IMPORTANT POINT
Bottling of LPG cylinders falls within expression ‘production’.

JUDGMENT

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 ‘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 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.

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 Pla