Indraprastha Gas Ltd., New Delhi V. Addl.CIT, Special Range- 4 , New Delhi

ITA 6489/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9187 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 26-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Keywords: Depreciation; Additional depreciation; Question of law
• Section: 271(1)(c); 80HHC; 260A; 32(1)(iia); 250; 72; 13; 22; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 6489/DEL/2017 : ASSTT. YEAR : 2013-14 INDRAPRASTHA GAS LTD., PLOT NO. 4, IGL BHAWAN, SECTOR-9, R.K. PURAM, NEW DELHI-110022 VS ADDL. CIT, SPECIAL RANGE-4, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A AA CI5076R ASSESSEE BY : SH. RAJAT JAIN, CA REVENUE BY : SH. GAURAV DUDEJA, SR. DR DATE OF HEARING: 09.11.2020 DATE OF PRONOUNCEMENT : 05.01.2021 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-35, NEW DELHI DATED 28. 08.2017. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE ADDITIONAL DEPRECIATION CLAIMED BY THE APPELLANT COMPANY U/S 32(1)(IIA) OF THE INCOME TAX ACT, 1961, AMOUNTING TO RS.8,23,15,761/-. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT DROPPING THE PENALTY PROCEEDINGS INITIATED BY THE LD. ASSESSING OFFICER UNDER SECTIO N 271(1)(C) OF THE INCOME TAX ACT, 1961. 3. INDRAPRASTHA GAS LIMITED (IGL) IS A JOINT VENTUR E OF GAIL INDIA LTD., THE LARGEST NATURAL GAS TRANSMISSION CO MPANY IN INDIA AND BHARAT PETROLEUM CORPORATION LIMITED (BPC L), ONE OF THE LEADING OIL REFINING AND MARKETING COMPANY IN I NDIA AND GOVERNMENT OF NCT OF DELHI. THE COMPANY IS CURRENTL Y ENGAGED IN THE BUSINESS IN THE DELHI-NCR REGION INCLUDING N OIDA, GREATER NOIDA, GHAZIABAD AND REWARI. 4. IGL IS A CITY GAS DISTRIBUTION COMPANY (CGD) WHI CH IS ENGAGED IN THE BUSINESS OF SELLING AND DISTRIBUTION OF NATURAL GAS TO BE USED AS INDUSTRIAL AND HOUSEHOLD FUEL IN COMMERCIAL AND DOMESTIC SECTOR RESPECTIVELY. FURTHER IGL IS AL SO ENGAGED IN THE MANUFACTURING AND SELLING OF COMPRESSED NATURAL GAS (CNG) WHICH IS USED AS A FUEL TO BE USED FOR RUNNING AUTO MOBILES. 5. THE AO HAS HELD THAT THE PROCESS OF DELIVERY OF CNG TO AUTOMOBILES AT THE CNG FILLING CENTRES DOES NOT AMO UNT TO MANUFACTURE OR PRODUCTION OR AN ARTICLE OR THING WH ICH IS MANDATORY REQUIREMENT FOR CLAIMING ADDITIONAL DEPRE DATION U/S 32 (1)(IIA) OF THE INCOME TAX ACT. THEREFORE, THE A O HELD THAT THE ASSESSEE COMPANY IS NOT ENTITLED FOR ADDITIONAL DEPRECIATION AS CLAIMED IN THE RETURN OF INCOME AND ACCORDINGLY AN AMOUNT OF RS. 8,23,15,761/- WAS ADDED BACK TO THE TOTAL INCOM E OF THE ASSESSEE. 6. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING T HAT THE COMPANY IS NOT INTO MANUFACTURING OR PRODUCTION OF CNG. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 3 7. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE US. 8. THE LD. AR ARGUED THAT IGL OBTAINED CERTIFICATE FROM CENTRAL EXCISE DEPARTMENT AND ALSO PAYING CENTRAL E XCISE DUTY WHICH CAN BE VERIFIED FROM P&L ACCOUNT. BY THE VIRT UE OF PAYMENT OF CENTRAL EXCISE DUTY, HE ARGUED THAT IT C AN BE CONVENIENTLY PROVED THAT THE ASSESSEE IS INTO MANUF ACTURING ACTIVITY. HE FURTHER RELIED ON THE TAX AUDIT REPORT AND ARGUED THAT THE ADDITIONAL DEPRECIATION HAS BEEN RIGHTLY C HARGED ON COMPRESSORS, DISPENSERS, GAS GEN-SETS, CASCADES, PR V MASS FLOW METERS WHICH ARE INSTALLED AT CNG STATIONS AND ARE USED IN THE MANUFACTURING PROCESS. HE EXPLAINED THE PROCESS WHI CH IS AS UNDER: 1. METERING SKID - FILTERS ARE USED TO CLEAN HEAVY DUST PARTICLES COMING ALONG WITH THE GAS S THAT WE CAN P ROVIDE CLEAN FUEL TO OUR CUSTOMERS. PRESSURE REGULATING VALVES A RE ALSO USED THIS SKID TO REDUCE INCOMING PRESSURE WITHIN SAFE L IMITS. 