TMI Blog2005 (1) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... laid by the assessee was to be used for the purpose of transportation of natural gas which falls within the meaning of 'mineral oil' for the purpose of section 44BB (ii) that GAIL was processing the natural gas to produce LPG, propane, pentane etc. and thus, it was engaged in the business of production of mineral oils. Thus, it was submitted that the assessee was covered by the provisions of section 44BB as it was providing services to GAIL which was engaged in the business of production of mineral oil. The assessee also relied on the definition of natural gas as provided in the Petroleum Tax Guide, 1998 as well as the definition of the word "production" provided in the said guide. Not satisfied with the said explanation of the assessee, the Assessing Officer held that provisions of section 44BB were not applicable to the present case by observing as under: "I am in total disagreement with the assessee's contention that M/s. GAIL is in the business of production of "mineral Oils" as used in section 44BB. The expression used in section 44BB is "engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used; or to be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and is still being handled by ONGC. M/s. GAIL was buying its entire stock of natural gas from ONGC and transporting the same through its HBJ pipeline to its various clients who are then using the gas as raw material or as fuel. A very small part of the activities of the GAIL was with regard to the production of LPG. The assessee company was laying GAIL's pipeline under the Chambal and the Yamuna rivers crossings. It may be mentioned that GAIL has no LPG plant after these river crossings. All of GAIL's LPG plants are before the above mentioned river crossing. Hence, it is clear that GAIL is not in the business of prospecting or production of mineral oils. The main business of GAIL is with regard to transportation of natural gas, and it was to facilitate this part of the business of GAIL that the assessee company was providing its services. Keeping in view these facts, it is clear that the business of the assessee company does not satisfy the conditions of section 44BB and hence, the provisions of that section are not applicable." 3. Proceeding further, the Assessing Officer invoked the provisions of section 144 since proper books of account were not produced before the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince 'Natural Gas' has been included in definition of 'Mineral Oils' as per the Explanation to section 44BB, production of LPG, propane, butane, pentane, CNG and SBP by GAIL would also fall within the ambit of the words "production of mineral oils" and consequently, the activities of assessee laying down the pipelines along the Yamuna and Chambal rivers would be covered by the provisions of section 44BB. 3. That the lower authorities virtually have rewritten the section 44BB by holding that it is intended only for the foreign companies engaged in the basic business of extraction and production of mineral oils. Such an interpretation is ex facie erroneous and renders redundant the distinct expressions 'services', 'facilities' and 'in connection with' and the phrase 'production' used in the section. Reliance was placed on Supreme Court judgments in the case of Union of India v. Deoki Nandan Aggarwal AIR 1992 SC 96, State of Kerala v. Mathai Verghese [1986] 4 SCC 746 and Shyam Kishori Devi v. Patna Municipal Corpn. AIR 1966 SC 1678. 4. That lower authorities have misinterpreted the circular No. 494 dated 22-9-1987 by holding that the word 'production' used in section 44BB is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate to reproduce the relevant portion of the said provision: "Section 44BB: (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession": Explanation - For the purposes of this section,- (i) ** (ii) "mineral oil" includes petroleum and natural gas. 8. The perusal of above provision shows that following conditions must be satisfied in order to apply the above section: 1. The assessee must be a non resident; 2. The assessee must be engaged in the business of - providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems cannot be considered as natural gas. 'Natural Gas' is not defined in the Income-tax Act, 1961. As per Petroleum Tax Guide, 1998, relied upon by the assessee, it means as under: "'Natural Gas' means wet gas, dry gas, all other gaseous hydrocarbons and all substances contained therein, including sulphur, carbon dioxide, nitrogen but excluding helium, which are produced from oil and gas wells, excluding liquid hydrocarbons that are condensed or extracted from gas and are liquid at normal temperature and pressure conditions, but including the residue gas remaining after the condensation or extraction of liquid hydrocarbons from gas." According to 21st Century Universal Encyclopaedia, Volume 20, relied upon by assessee, it is defined as under: "'Natural Gas' comprises of accumulations of petroleum when the petroleum is predominantly gaseous. It is mainly a mixture of methane, ethane, propane and butane in which methane predominates." As per Webster's Encyclopaedic unabridged