Manufacture under income tax law: compressing natural gas into CNG qualified for additional depreciation eligibility.

Conversion of natural gas into compressed natural gas was treated as manufacture or production for additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961. The Tribunal applied the income-tax test of manufacture under Section 2(29BA), holding that compression through plant and machinery gives the gas a distinct name, character and use as a new commercial product. Reliance on Central Excise registration and the excise-law meaning of manufacture was held not to affect the income-tax analysis. The reopening issue under Section 147 was treated as academic, leaving eligibility for additional depreciation as the substantive question.

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Issues: Whether conversion of natural gas into compressed natural gas amounted to manufacture or production for the purpose of additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961.

Analysis: The Tribunal followed the binding view that natural gas, after undergoing compression through plant and machinery, acquires a new commercial form as compressed natural gas. The process was held to result in a product having a distinct name, character and use, which satisfies the statutory test of manufacture under Section 2(29BA) of the Income-tax Act, 1961. The contrary reliance on the Central Excise registration and the different meaning of manufacture under excise law did not alter the income-tax test. As the issue of reopening under Section 147 was not independently adjudicated and was treated as academic, the substantive dispute remained confined to eligibility for additional depreciation.

Conclusion: Conversion of natural gas into compressed natural gas was held to be manufacture or production, and the assessee was entitled to additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961.

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