2. COMPRESSOR - IT'S A THREE STAGE RECIPROCATING CO MPRESSOR WHICH IS USED TO PROCESS THIS GAS FROM ~18 BAR TO ~ 250 BAR. THIS IS A THREE STAGE PROCESS IN WHICH GAS IS COMPR ESSED DIFFERENT STAGES- A. FIRST STAGE - ~ 18 BAR TO ~ 55 BAR B. SECOND STAGE - ~ 55 BAR TO ~ 120 BAR C. THIRD STAGE -~120 BAR TO ~250 BAR. FIRST STAGE IS DOUBLE ACTING WHILE SECOND AND THIRD STAGE IS SINGLE ACTING. EACH STAGE CONSISTS OF SPRING LOADED SUCTION AND DISCHARGE VALVES. SAFETY VALVES, PRESSURE AND TEMPE RATURES SENSORS, GAS & FLAME DETECTORS ARE INSTALLED TO ENS URE SAFE COMPRESSION OF GAS. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 4 FURTHER TEMPERATURE INCREASES WHENEVER WE COMPRESS THE GAS THUS AFTER EVERY COMPRESSION GAS ENTERS AIR COOLER WHICH COOLS THE GAS, USING FORCED / INDUCED DRAUGHT FANS, SO TH AT IT CAN BE COMPRESSED WITHOUT MUCH LOSS OF ENERGY IN SUBSEQUEN T STAGES. INLET GAS CONSISTS OF OIL PARTICLES; ALONG WITH THI S SEPARATE LUBRICATION SYSTEM IS THERE TO LUBRICATE VARIOUS PA RTS OF SYSTEM. OIL SEPARATORS INSTALLED AT EACH STAGE TO REMOVE OI L PARTICLES ADDED DURING COMPRESSION PROCESS. AFTER COOLING OF GAS MOISTURE GET CONDENSED AND TO REMOVE THIS CONDENSATE FILTERING SYSTEM ARE THERE. ALL ABOVE-MENTIONED PROCESS ARE MONITORED & CONTROL LED THROUGH AUTOMATED DIGITALLY CONTROLLED SYSTEMS. PRIORITY PANELS ARE INSTALLED IN EVERY COMPRESSING UNIT TO AUTOMATICALLY ROUTE THE GAS TO DISPENSING UNITS BAS ED ON GAS REQUIREMENT. THIS IS A COMPLETE INTEGRATED INFRASTRUCTURE COMPRI SING OF PIPE LINE NETWORK, COMPRESSOR, DISPENSERS AND CASCADES T O CONVERTS NATURAL GAS INTO FUEL. NATURAL GAS AS SUCH CANNOT B E USED AS COMMERCIAL VIABLE OPTION FOR USE AS A FUEL IN AUTOM OBILE THIS CNG IS A COMPLETELY DIFFERENTLY PRODUCT FROM NATURA L GAS. 9. THE LD. AR RELIED ON THE ORDER OF THE HONBLE HI GH COURT OF ALLAHABAD IN THE CASE CENTRAL UP GAS LTD. VS DCIT I N ITA 224 OF 2014. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 5 10. THE LD. DR GAURAV DUDEJA, ELABORATELY ARGUED TH E CASE TO PROVE THAT THE ASSESSEE IS NOT INTO MANUFACTURING A ND HENCE NOT ELIGIBLE FOR CLAIM OF ADDITIONAL DEPRECIATION. HE H AS REFERRED THE AUDIT REPORT AND THE FINANCIALS OF THE ASSESSEE COM PANY TO BUTTRESS HIS ARGUMENTS. HE ARGUED THAT THE MEMORAND UM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY OUT LINES THE OBJECTS TO BE PURSUED BY THE COMPANY AND THE MAIN O BJECT AS PER MEMORANDUM AND ARTICLES OF ASSOCIATION IS TO C ARRY ON ALL OR ANY OF THE BUSINESSES OF STORAGE, SUPPLIERS, DIS TRIBUTORS, SELLERS AND DEALERS IN NATURAL GAS AND ITS DERIVATI VES INCLUDES LPG, CNG, PROPANE AND ANY CONVENTIONAL AND NON-CONV ENTIONAL TYPE OF ENERGY. MEMORANDUM AND ARTICLES OF ASSOCIA TIONS CLEARLY INDICATES