COMMISSIONER OF INCOME TAX- 1, MUMBAI versus M/S. HINDUSTAN PETROLEUM CORPORATION LTD.
[2017] 7 S.C.R. 631, Supreme Court of India, 2017
Outcome: Dismissed (Dismissed)
Segment: Ratio
[2017] 7 S.C.R. 631 
COMMISSIONER OF INCOME TAX- 1, MUMBAI 
A 
v. 
MIS. HINDUSTAN PETROLEUM CORPORATION LTD. 
(Civil Appeal No. 9295 of2017) 
AUGUST 03, 2017 
(A.K. SIKRI AND ASHOK BHUSHAN, JJ.I 
Income Tax Act, 1961 - ss.80HH, 80-1 and 80-IA - Whether 
bottling of LPG undertaken by the assessee amounts to 'production' 
B 
or 'manufacture' for the purposes of ss.80HH, 80-1 and 80-IA of C 
the IT Act - Held: LPG bottling is a highly technical and complex 
· activity which requires precise functions of machines operated by 
technically expert personnel - LPG produced in the refinery cannot 
be directly supplied to the consumer for domestic use because of 
various reasons of handling, storage and safety - The process of 
bottling of LPG renders it capable of being marketed as a domestic 
D 
kitchen fuel and, thereby, makes it a viable commercial product -
Therefore, activity of filing cylinder with compressed gas amounts 
to production or manufacture for the purpose of ss.80HH, 80-1 
and 80-IA -
G_~s Cylinders Rules, 2004 - r.2(.-.::xxii). 
Words and phrases - Manufacture - Interpretation of. 
E 
Dismissing the appeals, the Court 
HELD: Sections 80HH, 80-1 and 80-IA of the Act use both 
the expressions, namely, 'manufacture' as well :is 'production'. 
An assessee whose process amounts to either 'manufacture' or 
'production' (i.e. one of these two and not both) would become 
F 
· entitled to the benefits enshrined therein. The specific activities 
at assessees' plant 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. After the bottling activities at the G 
assessees' plants, LPG is stored in eylinders 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is withdrawn from the cylinder, the pressure falls and the liquid 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 
631 
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SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A 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. 
B 
The said activity would definitely fall within the expression 
'production'. 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. [Paras 15-181 [640-
c 
D 
H; 641-A; 643-D, G-H; 644-A, E-F] 
Commissioner of Income Tax, Madras v. Vinbros and 
Company (2015) 14 SCC 483 - relied on. 
Servo-Med Industries Private Limited v. Commissioner 
• of Central Excise, Mumbai (2015) 14 SCC 47 - held 
inapplicable. 
Commissioner of Income Tax, Kera/a v. Tara Agencies 
(2007) 6 sec 429 : [20151 6 SCR 690; Vadilat 
Chemicals Ltd. v. State of A.P. & Ors. (2005) 6 SCC 
292: [20051 2 Suppl. SCR 1 - distinguished: 
E 
State of Gujarat v. Kosan Gas Company (1992) 87 STC 
236; Commissioner of Income Tax, Goa v. Sesa Goa 
Ltd. (2004) 271 ITR 331 (SC); Mis. Puttu Petro 
Products Pvt. Ltd. v. The Assistant Commissioner of 
Income Tax, Mangalore (2014) 361 ITR 290; Central 
U.P. Gas Ltd. v. Deputy Commissioner of Income Tax, 
F 
Kanpur MANU/UP/2895/2016 - referred to. 
Case Law
Reference 
(1992) 87 STC 236 
referred to 
Paras 
(2015) 14 sec 47 
held inapplicable 
Para 9 
G [2015) 6 SCR 690 
distinguished 
Para 9 
(2010) 320 ITR 79 (SC) . 
referred to 
Para 11 
[2005) 2 Suppl. SCR 1 
distinguished 
Para 11 
(2004) 271 ITR 331 (SC) 
referred to 
Para 15 
H
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
633 
PETROLEUM CORPORATION LTD . 
. (2014) 361 ITR 290 
(201s) 14 sec 483 
referred to 
relied on 
Para 16 
Para 20 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9295 
of2017. 
From the Judgment and Order dated 07.03.2013 of the High Court 
of Judicature at Bombay in ITA No. 2134 of2012 
A 
B 
WITH 
C.A.Nos.9296,9297,9298,9299,9300,9301,9302,9303,9304, 
C 
9305, 9306, 9307, 9308 and 9309 of2017. 
D. L. Chidananda, A. K. Srivastava, Mrs. Anil Katiyar, Advs. for 
the Appellant. 
