Income Tax Appellate Tribunal - Delhi
Addl.Cit, Special Range- 4 , New Delhi vs Indraprastha Gas Ltd., New Delhi on 19 March, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C', NEW DELHI
Before Sh. Bhavnesh Saini, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 6714/Del/2018 : Asstt. Year : 2011-12
ITA No. 6715/Del/2018 : Asstt. Year : 2012-13
Addl. CIT, Vs Indraprastha Gas Ltd.,
Special Range-4, Plot No. 4, IGL Bhawan, Sector-9,
New Delhi R.K. Puram, New Delhi-110022
(APPELLANT) (RESPONDENT)
PAN No. AAACI5076R
Assessee by : Sh. Rajat Jain, CA
Revenue by : Ms. Sunita Singh, CIT DR
Date of Hearing: 01.03.2021 Date of Pronouncement: 19.03.2021
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the revenue against the orders of the ld. CIT(A)-35, New Delhi dated 28.08.2018.
2. The cases pertaining to assessment years 2011-12 & 2012- 13 deals with the issue of reopening u/s 147 and allowing of additional depreciation u/s 32(1)(iia) of the Act. The issue of additional depreciation stands adjudicated by the order of the Tribunal in the case of the assessee for the assessment year 2013-14 in ITA No. 6489/Del/2017 dated 05.01.2021. Since, the issue of additional depreciation has been squarely covered by 2 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
the order of the Tribunal, we hereby dismiss the appeal of the revenue on this ground.
3. With regard to the reopening u/s 147, since the main grounds having been dwelled on merits of the case, the adjudication on the issue of Section 147 would be only academic in nature and hence refrained to do so.
4. For the sake of ready reference, the order of the Tribunal in ITA No. 6489/Del/2017 dated 05.01.2021 is reproduced here under:
"Indraprastha Gas Limited (IGL) is a joint venture of GAIL India Ltd., the largest Natural Gas transmission company in India and Bharat Petroleum Corporation Limited (BPCL), one of the leading oil refining and marketing company in India and government of NCT of Delhi. The company is currently engaged in the business in the Delhi-NCR region including Noida, Greater Noida, Ghaziabad and Rewari.
4. IGL is a City Gas Distribution Company (CGD) which 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 also engaged in the manufacturing and selling of Compressed Natural Gas (CNG) which is used as a fuel to be used for running Automobiles.
5. The AO has held that the process of delivery of CNG to automobiles at the CNG filling centres does not amount to manufacture or production or an article or thing which is mandatory requirement for claiming additional depredation u/s 32 (1)(iia) of the Income Tax Act. Therefore, the AO held that 3 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
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 income of the assessee.
6. The ld. CIT (A) confirmed the addition holding that the company is not into manufacturing or production of CNG.
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 Excise duty which can be verified from P&L account. By the virtue of payment of Central Excise duty, he argued that it can be conveniently proved that the assessee is into manufacturing activity. He further relied on the tax audit report and argued that the additional depreciation has been rightly charged on compressors, dispensers, gas gen-sets, cascades, PRV Mass flow meters which are installed at CNG stations and are used in the manufacturing process. He explained the process which is as under:
1. Metering skid - Filters are used to clean heavy dust particles coming along with the gas s that we can provide clean fuel to our customers. Pressure regulating valves are also used this skid to reduce incoming pressure within safe limits.
2. Compressor - It's a three stage reciprocating compressor which is used to process this gas from ~18 bar to ~250 bar.
This is a three stage process in which gas is compressed different stages-
a. First stage - ~ 18 bar to ~ 55 bar
4 ITA Nos. 6714 & 6715/Del/2018
Indraprastha Gas Ltd.
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 temperatures sensors, gas & flame detectors are installed to ensure safe compression of gas.
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 that it can be compressed without much loss of energy in subsequent stages.
Inlet gas consists of oil particles; along with this separate lubrication system is there to lubricate various parts of system. Oil separators installed at each stage to remove oil 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 & controlled through automated digitally controlled systems.
Priority panels are installed in every compressing unit to automatically route the gas to dispensing units based on gas requirement.
This is a complete integrated infrastructure comprising of pipe line network, compressor, dispensers and cascades to converts Natural gas into fuel. Natural gas as such cannot be used as 5 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
commercial viable option for use as a fuel in automobile this CNG is a completely differently product from natural gas."
9. The ld. AR relied on the order of the Hon'ble High Court of Allahabad in the case Central UP Gas Ltd. Vs DCIT in ITA 224 of 2014.
