with the view of the ITAT. This is how the Department is before this Court and insists that the process of bottling LPG cylinder in domestic use does not amount to manufacture. 3) Before discussing the aforesaid central issue which has arisen for consideration, it may be noted that Section 80-I of the Act provides for certain amount of deductions in respect of profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the said section applies. Section 80-IA gives similar benefits to those industrial undertakings or enterprises which are engaged in infrastructure development. Section 80HH, on the other hand, entitles deduction in respect of profits and gains from a newly established undertaking or a hotel business in backward areas. 4) As mentioned above, all the assessees are in the business of bottlin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s LPG is filled into the cylinders, the same cannot be used as a domestic fuel, since LPG which is a gaseous substance in ambient temperature has to be compressed into liquefied stage, the flow of which shall be controlled by the value fitted on to the cylinder. Accordingly, in order to facilitate the convenience of handling as well as to make it usable as domestic fuel, bulk LPG from the refineries are transported to the LPG bottling plants situated in different places, (more proximate to the customers place) and then filled into the cylinder by a very sophisticated process. The activity carried out in the various LPG Bottling Plants are as below: Receipt of bulk LPG through tankers/tank wagons, its unloading and storage into spheres/bullets. Receipt of LPG Cylinders from manufacturers, distributors and repairers. Receipt of valves, regulators and consumable spare for operation/running of the plants. Refilling/bottling of LPG in cylinders by compressing the same into liquid. Storage of LPG packed cylinders. Despatch of packed cylinders to LPG. Distributors for illegible. Maintenance/upkeeping of plant equipment to ensure smooth operation of plant. Imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the product so finished is commercially different from the one on which such a process had been carried out. The value addition, therefore, does not amount to production or manufacture. On that basis, the AO concluded that since no new product had come into existence after going through the process undertaken by the assessees and it remained the same product, namely, LPG, the process of filling up of the gas into cylinder was not a manufacturing process. 9) Heavily relying upon the aforesaid reasoning of the AO, the learned counsel for the Revenue submitted that this view is consistently taken in catena of judicial pronouncements and, therefore, should be accepted. He also referred to the following judgments in support of his contention: Servo-Med Industries Private Limited v. Commissioner of Central Excise, Mumbai (2015) 14 SCC 47 and Commissioner of Income Tax, Kerala v. Tara Agencies (2007) 6 SCC 429 . 10) The aforesaid submissions were refuted by Mr. Tarun Gulati, learned counsel appearing for the assessee M/s. Hindustan Petroleum Corporation Limited. He explained the LPG bottling process by pointing out that the traditional source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ihant Tiles and Marbles P. Ltd. (2010) 320 ITR 79 (SC) wherein this Court has held that the word production is wider in ambit and has a wider connotation than the word manufacture . He also sought to draw sustenance from the judgment of this Court in Vadilal Chemicals Ltd. v. State of A.P. Ors. (2005) 6 SCC 292 wherein this Court held that bottling of ammonia amounts to manufacture. He also took support from the definition of manufacture of gas occurring in Rule 2 (xxv) of the erstwhile Gas Cylinders Rules, 1981 issued under the Explosives Act, 1881 which defines the aforesaid expression to mean filling of a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder. He further pointed out that even Gas Cylinders Rules, 2004 which superseded the aforesaid Rules of 1981 contain identical definition of manufacture of gas in Rule 2 (xxxii). His submission was that this definition itself provides legislative intent as well as that of the Central Government treating the process as manufacture of gas. Mr. Gulati also argued that for the purposes of Section 80-IB of the Act, which provides a deduction fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under the aforesaid provisions while computing their taxable income? 15) At the outset, it needs to be emphasised that the aforesaid provisions of the Act use both the expressions, namely, manufacture as well as production . It also becomes clear after reading these provisions that an assessee whose process amounts to either manufacture or production (i.e. one of these two and not both) would become entitled to the benefits enshrined therein. It is held by this Court in Arihant Tiles and Marbles P. Ltd. case that the word production is wider than the word manufacture . The two expressions, thus, have different connotation. Significantly, Arihant Tiles judgment decides that cutting of marble blocks into marble slabs does not amount to manufacture. At the same time, it clarifies that it would be relevant for the purpose of the Central Excise Act. When it comes to interpreting Section 80-IA of the Act (which was involved in the said case), the Court was categorical in pointing out that the aforesaid interpretation of manufacture in the context of Central Excise Act would not apply while interpreting Section 80-IA of the Act as this provision not only cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel appearing for the Department. 19. In CIT v. Sesa Goa Ltd. [(2004) 13 SCC 548 : (2004) 271 ITR 331], the meaning of the word production came up for consideration. The question which came before this Court was whether ITAT was justified in holding that the assessee was entitled to deduction under Section 32-A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee was engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing. 20. The High Court in Sesa Goa case [(2004) 13 SCC 548 : (2004) 271 ITR 331], 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 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32-A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssees plants and is clearly distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers. It may be relevant to point out that keeping in view the aforesaid process, the ITAT arrived at the specific findings in support of its decision, which are as under: (a) There is no dispute that the LPG produced in the refinery cannot be directly supplied to the consumer for domestic use because of various reasons of handling, storage and safety. (b) LPG bottling is a highly technical and complex activity which requires precise functions of machines operated by technically expert personnel. (c)Bottling of LPG is an essential process for rendering the product marketable and usable for the end customer. (d)The word production has a wider connotation in comparison to manufacture , and any activity which brings a commercially new product into existence constitutes production. The process of bottling of LPG renders it capable of being marketed as a domestic kitchen fuel and, thereby, makes it a viable commercial product. 18) In the considered opinion of this Court, the aforesaid activity would definitely fall within the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gujarat Sales Tax Act, 1969 defines manufacture and, therefore, the entire case was examined keeping in view the said definition of manufacture and the issue was as to whether the process amounted to manufacture or not. As pointed out above, the question as to whether it amounts to production as well did not arise for consideration. The AO committed manifest error in relying upon the said decision inasmuch as the provisions with which we are concerned in the instant case use the words manufacture or production and are not limited to manufacture alone. 20) Judgment in the cases of Servo-Med Industries Private Limited and Tara Agencies , which were cited by the learned counsel for the Revenue, may not apply to the present case. They dealt with the provision of the Central Excise Act and, therefore, test of manufacture propounded on that case would not be applicable when dealing with the cases under the provisions of Sections 80HH, 80-I and 80-IA of the Act which use both the expressions manufacture and production . It has already been clarified in Vadilal Chemicals Ltd. judgment. Insofar as judgment in Tara Agencies is concerned, the factual scenari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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