I. T.A. NO. 1392/LB OF 1997, DECIDED ON 28TH APRIL, 1997. VS I. T.A. NO. 1392/LB OF 1997, DECIDED ON 28TH APRIL, 1997.
1999 P T D (Trib.) 793
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Nasim Sikandar,Judicial Members and Sikandar Kalim Fazal, Accountant Member,
I. T.A. No. 1392/LB of 1997, decided on 28/04/1997.
(a) Income Tax Ordinance (XXXI of 1979)--
----Second Sched., cl. (118-C(2)(d))---"Manufacturing" and "manufacturing process"---No distinction and "manufacturing" and "manufacturing process" were one and the same thing.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.66-A, Second Sched., cl. (118(c))---S.R.O. No.283 of 1990---S. R. O. No. 1283, dated 13-12-1990---C.B.R. Circular No.9 of 1992---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order --Exemption ---Manufacturing---Assessee was engaged in the business of LPG filled Cylinders being purchased from the Producers---Exemption was claimed under cl. (118(c)) of the Second Sched. of the Income Tax Ordinance, 1979 and was duly allowed by the Assessing Officer on the ground of "Manufacturing Process" after obtaining the necessary details-- Inspecting Additional Commissioner cancelled the assessment on the ground that the assessee undertook a trading business comprising of a simple purchase of LPG from producers and bottling in smaller cylinders meant for the purpose of marketing and no manufacturing activity was involved in the entire process of filling cylinders and directed the Deputy Commissioner of Income-tax to pass a fresh order---Validity---Income Tax Appellate Tribunal held that the process undertaken by the assessee, in no manner, could be said to be either "manufacturing" or a "manufacturing process" on the ground that raw material or gas purchased remained the same when sold to customer except for sub-division by filling in cylinders---Inspecting Additional Commissioner was justified in cancelling the assessment and holding that the process carried on by the assessee was not manufacturing.
G. R. Kulkarni v. The State AIR 1957 Madh. Pra. 45 and The State of Bihar v. Chrestain Mica Industries Ltd. AIR 1957 Pat. 184 distinguished.
Appeejay Private Limited v. Commissioner of Income-tax 1995 PTD 813 = 206 ITR 367; C.I.T. v. Hindustan Metal Refining Works (Pvt.) Ltd. (1981) 128 ITR 472; Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 STC 124 and Nilgiri Ceylon Tea Supplying Co. v. State of Bombay (1959) 10 STC 500 (Bon.) ref. Rehman Mir, F.C.A. for Appellant. Muhammad Akram Tahir, D. R. for Respondent.
Date of hearing: 11th April, 1997.
ORDER
SIKANDAR KALIM FAZAL (ACCOUNTANT MEMBER).---The assessee has come up in appeal against orders of the Inspecting Additional Commissioner of Income Tax Range-III, Companies Zone-II, Lahore. Mr. Rehman Mir, FCA is present for appellant and has been heard together with Mr. Muhammad Akram Tahir, D.R. for the department.
2. The facts are that for the assessment year 1995-96 the assessee was engaged in the business of filling LPG Cylinders from the OGDC's Dodhak field, D.G. Khan. The assessee started receiving Liquified Petroleum Gas from 15-9-1994 and this is evident from the certificate of OGDC available on record. In the month of March, 1995 the assessee completed setting up of storage tanks and plant for filling LPG cylinders. Return was filed for the assessment year 1995-96 declaring income of Rs.276,889 and claiming exemption under section 118(C) of 2nd Schedule of Ordinance. The D.C.I.T. Circle 10, Companies II, who completed the assessment for the year recorded in the assessment order that the details of manufacturing process carried on by the assessee's company is obtained alongwith flow chart of the plant and is placed on file. Details of the import of machinery and purchases of first hand local machinery had also been produced. The D.C.I.T. held that the case fulfilled conditions prescribed under Clause 118(C) of the Second Schedule of the Income Tax Ordinance and qualified for exemption. During inspection, the IAC noted that this was a case of gas distribution and he says that "exemption, if at all available was to a company, which was set up for the purpose of manufacturing whereas the company undertook trading of LPG. The IAC held that the assessee's business comprised of a simple purchase of LPG from OGDC Dodhak and bottling in smaller cylinders meant for the purpose and marketing it. No manufacturing activity was involved in the entire process. At the most it was a gas distribution activity". He also said that the D.C.I.T. had failed to examine the instructions of the CBR vide SRO No.283 of 1990 or Circular of 1992 with regard to the term manufacturing. According to the IAC the OGDC unambiguously states that it sold liquified petroleum gas to the company. The assessee purchased a manufactured product and no process was required except to add odour as a warning of the hazardous inflammable characteristics of the product. The assessee purchased a complete product and sold it in the same shape. He was of the opinion that the assessee's case was that of sale of gas at the most and it did not qualify for exemption. The assessment was cancelled and the D.C.I.T. was directed to pass a fresh order.