10. The ld. DR Gaurav Dudeja, elaborately argued the case to prove that the assessee is not into manufacturing and hence not eligible for claim of additional depreciation. He has referred the audit report and the financials of the assessee company to buttress his arguments. He argued that the Memorandum and Articles of Association of the assessee company outlines the objects to be pursued by the company and the main object as per Memorandum and Articles of Association is "to carry on all or any of the businesses of storage, suppliers, distributors, sellers and dealers in natural gas and its derivatives includes LPG, CNG, PROPANE and any conventional and non-conventional type of energy. Memorandum and Articles of Associations 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 manufacturing activities, the ld. DR rebutted that this argument of the assessee is not acceptable because the Income Tax Act and Central Excise Act operate in different domains and the meaning of the term 'manufacture' is different for both of these Acts.
6 ITA Nos. 6714 & 6715/Del/2018Indraprastha Gas Ltd.
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 Central Excise Tariff Act, 1985 (CETA), as amounting to manufacture (deemed manufacture) OR
(iii) Which in relation to goods specified in 3rd Schedule 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 retail 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 'manufacture' as per Income Tax Act, 1961 as provided in Section 2(29BA) is as under:
"manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,--
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;7 ITA Nos. 6714 & 6715/Del/2018
Indraprastha Gas Ltd.
These two definitions clearly suggest that the meaning of term 'manufacture' is different for Income Tax Act 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 Excise Department and paying excise duty does not mean that it is manufacturing an article or thing for 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 depreciation 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 'manufacture or production of an article or thing' has been a subject matter of discussion of various Courts and Tribunal an there is no universal definition. Ld. DR further argued that the definition of term, 'manufacture' was introduced in the Income Tax 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 case 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 8 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
article or thing [CIT Vs Gem India Mfg. Co (SC) 249 ITR 307] ii. Conversion of large mass of quartz into smaller dimensions No manufacturing activity involved as nothing is consumed in the process. [ACIT Vs G.T.C. Enterprises (ITAT, Chennai) 87 ITD 188] iii. Roasting and grinding of chicory roots into chicory powder No manufacturing activity involved. [Sacs Eagles Chicory Vs CIT (SC) 255 ITR 178].1
iv. Chilly & Chilly products are essentially same commodity -
No manufacturing activity involved. [Nampudhiris Pickle 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 distinct commodity came into existence. [ITO Vs Jitendra Stone Crushing Co. (ITAT, Chd.) 105 ITD 52] vi. Conversion of spirit into IMFL - Assessee processing raw alcohol (potable spirit) and selling the same as whisky, brandy and rum with different brand names - It purchases 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 water, colour, essence etc. - There is only degree of reduction of alcohol content and there is no essential difference between the potable spirit and the bottled IMFL - Activity 9 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
does not amount to manufacturing. [Shaw Scott Distilleries (P) Ltd. Vs ACIT (ITAT, SB-Cal) 76 ITD 89] vii. Electroplating - Not manufacture / production of article or thing since the original commodity still remains the same with the word "coated" added to it - It is only done to prevent it from rusting and no new goods were produced.
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. (India) (P.) Ltd. Vs ITO (ITAT, Chennai) 110 ITD 99] x. Purchased seeds from agriculturists and sold them after processing - No manufacturing activity involved. [ITO 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) 240 ITR 324 CIT Vs Poyilakada Fisheries P. Ltd. (Ker) 240 ITR 445 xiv. CIT Vs Sterling Foods (Bom) 213 ITR 851 xv. CIT Vs George Maijo (Mad) 250 ITR 440 10 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
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 stations is already compressed to a pressure 18 to 26 bar and it is compressed up to 250 bar in three stages. Besides this, the gas is being filtered before its compression. And, in the whole process, the input and output remains same i.e. natural gas as the compression-process not change characteristics of natural gas. Further, he argued that the natural gas before compression and after compression remains a fuel in the form of natural gas.
17. On going through the audit report, he argued that there has been no manufacturing expenses and even by going through the closing stock, there is no new product which can 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 automobile vehicles.
18. The ld. DR has succinctly argued pertaining to what consists of manufacturing with reference to the Income Tax Act. He has taken us through the definition of manufacturing and the exemption allowed for manufacturing under difference provisions of the Act to prove the point that the manufacturing is not a ubiquitous definition as far as Income Tax Act is concerned. He argued that similar activity of production is "considered" as "manufacturing" in certain areas and allowed deductions whereas the similar product produced is "not treated" as "manufacturing" for the purpose of deduction in other areas. He referred to various schedules relevant to deductions under Chapter VI-A to prove that manufacturing 11 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
under Income Tax prevails is different from the provisions of Central Excise.
19. Heard the arguments of both the parties and perused the material available on record.
20. While appreciating the arguments of both the counsels, namely Sh. Gaurav Dudeja and Sh. Rajat Jain, we hold that we are guided by the order of the Hon'ble High Court of Judicature at Allahabad in the case Central UP Gas Ltd. Vs DCIT in ITA No. 224 of 2014 dated 08.12.2016. For the sake of ready reference, the order of the Hon'ble High Court detailing the issue is reproduced as under:
"Hon'ble Bharati S apru,J .
