TMI Blog2003 (4) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed this deduction under section 80HHC amounting to Rs. 10,16,493 which, consequent to appellate order being given appeal effect, was reduced to Rs. 9,82,426. However, on 21st December, 1994, the CIT issued a notice under section 263 which, inter alia, stated that deduction under section 80HHC, on account of export proceeds from fine mica which is processed from raw mica, was erroneously allowed to the assessee as 'at the relevant time, minerals and ores, including processed minerals and ores, stood specifically excluded from the benefits of section 80HHC". Accordingly, the assessee was required to show cause as to why the CIT should not exercise his powers under section 263 to direct the Assessing Officer to withdraw the deduction under section 80HHC. Pursuant to the opportunity granted by the CIT, the assessee filed elaborate written submissions vide letter dated 8th February, 1995, but the CIT was not impressed. It was in the backdrop of these facts that the CIT passed the impugned order which, inter al" stated as follows: "The mineral in the form of raw mica extracted had admittedly undergone certain processes before export but they retain the basic character of minerals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that- "It is necessary immediately to note that the Mines and Minerals (Regulation and Development) Act covers granite as a minor mineral. This Court in the State of Mysore v. Swamy Satyanand Saraswati (dead) by his Lrs. AIR 1971 SC 1569 has held that granite is a mineral. The Court quoted Halsbury Laws of England thus: 'The test of what is a mineral is what, at the date of instrument in question, the word meant in the vernacular of the mining world, the commercial world, and among land owners, and in case of conflict this meaning must prevail over the purely scientific meaning.' No material was laid by the assessee before the Tribunal to suggest that in the export world granite was treated as anything but a mineral.' The above observations make it clear that the question as to what constitutes a 'mineral' has to be answered having regard to what "the word meant in the vernacular of the mining world, the commercial world,....and in case of conflict this meaning must prevail over the purely scientific meaning'. The Hon'ble Supreme Court, in the above light, took note of the fact that there was nothing before the Tribunal to suggest that "in the export world, granite was treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are referred to as a "scrap" and which are in the form of irregular shapes and are only slightly less clear or pure. Other items are mica splittings, mica condenser films, mica powder, micanite, silvered mica, punched mica, mica paper, mica tapes, mica flakes. All these products of mica mineral and mica are processed items. 4. The processed mica and products derived from processing of mica minerals and mica ore will not amount to export of minerals and ores and hence will qualify for relief under section 80HHC of the Income tax Act, 1961." 5. It is clear from the above discussions that 'processed minerals' and 'minerals' cannot always be treated at par. This position has duly been accepted by the Revenue and even in assessment years prior to 1991-92, the Board has treated 'processed minerals'. In certain conditions, eligible for deduction under section 80HHC. The Hon'ble Supreme Court has also observed, quoting Halsbury Laws of England, that in such cases commercial meaning of the words must give way to purely scientific meanings of these words. Let us now come back to the facts of this case. 9. It is an admitted position that, as observed by the CIT himself, in the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ca. On the above basis, the Assessing Officer has allowed the assessee's claim under section 80HHC of the Act." While passing the impugned order, the CIT did not deal with the above contentions. Even before us, the ld. DR has not been able to meet the points made by the assessee. 10. In the light of the above discussions, we are of the considered view that the CIT did not have any material to hold that the goods exported by the assessee retained the basic character of "mineral". In any case, there was value addition to the raw mica and it is also undisputed position that, as per export bills raised by the assessee, the assessee had exported fabricated mica - "electronic components and silvered mica for capacitors, mica blocks and condensor films, fabricated ruby mica etc." Clearly, therefore, such processed minerals are not at par with 'mineral' per se so far as commercial meaning of the word 'mineral' is concerned. No doubt, in scientific terms, those products may retain the character of mineral but, as observed by the Hon'ble Supreme Court in Stonecraft Enterprises' case, commercial meaning of the words must give way to the scientific meaning of those words. This view also fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to endorse the view taken by my learned brother. On the other hand, I agree with the order of the Commissioner of Income-tax passed under section 263 for the reasons mentioned therein and the same is hereby upheld. 15. In the result, the Commissioner of Income-tax was right to withdraw the deduction which was wrongly given to the assessee. So, I dismiss the appeal filed by the assessee. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961. As there is a difference of opinion between the Members, we refer the following point to the Hon'ble President, Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the assessee was eligible for deduction under section 80HHC of the Income-tax Act, 1961 for the assessment year under consideration (1990-91) in respect of export of fabricated Mica products, particularly as amendment in section 80HHC(2)(b) was effective from 1st April, 1991 (assessment year 1991-1992)?" THIRD MEMBER ORDER Per Shri M.A. Bakshi Vice-President-- Appeal of the assessee was earlier heard by 'B' Bench of the Tribunal constituted of two Members. Since there was a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee. The CIT-II, Kolkata on perusal of the assessment record found that the deduction claimed by the assessee at Rs. 10,16,493 under section 80HHC of the Income-tax Act, 1961, having been reduced to Rs. 9,82,426 as a result of CIT(A)'s order, was wrongly allowed to the assessee insofar as deduction was not permissible on the export of minerals and ores. It has been pointed out by the CIT that export of the processed minerals as specified in XIIth Schedule qualify for deduction under section 80HHC with effect from 1-4-1991 only and, therefore, the action of the Assessing Officer in allowing the deduction to the assessee for the assessment year 1990-91 was erroneous insofar as prejudicial to the interests of the Revenue. He had, accordingly, issued a show-cause notice to the assessee and after hearing the arguments came to the conclusion that the assessee was not entitled to deduction under section 80HHC. The Assessing Officer was, accordingly, directed to revise the order of assessment withdrawing the benefit of deduction under section 80HHC. 7. The learned counsel for the assessee pleaded that the view expressed by the Ld. Accountant Member is the appropriate vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. Asstt. Director [1980] 123 ITR 899 in support of the contention. It was pointed out that in the case of Stone Craft Enterprises the issue was as to whether granite is a mineral. Their Lordships of the Supreme Court held in favour of the Revenue on the ground that there was nothing on record to indicate that what the assessee exports is value added granite. It was further contended that the Ld. CIT has admitted in the impugned order that the assessee was purchasing raw Mica and processing the same. Reliance was placed on the decision of the Karnataka High Court in the case of CIT v. God Granites [1999] 240 ITR 343 in which Their Lordships held that the processed cut and polished granite exported qualify for deduction under section 80HHC. Reliance was also placed on the decision of the Calcutta High Court in the case of CIT v. East India Hotels Ltd. [1994] 209 ITR 854 wherein Their Lordships have held that the processing/cooking of food and supplying the same for consumption of air passengers in bulk amounted to the production of articles and things and thus assessee was entitled to deduction under section 80J. It was pointed out that the earlier judgment in the case of CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowed from India. It was, accordingly, pleaded that the order passed by the CIT under section 263 was without jurisdiction and may, accordingly, be cancelled. 10. The learned Departmental Representative, on the other hand, stated that it is not disputed that the assessee had applied various processes to the raw Mica before exporting the same. However, the moot question is as to whether such processing altered the mineralogical identity of Mica. According to the Ld. Departmental Representative the answer is no. It was further contended by the Ld. Departmental Representative that in the products exported by the assessee the original mineralogical properties of Mica were required to be retained otherwise the products could not have been used for specific purposes. It was pointed out that though the product was processed by the assessee but the products emerging after processing was not a different product with properties different from Mica. It was further contended by the Ld. Departmental Representative that the Legislature had in its wisdom extended the benefit of deduction under section 80HHC to the processed minerals and ores with effect from 1-4-1991 and, therefore, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise: (2)(a) (b) This section does not apply to the following goods or merchandise, namely:-- (i) mineral oil; and (ii) minerals and ores." 12. As is evident from above, section 80HHC provides for deduction in respect of goods exported by the assessee except in respect of the export of goods specified under sub-section (2) of the said section. It is not disputed that for the assessment year 1990-91 minerals and ores were one of the items mentioned under sub-section (2) of section 80HHC on the export of which deduction under section 80HHC was not permissible. With effect from 1-4-1991 section 80HHC(2)(b) was amended to read as under: "(i) Mineral oil, and (ii) minerals ores (other than processed minerals and ores specified in the Twelfth Schedule.) THE TWELFTH SCHEDULE [See section 80HHC(2)(b)(ii)] PROCESSED MINERALS AND ORES (i) to (iv)*** (v) Mica blocks, mica splittings, mica condenser films, mica powder, mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1991-92 and subsequent years." 15. It is observed from the notes and clauses of Finance (No. 2) Act, 1991 that by the amendment of section 80HHC(2)(b) the Legislature sought to extend the benefit of deduction under section 80HHC in respect of profits derived from export of processed minerals and ores specified in XIIth Schedule. A pertinent question requiring consideration raised by the Ld. Judicial Member as also by the Ld. Departmental Representative, is as to what was the necessity for the Legislature to amend section 80HHC(2)(b) when deduction under the said section was permissible in respect of the processed minerals even before the incorporation of the amendment. 