3. The assessee had given a flow chart of the plant and description of manufacturing, which have not been controverted at any stage. These show that the LPG gas had to be stored at a certain degree of pressure and temperature and the pressure and temperature was to be maintained until it was filled in the LPG cylinders. For this purpose pumps and various showers are used. These master storages into which LPG is pumped under pressure are fitted with Magneto Level Gauges. LPG is pumped out through discharge (out let) header by LPG pumps, which feed automatic machines, which are pneumatically operated. Tare weight of empty cylinders, passed for filling, is manually adjusted on the machine, filling heads are placed on the valve of cylinders and the machine is operated by a push button. The excess discharge of LPG from the pumps is returned back to the storage tanks. This is controlled by a differential pressure valve, which restricts flow of LPG upto the desired preset pressure required for filling of cylinders. The ready for use, filled cylinders, are tested for leakage. Passed cylinders are then rechecked for weight on a platform weighing scale before these are shipped for consumption. It has been urged by the appellant's representative that the manufacture of "LPG Filled Cylinders" is a highly technical and hazardous process requiring precise know how and high skill beside elaborate plant the description of the process shows that it necessarily involves use of manufacturing process and that the cylinder must be fitted with valves, regulators and connecting tubes. These fittings have got to be tested and if found even slightly below the mark, rectified before the cylinders are approved for the market. The flow chart of cylinders filling plant shows that the very first process is straining. Drainage of water is very essential as its presence in LPG actuates oxidation. Particles of ferrous sulphide and ferrous exide (rust) are eliminated through strainers/filters. At this stage Ethylemercaptan stink/odour for LPG is added and the gas, with the help of specialized pumps is fed into the cylinder filling station, which is equipped with a number of Cylinder Filling Machines. Without these specialized filling machines gas cylinders cannot be manufactured and every gas filled cylinders manufacturing plant employs such machines. The station is equipped with cooling mechanism in the shape of cooling showers and LPG is brought to and kept at the required temperature reading, before it is fed into the filling machines.
4. The weighment of the gas filled cylinders is an integral part of the manufacturing process because any accidental over filling may result in disaster. LPG is at all times prone to vapourize, therefore, storage tanks, vapour return line and various types of valves are essential parts of the plants for manufacture of LPG filled Cylinders. It was further submitted that LPG filled cylinder is a distinct marchandisable commodity being handled as such in the market and available for consumption only in this form. LPG cannot be put to domestic use unless it is available as LPG Filled Cylinders. That the process of producing LPG Filled Cylinders is manufacturing is evident from the fact that every such cylinder available in the market is manufactured at one of the elaborate plants. It was further stated that the appellant's LPG filled cylinder manufacturing facility located at Dhodhak has more than Rs.16 M as plant and equipment cost, uses electric power, employs more than 20 persons and is supervised by qualified Engineers. It is considered an industry under Pakistan Environmental Production Ordinance, 1983; the CCI & E has issued industrial registration and if the product of the appellant was subjected to Sales Tax or Excise Duty it will be treated as manufacturer. He also submitted photo copies of the published SRO and Circulars referred by the Inspecting Additional Commissioner and showed that not one these contained any instructions as to what is manufacturing and what is not; the SRO only inserts clause 118(C) etc. in the Second Schedule and the Circular states that calendaring of cloth--a process much simpler than LPG Cylinder filling--be considered manufacturing.
5. The departmental representative on the other hand has repeated the argument of the IAC that this is a process similar to that of a petrol pump - and petrol pumps are obviously not engaged in manufacture.
6. The A.R. using rejoinder has submitted that attempt of comparison of the appellant's plant for manufacture of "LPG Filled Cylinders" at Dhodhak and Petrol Pump is extremely naive. There is nothing common between the two, the plant manufactures gas filled cylinder whereas Petrol Pump is only retailing petrol etc. Petrol Pump is more like the distribution outlets of the appellant located in various cities. The statement that petrol pump also uses pumps for distribution is misleading because petrol retailing can be carried out, except for the legal requirements, with a drum of petrol and a measure. As against this manufacture of "LPG filled cylinders" is not possible without elaborate temperature and pressure control system and electronic filling machines. Most of all the petrol pump retails petrol etc. without bringing into existence any distinct vendible product whereas the appellant's plant at Dhodhak manufactures and sends to distributors for marketing "LPG filled cylinders" which is a distinct vendible product is a manufacturer as held in (PTCL 1985 (CL) 252).
7. We have earnestly given our consideration to the matter to determine whether the appellant is a manufacturer or not it is necessary to examine the meaning of the word manufacture. The IAC, supporting his point of view in his orders has quoted following definitions.
(i) "Manufacture includes any process incidental or ancillary the completion of the manufacturing product and any process of remanufacturing, remaking, reconditioning or repair and the process of packing and repacking such products". The work manufacture is composed of manus and facture, literally, put together by hand. Now it means the process of making products by hand or machinery. United States K. Anderson, D.C. Cal., 45F. Supp. 943, 946.
(ii) Blacks Law Dictionary observes, the meaning of word "manufacture", which is defined as the making of goods or wares by manual labour or by machinery, especially, on a large scale, lids expanded as workmanship and art have advanced, so that now nearly all artificial products of human industry, nearly all such materials as have acquired changed conditions or new and specific combinations, whether from the direct action of the human hand, from chemical process devised and directed by human skill or by the employment of machinery, are commonly, designated as "Manufactured" .
8. Manufacture, Noun the process or operation of making goods or any material produced by hand, by machinery or by other agency, anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities properties or combinations, whether by hand labour or machine. Cain's Coffee Co., v. City or Muskogee, 171 Old-635, 44 p.2d 50 and 52.
9. In patent law, manufactured goods denote any useful product made directly by human labour, or by the aid of machinery directed and controlled by human power and either from raw material's or from materials worked up into a new form". In the case titled Civil and Military v. Pakistan Cited as PTCL 1985 (CL) 252 it was held that the word manufacture is generally understood to mean bringing into existence a vendible product known in the market.