J. D. Mistry, Sr. Adv., Tarun Gulati, Rony 0. John, Vasu Nigam, 
Kishore Kuna!, R. Chandrachud, Ms. Rachna Yadav, Parijat Sinha, 
D 
Atul Jasani, Ms. Reshmi Rea Sinha, Gaurav Ghosh, Rudra Dutta, Advs. 
for the Respondent. 
The Judgment of the Court was delivered by 
A.K. SIKRI, J. 1. The question oflaw that arises of consideration 
in all these appeals, which are filed by the Commissioner oflncome Tax, 
Mumbai, is identical. The respondents-assessees in these appeals are 
engaged in the process of bottling Liquefied Pe.troleum Gas (LPG) 
Cylinders meant for domestic use. They are claiming benefit of Sections 
80HH, 80-1 and 80-IA of the Income Tax Act, 1961 (hereinafter referred 
to as the 'Act'). Admissibility of benefit under the aforesaid provision 
depends upon the question as to whether bottling of LPG is an activity 
which amounts to 'production' or 'manufacturing' for the purposes of 
the aforesaid provisions of the Act. 
E 
F 
2. The Assessing
Officers (AOs) had disallowed the deduction 
claimed by the assessees holding that they did not engage in the 
G 
production or manufacture activity because of the reason that LPG was 
produced and manufactured in refineries and thereafter there was no 
change in the chemical composition or other properties of the Gas in the ,. 
activity of filling the cylinder. This view was affirmed by Commissioner 
H
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A 
B 
c 
D 
E 
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SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
oflncome Tax (Appeals). The Income Tax Appellate Tribunal (ITAT), 
however, upset the aforesaid view of the A Os after finding that LPG 
produced in the refineries cannot be directly supplied to households without 
bottling of the LPG into the Cylinders and insofar as LPG bottling is 
concerned, it is a complex activity which can only be carried out by 
experts. In this light, it was noted that the process involved LPG suction, 
vapour distribution, de-classification, compression of LPG vapour, external 
and internal cleaning, hydro pressure testing refilling, sealing, quality 
control etc. and hence the activity would be a 'manufacturing activity'. 
In this hue, the Tribunal also referred to the Gas Cylinders Rules, 2004 
and in particular Rule 2(xxxii) thereof which defines 'manufacture of 
gas' to mean filling of a cylinder with any compressed gas and also 
includes transfer of compressed gas from one cylinder to any other 
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 
bottling LPG cylinder and according to them they are industrial 
G 
undertakings and the aforesaid process amour\ts to production or 
manufacture. Since, manufacture or production of articles is sine qua 
non for treating these assessees as industrial undertakings and for the 
applicability of the aforesaid provisions, it is essential to establish that 
the assessees are industrial undertakings. It is in this context the 
H 
question mooted above has arisen for consideration.
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
635 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.] 
5. Learned counsel appearing for the Revenue opened his 
A 
arguments by referring to the order of the AO in Civil Appeal No. 9295 
of 2017. He pointed out that before passing the Assessment Order, the 
. AO had issued a questionnaire to the assessee to explain: 
(a) the process of LPG manufacturing; 
(b) activities carried out in the Bottling Plants; and 
( c) detailed submission on the issue of eligibility and allowability 
of such case. 
6. Insofar as process of LPG manufacturing is concerned, the 
AO noted that the assessee had narrated the same in the following form: 
"LPG (Liquefied Petroleum Gas), which is used as a fuel for 
domestic purposes as well as in commercial and industrial 
establishments is obtained by refining of crude in the crude 
distillation units and Catalytic Crackers of the refinery. 
B 
c 
It generally consists of butane, propane and butane and propane 
D 
mixtures. In the refinery, the plant is fed with natural gas and 
crude oil. The feed gas and the gas undergoes a chilling up to a 
temperature of 22 degree centigrade and 37 degree centigrade .. 
In the first stage, when it is chilled to 22 degree centigrade, the 
liquefied hydrocarbon formed is separated out and the vapour is 
further chilled to 37 degree centigrade. 
E 
The liquefied hydrocarbons from both stages are then 
fractionated in two stages. The heavier fractionation is obtained 
from
the bottom of first fractionators, the top product from the 
second column is LPG, which is sent for bottling." 
7. Response of the assessee to the question pertaining to 
activities carried out in the bottling plants was as under: 
"The LPG is generally used for commercial/industrial applications 
F 
as well as for domestic applications. "While LPG is marketed to 
industrial customers by filling the same into the LPG tanks/ 
tankwagens directly from the refineries, the LPG for domestic 
G 
applications has to be necessarily filled into the LPG Cylinders. 