THAT THE ASSESSEE COMPANY IS NOT IN THE SUPPLYING AND DISTRIBUTION BUSINESS AND NOT IN THE BUSINESS OF MANUFACTURING OR PRODUCING CNG. 11. REGARDING THE ARGUMENT OF THE ASSESSEE, THAT IT HAS OBTAINED CERTIFICATE FROM CENTRAL EXCISE DEPARTMENT AND EXCISE DUTY IS LEVIABLE ONLY WHEN A PERSON IS ENGAGED IN M ANUFACTURING ACTIVITIES, THE LD. DR REBUTTED THAT THIS ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE INCOME TAX A CT AND CENTRAL EXCISE ACT OPERATE IN DIFFERENT DOMAINS AND THE MEANING OF THE TERM MANUFACTURE IS DIFFERENT FOR BOTH OF THESE ACTS. 12. AS PER SECTION 2(F) OF CENTRAL EXCISE ACT, 1944 (CEA), MANUFACTURE INCLUDES ANY PROCESS, (I) INCIDENTAL OR ANCILLARY TO THE COMPLETION OF A MANUFACTURED PRODUCT AND (II) WHICH IS SPECIFIED IN RELATION TO ANY GOODS IN THE SECTION OR CHAPTER NOTES OF THE 1ST SCHEDULE TO THE ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 6 CENTRAL EXCISE TARIFF ACT, 1985 (CETA), AS AMOUNTIN G TO MANUFACTURE (DEEMED MANUFACTURE) OR (III) WHICH IN RELATION TO GOODS SPECIFIED IN 3RD SCHEDUL E OF CETA INVOLVES PACKING OR REPACKING OF SUCH GOODS IN A UNIT CONTAINER OR LABELING OR RE-LABELING OF CONTAINERS INCLUDING DECLARATION OR ALTERATION OF R ETAIL SALE PRICE ON IT OR ADOPTION OF ANY OTHER TREATMENT ON THE GOODS TO RENDER THE PRODUCT MARKETABLE TO THE CONSUMER (DEEMED MANUFACTURE). 13. HOWEVER, THE DEFINITION OF THE TERM MANUFACTUR E AS PER INCOME TAX ACT, 1961 AS PROVIDED IN SECTION 2(29BA) IS AS UNDER: 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEA NS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING, (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR AR TICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; O R (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICA L COMPOSITION OR INTEGRAL STRUCTURE; THESE TWO DEFINITIONS CLEARLY SUGGEST THAT THE MEAN ING OF TERM MANUFACTURE IS DIFFERENT FOR INCOME TAX A CT AND FOR CENTRAL EXCISE ACT AND A PERSON CONSIDERED AS MANUFACTURER FOR THE PURPOSES OF CENTRAL EXCISE ACT MAY NOT BE NECESSARILY CONSIDERED MANUFACTURER FOR INCOME TAX ACT. THEREFORE, MERELY BECAUSE THE ASSESSEE COMPANY IS REGISTERED WITH THE CENTRAL ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 7 EXCISE DEPARTMENT AND PAYING EXCISE DUTY DOES NOT MEAN THAT IT IS MANUFACTURING AN ARTICLE OR THING F OR THE PURPOSES OF INCOME TAX ACT. THEREFORE, THIS ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE. 14. REGARDING THE ARGUMENT OF THE AUDIT REPORT, THE LD. DR SUBMITTED THAT THE AUDIT REPORT CANNOT BE BASIS FOR CLAIM OF ADDITIONAL DEPRECIATION BUT THE ADDITIONAL DEPRECIA TION HAS TO BE ACCORDED ONLY IN THE CASE, THE ASSESSEE IS ELIGIBLE TO CLAIM THE BENEFIT U/S 32(1)(IIA). 