10. The definition of the- word manufacturing given supra apparently covers the business of appellant. The submission regarding the process of filling LPG cylinders clearly show that it involves assembly of cylinder unit and manufacturing process of pumping, straining, cooling, filling etc., employs human labour and electric power. The process results in production of LPG Cylinder a distinct vendible product, a product but for which LPG would not have been used for domestic heating and cooking. Admittedly the plant had gone into production, before 30th June, 1995, the, stipulated. date for the purpose. Therefore, it is held that appellant is carrying n Manufacturing activity its industrial activity is covered by clause 1180) Second Schedule of the Ordinance.
9. The submissions of the appellant's representative that LPG bulk supplies upto March 1995 were incidental to manufacturing business and therefore, part of the manufacturing income, cannot be accepted. Sale of raw material may be incidental to manufacturing, it may have been even essential to safe guard the main objective of the Company as urged by the A.R. but income from LPG bulk supplies as received from OGDC without any processing cannot be considered manufacturing income for the purposes of clause 118(C) and, therefore, the D.C.I.T. is directed to tax the income arising from these supplies while her decision regarding exemption of income of the industrial undertaking under the provisions of section 118(C) is upheld and the exemption granted shall remain available to the appellant as regards the income of the industrial undertaking.
10. The appeal has been fully disposed of only on the point whether the appellant is a manufacturer or not, the other grounds included in the grounds filed do hot need be considered.
11. The appeal stands disposed of accordingly.
(Sd.)
SIKANDER KALIM FAZAL),
ACCOUNTANT MEMBER.
12. KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).---With respect, I beg to disagree with my learned friend to the extent of his findings regarding exemption of income of the industrial undertaking on the process of filling LPG Cylinders from the bulk purchases of the LPG.
13. The main source behind the decision of the Honourable Accountant Member is the definition referred by him in the case of United States v. Anderson, D.C.Cal. 45F. Supp.943, 946. and from the case titled as Civil and Military v. Pakistan cited as PTCL 1985 (CL) 252. Before I give my reasons let us go back to the facts of the case in brief. The assessee company is involved in purchase of LPG in bulk and its sale after storage in small cylinders. The most important factor is that both, the input and the output are one and the same product and the process is nothing more than filling and transfer of bulk into smaller size. Now we come to the provision of law under which the exemption has been allowed. The same speaks as follows: ---
Clause "(118-C)
"(1) Profits and gains derived by an assessee from an industrial undertaking set up between the first day of December, 1990, and the thirtieth day of June, 1995, both days inclusive, for a period of eight years beginning with the month in which the undertaking is set up or commercial production is commenced, whichever is the later.
(2) The exemption under this clause shall apply to an industrial undertaking which fulfil the following conditions, namely: ---
(3) That it is engaged in the manufacture of goods or materials, or the subjection of goods or materials to a manufacturing process or mining (excluding, petroleum and gas) or extraction of timber."
14. Above provision provides exemption to a company, which besides other requirement is also involved in a process, which is covered under the definition of manufacturing activity.
15. Above-noted provision was introduced through SRO 1283(1), dated 13-12-1990. The provisions was a part of the package announced by the then Government and the same was further explained in following words:
"An industrial undertaking not engaged in the manufacture of goods or material or the subjection of goods or materials to a manufacturing process would not qualify for tax holiday concession e.g. cotton ginning factories will be eligible for this concession but rice polishing units would not be entitled to this concession."
16. The para. mentioned supra details ingredients which includes the activity of the said undertaking. The requirement is that it should necessarily be a manufacturing activity similar to cotton ginning and not to the rice polishing. The difference between the two is that in the process of cotton ginning the raw material and its product are two different items in term of its utilisation while in rice polishing the raw-material and product is the same. Above provision has been applied by the assessing officer and the I.A.C. in the following manner: ---
I.T.O. observed as below: ---
"The assessee is a private limited company deriving income from manufacturing and sale of P.G. Gas Cylinders for the consumers. This is the first year of commercial production of the company and net sales of Rs.2,56,11,689 are made during the year. Most of the sales have been made to Oil and Gas Development Corporation Dhodak Gas Plant, Pakistan. A certificate from D.G.D.C. confirming the sale of gas to them with effect from 15-9-1996 is submitted and placed on file. The factory premises of the company are located at Dhodak Bahar Wali Tehsil Tonsa Dera Ghazi Khan, certification of D.C. Dera Ghazi Khan, dated 16-9-1994 confirming the address of the factory is submitted and available on record. The detail of manufacturing process carried on by the assessee company is obtained alongwith flow chart of plant and is placed on file. Detail of import of machinery and purchase of first hand local machinery has also been produced.
In brief, since the assessee company started commercial production before 30-6-1965 and the industrial undertaking is located in District Dera Ghazi Khan and is formed by installation of new machinery used for the first time in Pakistan, hence it qualifies for exemption under clause 118(c) of the 2nd Schedule to Income Tax Ordinance 1979 and the taxable income is determined as NiL.
The learned I.A.C. observed as below:
"One of the essential prerequisities is that an industrial undertaking should be engaged in the manufacturing process of goods and materials, when something is subjected to a manufacturing process, the shape and the character of the input is changed and output becomes different from the input. "
17. A plain reading of the order of I.T.O. makes it clear that she considered the company to be a manufacture of "P.G. Gas Cylinders" and thereby allowed exemption. On perusal of record and having heard the concerned parties it becomes obvious that the company is not involved in manufacturing of cylinders but is doing the job of filling gas by pressure into cylinders. The order of I.T.Q. was 'erroneous' on this score also but since the same is not in issue before me I move over to the point impugned before us.