Unless 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, 
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SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
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. 
c 
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 
D 
into liquid. 
E 
F 
Storage of LPG packed cylinders. 
Despatch of packed cylinders to LPG. 
Distributors for- illegible. 
Maintenance/upkeeping of plant equipment to ensure smooth op-
eration of plant. 
Imparting necessary training to employees, contract workmen and 
transporters crew to ensure safe operation/handling of LPG/LPG 
cylinders in plant and enroot." 
8. After taking note of reply to the aforesaid two questions, the 
AO proceeded to decide as to whether the assessee was an industrial 
undertaking and whether it is manufacturing or producing article. He 
noted the decision of the Gujarat High Court in the case of
State of 
Gujarat v. Kosan Gas Compa11y1• wherein identical facts are involved, 
G viz. the assessee therein after purchasing LPG from Mis. HPCL was 
H 
· refilling the same into small cylinders and the High Court held that the 
said process did not amount to manufacture. The AO, thereafter, dealt 
with the contention of the assessee predicated on Section lOA of the 
'(1992) 87 STC 236
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
637 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.] 
Act wherein explanation (iii) mentions that manufacture includes 
A 
assembling as well and, therefore, assessee's case was covered by the 
definition of 'manufacture' under Section I OA of the Act. This contention 
was, however, rejected by the AO by pointing out that the definition of 
· 'manufacture' as given in the explanation (iii) to Section lOAoftheAct 
is for limited purposes in the context of newly established industrial 
undertakings in free trade zone and the very explanation starts with the 
phrase 'for the purposes of this section'. The AO further noticed that 
the word 'manufacture' is not defined in the Act. He, therefore, 
proceeded to tum to the legal and general definitions available else-
where and referred to corpus juris secundum and also certain cases 
of this Court dealing with the issue. On that basis, the AO concluded 
B 
c 
that 'manufacture' can said to be a process or activity which brings into 
existence a new identifiable and distinctive goods and the commodity 
which is subjected to the process of manufacture can no longer be 
regarded as the original commodity but is recognised in the trade as a 
new and distinct commodity. The AO also referred to the legal dicta 
D 
laying down the principle that the test is not whether what is produced 
as a result of the process carried out in the plant becomes more saleable 
from an otherwise less saleable
article. Simply because a process carried 
. out on a particular article adds to its value or improves its marketability 
on account of processes like shining, polishing, removal of impurities 
etc., meant by itself be sufficient 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 u'p 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 followingjudgments in support of his 
contention: Servo-Med Industries Private Limited v. Commissioner 
of Central Excise, M11mbai2 and Commissioner of Income Tax, 
. Kerala v. Tara Agencies3· 
2 c201si 14 sec 47 
E 
F 
G 
'c2001i 6 sec 429 
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638 
SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A 
10. The aforesaid submissions were refuted by Mr. Tamn Gulati, 
B 
c 
D 
E 
F 
learned counsel appearing for the assessee Mis. Hindustan Petroleum 
Corporation Limited. He explained the LPG bottling process by pointing 
out that the traditional source of LPG is oil refineries where cmde oil is 
processed. LPG vapour is one of the lighter fractions produced by oil 
refining and petrochemical processes. Since LPG typically consists of a 
mixture of propane, propylene, butane and butylene (containing 3 or 4 
carbon atoms per molecule), these hydrocarbons are easily liquefied by 
moderate compression at ambient temperature. Unlike natural gas which 
can be piped to the consumer, LPG has to be transported in the liquid 
phase at ambient temperature and, therefore, required to be handled in 
specially designed pressure vessels. Once the LPG vapour is subjected 
to moderate pressure to achieve liquefaction, the resultant liquid must be 
contained within a pressurized system or a pressure vessel until it is 
required as gas by the consumer. In the vapour phase, LPG exists as a 
heavier gas and on liquefaction, its volume reduces considerably"· 
11. Learned counsel submitted that Sections 80HH, 80-I and 
80-IA of the Act use the expression 'manufacture' or 'production', 
therefore, whenever industrial undertaking is either manufacturing or 
producing an article, it will be entitled to the benefit of the aforesaid 
provisions, subject to
satisfying other conditions laid down in those 
Sections. His argument was that the activities undertaken by the 
assessees in their bottling plant results in the production of a new 
commercial product which is made suitable for domestic use, which would 
otherwise not be possible without undergoing such processes. Gas 
produced by refineries is not usable as such by the consumer for 
domestic use. It requires several complex processes to bottle the gas 
in cylinders to make it usable by domestic consumers. After LPG is 
bottled in cylinders the product obtains a different name, character and 
use which is different from its original components. A domestic 
consumer identifies bottled LPG as a product different from the LPG 
produced in the refinery or from the empty cylinder. Even otherwise, 
the word 'production' is wider than the word 'manufacture' and any 
G 
activity which makes a product marketable and usable to the consumer 
would be covered by the word 'production'. Learned counsel referred 
H 
4 See "A Background to Liquefied Petroleum Gases, Their Sources and Safe Handling, 
and Safe Use as Fuels'', Advanced Petrochemicals, Dr. G.N. Sarkar.