15. THE LD. DR ARGUED THAT THE MEANING OF TERM MAN UFACTURE OR PRODUCTION OF AN ARTICLE OR THING HAS BEEN A SU BJECT MATTER OF DISCUSSION OF VARIOUS COURTS AND TRIBUNAL AN THE RE IS NO UNIVERSAL DEFINITION. LD. DR FURTHER ARGUED THAT TH E DEFINITION OF TERM, MANUFACTURE WAS INTRODUCED IN THE INCOME TA X ACT W.E.F. 1.4.2009 THEREFORE LAW HAS CHANGED SINCE AY 2007-08 AND THE CLAIM OF THE ASSESSEE NEEDS TO BE EXAMINED IN VIEW OF AMENDED LAW. THE LD. DR HAS ALSO RELIED ON THE FOLLOWING CA SE LAWS TO DRIVE HOME THE POINT THAT EVERY ACTIVITY CANNOT BE TREATED AS MANUFACTURING PROCESS: I. CUTTING AND POLISHING OF UNCUT RAW DIAMONDS - DOES NOT AMOUNT TO MANUFACTURING AS POLISHED DIAMOND IS NOT A NEW ARTICLE OR THING [CIT VS GEM INDIA MFG. CO (SC) 249 ITR 307] II. CONVERSION OF LARGE MASS OF QUARTZ INTO SMALLER DIM ENSIONS NO MANUFACTURING ACTIVITY INVOLVED AS NOTHING IS CO NSUMED IN THE PROCESS. [ACIT VS G.T.C. ENTERPRISES (ITAT, CHENNAI) 87 ITD 188] ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 8 III. ROASTING AND GRINDING OF CHICORY ROOTS INTO CHICORY POWDER NO MANUFACTURING ACTIVITY INVOLVED. [SACS EAGLES CH ICORY VS CIT (SC) 255 ITR 178]. IV. CHILLY & CHILLY PRODUCTS ARE ESSENTIALLY SAME COMMO DITY - NO MANUFACTURING ACTIVITY INVOLVED. [NAMPUDHIRIS PI CKLE INDUSTRIES (KER) 1993 KLJ (TAX CASES) 198] V. BREAKING OF BIG BOULDERS INTO SMALL STONES OR BAJRI - NO MANUFACTURING ACTIVITY INVOLVED SINCE NO NEW AND DI STINCT COMMODITY CAME INTO EXISTENCE. [ITO VS JITENDRA STO NE CRUSHING CO. (ITAT, CHD.) 105 ITD 52] VI. CONVERSION OF SPIRIT INTO IMFL - ASSESSEE PROCESSIN G RAW ALCOHOL (POTABLE SPIRIT) AND SELLING THE SAME AS WH ISKY, BRANDY AND RUM WITH DIFFERENT BRAND NAMES - IT PURC HASES POTABLE SPIRIT FROM DISTILLERIES WHICH IS ALREADY MANUFACTURED AND DOES NOT REQUIRE ANY FURTHER MANUFACTURING - ONLY SOME PROCESSING IS REQUIRED TO PRODUCE BRANDY, WHISKY, RUM ETC. BY ADDING SOME WAT ER, COLOUR, ESSENCE ETC. - THERE IS ONLY DEGREE OF REDU CTION OF ALCOHOL CONTENT AND THERE IS NO ESSENTIAL DIFFERENC E BETWEEN THE POTABLE SPIRIT AND THE BOTTLED IMFL - A CTIVITY DOES NOT AMOUNT TO MANUFACTURING. [SHAW SCOTT DISTI LLERIES (P) LTD. VS ACIT (ITAT, SB-CAL) 76 ITD 89] VII. ELECTROPLATING - NOT MANUFACTURE / PRODUCTION OF AR TICLE OR THING SINCE THE ORIGINAL COMMODITY STILL REMAINS TH E SAME WITH THE WORD COATED ADDED TO IT - IT IS ONLY DON E TO PREVENT IT FROM RUSTING AND NO NEW GOODS WERE PRODU CED. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 9 VIII. CIT VS HINDUSTAN METAL REFINING WORKS (P) LTD. (CAL ) 128 ITR 472 TITANOR COMPONENTS LTD VS DCIT (ITAT, DEL) 72 ITD 514 IX. FILLING OF MUSHROOM POWDER IN GELATINE CAPSULES TO MAKE IT FIT FOR MARKETING - NO MANUFACTURING OR PRODUCTION OF ANY COMMERCIALLY DISTINCT COMMODITY [DXN HERBAL MFG. (I NDIA) (P.) LTD. VS ITO (ITAT, CHENNAI) 110 ITD 99] X. PURCHASED SEEDS FROM AGRICULTURISTS AND SOLD THEM A FTER PROCESSING - NO MANUFACTURING ACTIVITY INVOLVED. [I TO VS DAFTRI AGRO (ITAT, HYD.) 135 TTJ 729; 130 ITD 496]. XI. PEELING & FREEZING OF SHRIMPS / PROCESSING OF FISH - NO MANUFACTURING - ACTIVITY INVOLVED SINCE THERE IS NO ESSENTIAL DIFFERENCE BETWEEN RAW SHRIMPS AND PRAWNS AND PROCESSED OR FROZEN SHRIMPS AND PRAWNS. XII. CIT VS RELISH FOODS (SC) 237ITR 59 XIII. GOLDEN HIND SHIPPING (INDIA) P. LTD. VS CIT (DEL) 2 40 ITR 324 CIT VS POYILAKADA FISHERIES P. LTD. (KER) 240 I TR 445 XIV. CIT VS STERLING FOODS (BOM) 213 ITR 851 XV. CIT VS GEORGE MAIJO (MAD) 250 ITR 440 16. FURTHER, THE LD. DR ARGUED THAT THE ACTIVITY OF THE ASSESSEE IS ONLY OF COMPRESSING THE NATURAL GAS. IN FACT, AS STATED BY THE ASSESSEE, THE NATURAL GAS WHICH REACHED TO