Dictionary (New Revised edition), Natural gas means - combustible gas formed naturally in the earth, as in regions yielding petroleum, consisting usually of over 80% of Methane together with minor amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuent hydrocarbons in LPG. Others present in traces or small fractions are Iso-butane, butylenes, n-butane, propylene etc." As per ISO 6678: 1991(E): "'LPG' means liquids composed predominantly of any of the following hydrocarbons or mixture thereof: propane, propane, butanes and butene." As per Clause (i) of section 2 of the Liquefied Petroleum Gas (Regulation of Supply and Distribution) Order, 2000, LPG is defined as: "a mixture of light hydrocarbons which may include propane, isobutane, normal butane, butylenes etc., which are gaseous at normal ambient temperature and atmospheric pressure but may be condensed to liquid state at normal ambient temperature by the application of pressure and which conforms to Indian Standard specification number IS 4576." From the above reading, it is clear that LPG does not contain Methane while natural gas is formed mainly of methane around 80%. LPG is mixture mainly of propane and butane which is extracted from either petroleum or natural gas. So, LPG and natural gas are entirely different commercial items. LPG is a by product of natural gas. Therefore, GAIL can be said to be a manufacturer of LPG and consequently, cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een defined as under: "1. To bring into existence; give rise to; cause: To produce steam; to produce a reaction. 2. To bring into existence by intellectual or creative ability: To produce a novel; to produce a great painting. 3. To create (something having exchange value): to produce goods for sale. 4. To bring forth; give birth to; bear: to produce a litter of puppies. 5. To provide, furnish or supply; yield; 'a mine producing silver. 6. To cause to accrue: stocks producing unexpected dividends. 7. To bring forward; present to view or notice; exhibit: to produce one's credentials. 8. To bring (a play, movie, opera) before the public. 9. To extend or prolong a line. 10. To create, bring forth, or yield offsprings, products etc. 11. To create economic value; bring crops, goods etc. to a point at which they will command a price." Mere reading of above clearly shows that the word 'production' is of widest amplitude. This can be broadly categorized as under: 1. Production by natural process: giving birth to a child, producing of milk by Cow/Buffalo, producing of eggs by birds etc., 2. Production by use of skill: producing a painting, sculpture, play etc. 3. Production by mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consists merely in removing from raw groundnut oil that constitute part of the raw oil which is not really oil. The elements removed in the refining process consists of free fatty acids, phospoticides and unsaponfiable matter. After the removal of this non-oleic matter thereafter the oil continues to be groundnut oil and nothing more. The matter removed from the raw groundnut oil not being oil cannot be used, after separation, as oil or for any purpose for which oil could be used. In other words, the processing consist in the non-oily content of the raw oil being separated and removed, rendering the only content of the oil 100 per cent. For this reason refined oil continues to be groundnut oil within the meaning of rules 5(1)(k) and 18(2) notwithstanding that such oil does not possess the characteristic colour, or taste, odour etc. of the raw groundnut oil". 17. In the case of Sterling Foods v. State of Karnataka [1986] 63 STC 239, it was held by the Apex Court that where raw shrimps, prawns and lobsters are subjected to a process of cutting of heads and tails, peeling, deveining, cleaning and freezing. They do not cease to be shrimps, prawns and lobsters and become another dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich, as per Explanation, includes Petroleum Natural Gas. This, itself shows that contextual meaning has to be given to word 'production' as appearing in section 44BB. 23. Even otherwise, applying the plain and natural meaning of the word production, we do not find merit in the submission of Mr. Singhvi, learned counsel for assessee for the reasons given hereafter. We have already set out the dictionary meaning of the word 'Production' inPara15 of our order. We have also broadly categorised the dictionary meaning into four categories which, even for the sake of repetition, are stated below: 1. Production by natural process: giving birth to a child, producing of milk by Cow/Buffalo, producing of eggs by birds etc., 2. Production by use of skill: producing a painting, sculpture, play etc. 3. Production by mining process: producing minerals from the earth. 4. Production by manufacturing process: producing of vehicle, household goods, machinery etc. First two categories are not relevant in the present case since the same cannot be applied with reference to mineral oils. Third category is directly relevant in as much as all mineral oils are produced through mining process. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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