Case: Commissioner Of Income Tax 1 Vs. M/S. Hindustan Petroleum Corporation Ltd

by compressing the same into liquid form; and(d) Capping, fixing of seals and safety valves prior to storage and loading of filled cylinders.17) Thus, after the bottling activities at the assessees’ plants, LPG is stored in cylinders in liquefied form under pressure. When the cylinder valve is opened and the gas is withdrawn from the cylinder, the pressure falls and the liquid boils to return to gaseous state. This is how LPG is made suitable for domestic use by customers who will not be able to use LPG in its vapour form as produced in the oil refinery. It, therefore, becomes apparent that the LPG obtained from the refinery undergoes a complex technical process in the assessees’ 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 ‘production’. We agree with the submission of the learned counsels for the assessees that the definition of ‘manufacture of gas’ in Rule 2 (xxxii) of the Gas Cylinders Rules, 2004 also supports the case of the assessees inasmuch as gas distribution and bottling is treated as manufacturing or producing gas. We are also inclined to accept the submission of the learned counsel for the assesses that various High Courts have, from time to time, decided that bottling of gas into cylinder amounts to production and, therefore, claim of deduction under Sections 80HH, 80-I and 80-IA would be admissible. Another important aspect which was highlighted by learned counsels for the assessees was that identical issue whether bottling of gas into cylinder amounts to production for claim of deduction under the Act has been considered by various High Courts and decided in the affirmative but those decisions were not challenged by the Department. The cases specifically referred were M/s. Puttur Petro Products Pvt. Ltd. v. The Assistant Commissioner of Income Tax, Mangalore (2014) 361 ITR 290 )and Central U.P. Gas Ltd. v. Deputy Commissioner of Income Tax, Kanpur (Income Tax Appeal No. 224 of 2014 decided by High Court of Allahabad.19) From the submissions made by learned counsel for the Revenue, who banked on the reasoning given by the AO, it can be gathered that the entire thrust of the AO was that the process involved in filling up the gas into cylinders does not amount to ‘manufacture’ inasmuch as the said process does not bring into existence a new identifiable and distinctive goods. In the first instance, no distinction was drawn between manufacture and production and the matter was not looked into from the angle as to whether the aforesaid process would amount to production or not. Other reason which prevailed with the AO and which was also the argument of the learned counsel for the Revenue was that, on identical facts, the Gujarat High Court had held that refilling the LPG after purchasing from M/s. HPCL into small cylinders would not amount to manufacture. That was a case which was decided in the context of the Gujarat Sales Tax Act, 1969. The Court held that transfer of LPG from bulk containers into cylinders did not amount to process of manufacture. It is pertinent to point out that Section 2(16) of 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.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 scenario therein was totally different where three different stages in relation to tea were examined by this Court. The Court held that the procedure of blending of different qualities of tea would amount to ‘processing of tea’ and it did not amount to ‘manufacture or production of tea’. 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 (2015) 14 SCC 483 )where bottling and blending of alcohol is held to be ‘manufacture or production’ for the purpose of Section 80-IB of the Act.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]16) Keeping the aforesaid distinction in mind, let us take note of the process of LPG bottling that is undertaken by the assessees herein and about which there is no dispute. It has come on record that specific activities atplant include receiving bulk LPG vapour from the oil refinery, unloading the LPG vapour, compression of the LPG vapour, loading of the LPG in liquefied form into bullets, followed by cylinder filling operations. The stages of these activities are as under:(a) Bulk LPG is received in the bottling plant through road tankers/rail wagons;(b) The LPG is unloaded into spheres/bullets through LPG compressors which use variable levels of pressure for suction, unloading and vapour recovery;(c) Refilling/bottling of LPG in cylinders by compressing the same into liquid form; and(d) Capping, fixing of seals and safety valves prior to storage and loading of filled cylinders.17) Thus, after the bottling activities at theplants, LPG is stored in cylinders in liquefied form under pressure. When the cylinder valve is opened and the gas is withdrawn from the cylinder, the pressure falls and the liquid boils to return to gaseous state. This is how LPG is made suitable for domestic use by customers who will not be able to use LPG in its vapour form as produced in the oil refinery. It, therefore, becomes apparent that the LPG obtained from the refinery undergoes a complex technical process in theplants 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 asThere 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 wordhas a wider connotation in comparison toand 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 commercialIn the considered opinion of this Court, the aforesaid activity would definitely fall within the expressionWe agree with the submission of the learned counsels for the assessees that the definition of ‘manufacture ofin Rule 2 (xxxii) of the Gas Cylinders Rules, 2004 also supports the case of the assessees inasmuch as gas distribution and bottling is treated as manufacturing or producing gas. We are also inclined to accept the submission of the learned counsel for the assesses that various High Courts have, from time to time, decided that bottling of gas into cylinder amounts to production and, therefore, claim of deduction under Sections 80HH,IA would be admissible. Another important aspect which was highlighted by learned counsels for the assessees was that identical issue whether bottling of gas into cylinder amounts to production for claim of deduction under the Act has been considered by various High Courts and decided in the affirmative but those decisions were not challenged by the Department. The cases specifically referred were M/s. Puttur Petro Products Pvt. Ltd. v. The Assistant Commissioner of Income Tax, Mangalore (2014) 361 ITR 290  )and Central U.P. Gas Ltd. v. Deputy Commissioner of Income Tax, Kanpur (Income Tax Appeal No. 224 of 2014 decided by High Court of Allahabad9) From the submissions made by learned counsel for the Revenue, who banked on the reasoning given by the AO, it can be gathered that the entire thrust of the AO was that the process involved in filling up the gas into cylinders does not amount toinasmuch as the said process does not bring into existence a new identifiable and distinctive goods. In the first instance, no distinction was drawn between manufacture and production and the matter was not looked into from the angle as to whether the aforesaid process would amount to production or not. Other reason which prevailed with the AO and which was also the argument of the learned counsel for the Revenue was that, on identical facts, the Gujarat High Court had held that refilling the LPG after purchasing from M/s. HPCL into small cylinders would not amount to manufacture. That was a case which was decided in the context of the Gujarat Sales Tax Act, 1969. The Court held that transfer of LPG from bulk containers into cylinders did not amount to process of manufacture. It is pertinent to point out that Section 2(16) of the Gujarat Sales Tax Act, 1969 definesand, therefore, the entire case was examined keeping in view the said definition ofand the issue was as to whether the process amounted to manufacture or not. As pointed out above, the question as to whether it amounts toas 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 orand are not limited toalone.20) Judgment in the cases ofIndustries 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 ofpropounded on that case would not be applicable when dealing with the cases under the provisions of Sections 80HH,IA of the Act which use both the expressionsIt has already been clarified in Vadilal Chemicals Ltd. judgment. Insofar as judgment in Tara Agencies is concerned, the factual scenario therein was totally different where three different stages in relation to tea were examined by this Court. The Court held that the procedure of blending of different qualities of tea would amount to ‘processing ofand it did not amount to ‘manufacture or production ofHere, the case set up by the assessees is not that bottling of LPG isas distinguished fromWe may, at this juncture, refer to the judgment of this Court in Commissioner of Income Tax, Madras v. Vinbros and Company (2015) 14 SCC 483  )where bottling and blending of alcohol is held to be ‘manufacture orfor the purpose of Sectionof the Act.