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
639 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.) 
· to the judgment of this Court in Income Tax Officer v. Arihant Tiles 
A 
and Marbles P. Ltd. 5 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 ofA.P. & Ors. 6wherein 
this Court held that bottling of ammonia amounts to manufacture. He 
B 
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 
C 
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-lB of the Act, which provides a 
D 
deduction for industrial undertaking established in the North Eastern region, 
the Central Government has notified vide Notification No. 627(E) dated 
August 4, 1999, eligible
industries and the following entry is relevant for 
the purposes of the instant appeals: 
"13. Gas based intermediate products industry manufacturing or 
producing-
E 
(i) 
Gas exploration and production; 
(ii) 
Gas distribution and bottling; 
(iii) 
Power generation; 
(iv) 
Plastics; 
(v) 
Yarn raw materials; 
(vi) 
Fertilizers; 
(vii) 
Methanol; 
(viii) Formal debycle and FR Resin Melamme and MF Resin; 
(ix) 
Methylamine, hexamethiene, tetranine, ammonium bi-car 
bonate; 
5 (2010) 320 ITR 79 (SC) 
• c2oos) 6 sec 292 
F 
G 
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SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A 
(x) 
Nitrite acid and ammonium nitrate; 
(xi) 
Carbon black; 
(xii) 
Polymer chips. 
(Emphasis Supplied)" 
B 
It was contended that from the above, it is clear that an 
undertaking engaged in bottling of gas is considered to be involved in 
manufacture or production for the purpose of deductions under the Act 
and this view has been taken by the Central Government itself. 
12. Learned counsel argued that the findings of the Tribunal, as 
C 
upheld by the High Court, were not assailed by the Department and, 
therefore, there was no question of law involved. He also referred to 
the few judgments of different High Courts which have taken the view 
that LPG bottling would amount to manufacture and pointed out that in 
those cases, no appeal was preferred by the Department. Learned 
D 
counsel also endeavoured to distinguish the judgment of the Gujarat High 
Court in Kosan Gas Company's case as well as the jttdgments of this 
Court which have been relied upon by the learned counsel for the 
Revenue and submitted that those judgments have no applicability. He, 
thus, pleaded that the appeals of.the appellant/Revenue deserve to be 
. E 
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dismissed . 
13. Mr. Parijat Sinha, who appeared for some other assessees, 
argued almost on the same lines. 
14. We have given adequate consideration to the. respective 
submissions of both the parties, which they deserve. As is clear from 
the facts and arguments noted above, the question
of law which is in-
volved (already mentioned) is: 
· 
Whether bottling of LPG, as undertaken by the assessee, is a 
process which amounts to 'production' or 'manufacture' for the 
purposes of Sections 80HH, 80-1 and 80-IA of the Act?; and if so, 
whether the respondents/assessees are entitled to claim the benefit 
of deduction 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'
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
641 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.] 
as well as 'production'. It also becomes clear after reading these 
A 
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 
B 
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 C 
'manufacture' in the context of Central Excise Act would not apply 
while interpretirig Section 80-IA of the Act as this provision not only 
covers those assessees which are involved in the process of 
manufacture but also those who are undertaking 'production' of the goods. 
Taking note of the judgment in Commissioner of J11come Tax, Goa v. 
