Commissioner of Income Tax vs Hindustan Petroleum Corporation Ltd.

In all these appeals by the Revenue, the following questions of law have been framed for our consideration:

(a) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in relying on the Cylinders Rules, 2004, referred to in the decisions of the jurisdictional High Court in the case of HPCL v. MSDCEL in W.P. No. 9455 of 2011 and the Gujarat High Court in the case of Bharat Petroleum Corporation Ltd. v. State of Gujarat as well as the notification u/s 80IB(4) issued on August 4, 1999, in view of the fact that the same are not applicable in the case of the assessee for the assessment year under consideration?

(b) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that bottling of the gas into gas cylinders as a production activity for the purpose of section 80HHC, section 80I/80IA ignoring the fact that no new product comes into existence in this process?

The basic dispute in these appeals is whether the activity of bottling LPG gas amounts to production or manufacturing activity for the purpose of deduction under sections 80HHC, 80I and 80IA of the income tax Act, 1961. The Tribunal by the impugned order held that the subject activity amounts to production/manufacturing for the purpose of sections 80HHC, 80I and 80IA of the income tax Act, 1961, by relying upon the decision of this court in Writ Petition No. 9455 of 2011 dated January 19, 2012, in the matter of Hindustan Petroleum Corporation Ltd. v. Maharashtra State Electricity Distribution Co. Ltd. and the consequent order passed by the Electricity Ombudsman dated March 26, 2012. Besides a reliance was also placed upon the decision of the Gujarat High Court dated May 6, 2010, in the matter of Bharat Petroleum Corporation Ltd. v. State of Gujarat wherein it was held that bottling of LPG gas amounts to manufacturing activity.

The grievance of the Revenue is that the aforesaid activity would not amount to manufacturing/production activity and for that purpose reliance is placed on the judgment of the Gujarat High Court dated January 20, 1993, in the matter of State of Gujarat v. Kosan Gas Co. (sales tax matter) where activity of bottling the gas was not considered as manufacturing activity under the Gujarat Sales Tax Act, 1969.

Since the Tribunal in the impugned order has relied upon the decision of this court and the consequent order of the Electricity Ombudsman to hold that the activity of bottling LPG gas is a very specialised process and the same is considered to be an activity of manufacture. The Tribunal in the impugned order had observed to the effect that the word used in section 80HHC, section 80I/80IA of the Act is manufacturing or production. The term "production" is wider than the word "manufacture". Therefore, every activity which bring into existence a new product would constitute production. The impugned order records a finding of fact that the process of bottling the LPG gas into cylinder makes the same marketable on execution of the process. It, therefore, follows that a new product comes into existence. The fact that the decision of this court in HPCL (supra) and the Gujarat High Court dated May 6, 2010, are rendered keeping in view of the fact that the Gas Cylinder Rules, 2004, which were not in force during the relevant assessment year would not in any way detract from the finding of fact arrived at by the Tribunal. In these circumstances, as the Tribunal has rendered a finding of fact and placed reliance upon the decision of this court and also the Gujarat High Court dated May 6, 2010, we see no reason to entertain the proposed questions of law. Accordingly, the appeals are dismissed with no order as to costs.