Hon'ble Vinod Kumar Misra,J Heard Shri Udit Chandra, learned counsel for the appellant and Shri Manish Goyal, le arne d counsel fo r the department.
This appeal has been filed by the assessee unde r Section 260A o f the Income Tax Act, 1961 against the o rder passed by the Tribunal dated 13.06.2014 fo r the assessment year 2008- 09. The que stion of law so ught to be answe red is as unde r:
"Whether the compressed natural gas produced by the appe llant, having diffe rent name , characte r and use from natural gas can be said to be cove red by the phrase manufacture or pro ductio n?"
The facts of the case are that the appe llant procures gas from GAIL I ndian Limite d and com presses it thro ugh the compressor fo r the manufacture of compressed natural gas (CNG), which is subsequently sold to the customers, as fuel fo r vehicles.
The natural gas purchase d by the appellant from GAIL India Limited is e ithe r sold thro ugh appe llant-company's own pipe lines to factories and household e tc. which sale is made as piped natural gas (PN G) sale . The appellant also manufactures co mpressed natural gas (CNG) fro m the 12 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
natural gas received by it from GAI L India Limited, which is so ld from the vending statio n(s) as a fuel for running o f vehicles.
The natural gas is supplied by GAIL India Limited through pipe lines which are connected with the compresso r with suctio n pressure of 14 Bar to 22 Bar and the discharge pressure of 255 Bar, which are installe d at CNG stations and is dispe nsed in the vehicle at a maximum pressure of 200 Bar through the dispense connected to the compressor.
The safe compression and dispensing system during process of manufacturing o f compressed natural gas (CNG), all the co mpressors are filled with a close circuit type coo ling system and also safety valve at each stage. The compresse d natural gas (CNG) manufacturing premises are de signe d and base d on the basis of specification pro vided unde r the Oil Industry and Safety Dire ctorate and the Gas Cylinder Rules, 2004.
The manufacturing, storage and dispensing of compressed natural gas ( CNG) can only be started after the grant of license by the Pe troleum Explosive S afety Organization.
The Rule 2( viii) o f the Gas Cylinde r Rules, 2004 defines, compressed natural gas' as mixture of hydro carbo n gases and fibe rs consisting mainly of Methane in gaseous form which has been compressed for use as automotive fuel. Further, Rule 2(xxxii) de fines 'manufacture of gas' as filling o f cylinder with any compressed gas and also includes transfe r of compressed gas from one cylinder to any other cylinder.
The appe llant-co mpany is registe red under the Central Excise Act as a ' manufacture of CNG.' In the ce rtificate obtaine d from the Central Excise A utho rities, it is clearly mentione d that the appellant is a manufacture r of excisable goods. Further, the appe llant company is regularly paying Excise Duty on the manufacturing of compressed natural gas (CNG) . T he appellant does not 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 mentione d that compressed natural gas (CN G) is a fuel manufactured product, there fore, excise duty is leviable o n the production of CNG.
13 ITA Nos. 6714 & 6715/Del/2018Indraprastha Gas Ltd.
The trade tax authorities have also passed an order in the case of the appe llant company, in which it has been held that conve rsio n of natural gas into CNG amounts to manufacture . The schedule IV , Entry 8 o f the U.P. Value Added Tax Act im poses the tax on natural gas o ther than compressed natural gas (CNG) @ 5% and 21% when sold to registe red and unregiste red dealers; while compre ssed natural gas (CN G) is cove red by S chedule V of the U.P. Value Added T ax Act. Thus, the natural gas and compressed natural gas (CNG) are two different products, being taxable at diffe rent rates o f tax under the U.P. V alue Added Tax Act.
