Extraction if amounts to manufacture or production?
Does extraction and processing of iron ore amount manufacture or production of any article or thing?
Production means amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort”. From the wide definition of the word “production”, it has to follow that mining activity for the purpose of production of mineral ores would come within the arnbit of the word “production” since ore is “a thing”, which is the result of human activity or effort.
In CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC): AIR 1993 SC 2529: 1994 SCC Supl. (1) 280 it was held that the word ,production” is much wider than the word “manufacture”. It was said (page 423) :
“The word production has a wider connotation than the word manufacture. While every manufacture can be characterized as production, every production need not amount to manufacture ….
The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.”
It is, therefore, not necessary that the mined ore must be a commercially new product.
[Source: CIT v. Sesa Goa Ltd., (2004) 13 SCC 548 :2004 271 ITR 331 SC]
Whether bottling of LPG is an activity which amounts to ‘production’ or ‘manufacturing’
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 When the cylinder valve is opened and the gas is withdrawn from the cylinder, the pressure falls and the liquid boils to return to gaseous state.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 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 distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers. It may be relevant to point out that keeping in view the aforesaid process, the ITAT arrived at the specific findings in support of its 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.
(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) 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 capable of being marketed as a domestic kitchen fuel and, thereby, makes it a viable commercial product.
“…….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 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 admissible.