CNG STAT IONS IS ALREADY COMPRESSED TO A PRESSURE 18 TO 26 BAR AND I T IS COMPRESSED UP TO 250 BAR IN THREE STAGES. BESIDES T HIS, THE GAS IS BEING FILTERED BEFORE ITS COMPRESSION. AND, IN T HE WHOLE PROCESS, THE INPUT AND OUTPUT REMAINS SAME I.E. NAT URAL GAS AS THE COMPRESSION-PROCESS NOT CHANGE CHARACTERISTICS OF NATURAL ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 10 GAS. FURTHER, HE ARGUED THAT THE NATURAL GAS BEFORE COMP RESSION AND AFTER COMPRESSION REMAINS A FUEL IN THE FORM OF NATURAL GAS. 17. ON GOING THROUGH THE AUDIT REPORT, HE ARGUED TH AT THERE HAS BEEN NO MANUFACTURING EXPENSES AND EVEN BY GOIN G THROUGH THE CLOSING STOCK, THERE IS NO NEW PRODUCT WHICH CA N BE SAID TO HAVE BEEN MANUFACTURED BY THE ASSESSEE COMPANY. HE ALSO DISTINGUISH THAT THE CASE OF HPCL, THE COMPANY WAS INTO BOTTLING OF CYLINDERS WHEREAS THE ASSESSEE IS NOT INTO SUCH ACTIVITY EXCEPT DISPENSING OF THE NATURAL GAS TO THE AUTOMOB ILE VEHICLES. 18. THE LD. DR HAS SUCCINCTLY ARGUED PERTAINING TO WHAT CONSISTS OF MANUFACTURING WITH REFERENCE TO THE INC OME TAX ACT. HE HAS TAKEN US THROUGH THE DEFINITION OF MANUFACTU RING AND THE EXEMPTION ALLOWED FOR MANUFACTURING UNDER DIFFERENC E PROVISIONS OF THE ACT TO PROVE THE POINT THAT THE M ANUFACTURING IS NOT A UBIQUITOUS DEFINITION AS FAR AS INCOME TAX ACT IS CONCERNED. HE ARGUED THAT SIMILAR ACTIVITY OF PRODU CTION IS CONSIDERED AS MANUFACTURING IN CERTAIN AREAS AN D ALLOWED DEDUCTIONS WHEREAS THE SIMILAR PRODUCT PRODUCED IS NOT TREATED AS MANUFACTURING FOR THE PURPOSE OF DEDU CTION IN OTHER AREAS. HE REFERRED TO VARIOUS SCHEDULES RELEV ANT TO DEDUCTIONS UNDER CHAPTER VI-A TO PROVE THAT MANUFAC TURING UNDER INCOME TAX PREVAILS IS DIFFERENT FROM THE PRO VISIONS OF CENTRAL EXCISE. 19. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 20. WHILE APPRECIATING THE ARGUMENTS OF BOTH THE CO UNSELS, NAMELY SH. GAURAV DUDEJA AND SH. RAJAT JAIN, WE HOL D THAT WE ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 11 ARE GUIDED BY THE ORDER OF THE HONBLE HIGH COURT OF JUDICATURE AT ALLAHABAD IN THE CASE CENTRAL UP GAS LTD. VS DCI T IN ITA NO. 224 OF 2014 DATED 08.12.2016. FOR THE SAKE OF READY REFERENCE, THE ORDER OF THE HONBLE HIGH COURT DETAILING THE I SSUE IS REPRODUCED AS UNDER: HON'BLE BHARATI SAPRU,J. HON'BLE VINOD KUMAR MISRA,J HEARD SHRI UDIT CHANDRA, LEARNED COUNSEL FOR THE AP PELLANT AND SHRI MANISH GOYAL, LEARNED COUNSEL FOR THE DEPARTMENT. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE UNDER SE CTION 260A OF THE INCOME TAX ACT, 1961 AGAINST THE ORDER PASSED BY THE TRIBUNAL DATED 13.06.2014 FOR THE ASSESSMENT YEAR 2008-09. THE QUESTION OF LAW SOUGHT TO BE ANSWERED IS AS UNDER: 'WHETHER THE COMPRESSED NATURAL GAS PRODUCED BY THE APPELLANT, HAVING DIFFERENT NAME, CHARACTER AND USE FROM NATURAL GAS CAN BE SAID TO BE COVERED BY THE PHRASE MANUFACTURE OR PRODUCTION?' THE FACTS OF THE CASE ARE THAT THE APPELLANT PROCUR ES GAS FROM GAIL INDIAN LIMITED AND COMPRESSES IT THROUGH THE COMPRESSOR FOR THE MANUFACTURE OF COMPRESSED NATURA L GAS (CNG), WHICH IS SUBSEQUENTLY SOLD TO THE CUSTOMERS, AS FUEL FOR VEHICLES. THE NATURAL GAS PURCHASED BY THE APPELLANT FROM GAI L INDIA LIMITED