D 
Sesa Goa Ltd. 7 which was rendered in the context of Section 32A of 
the Act and which provision also applies in respect of 'production', the 
Court reiterated the ratio in Sesa Goa Ltd. to
hold that the word 
'production' was wider than the word 'manufacture'. On that basis, 
· finding arrived at by the Court was that though cutting of marble blocks 
into marble slabs did not amount to 'manufacture', if there are various 
stages through which marble blocks are subjected to before they become 
polished slabs and tiles, such activity would certainly be treated as 
'production' for the purpose of Section 80-IA of the Act. In this context, 
relevant discussion contained in Arihant Tiles case needs to be 
reproduced, which is as under: 
"16. In the present case, we have extracted in detail the process 
undertaken by each of the respondents before us. In the present 
case, we are not concerned only with cutting of marble blocks 
E 
F 
into slabs. In the present case we are also concerned with the 
activity of polishing and ultimate conversion of blocks into polished 
slabs and tiles. What we find from the process indicated herein-
G 
above is that there are various stages through which the blocks 
have to go through before they become polished slabs and tiles. 
In the circumstances, we are of the view that on the.facts of the 
cases in hand, there is certainly an activity which will come in the 
7 (2004) 271 ITR 331 (SC) 
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SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
category of"manufacture" or "production" under Section 80-IA 
of the Income Tax Act. 
17. As stated hereinabove, the judgment of this Court in Aman 
Marble Industries (P) Ltd. [(2005) 1 SCC 279: (2003) 157 ELT 
393] was not required to construe the word "production" in 
addition to the word "manufacture". One has to examine the 
scheme of the Act also while deciding the question as to whether 
the activity constitutes mani1facture or production. Therefore, 
looking to the nature of the activity stepwise, we are of the view 
that the subject activity certainly constitutes "manufacture or 
production" in terms of Section 80-IA. 
18. In this connection, our view is also fortified by the following 
judgments of this Court which have been fairly pointed out to us 
by learned counsel 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 !TAT 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 irort 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". Howev.er, 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 not produce any new product whereas it was argued on 
behalf of the assessee that it did produce a distinct new product.
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
643 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.] 
21. The view expressed by the High Court that the activity in A 
question constituted "production" has been affirmed by this Court 
in Sesa Goa case [(2004) 13 SCC 548 : (2004) 271 ITR 331] 
saying that the High Court's opinion was unimpeachable. It was 
held by this Court that the word "production" is wider in ambit 
and it has a wider connotation than the word "manufacture". It B 
was held that while every manufacture can constitute production, 
every production did not amount to manufacture. 
22. Ih our view, applying the tests laid down by this Court in Sesa 
Goa case [(2004) 13 sec 548 : (2004) 271 ITR 331] and apply-
ing it to the activities undertaken by the respondents herein, re-
C 
produced hereinabove, it is clear that the said activities would 
come within the meaning of the word "production"." 
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 
D 
activities at assessees' plant 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 
E 
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 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 
F 
G 
H
644 
SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A 
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 distin-
guishable from the LPG bottled in cylinders and cleared from these plants 
f<;>r domestic use by customers. It may be relevant to point out that 
B 
keeping in view the aforesaid process, the !TAT arrived at the specific 
findings in support ofits 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. 
C 
(b) LPG bottling is a highly technical and complex activity which 
D 
E 
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 
capapable 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 
F 
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 
G 
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. 
H
COMM. OF INCOME TAX- 1, MUMBAI v. MIS.HINDUSTAN 
645 
PETROLEUM CORPORATION LTD. [A.K. SIKRI, J.] 
The cases specifically referred were Mis. Puttur Petro Products Pvt. 
A 
Ltd. v. The Assistant Commissioner of Income Tax, Mangalort!' and 
Central U.P. Gas Ltd. v. Deputy Commissioner of Income Tax, 
Kanpur9• 
19. From the submissions made by learned counsel for the 
Revenue, who banked on the reasoning given by the AO, it can be gathered 
B 
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 
C 
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 Mis. HPCL into small cylinders would not amount 
to manufacture. That was a case which was decided in the context of D 
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 outthat 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' 
E 
and the issue was as to whether the process amounted to manufacture 
or not. As pointed out above, the questio.n 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 
F 
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 
G 
cases under the provisions of Sections 80HH, 80-1 and 80-lA of the Act 
which use both the expressions 'manufacture' and 'production'. It has 
8(2014) 361ITR290 
'Income Tax Appeal No. 224 of 2014 decided by High Court of Allahabad and 
reported in MANU/UP/2895/2016. 
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646 
SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A 
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 
B 
c 
D 
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 fllcome Tax, 
Madras v. Vinbros and Compa11y10 where bottling and blending of 
alcohol is held to be 'manufacture or production' for the purpose of 
Section 80-IB of the Act. 
21. We, thus, find that the view of the !TAT as affirmed by the 
High Court is correct and, therefore, there is no merit in these appeals 
which are accordingly dismissed. 
Devika Gujral 
Appeals dismissed. 
10{201s) 14 sec 483