18. The learned Accountant Member has relied upon some judgments which I need not repeat as our difference of opinion is not on the definition but on the substance and the product. Learned Accountant Member practically also agree that manufacturing process ends into a vendible product which is different from the input. His opinion, however, is that the process of filing is covered by the said definition. Before I conclude I revert back to the relevant part from the order of my learned brother:--- .
The definition of the word manufacturing given supra apparently covers the business of appellant. The submission regarding the process of filing LPG, cylinders clearly show that it involves assembly of cylinder unit and manufacturing process of pumping, straining, cooling, filline etc., employs human labour and electric power. The process results in production of LPG cylinder a distinct vendible product, a product but for which LPG would not have been used for domestic heating and cooking. Admittedly the plant had gone into production before 30th June 1995 the stipulated date for the purpose. Therefore, it is held that appellant is carrying on Manufacturing activity its industrial activity is covered by clause 118(C) Second Schedule of the Ordinance." (Underlining is mine)
19. My first observation is that the assessee is not involved in assembling of cylinder unit. The process, however, does involve pumping, straining, cooling for the purpose of filling in Gas into the Cylinder. The vendible item in the whole process is LPG Gas filled in the Cylinder from big tanks. The process is only for increasing the retaining Capacity of the Cylinders. I need not repeat here that the company does not manufacture Cylinder unit.
20. I, therefore, hold-that no process whatsoever is involved which may be termed as subjection of goods into manufacturing process or may itself be called as a manufacturing. The operation carried on by the assessee is not directed towards the 'Manufacture to Production' of LPG gas and it did not bring into existence any product which is something new or distinct or different from the feed in material. In fact it had remained the same as it was before. In my humble opinion it was as such not a case covered under the provisions of clause 118(C) meaning thereby, the order of the ITO was erroneous as well as prejudicial to the interest of revenue and invoking the provision of section 66-A by the learned IAC in this case was fully justified. I, as such, do not have any hesitation in recording my humble disagreement with the learned Accountant Member by holding that the action of learned IAC in this case is fully justified, and I maintain the same.
(Sd.)
(KHAWAJA FAROOQ SAEED)
JUDICIAL MEMBER
DIFFERENCE OF OPINION
21. Since a difference of opinion has arisen between us, the matter is placed before the learned Chairman for reference to a third member for resolving the following question:--
"Whether on the facts and circumstances of the case the learned IAC is justified in cancelling the assessment and holding that the process being carried on by the appellant was not manufacture. "
(Sd.)
(KHAWAJA FAROOQ SAEED)
JUDICIAL MEMBER
(Sd.)
(SKIKANDAR KALIM FAZAL)
ACCOUNTANT MEMBER
22. NASEEM SIKANAR (JUDICIAL MEMBER). ---After reference of the aforesaid question under section 133(7) of the Income Tax Ordinance the parties have been heard. The assessee is represented by Mr. Shahbaz Butt while the department by its Legal Adviser Mr. Shafqat Mahmood Chohan.
23. Although the facts of the case have already been stated in detail by the learned Accountant Member yet these need to glanced at again for the purpose of understanding sequence of events and the issues involved.
24. The assessee is a private limited company. For the assessment year 1995-96 an income of Rs.276,889 was returned. The claimed exemption with reference to clause 118(C) of the Second Schedule to the Income Tax Ordinance (reproduced above in para. 15 of the proposed order of the Judicial Member) was accepted by the assessing officer in the first instance, f However, the revising authority IAC Range III Companies Zone II Lahore by way of an order, dated 25-2-1997 directed cancellation of the assessment framed on 3-9-996, inter alia, for the reason that the assessing officer completely deviated from the legal provisions and proceeded in ultra vires manner. Further that she granted exemption from tax to a company holding it to be a manufacturer whereas the company could not be so described by any stretch of imagination. During the course of usual proceedings and after confronting the assessee with the proposed intention the revising authority also made a reference to CBR Circular No.9 of 1992 which stated that an essential pre-requisite of the concession being that the industrial undertaking was engaged in manufacturing process of goods and materials. The revising authority after rejecting the submissions made by the assessee that the proposed exercise of revisional jurisdiction was illegal and that the process under taken by the assessee fulfilled the requirements of being a manufacturer as contemplated in the aforesaid clause proceeded to hold it to be a simple case of packing of a product. In the view of the revising authority the business of the assessee consisted of storage of LPG in tanks and then filling them up in 11 kgs. cylinders and to sell them. A parallel was drawn between the activities of the assessee company and petrol pumps to say that both were mere selling out points to cater the needs of retail customers after having purchased the produce in bulk. As a fact it was also noted that the assessee started lifting LPG from the principal company M/s. OODC in the month of September, 1994 while the storage tanks were installed in the month of February, 1995. The activity in the intervening period was found as a clear pointer that the case of the assessee could not fail within the ambit of exemption clause as the LPG during this period was sold through bowsers while the exemption was allowable only to a company exclusively engaged in manufacturing activity. Lastly to strengthen his view of the exercise of revisional jurisdiction mention was also made of the fact that not a single gas distribution company in Pakistan was allowed exemption under the said clause of the Second Schedule to the Income Tax Ordinance, 1979.
