2001-VIL-154-ITAT-

Equivalent Citation: ITD 087, 188, TTJ 087, 538,

Income Tax Appellate Tribunal MADRAS

Date: 22.10.2001

ASSISTANT COMMISSIONER.

Vs

GTC. ENTERPRISES.

BENCH

Member(s)  : N. BARATHVAJA SANKAR., BHAVNESH SAINI.

JUDGMENT

Per Shri N. Barathvaja Sankar, Accountant Member.--As these three appeals - two by the Revenue for the assessment years 1993-94 and 1994-95 and one by the assessee for the assessment year 1996-97 in the case of the assessee M/s. G.T.C. International (known as G.T.C. Enterprises earlier), Chennai, consisted of common issues relating to sections 80HHC, 80-I and 80-IA, the same were clubbed together, heard together and are being disposed of by this common and consolidated order for the sake of brevity and convenience.

2. Let us first take up the common issue relating to deduction under section 80HHC of the Income-tax Act, 1961. Briefly stated, the facts of the case are that the assessee, a partnership firm, is doing business in excavating mineral quartz from the mine fields and after processing them exports the same to foreign countries in the sizes required by the customers. For the assessment year 1993-94 the assessee-firm returned 'nil' income after claiming deduction under section 80HHC and section 80-I of the Income-tax Act, 1961. The Assessing Officer while framing the assessment under section 143(3) of the Act denied both the deductions, namely, deductions under sections 80HHC and 80-I and assessed the income at Rs. 41,01,060. According to the Assessing Officer as per section 80HHC(2)(b) the minerals and ores other than processed minerals and ores specified in Schedule XII are not eligible for deduction under section 80HHC. Schedule XII(i) specifically enlists various minerals and ores which are eligible for relief, provided they are pulverized or micronised. Quartz is the 13th item. Hence export of quartz will be eligible for relief, provided it is pulverized or micronised quartz. As per the opinion of a mining expert placed on record (HQP under Indian Bureau of Mines), in the context of mineral processing pulverisation and micronisation are synonymous expressions-"According to ore dressing terminology, pulverization/micronisation is a process of grinding to fine powder generally". The dictionary meaning of micron is a size which is one millionth of a metre. Hence pulverized or micronised quartz should mean quartz pulverized to a grain size which is one millionth of a metre. As per copy of sales order placed in the file the assessee has exported quartz processed to sizes varying from 2 cms. to 30 cms. Clearly the quartz exported are not of micron size which is one millionth of a metre. For the above reasons incorporated in the assessment order the Assessing Officer was of the opinion that the assessee was not eligible for relief under section 80HHC. The Assessing Officer has also noted that the assessee has filed a copy of the order of the Commissioner (Appeals)-V, made in the case of Rabi Venkatesan assessed by the Deputy Commissioner of Income-tax, special Range- VI, Madras, in which case the Commissioner (Appeals) has held to the effect that although under clause (1) of Schedule XII only micronised or pulverised quartz is eligible for deduction, the other kinds of quartz can still the covered under clause (x) which expands the scope of this relief to cut and polished rocks. It is further stated in the assessment order that in the light of the above interpretation, the assessee claims that the non micronised quartz in its case can be covered under clause (x) as minerals cut to various sizes. However, the Assessing Officer did not accept the interpretation stated in the order of the Commissioner (Appeals), cited supra. According to the Assessing Officer no statute should be interpreted in such a manner as to render any provision completely meaningless or redundant, as judicially held in 133 ITR: 13. Thus, according to the Assessing Officer if clause (x) could cover all kinds of minerals, micronised or otherwise, then such interpretation will render clause (i) of Schedule XII completely meaning less or redundant, which may not be permissible in law. Turning to the Board's circular No. 729 dated 1-11-1995 the Assessing Officer was of the opinion that it spoke of minerals and granites cut to specific dimensions.

According to him it apparently refers to dimensional blocks of granites whose value is fixed on the basis of their sizes (expressed in cubic metres) rather than weight. According to the Assessing Officer non micronised quartz of various sizes falling between 2 cm and 30 cm are exported and the value is fixed on the basis of weight expressed in metric tonne rather than cubic metres. Hence, he came to the conclusion that item(x) of Schedule XII to the Income-tax Act is not applicable to the assessee's case. Thus he disallowed the claim for deduction under section 80RRC in a sum of Rs. 40,70,019. For similar reasons for the assessment year 1994-95 disallowance of claim under section 80RRC was made in a sum of Rs. 55,31,752 and for the assessment year 1996-97 such disallowance was in a sum of Rs. 68,80,920 (even though the assessment order for the assessment year 1996-97 is a bit elaborate than the earlier assessment orders).

