COMMISSIONER OF INCOME TAX- 1, MUMBAIversusM/S. HINDUSTAN PETROLEUM CORPORATION LTD.

                         [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                                 B
           (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'
  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  is withdrawn from the cylinder, the pressure falls and the liquid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
                                                                         H
                                 631
632          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-
   H; 641-A; 643-D, G-H; 644-A, E-F]
 c         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.
 D
           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              referred to              Para 16           A
(201s) 14 sec 483                 relied on                Para 20


     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9295
of2017.
                                                                             B
       From the Judgment and Order dated 07.03.2013 of the High Court
 of Judicature at Bombay in ITA No. 2134 of2012
                                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   E
 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    F
 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 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
634             SUPREME COURT REPORTS                          [2017] 7 S.C.R.



A oflncome 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,
B
      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
 c    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.
 D
      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
 E
      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
 F    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
      question mooted above has arisen for consideration.
 H
 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                 B

       (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:      c
       "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 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."
                                                                              F
        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          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,
                                                                              H
636            SUPREME COURT REPORTS                         [2017] 7 S.C.R.


A           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
B
            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.
            Storage of LPG packed cylinders.
            Despatch of packed cylinders to LPG.
            Distributors for- illegible.
 E          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."
 F
             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
   · 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
 H
 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
                                                                              B
  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 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 E
  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,
                                                                              F
   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     G
  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
 'c2001i 6 sec 429                                                           H
638             SUPREME COURT REPORTS                              [2017] 7 S.C.R.


A            10. The aforesaid submissions were refuted by Mr. Tamn Gulati,
      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
B
      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
 c    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"·
 D        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
 E 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
 F 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

      4
       See "A Background to Liquefied Petroleum Gases, Their Sources and Safe Handling,
      and Safe Use as Fuels'', Advanced Petrochemicals, Dr. G.N. Sarkar.

 H
 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. 6 wherein
  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;                                                  F
         (v)      Yarn raw materials;
         (vi)      Fertilizers;
         (vii)     Methanol;
         (viii)    Formal debycle and FR Resin Melamme and MF Resin;         G
         (ix)     Methylamine, hexamethiene, tetranine, ammonium bi-car
                  bonate;

  5 (2010) 320 ITR 79 (SC)

 • c2oos) 6 sec 292
                                                                             H
640               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
      dismissed .
.E
            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-
 F
      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,
 G          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'

 H
 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 ofJ11come 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        E
  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:
                                                                                 F
         "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 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)
                                                                                 H
642     SUPREME COURT REPORTS                          [2017] 7 S.C.R.


A     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
B     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.
 c
      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
 D    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
 E
      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
 F    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
 G    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.


 H
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;
                                                                                F
       (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.
                                                                                G
        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
                                                                                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
                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            (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,
 E               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'
  and the issue was as to whether the process amounted to manufacture E
  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. F
       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       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.
                                                                             H
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
      did not amount to 'manufacture or production of tea'. Here, the case
 B
       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
 c     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.

 D
      Devika Gujral                                               Appeals dismissed.




       10
            {201s) 14 sec 483