25. Learned Accountant Member appears impressed with the detailed process explained before the Division Bench. While reproducing the same in para. 3 of the order he was of the opinion that "LPG filled cylinders being a distinct vendible product could safely be considered a result of manufacturing activity under taken by the assessee company". In this regard reference was also made to dictionary meaning of the word manufacturing. A particular reference was made to a reported judgment cited as Civil and Military Press v. Pakistan reported as PTCL 1985 (CL) 252 wherein it was held that the word manufacturing was generally understood to bring into existence a vendible product known in the market. The process detailed in para. 3 of his order persuaded him to hold that it involved in "assembly of cylinder unit and manufacturing process of pumping, straining, cooling, filling etc. employing human labour and electric power". The process in filling of LPG cylinder in the view of the Learned Accountant Member resulted into bringing into being 'a distinct vendible product which could not have been marketed for use by domestic, consumers but for its supply through the cylinder filled in by the assessee company. Learned Accountant Member, however, rejected the submission of the assessee that LPG bulk supplies upto March, 1995 were incidental to manufacturing business and, therefore, could be taken as part of the manufacturing income. In the view of the learned Accountant Member the sale of raw material could be treated as incidental to manufacturing but income from LPG bulk supply as received from OGDC without any processing could not be considered manufacturing, income for the purpose of Clause 118(C) of the Second Schedule to the Income Tax Ordinance. Therefore, the assessing officer was directed to tax the income arising from these supplies whereas the decision of the D.C.I.T. allowing exemption to income of the industrial undertaking with reference to the aforesaid clause was upheld.
26. Learned Judicial Member, however, thought otherwise. He was neither impressed by the process explained in detail by the learned Accountant Member but also expressed his reservation about the relevancy of the reported judgment which weighed with the learned Accountant Member while reaching a conclusion favourable to the assessee. He cited with favour the views of the C.B.R. expressed through S.R.O. 1283(1), dated 13-12-1990 to say that for availing the aforesaid concession of exemption an undertaking should necessarily be engaged in manufacturing activity. In his view sole criterion being that in manufacturing a new product is brought into existence which is distinct or different from the feed in material. On the other hand, according to the learned Judicial Member the operation carried on by the assessee was not directed towards the "manufacture to production" of LPG gas as it did not bring into existence any product which was something new or distinct or different from the material used. Finding that the gas even after having under gone the alleged process remained the same as it was before, the learned Judicial Member differed with the views expressed by the learned Accountant Member. His conclusion being that the order of the assessing officer in allowing claimed exemption under clause 118(C) of the Second Schedule to the Ordinance being erroneous as well as prejudicial to the interest of the Revenue the revising authority was fully justified in exercising the revisional jurisdiction as vested with him under section 66-A of the Income Tax Ordinance.
27. Here it needs to be mentioned that after reference of the aforesaid question and while arguing the issue the assessee in terms of the grounds of appeal raised a number of objections to the impugned order. It was described as mala fide, a result of inchoate thinking, not based upon any solid material emerging from the record, the same rather based upon material irrelevant to the proceedings and the Revenue Record available to the revising authority, recorded in undue haste and without allowing adequate opportunity to the assessee as also being violative of the spirits and words of Economic Reforms Act, 1922. On this the learned counsel for the assessee was reminded of the scope of the deliberation and resultant finding to be made by the Third Member. At this he sought time and moved and application before the Division Bench raising the aforesaid objections against exercise of revisional jurisdiction. That application appears to have been decided on 22-12-1997 whereby the learned Accountant Member accepting the reliance of the assessee on a number of reported judgments from the Superior Courts, held that the-exercise of revisional jurisdiction was improper inasmuch as the assessing officer changed the ground for revising order after having issued the first notice to the assessee. Also that while revising the order of the D.C.I.T. the IAC adopted a different ground. For these and other reasons the cancellation of the order recorded under section 66-A was repeated. Learned Judicial Member again disagreed that there had been any shifting of stand on the part of IAC while exercising revisional jurisdiction. However, in ultimate analysis he was of the view that basic issue with regard to difference of opinion remained on the process described as the assessee as a manufacturer and held by him to be otherwise. He was also of the view that the other objections of the assessee did not matter much as the fate of the case was automatically to be determined with the expression or view of the Third Member for or against the proposition if the assessee was engaged in manufacturing. After disposal of these objections of the assessee the parties are again before me and have made their submissions on the said question framed on difference of opinion.