3. Aggrieved by the said assessment orders, the assessee appealed to the first appellate authority on this issue. Before the first appellate authority it was contended by the learned counsel for the assessee that: Clause (i) of Schedule XII refers to pulverisation or micronisation of materials like feldspar and quartz. Clause (x) of Schedule XII refers to processing of cut and polished minerals and rocks including cut and polished granites. The Board's circular issued in this regard 195 ITR 175 to 176 St. in the context of the amendment to section 80HHC may be referred to. The amendment was introduced in order to provide relief to the exporters of processed minerals and ores in view of the fact that significant value addition is achieved when a mineral is processed or when a stone is cut and polished. Circular No. 729 has clarified that where any process is applied to any mineral which would deprive the quality of rough mineral making it a value added marketable commodity, its export will be eligible for deduction under section 80HHC. After considering the above submissions of the counsel for the assessee the Commissioner (Appeals) (for the assessment year 1993-94) has observed that the Assessing Officer himself states that according to the report of Indian Bureau of Mines pulverisation or micronisation is a process of grinding to fine powder generally. Hence it need not be one millionth of a metre, according to the Commissioner (Appeals). The word 'generally' qualifies powder. It can be powder of different sizes. If we hold that the sizes of 2 cm to 30 cm cannot be treated as powder, then the Explanation to clause (x) comes into play. According to clause B of the Explanation process in relation to any mineral would mean pulverization, calcination or micronisation. There is no specification about the size after micronisation. The whole issue in his opinion is to be interpreted in a rational workable manner instead of doing the hair splitting. The circular No. 729 therefore makes it clear that wherever any process is applied to any mineral which takes away the quality of rough mineral by making it a value added marketable commodity then it would be eligible for deduction under section 80HHC, according to the Commissioner (Appeals). Further, according to him the counsel has listed the eight steps involved in the process before they are exported. The counsel had further submitted that the activities would fall under item(x) and also clauses (a), (d), (e), (g) and (h) of the Explanation and according to the Commissioner (Appeals) such interpretation would make clause (i) of Schedule XII redundant, as opined by the Assessing Officer. According to him the Explanation to clause (x) and the circular No. 729 clarifying the ambiguities which may occur in the minds of the Assessing Officer like the present. According to him the crux of the issue was whether there was processing and such processing could be called pulverisation or micronisation and whether there was value addition to the commodity and if we apply both these conditions to the present facts the answer is yes.

Also relying on the decision of the Tribunal (Madras Bench) in the case of Tamilnadu Minerals Ltd. v. CIT [IT Appeal No. 822 dated 20-6-1996] he was of the opinion that the assessee was entitled to the deduction under section 80HHC. Thus he allowed the claim of the assessee under section 80HHC in a sum of Rs. 40,70,019 for the assessment year 1993-94. Similarly the Commissioner (Appeals) (different incumbent) following the earlier order of the Commissioner (Appeals) allowed the claim of the assessee under section 80HHC in a sum of Rs. 55,31,752 for the assessment year 1994-95. However, yet another Commissioner (Appeals) while dealing with the appeal of the assessee for the assessment year 1996-97 has denied such claim in a sum of Rs. 68,80,920. While denying the deduction under section 80HHC for the assessment year 1996-97 the Commissioner (Appeals) in the impugned order dated 3-8-1998 has observed as under:--

"In the first place, according to section 80HHC(2)(b) the deduction is not applicable to inter alia minerals and ores. With effect from the assessment year 1991-92, however, the deduction was extended to processed minerals and ores specified in the Twelfth Schedule. Thus on a plain reading of section 80HHC the appellant would get the deduction only if quartz is covered by any of the items mentioned in the said schedule and not otherwise. A close examination of the schedule reveals that it is described by a Header 'processed minerals and ores' and contains ten items from (i) to (x). Under each item the type of process that is required to be carried out on the mineral or ore has been clearly mentioned in some cases, however, the general expression 'processed' has been used. Thus, for example, under item (i) pulverization or micronization is required in respect of all the minerals and ores mentioned therein including quartz. Items (ii) and (iii) refer to 'processed' bentonite, kaoline etc. It is worth noting that the mineral 'bentonite' appears both under items (i) and (ii) thereby indicating that the said mineral be pulverized or micronized or can be processed in the general way in accordance with the Explanation under the Schedule. Similarly, item (vii) refers to sized iron ore processed by mechanical cleaning etc.

and item (viii) refers to iron ore concentrates through crushing, grinding etc. Here again the word 'processed' is used and is to be interpreted in accordance with the Explanation.

In the above view, it is clear that so far as quartz is concerned it is specifically covered by item(i) only and not by items (ii) to (ix). However, there is an omnibus clause viz., clause (x). This clause reads 'cut and polished' minerals and rocks including cut and polished granite. Thus if at all the appellant could get a deduction only if it satisfies the conditions under clause (i) and clause (x).

That the appellant does not satisfy clause (i) is not in dispute and in fact is conceded by the appellant. The only question that remains is therefore whether the item is covered by clause (x).

Clearly, the steps of the so called processing done by the appellant does not anywhere cover the activity of 'polishing' whereas 'cutting and polishing' minerals is an essential pre-requisite under clause (x). The appellant has also not taken the plea that it is doing any such polishing.

Therefore, the appellant's product is out of the application of clause (x) also and therefore, in my opinion, the Assessing Officer rightly decided that the appellant was not entitled to the deduction under section 80HHC.

The appellant has inter alia questioned the correctness of the Assessing Officer's reference to the National Metallurgical Laboratory and also the opinion obtained. I do not see any reason in the objections raised by the appellant because it was merely an expert opinion obtained and communicated to the appellant and it was open to the appellant to say whether the opinion was incorrect. It is worth noting that the opinion, which was based on the assessee's sample, merely stated that the appellant had neither pulverized nor micronized nor had polished the sample, which fact is not denied by the appellant. Therefore, the additional remark of the expert that the appellant is not covered by the Twelfth Schedule should not be considered as any interpretation of the Income-tax Act.

The AR of the appellant had argued at length that the general 'processing' as per the Explanation under the Schedule should be applicable to quartz also. It is his view that the Header 'processed minerals and ores' of the schedule should be read with the Explanation under the schedule and apply to all the entries of the schedule. I am unable to subscribe to this view. In my opinion, the Header to the schedule merely refers to the list beneath it and the type of processing mentioned against each item of the list whereas the Explanation refers to the specific expression 'processed' wherever it appears in the body of the schedule. Therefore, I am unable to agree with the AR's view.

In any case it has to be appreciated that the Explanation does not give any inclusive definition but gives the precise meaning itself of the word 'processed'. If that were to apply to the entire schedule (including the items against which the word 'processed' is not used), then what would happen to the other types of processing mentioned against many of the items? This anomaly can be removed only if we apply the general definition found in the Explanation to the specific item against which the word 'processed' is used and apply to the other definitions for the other items.

I have also considered the CBDT's circular relied upon by the AR and find that the said circular merely refers to the value additions by means of processing and does not specify the types of processing to be carried out on the different minerals and ores. Nor the circular authorise every value addition as an indicator of the eligibility under the schedule.

For all these reasons the Assessing Officer's action denying deduction under section 80HHC is in order and is confirmed."

Thus it can be seen that for the assessment years 1993-94 and 1994-95 the assessee has succeeded in the first appeals and for the assessment year 1996-97 it has failed.

4. Now, aggrieved by the respective appellate orders the Revenue is in second appeals before us for the assessment years 1993-94 and 1994-95 and the assessee is in appeal before us for the assessment year 1996-97. The learned departmental representative placed on record a small compilation consisting of ten pages comprising therein the following:--

(i) Description of quartz: Extract from Encyclopaedia Britanica (pages

1 & 2).

(ii) Extracts from Principles of Mineral Dressing by A.M. Gaudin Tata McGraw-Hill Publishing Company Ltd. pages 1, 4-9, and 62 (pages 3 to 7).

(iii) Extracts from Ore Deposits of India by KVGK Gokhale & TC Rao Affiliated East West Press Pvt. Ltd. pages 163 to 165 (pages 8 to 10).

He strongly supported the order of the Commissioner (Appeals) for the assessment year 1996-97 and reiterated the reasonings given by the said Commissioner (Appeals) as his arguments. He vehemently contended, supporting the order of the Commissioner (Appeals) for the assessment year 1996-97, to say in brief that: The assessee is not eligible for the claim of deduction under section 80HHC, as the quartz exported by the assessee is not a processed mineral as envisaged in twelfth schedule.

5.1 The facts gathered during the course of assessment proceedings show that the assessee is neither pulverizing nor polishing the quartz and it was held that accordingly the assessee is not covered either under clause (i) or clause (x) of the twelfth schedule. The main contention is whether cutting would include polishing as mentioned in CBDT Circular No. 729 dated 1-11-1995 or not. The example given in the circular pertains to granite.

5.2 Cutting requires user of a sharp instrument. The assessee has never stated that he is cutting the mineral in question. It was only stated that they break the mineral. The process is crushing and not cutting. In such circumstances where there is no cutting involved, the question whether the cutting also includes polishing as mentioned in the circular is out of question. Also it is held by the Hon'ble Madras High Court in the judgment CITv. Gomatesh Granites [2000] 246 ITR 737 that there is no process of production involved when granite is cut into dimentional blocks. In view of the jurisdictional High Court's decision the circular is not applicable for the present case.

5.3 For the purpose of twelfth schedule, the word 'processed' is defined in the said explanation, Clause (a) deals with 'dressing', The general meaning of mineral dressing is 'process of raw mineral to yield marketable products and waste by means that do not destroy the physical and chemical identity of the minerals', That means that in the mineral processing industry, 'dressing' is the general term used for all types of processing. Even 'hand sorting' wherein valuable lumps of ore are separated from worthless lumps based on appearance is one type of mineral dressing,

5.4 However, in clause (a), the scope of dressing is narrowed down to only such method of dressing where through mechanical or other means, concentrates are obtained after removal of gangue (valueless earth etc, in which mineral is found) and unwanted deleterious substances without altering the mineralogical identity. The emphasis is on 'obtaining concentrate after removal of gangue and unwanted deleterious substances',

5.5 The deleterious substances found in quartz ore include iron stain and iron oxide which are objectionable for ceramic products, Feldspar and mica are the other major impurities, For removal of these impurities, flotation technique and treatment with certain chemicals and acids is required. The raw material is required to be grounded before the flotation techniques can be applied, The assessee obviously is not carrying out the required dressing methods to obtain concentrate after removal of unwanted deleterious substances.

5.6 Clause (g) of the Explanation deals with 'sizing by crushing, screening, washing and classification through wet process', Sizing is the separation of material into products characterized by difference in size. The development of crushing and grinding techniques have necessitated the development of a technique for the sizing of crushed or ground material and when the sizing is done through stationary screen or a moving screen the process is called screening. Washing is used to separate coarse and fine particles, 'Classification' is the principle of sizing material in accordance with difference in settling velocity in a fluid medium. The fluid medium could be a gas (when it is called dry process) or a liquid (when it is called wet process), For sizing fine particles, 'classifiers' are preferred to 'screens',

5.7 From the above it is obvious that the assessee is not carrying the required methods to size the mineral by crushing, screening, washing and classification through wet process, In view of the above the department prays for the confirmation of disallowance of the assessee's claim under section 80HHC made by the Assessing Officer.

6. On the other hand, the learned counsel for the assessee also placed on record a paperbook consisting of 66 pages, comprising therein the following which are claimed to have been already available with the lower authorities:--

1. Tax audit report with enclosures.

2. Note dated 2-12-1997.

3. Letter dated 13-2-1998.

4. Reply letter dated 18-2-1998.

5. Letter dated 6-3-1998.

6. Reply letter dated 19-3-1998.

7. Assessment order dated 30-3-1998.

8. Statement of facts and grounds of appeal.

9. First Appellate Authority's order dated 3-8-1998.

10. Form No. 36 and grounds of appeal.

11. Copy of Twelfth Schedule.

12. Copy of Circular No. 729 dated 1-11-1995.

13. Note on quartz.

Also he has placed on record a Xerox copy of the order dated 28-2-2001 of the Tribunal in the case of Vijay Granites (P.) Ltd., Tiruppur; [ITA Nos.

2022 to 2025 (Mds.)/1992] Xerox copy of the order dated 12-1-1995 of the Commissioner (Appeals)-V, Madras for the assessment years 1989-90 and 1992-93 in the case of the assessee Shri Rabi Venkatesan, Madras, and Xerox copy of page Nos. 343 to 360 of the Commentary on Income-tax by Chaturvedi and Pithisaria. That apart, the assessee brought for our inspection quartz of various sizes and stages. The learned counsel for the assessee strongly supported the orders of the Commissioner (Appeals) in the case of the same assessee for the assessment years 1993-94 and 1994-95 which were in favour of the assessee. Rather he reiterated the same submissions made before the then Commissioner (Appeals) as his submissions and strongly contended that the issue is to be decided in favour of the assessee, as was rightly done by the Commissioner (Appeals) for the assessment years 1993-94 and 1994-95. He vehemently contended by reiterating the various submissions made before the Revenue authorities, to say in brief that: The heading of the Twelfth Schedule is "Processed Minerals and Ores". The Explanation to the schedule reads as under:--

"For the purposes of this Schedule, 'processed', in relation to any mineral or ore, means--"

It can be seen from the above that the explanation is applicable for interpreting the meaning of the word 'processed' for the purpose of the entire Schedule in relation to any mineral or ore and is not restricted to any specific mineral or ore as interpreted by the learned Commissioner (Appeals) dealing with the case for the assessment year 1996-97. Even the same Commissioner (Appeals) in his order for the assessment year 1996-97 at para 10 has observed that the deduction was extended to processing of minerals and ores specified in the Twelfth Schedule. Quartz is undoubtedly a mineral. Crushing is also done by the assessee (into 5 to 30 cms.). It is a unique mineral. Clause (g) of the Explanation, which speaks of sizing by crushing, screening, washing and classification through wet process would mean both manual and mechanical process. Clause (d) of the Explanation deals with cutting and polishing. In respect of item Nos. (ii), (iii), (vii) and (viii) appearing in the Twelfth Schedule, cutting and polishing cannot be done, whereas it can be done in respect of the other items found in the Schedule. Therefore, it is to be construed that the Explanation to the Twelfth Schedule is applicable to all the processes and not only the certain processes only as understood by the Assessing Officer or the learned Commissioner (Appeals) dealing with the case of the assessee for the assessment year 1996-97. The assessee is definitely falling under items (a), (d) and (g) of the Explanation to the Twelfth Schedule read with item (x) of the same schedule.

7.1 Circular No. 729 of the CBDT has been interpreted by the C-Bench of this Tribunal in its order dated 28-2-2001 in Vijay Granites (P.) Ltd s case. Further the intention of the Legislature is crucial. The object or purpose of all constructions or interpretations is to ascertain the intention of the law makers and make it effective. The court has to determine the intention as expressed by the words used. If the words of statutes are themselves precise and unambiguous then no more can be necessary than to expound those words in their ordinary and natural sense. The words themselves alone do in such a case best declare the intention of the law-giver. The court's function of ascertaining the legislative intention arises only if there is any ambiguity in the provision or the literal construction of a provision may be contrary to the legislative purpose or objective or may result in disastrous consequences.

7.2 In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly the interpreter is to make allowances for any relevant changes that have occurred, since the Act's passing, in law, social conditions, technology, the meaning of words, and other matters.

7.3 A purposive construction of an enactment is one which gives effect to the legislative purpose by--

(a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose, or

(b) applying a strained meaning where the literal meaning is not in accordance with the legislative purpose.

7.4 When interpreting a provision in a taxing statute a construction which would preserve the purpose of the provision, must be adopted. As observed in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191, 198 (SC), in interpreting a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. In that view of the matter, the court should not adopt a construction which would upset or even impair the purpose in introducing a particular provision in the statute Calcutta Jute Mfg. Co. v.

CTO [1997] 106 STC 433, 439 (SC).

7.5 It is well-settled that every provision in the Act needs to be construed harmoniously with a view to promote the object and spirit of the Act but while doing so, no violence would be done to the plain language used in the section. After all, the rule of harmonious construction of apparently conflicting statutory provisions is well-established for upholding and giving effect to all the provisions as far as it may be possible, and for avoiding the interpretation which may render any of them ineffective or otiose.

7.6 To a beneficial legislation, a liberal interpretation which advances the purpose and object of the enactment should be given CIT v. Trinity Hospital [1997] 225 ITR 178, 189 (Raj.); Muddeereswara Mining Industries: Stonecraft Enterprises v. CIT [1993] 204 ITR 550, 555 (Kar.).

7.7 If the provisions of a taxing statute are clear and unabigous, full effect must be given to them irrespective of any consideration of equity. Where, however, the provisions are couched in language which is not free from ambiguity and admits of two interpretations a view which is favourable to the subject should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the court in adopting such a course.

7.8 Income-tax Act is an on going Act and is being updated from time to time. The principles of ascertainment of intention of the law makers, updating construction of an ongoing Act, purposive construction, interpretation not to upset or impair the purpose of enactment of the provisions, harmonious construction, liberal interpretation and resolve the ambiguity in favour of the assessee are not to be lost sight of while interpreting the provisions of the Income-tax Act. In this connection the decision of the Apex Court reported in Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 is worth mentioning. Following the above principles clause (x) of the Twelfth Schedule to the Income-tax Act is to be liberally interpreted to cover the case of the assessee also. In the Explanation to the Twelfth Schedule 'processed' has been defined to mean in relation to any mineral or ore mentioned in items (a) to (h). The Act does not prescribe the degree or extent of cutting and polishing to be applied to granite ores or boulders. Any process applied to the rough mineral which adds value to the marketable commodity would create an eligibility for deduction. When rough granites are cut into dimentional blocks of uniform colour and size and also certain amount of dressing and polishing which would remove various natural flaws such as colour variations, etc., that would certainly amount to processing of the granite and adds value to its marketability. The Act does not specifically say that the minerals and granites should be given the final cut and be finally polished before they are exported. If such a view is taken the purpose of allowing the benefit to cut and polished minerals including granite blocks towards deduction under section 80HHC would get frustrated.

7.9 The purpose of bringing in section 80HHC into the statute is to encourage exports. Hence it is wrong to say that item No. (i) of the Twelfth Schedule is alone eligible for deduction under section 80HHC. Even if the mineral falls under item (x) of the Twelfth Schedule the benefit of section 80HHC should not be denied.

7.10 The Karnataka High Court in the case of God Granites v. CBDT [1996] 218 ITR 298 had the occasion to explain the word 'processed' in the following paragraph:--

"The explanation makes it clear that for the purposes of the Twelfth Schedule, 'processed' in relation to any mineral or ore, means, the eight processes enumerated therein. When a defining provision of a statute, uses the word 'means', the definition is prima facie exhaustive and restricted to the description given therein. Thus, unless the rocks or granite undergo any of the processes specified in the Explanation to the Twelfth Schedule, it cannot be said the same are processed. It is, however, not necessary that the mineral or ore should undergo all the processes specified in the definition of 'processed'. Some of them will be applicable only to particular minerals or ores, and inapplicable to rocks or granite. The only process that is applicable to rocks and granite is process No. (d), that is, 'cutting and polishing'. Thus a rock which is one of the items listed in the Twelfth Schedule to attract the benefit of section 80HHC, should have undergone the process of 'cutting and polishing'. Even otherwise, the description of the mineral/ore in item (x) in the Twelfth Schedule by itself is clear. The prefix 'cut and polished' occurring before the words 'minerals and rocks' has to be read as being applicable to minerals and rocks and not to minerals only. It should be remembered that the term 'mineral' includes 'rock' and the term 'rock' includes 'granite'. In fact the purpose of item (x) could as well have been achieved by merely using the words 'cut and polished minerals', as 'minerals' include 'rocks' and 'granite', But to make the description clearer and emphasise the inclusion of rocks and its subspecies granite, the words 'and rocks including cut and polished granite' have been included."

Circular No. 729 dated 1-11-1995 of the CBDT also entitles cut and polished minerals and rocks to have the benefit of section 80HHC. For all the above submissions the findings of the Commissioner (Appeals) for the assessment years 1993-94 and 1994-95 are to be upheld and that of the Commissioner (Appeals) for the assessment year 1996-97 requires reversal.

8.1 We have heard the rival submissions and considered the facts and the materials on record including the materials placed on record by both the sides at the time of hearing. The business of the assessee is excavating mineral quartz from mine pits, processing them and to export the same to foreign countries in the sizes required by the customers. From the 'Notes on Quartz' filed in the assessee's paperbook at page 65 it transpires that quartz deposits are mostly in dry lands, unsuitable for cultivation. After identifying the deposits and getting the necessary mining leases, the over burdens are removed by using excavators, tipperlorries and human labour to expose the quartz mineral rocks. Then according to the nature of formation of the rocks, holes are drilled by compressors and drill rods to cut and remove smaller quartz rocks in convenient sizes, While thus cutting out from the mother rock the quartz becomes whitish and gets certain amount of shiny polishing on the cut faces. These rock pieces are further cut by making holes with compressors or by chisels and hammers. By this process all the sides are made whitish and shiny polished. Then any mudskin, patches, impurities and other mineral contaminations are removed by human labour using small hummers with cutting edges. At the Madras processing yard the quartz pieces are checked to remove any joints, impurities, other mineral contamination, etc. by dressing process using hammers with cutting edges and then such selected pieces are fed into crusher for crushing and passing through rotary screen to obtain the required size of quartz. Then the sized quartz pieces will be reselected and washed to remove any stains, dust, etc. and then for export.

8.2 From the above narration given on the working of the assessee it can be seen that the assessee, after removing the quartz rocks in convenient sizes from the earth further cuts the same with compressors or by chisels and hammers and then by applying human labour using small hammers with cutting edges impurities over such rock pieces are removed. Further dressing process also is undertaken by using hammers with cutting edges and then the same is crushed by feeding into the crusher to obtain the required size. Thus it can be seen that the assessee-firm was undertaking the process of cutting, dressing and crushing before the pieces of quartz rocks are made ready for export.

8.3 Now it is for us to see whether the process undertaken by the assessee firm would fall under item (i) or item (x) of the Twelfth Schedule of the Income-tax Act. Item (i) comprises therein as the thirteenth item the 'pulverized or micronised quartz'. Definitely the assessee's output may not fall under this category because the assessee has not undertaken pulverisation or micronisation. Now we are only left with item (x) of the Twelfth Schedule, which reads as under:--

"(x) Cut and polished minerals and rocks including cut and polished granite,"

From the above it can be seen that the schedule has not prescribed any specific mode of cutting and polishing of minerals and rocks, In our considered opinion the process of cutting and polishing can either be mechanised or manual. In this case on hand, as already discussed elsewhere, the assessee has been using compressors and drill rods in the cutting process and further has been using hammers and chisels for polishing the cut faces before the output is fed into the crushers for crushing the same into the required sizes. During the course of hearing the assessee had brought and shown to us the pieces of quartz rocks of various stages of shapes and sizes. On verification of the above we come to the conclusion that the assessee after getting the pieces cut out from the mother rocks, further by using small tools and manual labour gets them washed for removing the impurities and contamination etc. and dress them before making them ready for export. Thus the raw rock pieces get value addition before they are getting exported. Further, in item (x) of the Twelfth Schedule the phrase used is 'Cut and polished minerals and rocks including cut and polished granite', From the above phraseology it can be seen that it is only an inclusive one and not an exhaustive one. The mention of cut and polished granite in item (x) is only to cite an example and it does not restrict only to granite. Obviously there is no doubt about the fact that the cut pieces of quartz are parts of mother rock which had been excavated by the assessee and further processed to add value to it before being exported. Hence in our considered opinion whatever is not covered by item (i) to item (ix) of the Twelfth Schedule shall definitely fall under item (x) if it is cut and polished mineral or rock, It need not be granite alone. No matter if the same variety is finding place in any of the items from (i) to (ix) also. Some of the items such as item Nos. (i), (iv) and (vi) mention certain specific processes. It does not mean if the same material undergoes a different process other than those mentioned under the specific items mentioned in the Twelfth Schedule will not fall under the common item (x) if the conditions specified therein are complied with. Even the heading of the Twelfth Schedule is 'Processed Minerals and Ores'. The Commissioner (Appeals) in his order for the assessment year 1996-97 has raised an interesting question that if the word 'processed' is to be applied to the entire schedule (twelfth schedule) including the items against which the word 'processed' is not used, what would happen to the other types of processing mentioned against many of the items. In our considered opinion wherever specific processes are mentioned those processes would apply to the items mentioned against them in specific items and item (x) has been left open to cover all the items of minerals and rocks including cut and polished granite, even though the same item appears in any other clause of the Twelfth Schedule. The observation of the said Commissioner (Appeals) for the assessment year 1996-97, in our opinion, is a too narrow a view while interpreting the provisions of section 80HHC(2)(b)(ii). An incentive provision is to be viewed liberally.

8.4 In the Circular No. 729 dated 1-11-1995 it is mentioned as follows:

"When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting, but also, a certain amount of dressing and polishing is involved to remove various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hairline cracks, etc,"

From the above it can be understood that in the process of cutting itself the rock gets polished. In our considered view the word 'dimension' mentioned in the Circular does not mean that the sizes of the rock pieces should be mentioned in cubic metres than weight, as understood by the Assessing Officer. This is because there is nothing specifically mentioned in the circular or in the Twelfth Schedule that these are to be mentioned only in cubic metres.

8.5 In the Explanation to the Twelfth Schedule against item (d) it is mentioned as 'cutting and polishing', meaning thereby that cutting and polishing is one of the processes, which makes minerals and rocks covered by item (x) of the Twelfth Schedule eligible for claiming deduction under section 80HCC(2)(b)(ii). As can be seen from the detailed discussion above, in the case on hand, the assessee, in our considered opinion, is undertaking the process of cutting and polishing before the quartz (pieces of a particular type of rock) is exported. Thus the product of the assessee which is exported undergoes value addition before it is exported and after it is excavated from the earth. Thus in our considered view the assessee is covered by item (x) of the Twelfth Schedule and is eligible for deduction under section 80HHC.

8.6 The purpose of bringing section 80HHC into the statute book is to encourage exports. This is fortified further by the Circular No. 729 dated 1-11-1995 of the CBDT. The principles of ascertainment of intention of the law makers, updating construction of an ongoing Act, purposive construction, interpretation not to upset or impair the purpose of enactment of the provisions, harmonious construction, liberal interpretation and resolve the ambiguity in favour of the assessee, as discussed in paras 7.1 to 7.8 of this order are not to be lost sight of. By applying those principles enunciated by the various courts, as discussed in this order in the abovesaid paragraphs, in our considered opinion, the assessee firm is definitely entitled to the deduction under section 80HHC of the Income-tax Act as claimed by it in all the three assessment years.

8.7 Further, as submitted by the learned counsel for the assessee, the assessee's case is fortified by the fact that in the case of a similar assessee the decision of the Appellate Commissioner to allow section 80HHC deduction to that assessee has become final, since the department has not gone in appeal against that decision. That decision of the Commissioner (Appeals)-V, Madras is dated 12-1-1995 in the case of Rabi Venkatesan, Madras.

8.8 In view of the detailed discussion as narrated above in the light of the facts and the materials available on record and in the light of the Twelfth Schedule and the Circular No. 729 dated 1-11-1995 of the CBDT, we decide this issue in favour of the assessee and direct the Assessing Officer to allow the claim of the assessee in sums of Rs. 40,70,019 for the assessment year 1993-94, Rs. 55,31,752 for the assessment year 1994-95 and Rs. 68,80,920 for the assessment year 1996-97, as claimed by the assessee.

9. Now let us turn to the remaining ground relating to the claim of deduction under section 80-1 in respect of the assessment years 1993-94 and 1994-95 in the departmental appeals. Briefly stated, the facts of the case are that while framing the assessments under section 143(3) of the Act for the relevant assessment years the Assessing Officer was of the opinion that the assessee was only trading in non micronised quartz and not doing any manufacturing activity. He relied on the report of audit in Form 3CD (Col. 12), wherein explicitly it was stated that the assessee was only a trading concern. Hence the Assessing Officer rejected the claim of the assessee for deduction under section 80-I(1A) in a sum of Rs. 31,042 for the assessment year 1993-94 and Rs. 1,21,498 for the assessment year 1994-95. Aggrieved by this the assessee took the matter in appeal before the first appellate authority, who allowed the claim of the assessee for both the years under section 80-I.

10. Now the Revenue is aggrieved and is on appeal before the Tribunal with the following grounds of appeals:--

"1. The CIT(A) erred in holding that the assessee is entitled to deduction under section 80-I.

2. The CIT(A) failed to note that the activity of the assessee cannot be termed as manufacture or production of any article or thing.

3. The audit report clearly states that the assessee is a trading concern.

4. The CIT(A) ought to have appreciated that even the 'eight step-by step process' as enlisted by the assessee includes only excavation of the mineral, its cleaning, transportation and grading which cannot be termed as 'processing'."

At the time of hearing the learned departmental representative supported the orders of the Assessing Officer and reiterated as his submissions the grounds of appeal raised before us. On the other hand, the learned counsel for the assessee strongly supported the orders of the first appellate authority and contended that the word 'manufacture' includes 'processing'. He contended that the end-product is a different marketable commodity. He also relied on the following decisions of the Madras High Court:--

1. CIT v. Gopal (M.R.) [1965] 58 ITR 598 (Mad.).

2. CIT v. E.I.D. Parry (India) Ltd. [1996] 218 ITR 713 (Mad.).

11. We have heard the rival submissions and considered the facts and the materials on hand including the decisions relied upon by the learned counsel for the assessee. Sections 80H, 80HH, 80-I and 80J are more or less akin to one another and all these sections start with the following phrases:

"Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking..."

Hence, in our considered opinion the decisions rendered by courts in the context of sections 80H, 80HH and 80J would equally apply to section 80-I. Now let us consider certain decisions of the Supreme Court and the jurisdictional High Court in the succeeding paragraphs.

12.1 In the case of Lucky Minmat (P.) Ltd. v. CIT [2000] 245 ITR 830 (SC), the Hon'ble Supreme Court while considering the deduction under section 80HH of the Income-tax Act, has held as under:--

"Held dismissing the appeal, that the High Court had noted that the facts found by the Tribunal in the instant case were that 'the assessee had business of mining of limestone and marble blocks and thereafter cutting and sizing the same before being sold in the market'. The conversion into lime and lime dust or concrete by some crushers could legitimately be considered to be a manufacturing process while the mere mining of limestone and marble and cutting the same before it was sold in the market could not be so considered. The assessee was not entitled to special deduction under section 80HH of the Income-tax Act, 1961."

12.2 In the case of CIT v. Gem India Manufacturing Co. [2001] 249 ITR 307 (SC) the Hon'ble Supreme Court while dealing with deduction under section 80-I(with which we are concerned in the present case on hand) has held as under:--

"In the absence of any material to show that polished diamond is a new article or thing which is the result of manufacture or production, subjecting raw uncut diamonds to a process of cutting and polishing, which yields the polished diamond, cannot be said to amount to manufacture or production of an article or thing, for the purpose of obtaining the benefit of deduction under section 80-I of the Income-tax Act, 1961.n

Both the above decisions are rendered by a three-judge-Bench (Larger Bench) of the Supreme Court.

12.3 In the case of Gomatesh Granites the Hon'ble Madras High Court while dealing with the deduction under section 80HH and section 80J of the Income-tax Act, has held as under:--

"The extraction of granite could not be regarded as a result of manufacturing activity. Blasting of a granite block which was found in a natural formation involved only a process of cutting or removing part of a larger mass and the activity of removing a part from the larger block or hill though it involved labour, skill and effort and perhaps use of machinery as well, was not an activity which could be regarded as manufacture. The process involved in the work carried out by the assessee did not indicate the existence of any process involving any complexity or the transformation of what was already embedded in the larger mass into something new and different after the completion of the process. The granite block cut from the larger formation continued to remain granite only. The fact that labour was required to remove the block from a larger mass by itself could not be regarded as amounting to production. Washing the block and cutting rough edges could not also be regarded as a process of production. The activity of cutting the blocks into smaller sizes and polishing the same and thereafter exporting the polished slabs would not amount to production. Accordingly, the assessee was not entitled to benefit under sections 80J and 80HH of the Act."

In the above decision the Hon'ble Madras High Court has also considered its own earlier decision in the case of Gopal (M.R.) before coming to the conclusion.

12.4 In the case of CIT v. Sacs Eagles Chicory [2000] 241 ITR 319 (Mad.) the Hon'ble Madras High Court while dealing with deductions under sections 80HH, 80-I and 80J has held as under:--

"Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Manufacturing thus involves the consumption of one or more articles in order to produce a different article. Consumption is necessary in the process of manufacture and there can be no manufacture without consumption. Chicory roots and chicory powder have the common identity as chicory. The fact that processing is involved in obtaining chicory powder from chicory root does not inevitably lead to the conclusion that the process is one of manufacture. The fact that the chicory powder is used for consumption in combination with coffee powder does not make the chicory powder any different insofar as its identity is concerned as chicory. Chicory powder is chicory in powder form and nothing else. Mere change in form of the same commodity does not necessarily involve change of identity.

Held that the assessee-firm which was engaged in converting chicory roots into chicory powder was not an industrial undertaking eligible for deduction under sections 80HH, 80-1 and 80J of the Income-tax Act, 1961."

In this decision also the Hon'ble Madras High Court has considered its earlier decision in the case of Gopal (M.R.), before coming to the above conclusion.

12.5 From a combined reading of the above decisions of the Supreme Court and the Madras High Court it can be understood that to be an 'industrial undertaking' the assessee should be engaged in the 'manufacture of an article or thing'. From the decisions of the Apex Court in Minmat (P.) Ltd.'s case and Gem India Mfg. Co.'s case it is crystal clear that mining of marble blocks and cutting and polishing them would not amount to manufacture. Further from the decisions of the Hon'ble Madras High Court reported in Sacs Eagles Chicorys case and Gomatesh Granites' case it is evident that extraction of granite, cutting rough edges and polishing the same and conversion of chicory roots into chicory powder are not manufacture for the reason that the end-product is not different from that of the original product even though they are having a different form and shape. Further the Madras High Court has observed in the case of Sacs Eagles Chicory that the process of manufacture involves the consumption of one or more articles in order to produce a different article and consumption is necessary in the process of manufacture and there can be no manufacture without consumption. In the case on hand, in our considered opinion, there is no consumption involved in the process. Hence the process undertaken by the assessee in converting large mass of quartz into smaller sizes of required dimension cannot be considered as manufacture. Once there is no manufacturing activity the assessee is definitely not entitled for the deduction under section 80-I in view of the decisions of the Apex Court and the Hon'ble Madras High Court cited supra. The ratio of the decision relied upon by the learned counsel for the assessee in the case of EID Parry (India) Ltd. cannot be applied to the facts of the case on hand in view of the subsequent decisions of the Madras High Court cited supra and that of the Apex Court. Hence we are inclined to decide the issue relating to deduction under section 80-I of the Income-tax Act in favour of the revenue by allowing the Revenue's appeals in this regard.

13. In the result the appeal filed by the assessee in ITA No. 1618 (Mds.)/1998 for the assessment year 1996-97 is allowed and the appeals of the Revenue in ITA. Nos. 2477 (Mds.)/1996 for the assessment year 1993-94 and 1257 (Mds.)/1998 for the assessment year 1994-95 are partly allowed.

 

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