IS EITHER SOLD THROUGH APPELLANT-COMP ANY'S OWN PIPELINES TO FACTORIES AND HOUSEHOLD ETC. WHICH SALE IS MADE AS PIPED NATURAL GAS (PNG) SALE. THE APPELLANT ALSO MANUFACTURES COMPRESSED NATURAL GAS (CNG) FROM THE NATURAL GAS RECEIVED BY IT FROM GAIL INDIA LIMITED, WHICH IS SOLD FROM THE VENDING STATION(S) AS A FUEL FOR R UNNING OF VEHICLES. THE NATURAL GAS IS SUPPLIED BY GAIL INDIA LIMITED T HROUGH PIPELINES WHICH ARE CONNECTED WITH THE COMPRESSOR W ITH SUCTION PRESSURE OF 14 BAR TO 22 BAR AND THE DISCHA RGE PRESSURE OF 255 BAR, WHICH ARE INSTALLED AT CNG STA TIONS AND IS DISPENSED IN THE VEHICLE AT A MAXIMUM PRESSU RE OF 200 BAR THROUGH THE DISPENSE CONNECTED TO THE COMPRESSOR. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 12 THE SAFE COMPRESSION AND DISPENSING SYSTEM DURING PROCESS OF MANUFACTURING OF COMPRESSED NATURAL GAS (CNG), ALL THE COMPRESSORS ARE FILLED WITH A CLOSE CIRCUIT TYPE COOLING SYSTEM AND ALSO SAFETY VALVE AT EACH S TAGE. THE COMPRESSED NATURAL GAS (CNG) MANUFACTURING PREMISES ARE DESIGNED AND BASED ON THE BASIS OF SPECIFICATION PROVIDED UNDER THE OIL INDUSTRY AND S AFETY DIRECTORATE AND THE GAS CYLINDER RULES, 2004. THE MANUFACTURING, STORAGE AND DISPENSING OF COMPRE SSED NATURAL GAS (CNG) CAN ONLY BE STARTED AFTER THE GRA NT OF LICENSE BY THE PETROLEUM EXPLOSIVE SAFETY ORGANIZAT ION. THE RULE 2(VIII) OF THE GAS CYLINDER RULES, 2004 DE FINES, COMPRESSED NATURAL GAS' AS MIXTURE OF HYDRO CARBON GASES AND FIBERS CONSISTING MAINLY OF METHANE IN GASEOUS FORM WHICH HAS BEEN COMPRESSED FOR USE AS AUTOMOTIVE FUE L. FURTHER, RULE 2(XXXII) DEFINES 'MANUFACTURE OF GAS' AS FILLING OF CYLINDER WITH ANY COMPRESSED GAS AND ALS O INCLUDES TRANSFER OF COMPRESSED GAS FROM ONE CYLIND ER TO ANY OTHER CYLINDER. THE APPELLANT-COMPANY IS REGISTERED UNDER THE CENTR AL EXCISE ACT AS A 'MANUFACTURE OF CNG.' IN THE CERTIF ICATE OBTAINED FROM THE CENTRAL EXCISE AUTHORITIES, IT IS CLEARLY MENTIONED THAT THE APPELLANT IS A MANUFACTURER OF EXCISABLE GOODS. FURTHER, THE APPELLANT COMPANY IS REGULARLY PAYING EXCISE DUTY ON THE MANUFACTURING O F COMPRESSED NATURAL GAS (CNG). THE APPELLANT DOES NO T MANUFACTURE ANYTHING BESIDES CNG FROM PNG. THE CIRCULAR DATED 16.10.2008 HAD ALSO BEEN ISSUED UNDER THE CENTRAL EXCISE ACT WHEREIN IT IS CLEARLY MENTIO NED THAT COMPRESSED NATURAL GAS (CNG) IS A FUEL MANUFACTURED PRODUCT, THEREFORE, EXCISE DUTY IS LEVIABLE ON THE PRODUCTION OF CNG. THE TRADE TAX AUTHORITIES HAVE ALSO PASSED AN ORDER IN THE CASE OF THE APPELLANT COMPANY, IN WHICH IT HAS BEEN HELD THAT CONVERSION OF NATURAL GAS INTO CNG AMOUNTS TO MANUFACTURE. THE SCHEDULE IV, ENTRY 8 OF THE U.P. V ALUE ADDED TAX ACT IMPOSES THE TAX ON NATURAL GAS OTHER THAN COMPRESSED NATURAL GAS (CNG) @ 5% AND 21% WHEN SOLD TO REGISTERED AND UNREGISTERED DEALERS; WHILE COMPR ESSED NATURAL GAS (CNG) IS COVERED BY SCHEDULE V OF THE U .P. VALUE ADDED TAX ACT. THUS, THE NATURAL GAS AND COMPRESSED NATURAL GAS (CNG) ARE TWO DIFFERENT PROD UCTS, BEING TAXABLE AT DIFFERENT RATES OF TAX UNDER THE U .P. VALUE ADDED TAX ACT. ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 13 IT IS FURTHER STATED THAT IN THE MANUFACTURING PROC ESS OF CNG, THERE IS A LOSS OF 2-3% OF NATURAL GAS AND EVE N THE SELLING PRICES OF BOTH THE PRODUCTS ARE DIFFERENT. PIPED NATURAL GAS (PNG) IS SOLD AT THE RATE OF RS.26/- PE R KG WHILE THE SELLING PRICE OF COMPRESSED NATURAL GAS ( CNG) IS RS.35/- PER KG. THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE COMPRESSION OF NATURAL GAS INTO COMPRESSED NATURAL GAS DOES NOT RESULT IN BRINGING INTO EXISTENCE IN A NEW PRODUCT AND THE ACTIVITY OF COMPRESSING THE NATURAL INTO COMPRESSED NATURAL GAS WOULD NOT AMOUNT TO MANUFACT URE OR PRODUCTION. THE TRIBUNAL RECORDS IN PARAGRAPH 5 AS HEREUNDER: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE O RDERS OF THE AUTHORITIES BELOW AND THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE. WE FIND THAT IT IS NOTED BY C IT (A) ON PAGE NO.6 OF HIS ORDER THAT THE ASSESSEE'S ACTIVITY OF CONVERSION OF NATURAL GAS TO COMPRESSED NATURAL GAS DOES NOT AMOUNT TO BRINGING OUT A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING HAVING DIFFERENT CHARACTER, USE OR CHEMICAL COMPOSITION. IN THE LIGHT OF THESE FINDINGS OF CIT (A), NOW WE EXAMINE THE JUDGMENT OF HON'BLE HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOM E-TAX VS. HINDUSTAN PETROLEUM CORPORATION LTD. (SUPRA) CI TED BY LEARNED A.R. OF THE ASSESSEE. IN THIS CASE, THE ISS UE BEFORE THE HON'BLE HIGH COURT WAS THAT AS TO WHETHER THE A CTIVITY OF THE ASSESSEE OF BOTTLING LPG GAS AMOUNTS TO PROD UCTION OR MANUFACTURING ACTIVITY FOR THE PURPOSE OF DEDUCT ION UNDER SECTION 80HHC AND 80-IA OF THE INCOME TAX ACT , 1961. HON'BLE BOMBAY HIGH COURT HAS GIVEN A FINDING THAT THE PROCESS OF BOTTLING LIQUIFIED PETROLEUM GAS INT O CYLINDERS MAKES THE GAS MARKETABLE ON EXECUTION OF THE PROCESS AND THEREFORE, FOLLOWS THAT A NEW PRODUCT C OMES INTO EXISTENCE. WE ALSO FIND ON PAGE 2 OF THE ORDER , IT IS NOTED BY CIT(A) THAT IT WAS SUBMITTED BY LEARNED CO UNSEL FOR THE ASSESSEE BEFORE HIM THAT THE ASSESSEE COMPA NY BUYS NATURAL GAS FROM GAIL AND SUCH NATURAL GAS IS THEN SOLD THROUGH COMPANY'S OWN PIPELINES TO FACTORIES A ND HOUSEHOLD ETC WHICH SALE IS NAME AS PIPES NATURAL G AS (PNG) SALE OR THE NATURAL GAS RECEIVED FROM GAIL IS CONVERTED INTO COMPRESSED NATURAL GAS (CNG) WHICH I S SOLD AS CNG FROM THE VENDING STATIONS AS A FUEL FOR RUNN ING OF VEHICLES ETC. FROM THESE FACTS, IT COMES OUT THAT N ATURAL GAS IS SALEABLE OTHERWISE ALSO THROUGH PIPELINES AN D IT IS ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 14 NOT A FACT THAT THE NATURAL GAS IS MADE SALEABLE ON LY BY CONVERTING THE SAME INTO CNG WHEREAS IN THE CASE OF LPG, THE SAME IS NOT SALEABLE UNLESS IT IS BOTTLED AND T HEREFORE, BOTTLING OF LPG INTO CYLINDERS MAKES LPC SALEABLE I S NOT OTHERWISE SALEABLE. THERE IS DIFFERENCE IN THE FACT S, IN OUR CONSIDERED OPINION, THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. SINCE COMPRESSION OF NATURAL GAS INTO CNG DOES NOT RESULT INTO BRINGING INTO EXISTENCE ANY NEW PRODUCT, IN OU R CONSIDERED OPINION, THIS ACTIVITY IS NEITHER MANUFA CTURE NOR PRODUCTION AND HENCE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT (A) ON THIS ISSUE. ACCORDINGLY, GR OUND NO.1 OF THE ASSESSEE IS REJECTED.' FROM A READING O F THE FACTS ABOVE AND THE TRIBUNAL'S