28. Learned counsel for the assessee starts by picking up flaws and alleged contradictions in the notices issued by the IAC. It is submitted that the improvements made in them indicated a failure on the part of the IAC to "consider" the "proceedings" in their legal and logical perspective. He cites PLD 1988 Karachi 587 re Shahab-ud-Din v. IAC, 1990 PTD (Trib.) 914, 1968 SCMR 867 re: Abdul Majeed Baig v. Karim-ud-Din and 1984 PTD (Trib.) 312 in support of his claim that exercise of revisional jurisdiction by IAC was casual, improper and against the provisions of section 66-A of the income Tax Ordinance, 1979. The notice issued from time to time are described not only as a fishing attempt but also a fait accompli to give an impression of adequate opportunity. The venture on the part of the IAC is stated to be pre-determined and calculated. The notices are also claimed to be vague in terms of the ratio settled in 1996 PTD (Trib.) 482. Assumption of jurisdiction on the basis of these notices is claimed incorrigible and not even rectifiable. Learned counsel also argues that first notice issued was sought to be amended by subsequent notices but without any success. The decision in going for exercise of jurisdiction in view of the learned counsel having never been certain nor on legally sustainable basis could not be allowed to remain in the field. The proposition is supported by a decision of the Supreme Court of Pakistan in re Glaxo Laboratories Limited v. IAC reported as (1992) 66 Tax 74. Admitting that the principle of change of opinion is not applicable in revisional jurisdiction he states that it could loosely be taken benefit of in so far as burden of proof was concerned. In support of the contention he relied upon certain remarks appearing in an order of the Tribunal reported as 1996 PTD (Trib.) 360. He is further of the view that cancellation of assessment order was based upon hypothetical knowledge about the actual functioning of the assessee and, therefore, was improper as held by their Lordships of Azad Jammu and Kashmir High Court in (1984) 49 Tax 34 1984 PTD 137 re: M/s. United Builders Corporation Mirpur v' The Commissioner of Income Tax AJ&K, Muzaffarabad. No case for the revision of the assessment order having been made out, according to the learned counsel it was a mere disagreement between the two officers and in such situation this Tribunal allegedly in (1997) 75 Tax 70 Trib disapproved the action under section 66 A of the Ordinance. Also relies upon (1996) 37 Tax 12 (Trib.) to state that the IAC failed to discharge in clear terms that the exemption already allowed was either on account of any fraud or mis-representation on the part of the assessee or that it was in total disregard of any statutory provision.
29. Learned counsel for the assessee in support of his claim that the process undertaken by the assessee-company is "manufacturing" or at least a "manufacturing process" as contemplated in the exemption clause relies upon AIR 1957 Madha Pradesh 45 re: G.R. Kulkarni v. The State, AIR 1957 Patna 184 re: The State of Bihar v. Chretain Mica Industrial Ltd., PTCL 1985 CL 252re: Civil and Military Press v. Pakistan and another and (1992) 66 Tax 169 re: Commissioner of Income Tax Karachi v. Pakistan Fisheries Ltd., Karachi. Lastly it is stated that the IAC wrongly adopted the interpretation of the word "manufacturing" as expressed by the CBR in the above notice as the Board is not competent to make an interpretation of a statutory provision. The case cited on the subject is reported as 1993 PTT) 766 = 1993 SCMR 1232 re: Central Insurance Corporation Company v. CBR.
30. Mr. Shafqat Mahmood Chohan Learned Legal Adviser supports the impugned order by relying upon (1976) 33- Tax 157 re C.I.T. v. M. Iqbal Saigol. Also cites 1996 PTD (Trib.) 77 wherein, inter alia, it was found that "an officer exercising the power under section 66-A is to look for a justification from the assessment order and not from the notices served upon the assessee or the order sheet maintained in respect of proceedings." He claims that assessment order in question being clearly erroneous and prejudicial to the interest of the Revenue any flaw or infirmity here or there in the notices served upon the assessee could hardly effect the exercise of revisional jurisdiction which was otherwise perfectly in accordance with law. Further states that in the given facts the IAC was competent to revise the assessment as the assessing officer had failed in her duty to probe the claim of exemption and accepted the same without asking the assessee to establish it by documentary evidence or other attending circumstances. Therefore, relying upon (1988) IT R 445 re: CIT v. Smt. Pushpa Devi he contends that assessment order so made could not be allowed to remain in the field which was infested with errors as well as prejudice to the Revenue. A judgment of the Supreme Court of India in re: Smt. Tara Devi Aggarwal v. CIT cited as (1973) 88 ITR 323 is relied upon where the words and phrase "prejudicial to the interest of the Revenue" as used in section 33-B of the late Income-tax Act, 1922 were explained. According to their Lordships where an income had not been earned and was not assessable would make the assessment order erroneous as well as prejudicial to the interest of Revenue if the assessee wanted to assist someone else who would have been assessed to a larger amount. Learned Legal Adviser also relies upon PLD 1988 SC 370 re: M/s. Bisvil Spinners Ltd. v. Superintendent Central Excise and Land Customs Sheikhupura wherein the apex Court stated the principles governing exemption allowable in fiscal statute. The finding in short being that "As a general rule grants of exemptions are given a rigid interpretation against the assertion of the taxpayer and in favour of the taxing power." Mr. Shafqat Mahmood Chohan also refers to the meaning of the word "manufacture" appearing at page 869 of the Black's Law Dictionary 5th Edition 1979. Lastly submits that the persistent refusal of the assessee to submit accounts by itself was sufficient for the revising authority to hold that no manufacturing activity was being carried out by the assessee. Had there been any, learned Legal Adviser alleges the assessee would have come openly to support its claim by submitting the accounts.
31. On consideration of the submissions made by the parties I find that those advanced at the Bar for the assessee are wide off the mark. In the first place no plea can be allowed to be raised or a contention made which does not directly or indirectly address the issue framed as a question or point or points on which the learned Benchers who first heard the case differed. The wording of section 133(7) of the Ordinance is clear and admits of no ambiguity. Since the Third Member can only decide the point or points on which the difference of opinion occurred, issues and matters extraneous to such point cannot be allowed to be raised. Even otherwise there is no substance in the contention that the IAC started the proceedings on one ground which was changed to another during the course. Learned Judicial Member is right in pointing out that the IAC did make his point in the very first notice, dated 28-10-1996 that the assessee was engaged only in purchasing gas from Dhodak Oil field and selling it to consumers only after filling it in cylinders. It will be noted that in the first notice the revising authority made it clear that conditions laid out by clause 118-C had no relevance to the business of the assessee. This aspect was further elaborated in subsequent notices and in absence of any prejudice to the assessee the revisional proceedings cannot be interfered on this score only. The case-law referred to in this regard also lends no support to the assessee. In all these cases the jurisdiction of the IAC as a revising authority was seen and ruled upon as a general proposition. In none of them the situation like the one before us was considered. It is further noted that the learned counsel has cited these cases on the assumption that in the first notice no mention of the nature of business was made and that the reason for the revision was subsequently improved. As said earlier we are not persuaded to agree that it so happened as a fact. The first notice, inter alia, does make a specific mention of the view of the IAC that the assessee was engaged only in selling gas in smaller quantity after purchasing it in bulk from the principal. The basic assumption of the assessee that revision proceedings were initiated only on account of location of the plant being factually incorrect the case-law relied upon in this regard does not appear relevant.