It is furthe r state d that in the manufacturing proce ss of CNG, the re is a lo ss of 2- 3% of natural gas and even the selling prices o f both the pro ducts are diffe rent. Piped natural Gas (PNG) is sold at the rate of Rs.26/- per kg while the selling price of compresse d natural gas (CN G) 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 pro duct and the activity of compressing the natural into compressed natural gas would no t amount to manufacture or pro duction. The Tribunal records in paragraph 5 as hereunder:
"We have conside red the rival submissions, pe ruse d the material available on record and go ne through the orders of the authorities below and the judgment cited by learned A.R. o f the assessee. We find that it is note d by CIT (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 ne w and distinct object or article or thing having diffe rent character, use or chemical compositio n. In the light o f these findings of CIT (A) , now we examine the judgment o f Hon' ble High Court re nde red in the case o f Commissioner of Income -tax Vs. Hindustan Petroleum Corpo ration Ltd. (Supra) cite d by learned A .R. o f the assessee . In this case , the issue be fore the Ho n'ble High Court was that as to whethe r the activity of the assessee of bottling LPG gas amounts to pro duction or manufacturing activity fo r the purpose of deductio n unde r Section 80HHC and 80-IA o f the Income Tax Act, 1961. Hon'ble Bo mbay High Court has give n a finding that the process o f bottling liquifie d petro leum gas into cylinde rs makes the gas marketable on execution of the 14 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
process and there fore , fo llo ws that a new product comes into existe nce. We also find on page 2 of the order, it is noted by CIT(A) that it was submitted by learned counsel for the assessee before him that the assessee company buys natural gas from GAIL and such natural gas is then sold through com pany's o wn pipelines to facto ries and househo ld etc which sale is name as Pipes Natural Gas (PNG) sale o r the natural gas re ceived from GAI L is converted into co mpressed natural gas (CN G) which is sold as CNG from the vending stations as a fue l for running of vehicles etc. Fro m these facts, it comes out that natural gas is sale able otherwise also thro ugh pipelines and it is not a fact that the natural gas is made saleable only by converting the same into CNG whereas in the case of LPG, the same is not saleable unless it is bottled and the refore, bottling of LPG into cylinders make s LPC sale able is not otherwise saleable . There is diffe rence in the facts, I n our conside red opinio n, the judgment o f Hon'ble Bombay High Court is not applicable in the facts of the present case.
Since compression of natural gas into CNG does not re sult into bringing into existence any new product, in our conside red o pinio n, this activity is neither manufacture nor pro duction and hence, no inte rference is called for in the orde r of CIT (A) on this issue. Accordingly, ground No.1 o f the assessee is rejected." From a reading of the facts abo ve and the Tribunal's orde r and other material on record, it comes to the fore that natural gas which co mes thro ugh pipe lines in its natural form cannot be used for the same purposes as compressed natural gas that is to be used as automobile fue l. The appellant on the o the r hand contends that it is manufactured compressed natural gas which is used for the automobile fue l, which is prepare d by a process o f manufacture , by which the natural gas is put thro ugh a plant/m achinery fo r compression and when the compressed gas comes out in its new form it is use d fo r the automobile fuel. A fter unde rgoing the pro cess of compression, natural gas acquires a new form by the name of compresse d natural gas. I t has a distinct use as automobile fuel and a distinct commercial name. The provisio ns of Section 2 ( 29BA) de fines 'manufacture' as hereunder: "( 29BA)- manufacture with its gramm atical variations, means a change in a non-living physical object or article or thing- (a) resulting in transfo rmation of the object or article o r thing into a new and distinct o bje ct or article o r thing having a different name, characte r and used; or (b) bringing into existence of a new and distinct object o r article or thing with a diffe rent che mical composition or integral structure; " Learne d counse l fo r the appe llant has placed reliance on the judgments o f the 15 ITA Nos. 6714 & 6715/Del/2018 Indraprastha Gas Ltd.
Apex Court in the case o f Income T ax Officer Vs. Arihant Tiles and Marbles P. LTD. repo rted in 2010 320 ITR 79 (SC) in support of his case . On the face o f it, it appears that compressed natural gas is a commodity having a distinct name, characte r and use and the refo re, the te st to determine whether 'manufacture' has taken place is satisfied. Witho ut undergo ing the process o f compression natural gas in its original form cannot be use d as fue l for the automobile industry. It is only upon undergoing the process of compression, it is converted into compressed natural gas which is a commodity, to be used as a fue l fo r the automobile industry. The T ribunal has failed to discuss this aspect of the matter complete ly and has ignored the material placed by the appellant on record whe reby it has sought to show that the entire process by which natural gas is compressed and having been compressed acquires a new and change d name of compressed natural gas acquires a new use and a distinct commercial identity. Having heard le arned counsel for both sides, we are satisfied that co mpressed natural gas in its compressed form has a distinct ide ntity and character and use . It is settle d law of the Apex Court as well as o f this Court that when a commodity acquires a distinct name, use and commercial identity, it wo uld acquire the trait of 'manufacture'. In view o f above , the question is answered in favour of the assessee and against the de partment. The appe al is acco rdingly allo wed.
Orde r Date :- 8.12.2016
pks (Vinod Kumar Misra, J.)
(Bharati S apru, J .)
21. Respectfully following the above judgment of the
Hon'ble High Court, the appeal of the assessee is hereby allowed."
5. As a result, both the appeals of the revenue are dismissed. Order Pronounced in the Open Court on 19/03/2021.
Sd/- Sd/-
(Bhavnesh Saini) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 19/03/2021
*Subodh*
16 ITA Nos. 6714 & 6715/Del/2018
Indraprastha Gas Ltd.
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