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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9295 OF 2017

COMMISSIONER OF INCOME  TAX –  1, MUMBAI

.....APPELLANT(S)

VERSUS

M/S.  HINDUSTAN  PETROLEUM CORPORATION LTD. .....RESPONDENT(S)

W I T H

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 APPEAL NO. 9300 OF 2017

CIVIL APPEAL NO. 9301 OF 2017

CIVIL APPEAL NO. 9302 OF 2017

CIVIL APPEAL NO. 9303 OF 2017

CIVIL APPEAL NO. 9304 OF 2017

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CIVIL APPEAL NO. 9305 OF 2017

CIVIL APPEAL NO. 9306 OF 2017

CIVIL APPEAL NO. 9307 OF 2017

CIVIL APPEAL NO. 9308 OF 2017

A N D

CIVIL APPEAL NO. 9309 OF 2017

J U D G M E N T

A.K. SIKRI, J.

The  question  of  law  that  arises  of  consideration  in  all  these

appeals, which are filed by the Commissioner of Income Tax, Mumbai, is

identical.  The respondents-assessees in these appeals are engaged in

the process of bottling Liquefied Petroleum Gas (LPG) Cylinders meant

for domestic use.  They are claiming benefit of Sections 80HH, 80-I 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

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‘production’  or  ‘manufacturing’  for  the  purposes  of  the  aforesaid

provisions of the Act.     

2) The Assessing Officers (AOs) had disallowed the deduction claimed

by the assessees holding that they did not engage in the 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 of Income Tax (Appeals).  The Income Tax Appellate

Tribunal (ITAT), however, upset the aforesaid view of the AOs 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

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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 undertakings

and the aforesaid  process  amounts  to  production  or  manufacture.

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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

question mooted above has arisen for consideration.

5) Learned counsel appearing for the Revenue opened his 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.   It generally  consists  of  butane,  propane  and  butane  and propane 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.

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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 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 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, 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.  

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Maintenance/upkeeping of plant equipment to ensure smooth operation 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  Company1,  wherein  identical  facts  are

involved, viz. the assessee therein after purchasing LPG from M/s.

HPCL was 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  10A  of  the  Act  wherein  explanation  (iii)  mentions  that

manufacture includes assembling as well and, therefore, assessee’s

case was covered by the definition of ‘manufacture’ under Section

10A 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 10A of the Act 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

1  (1992) 87 STC 236

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this section’.  The AO further noticed that the word ‘manufacture’ is

not defined in the Act.  He, therefore, proceeded to turn to the legal

and general  definitions available elsewhere and referred to  corpus

juris secundum and also certain cases of this Court dealing with the

issue.  On that basis, the AO concluded 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 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 up of the gas into cylinder

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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, Mumbai2 and Commissioner of

Income Tax, Kerala v. Tara Agencies3.

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  LPG  is  oil

refineries where crude 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 2  (2015) 14 SCC 47 3  (2007) 6 SCC 429

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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 considerably4.   

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 4  See “A Background to Liquefied Petroleum Gases, Their Sources and Safe

Handling, and Safe Use as Fuels”, Advanced Petrochemicals, Dr. G.N. Sarkar.

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in the refinery or from the empty cylinder.  Even otherwise, the word

‘production’  is  wider  than  the  word  ‘manufacture’  and  any  activity

which  makes  a  product  marketable  and  usable  to  the  consumer

would be covered by the word ‘production’.  Learned counsel referred

to the judgment of this Court in Income Tax Officer v. Arihant Tiles

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 of A.P. &

Ors.6 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 5  (2010) 320 ITR 79 (SC) 6  (2005) 6 SCC 292

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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 –  

(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-carbonate;

(x) Nitrite acid and ammonium nitrate;

(xi) Carbon black;

(xii) Polymer chips. (Emphasis Supplied)”

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.  

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12) Learned counsel argued that the findings of the Tribunal, as 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

counsel also endeavoured to distinguish the judgment of the Gujarat

High Court in Kosan Gas Company’s case as well as the judgments

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 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

involved (already mentioned) is:

Whether  bottling  of  LPG,  as  undertaken by the  assessee,  is  a

process which amounts to ‘production’ or ‘manufacture’ for the purposes

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of Sections 80HH, 80-I 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’

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 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

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Commissioner of Income Tax, Goa  v. 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 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 hereinabove 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 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 manufacture or production.  Therefore,  looking  to  the  nature  of  the  activity

7  (2004) 271 ITR 331 (SC)

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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 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 not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product.

21. The view expressed by the High Court that the activity in 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 was held that while every manufacture can constitute  production,  every  production  did  not  amount  to manufacture.

22. In  our  view, applying the tests  laid  down by this  Court in Sesa Goa case [(2004) 13 SCC 548 : (2004) 271 ITR 331] and applying it to the activities undertaken by the respondents herein,  reproduced  hereinabove,  it  is  clear  that  the  said activities  would  come  within  the  meaning  of  the  word

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“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  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 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,

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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

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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, Mangalore8 and  Central U.P. Gas

Ltd. v. Deputy Commissioner of Income Tax, Kanpur9. 8  (2014) 361 ITR 290 9  Income Tax Appeal No. 224 of 2014 decided by High Court of Allahabad and

reported in MANU/UP/2895/2016.

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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

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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

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Company10 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 ITAT as affirmed by the High

Court  is  correct  and, therefore,  there is  no merit  in these appeals

which are accordingly dismissed.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; AUGUST 3, 2017.

10  (2015) 14 SCC 483