31. The real issue, therefore, remains if the assessee is an industrial undertaking set up during a specified period and as per clause 118-C (2)(d), "that it is engaged in manufacture of goods or materials, or the subjection of goods or material to a manufacturing process or mining (excluding petroleum and gas) or extraction of timber". The assessee agrees that only a manufacturer is entitled to exemption but insists that if not a manufacture it is engaged in subjecting the gas to a "manufacturing process". The assertion is unfounded. The process explained and stated in detail in para.3 of the proposed order by learned Accountant Member hardly contains any element of "manufacturing" or "manufacturing process". The case-law cited in support rather goes against the interpretation being made by the assessee. In the reported judgment re: Civil and Military Press v. Pakistan PTCL (1985) CI. 252 the Karachi High Court found that "the word manufacture is generally understood to mean bringing into existence a vendible product known in the market". The assessee perhaps stresses on the phrase "vendible product" but over looks the earlier condition that manufacturing is "bringing into existence of a product. In its case no new product came into existence after the so-called process was undertaken by it. I am also of the view that the word "manufacturing process" as used in section 118-C(2)(d) is simply a way to refer again to the word "manufacturing". To me "manufacturing" and A "manufacturing process" appears one and the same thing. Therefore, the proposition that "manufacturing process" is of much enlarged or extended meaning is not correct. At any rate it does not amount to filling in gas from bulk to smaller patterns called cylinders. The two Indian cases relied upon to describe "manufacturing" are not only distinguishable but also contrary to the views being expressed at the Bar for the assessee. In both of them the law falling for interpretation before their Lordships being Sales Tax Act. These Acts or similar legislations as a rule enlarge the meaning of the word manufacturing by using the word "includes". The purpose is obviously to enlarge and expand the tax net. The interpretation placed upon the word manufacturing as used in Sales Tax Acts cannot be adopted as a matter of course. Particularly in view of the fact that all these Acts define the word in a peculiar manner. The definition of a word given in one statute cannot readily be accepted while interpreting the same word used in another statute. On a certain situation some guidance can be taken from similar words used in legislations, which are pari materia. But total and blind acceptance of meaning of the word used in one statute while interpreting the same word as used in another is replete with dangers. In this context we find that all case-law referred to pertains to Sales Tax Acts, which in their peculiar manner define the word "manufacturing". As observed above these cases even when seen in the context of the expanded meaning do not support the contention of the assessee. In the first case re: G.R. Kulkarni v. The State (supra) their Lordships started with the words that "the essence of manufacture is the changing of one object into another for the purpose of making it marketable": In the second case re: State of Bihar v. Chrestain Mica Industries Ltd. (supra) the Patna High Court, inter alia, observed, "to manufacture in the context must mean to bring into being something in a form in which it will be capable of being sold or supplied in the course of business." The basic factor or requirement "of bring into being" a thing is certainly missing in the alleged process undertaken by the assessee. All what is said of process even if accepted on face value will still be far short of anything resembling manufacturing much less to say of manufacturing itself. The alleged process undertaken does neither give a semblance of manufacturing nor it even gives birth to a reasonable doubt to put one to further probe.
33. A similar issue was recently considered by the Calcutta High Court in a judgment reported as 1995 PTD 813 = 206 ITR 367 re: Appejay (Private) Limited v. Commissioner of Income Tax. The assessee in that case was carrying on business for buying different types of tea from the market, blending them n different proportions and then selling the tea in the market. It claimed relief under section 80-J(4)(iii) of the Income Tax Act, 1961 which provided for a special deduction for newly established industrial undertaking. The exemption was demanded on the ground that it was engaged in the manufacture or production of an article within the meaning of section 80-J(4)(iii) of the Act. The assessing officer rejected the claim on the ground that the assessee was not an industrial undertaking manufacturing or producing an article as it was engaged only in the blending of different types of tea and selling the tea so blended. The Commissioner (Appeals) allowed the claim. However, the Tribunal found for the Revenue holding that the assessee was not entitled to any relief as it was not an industrial undertaking which manufactured or produced any article as it was engaged only in blending of tea which may amount to processing but not manufacture or production of an article within the meaning of the aforesaid section. On a reference the Honourable Judges held that the assessee merely mixed and blended tea and sold it in the market that the process did not involve manufacture of any article or thing. Further, that the input and output of the assessee's business remains tea i.e., the thing purchased by the assessee was tea and the product sold by the assessee was also tea. While holding for the Revenue and maintaining the order of the Tribunal their Lordships considered a number of reported judgments from Indian jurisdiction. An earlier decision of the Court cited as CIT v. Hindustan Metal Refining Works (Pvt.) Ltd. (1981) 128 ITR 472 was also mentioned wherein it was observed that the words "manufacture" and "production" apply to a case which brings into existence something different from its components, whereas in at case the thing produced by the assessee was tea and the end product sold by the assessee was also tea. In the course of judgment their Lordships also referred to a reported judgment of the Supreme Court in re: Chowgule & Co. (Pvt.) Ltd. v. Union of India cited as (1981) 47 STC 124. In that case it was held that blending of different qualities of ore possessing different chemical and physical compositions so as to produce ore of the contractual specification could not be said to involve the process of manufacture since the ore that was produced could not be regarded as commercially new and distinct commodity from the ore of different specifications blended together. Further, that what was produced as a result of blending was commercially the same article viz., the ore, though with different specifications than the ore which was blended and it could not be said that any process of manufacture was involved in the blending of ore. Another judgment of the Bombay High Court re: Nilgiri Ceylon Tea Supplying Co. v. State of Bombay cited as (1959) 10 STC 500 (Bom) was referred wherein the Court had refused to accept the contention of the assessee that after mixing different brands of tea and selling them under a new name the assessee undertook any kind of process. However, the Supreme Court reversed the order holding that where any commodity was subject to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity.