ORDER AND OTHER MATE RIAL ON RECORD, IT COMES TO THE FORE THAT NATURAL GAS WHICH COMES THROUGH PIPELINES IN ITS NATURAL FORM CANNOT BE USE D FOR THE SAME PURPOSES AS COMPRESSED NATURAL GAS THAT IS TO BE USED AS AUTOMOBILE FUEL. THE APPELLANT ON THE OTHER HAND CONTENDS THAT IT IS MANUFACTURED COMPRESSED NATURAL GAS WHICH IS USED FOR THE AUTOMOBILE FUEL, WHICH IS PRE PARED BY A PROCESS OF MANUFACTURE, BY WHICH THE NATURAL GAS IS PUT THROUGH A PLANT/MACHINERY FOR COMPRESSION AND WHEN THE COMPRESSED GAS COMES OUT IN ITS NEW FORM IT IS USED FOR THE AUTOMOBILE FUEL. AFTER UNDERGOING THE PROCESS O F COMPRESSION, NATURAL GAS ACQUIRES A NEW FORM BY THE NAME OF COMPRESSED NATURAL GAS. IT HAS A DISTINCT USE AS AUTOMOBILE FUEL AND A DISTINCT COMMERCIAL NAME. THE PROVISIONS OF SECTION 2 (29BA) DEFINES 'MANUFACTURE ' AS HEREUNDER: '(29BA)- MANUFACTURE WITH ITS GRAMMATICA L VARIATIONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING- (A) RESULTING IN TRANSFORMATIO N OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USED; OR (B) BRINGING INTO EXISTENCE OF A NEW AND D ISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICA L COMPOSITION OR INTEGRAL STRUCTURE;' LEARNED COUNSEL FOR THE APPELLANT HAS PLACED RELIANCE ON THE JUDGMENTS OF T HE APEX COURT IN THE CASE OF INCOME TAX OFFICER VS. AR IHANT TILES AND MARBLES P. LTD. REPORTED IN 2010 320 ITR 79 (SC) IN SUPPORT OF HIS CASE. ON THE FACE OF IT, IT APPEARS THAT COMPRESSED NATURAL GAS IS A COMMODITY HAVING A DISTINCT NAME, CHARACTER AND USE AND THEREFORE, THE TEST TO DETERMINE WHETHER 'MANUFACTURE' HAS TAKEN PLACE IS SATISFIED. WITHOUT UNDERGOING THE PROCESS OF COMPRE SSION NATURAL GAS IN ITS ORIGINAL FORM CANNOT BE USED AS FUEL FOR THE AUTOMOBILE INDUSTRY. IT IS ONLY UPON UNDERGOING THE PROCESS OF COMPRESSION, IT IS CONVERTED INTO COMPRE SSED NATURAL GAS WHICH IS A COMMODITY, TO BE USED AS A F UEL FOR THE AUTOMOBILE INDUSTRY. THE TRIBUNAL HAS FAILED TO DISCUSS ITA NO. 6489/DEL/2017 INDRAPRASTHA GAS LTD. 15 THIS ASPECT OF THE MATTER COMPLETELY AND HAS IGNORE D THE MATERIAL PLACED BY THE APPELLANT ON RECORD WHEREBY IT HAS SOUGHT TO SHOW THAT THE ENTIRE PROCESS BY WHICH NAT URAL GAS IS COMPRESSED AND HAVING BEEN COMPRESSED ACQUIR ES A NEW AND CHANGED NAME OF COMPRESSED NATURAL GAS ACQUIRES A NEW USE AND A DISTINCT COMMERCIAL IDENTI TY. HAVING HEARD LEARNED COUNSEL FOR BOTH SIDES, WE ARE SATISFIED THAT COMPRESSED NATURAL GAS IN ITS COMPRE SSED FORM HAS A DISTINCT IDENTITY AND CHARACTER AND USE. IT IS SETTLED LAW OF THE APEX COURT AS WELL AS OF THIS CO URT THAT WHEN A COMMODITY ACQUIRES A DISTINCT NAME, USE AND COMMERCIAL IDENTITY, IT WOULD ACQUIRE THE TRAIT OF 'MANUFACTURE'. IN VIEW OF ABOVE, THE QUESTION IS AN SWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMEN T. THE APPEAL IS ACCORDINGLY ALLOWED. ORDER DATE :- 8.12.2016 PKS (VINOD KUMAR MISRA, J.) (BHARATI SAPRU, J.) 21. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF TH E HONBLE HIGH COURT, THE APPEAL OF THE ASSESSEE IS HEREBY AL LOWED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/01/2021. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 05/01/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR