TMI Blog2001 (10) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognised 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 Go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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