By TIOL News Service

NEW DELHI, AUG 03, 2017: THE two words which have come before the Apex Court for interpreation at regular interval are 'Manufacture' and 'Production'. Whether it is Central Excise Act or the Income Tax Act, the litigation continues on the ground level and all such cases necessarily visit the premises of the Supreme Court of India. In the present case, the situtation and the issue are no different. The issue before the Bench was - Whether when the activity of bottling of gas cylinders involves a complex technical process, it necessarily falls within the four walls of Production as per Ss 80I & 80IA. And the verdict goes against the Revenue.

Facts of the caseThe assessees are engaged in the process of bottling Liquefied Petroleum Gas (LPG) Cylinders meant for domestic use. They claimed benefits of Sections 80HH, 80-I and 80-IA of the Income Tax Act, 1961. The AO denied the benefits believing 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. The CIT(A) agreed with the AO but the ITAT and the HC disagreed.

After hearing the parties, the Apex Court held that,

++ it is settled law that the word 'production' is wider than the word 'manufacture';

++ 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 When the cylinder valve is opened and the gas is withdrawn from the cylinder, the pressure falls and the liquid boils to return to gaseous state.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;

++ in the considered opinion of this Court, such activity would definitely fall within the expression 'production'. We agree with the submission of the 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 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 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 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.

(See 2017-TIOL-275-SC-IT)