34. The aforesaid exemption clause, however, does not refer simply to processing but to manufacturing process. As observed above, the word manufacturing and manufacturing process in the context is one and the same thing. In any case being preceded by the word manufacturing the process contemplated has to be in the nature of manufacturing. The word process cannot be read or considered in isolation without the prefix of the word "manufacturing". Even if purposive approach is adopted the interpretation made by the assessee is not acceptable. The purpose for allowing of exemption as emerged in the aforesaid CBR Circular levels no room for a guess as to the kind of assessee meant to be covered by the clause.
35. That the assessee is not engaged in any manufacturing or manufacturing process is also evident from the admitted position that even before the installation of the alleged plant and machinery it received and sold liquified petroleum gas. According, to the record the assessee started receiving LPG from M/s. OGDC from 15-9-1994. The storage tanks and plant for filling in LPG cylinders did not start working till March, 1995. The assessee claims that during this period it had to lift the allocated quota of gas from OGDC under the terms of agreement and that it sold the gas so lifted in the market through bowers. Learned Accountant Member also agreed that selling of gas through bowers was not manufacture and therefore, ordered the income declared from this source to be taxed. Apparently the learned Accountant Member ignored that after installation of plant and machinery the only change that happened was that instead of bigger containers the gas was filled and sold through smaller containers. A bower is nothing more than a bigger container as compared to a cylinder. If selling of gas through bowers or bigger containers could not be taken as manufacturing or manufacturing process then the same activity through smaller pattern could also not involve any manufacturing. The cutting of a backed bread into 20 pieces does not involve manufacturing any better if the number of pieces is reduced to 10.
36. In cases of exemption clauses in fiscal statute the rules of interpretation are very well-settled. In (1974) 29 Tax 221 re CIT Sales Tax Rawalpindi Zone, Rawalpindi v. Rashid Burner Sialkot the Lahore High Court observed that provisions for grant of exemption should be construed strictly and that the onus to prove entitlement always remained on the claimant. In re: M/s. Bisvil Spinners Ltd. v. Superintendent Central Excise and Land Customs, Sheikhupura (supra) their Lordships of the Supreme Court of Pakistan laid down the principles of interpretation governing exemptions allowable in fiscal statutes. In the course of judgment it was observed "as a general rule grants of tax exemption are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws that the burdens of taxation should be distributed equally and fairly among the members of the society. However, exemptions claimed by the State or its sub-divisions are usually liberally construed and the same rule has frequently been applied to exemptions made in favour of charitable organisations. The case re: M/s. Army Welfare Sugar Mills Ltd. v. Federation of Pakistan 1992 SCMR 1652 is well-known on the subject. In that judgment their Lordships detailed two basic principles of construing a provision of statute involving exemption from payment of tax. The first rule being that the burden of proof was on the person who claimed the exemption and the second that the provision relating to grant of tax exemption is to be construed directly against the person asserting and in favour of the Taxing Officer. The assessee before us was obliged to establish entitlement to exemption beyond any doubt which it miserably failed to do. The process undertaken by it, in no manner, can be held to be either manufacturing or a manufacturing process. The raw material or gas purchased remains the same when sold to customers except for the sub-division by filling in cylinders. The principle or the ratio settled in the aforesaid judgment of the Calcutta High Court can very well be referred to refuse the claimed concession/exemption by the assessee. Learned Judicial Member rightly found that no process was involved which could be termed as subjection of goods into manufacturing process or could itself be called as manufacturing. I am also in agreement with him that no new product was brought into existence which was distinct or different from the feed in material. The case-law relied upon by the assessee, as observed earlier, is not only distinguishable but also runs counter to the proposition in being put forth by the assessee. All the reported judgments relied upon explain the terms "manufacturing" and "manufacturing process" in the perspective of Sales Tax Acts. The only case on the income tax side on which I could lay my hands upon appears to High Court.
37. Therefore, in the facts and circumstances of the case, I will join my learned brother, Judicial Member to say that the JAC was justified in cancelling the assessment and holding that the process being carried on by the appellant was not manufacturing. The answer to the question is, therefore, in the affirmative.
38. Resultantly, this appeal preferred by the assessee shall be dismissed.
(Sd.)
(NASIM SIKANDAR),
JUDICIAL MEMBER.
C.M.A./9/(Trib.)Appeal dismissed.