16. At this stage it would be relevant to refer to certain principles of interpretation. It is well established principle of law that no word or expression used in any statute can be said to be redundant or superfluous. Their Lordships of the Supreme Court in the case of CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC) held that no part of the provision of statute can be just ignored by saying that the Legislature enacted it not knowing what it was saying". Similar view has been expressed by Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, lifting these granite logs either manually or with the help of cranes, dressing, shaping, sizing, colouring and giving uniform grains to these stones etc., and the process also involved removing of certain natural flows such as airpores, veins, cracks, etc., in order to ensure quality of the product. Certain chemical impurities are also required to be removed in special manufacturing process, which requires special machines/equipments, etc., like jet burners block cutters, vertical and horizontal drilling machines, etc." 20. On these facts, Their Lordships of the Madras High Court held as under:-- "It is well-settled principle of construction of the provisions that when the Legislature enacts law, the law must be understood with reference to the language used in the provisions and construed in the light of the scheme of the Act and object of the statute and provisions therein. If the provision is introduced with a view to confer a benefit, which had not been conferred before such introduction, even though the provision to which the amendment was incorporated is beneficial provision that does not necessarily imply that the amendment is to be given retrospective effect even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced hereunder: "19. Mr. George, learned counsel, put forth yet another contention that granite blocks exported by the assessee is not mineral for the purpose of section 80HHC, though in common parlance granite may be considered as mineral, by drawing support from the Circular No. 729 dated 1st November 1995. In the circular in para 3 the CBDT recorded its opinion to the effect that while granite alone can be considered as mineral, any process applied to granite would deprive the quality of rough mineral from the dimensional blocks of granite, which is a value added marketable commodity. 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 and become a value added marketable commodity and accordingly be eligible for deduction under section 80HHC of the Act. This circular and the earlier Circular dated 17-11-1994, were issued to clarify the goods which are included for the benefit under section 80HHC by means of the amendment from 1-4 1991, onwards. When we concluded that the amended provision itself i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minerals in the commercial world. 24. There is no dispute that deduction under section SOHHC was not permissible on minerals and ores which had not been processed. It would be relevant to understand the meaning of the word "minerals". Their Lordships of the Supreme Court in the case of Stone Craft Enterprises explained the meaning of the word "minerals" as under: "... Entries in the Schedules of sales tax and excise statutes list some articles separately and some articles are grouped together. When they are grouped together, each word in the entry draws colour from the other words therein. This is the principle of noscitur a sociis." It was submitted, based upon this doctrine, that the word "minerals" in section 80HHC should be read in the context of the word "ores" with which it was associated and must draw colour therefrom; that is to say, it must read as referring only to such minerals as are extracted from ores and not others, thus excluding granite. We agree that the said doctrine is applicable. The word "minerals" in sub-section (2)(b) of section 80HHC must be read in the context of "mineral oil" and "ores" with which it is associated. It seems to us that these words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognised as a new and distinct article that a manufacture can be said to take place." 27. In the case of Chowgule Ca Ltd v. UOI [1981] 47 STC 124 (SC) the Hon'ble Supreme Court was required to consider whether blending of ore in the course of loading it into the ship through the mechanical ore handling plant constituted manufacture or processing of ore. The Supreme Court applied the test : "does the processing of the original commodity bring into existence a commercially different and distinct commodity ? On application of this test, it was held that the blending of different qualities of ore processing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve any process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article namely, ore, though with different specifications than the ore which is blended and, hence, it cannot be said that any process of manufacture is involved in the blending of ore. In the aforesaid case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced hereunder: Previous year Rs. P. Rs. P. 46,73,634 To Opening stock: Mica 2,98,966,650 Gm. 71,33,626.05 Stores 63,850.15 71,97,476.20 ---------------- ------------ 1,23,36,701 To Mica Purchases Kg.1,69,946,470 Gm 1,21,15,792.54 To Stores Purchases 1,04,531.85 1,22,20,324.39 ------------ 3,72,574 To Wages For: Cutting Sortings 1,34,789.74 Splittings 28,083.57 CondenserPassing/opening 1,79,554.50 Leave Wages Others 21,232.90 69,926 To Cartage, Collies Transport 3,63,660.71 2,51,429 To Shipping charges 1,01,766.16 98,327 To Packing Charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials: (a) Opening Stock : Nil (b) Purchase during the year : Nil (c) Consumption during the year : Nil (d) Sales during the year : Nil (e) Closing Stock : Nil (f) Yield of finished products : Nil (g) Percentage of yield : Nil (h) Shortage : Nil Finished Products: (Mica) (a) Opening Stock : 2,98,966.650 Grm. (b) Purchase during the year : 1,69,946.470 Grm. (c) Quantity manufactured during the year : Nil ----------------- 4,68,913.120 Grm (d) Sales during the year 1,28,306,630 Grm. ----------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant Member has relied upon the above quoted portion of the decision of the Supreme Court, i.e., "The test of what is a mineral is what, at the date of instrument in question, the word meant in the vernacular of the mining world, the commercial world, and among land owners, and in case of conflict this meaning must prevail over the purely scientific meaning." But the following observation in the same decision is equally relevant, i.e. "No material was laid by the assessee before the Tribunal to suggest that in the export world granite was treated as anything but a mineral." The Ld. Accountant Member has been guided by the commercial names given to the items exported by the assessee. This approach in my view may not be based on sound foundation. In the case of Stone Craft Enterprises, Their Lordships of the Supreme Court held that granite is a mineral and f alls within the ambit of restriction under section 80HHC(2). Taking a queue from the aforementioned decisions of the Supreme Court in the above case, it is evident that the mere fact that a mineral is known as granite in the commercial world it does not cease to be a mineral merely because it is not termed as mineral in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appreciating this distinction. In this case Their Lordships of the Supreme Court held that "The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables, meat or the like cannot be regarded as a commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced." 37. Therefore, in my view, the relevant question that falls for consideration is as to whether the products exported by the assessee were the products not recognized as mineral in the commercial world. In this connection the parties have placed before me a booklet titled "The Story of Mica by M.L. Rajgarhia for Mica Manufacturing Co. Pvt. Ltd." the Ld. Author of "The Story of Mica" has explained the various kinds of Mica and the processed Mica. The source of the findings recorded by the Ld. Author is as follows:-- "1. US Tariff Commission: The Mica Industry, Report 130, 2nd series 1938, pp. 155. (2) Rajgarhia, C.M. Mining, Processing and Uses of Indian Mica, McGraw Hill Book Co. Inc., New York, N.Y. 1951, pp. 388. (3) Millford L. Skew : Mica - A Materials Survey, Information Circular 8125, US Dept. of the Interior, Bureau of--Mine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, reeves, cross-grains and other physical defects to obtain the maximum usable area with minimum wastage. The trimming of mica is a skilled hand-operation job in which cracks and imperfections are removed at the edges of the sheets using a knife while saving the best area of usable sheet, the knife-dressed sheet mica of irregular polygonal shapes are finally graded into different standard sizes and commercial qualities before they are offered for marketing." The Ld. Author has further pointed out that for commercial purposes, natural mica may chiefly be divided into the following categories: (1) Processed Mica; (2) Fabricated Mica; (3) Micanite or Built-up Mica; (4) Mica Paper or Reconstituted Mica; (5) Ground Mica The Ld. Author has further pointed out that processed mica for commercial purposes is classified in four different forms on the basis of thickness and quality, such as--(a) Block Mica, (b) Thin Mica, (c) Film Mica, and (d) Splitting Mica. The Author has explained the nature of these four types of Mica as under:-- "Block Mica: Knife dressed sheet mica of a minimum thickness of 0. 18 mm (0.007 inch), is called Block mica. Block mica is obtained in size as large as 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent varieties or different quality of natural mica. These items are recognized as different forms or different kinds of mica which undoubtedly is a mineral. Therefore, the view expressed by the Ld. Accountant Member that the processed minerals exported by the assessee do not fall within the ambit of minerals and ores is not supported by any material on record. On the contrary, taking into account the legislative intention in the light of the amendment of section 80HHC(2) with effect from 1-4-1991 it becomes abundantly clear that the processed mica, the end-product of which does not lose the recognition as a mineral, is included in the category of goods is respect of which deduction under section 80HHC(2) was not permissible upto assessment year 1990-91. I, therefore, agree with the conclusion of the Ld. Judicial Member that the assessee was not entitled to deduction under section 80HHC for assessment year 1990-91 in respect of the export of processed mica products. 40. Incidentally it may be pointed out that the Assessing Officer seems to have been conscious of the fact that the assessee was engaged in the processing of raw mica. It was thus incumbent upon him to find out as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any provision of law made by the Legislature is superfluous. In the light of the aforementioned facts and circumstances, the decision of the Tribunal is of no assistance to support the claim of the assessee. 42. It may be pertinent to mention that the decision in the case of God Granites relied upon by the assessee's representative is in respect of assessment years 1992-93, 1993-94 and 1994-95, i.e., after the amendment of section 80HHC(2)(b). Therefore, the said decision is of no assistance. The decision of the Calcutta High Court in the case of East India Hotels Ltd relating to the meaning of the words manufacture and production is implies overruled by the Hon'ble Supreme Court in the case of India Hotels Co. Ltd. In the case of Chrestien Mica Industries Ltd., the issue in the Supreme Court related to as to whether the of mining mica is a process of production within the meaning Of section 2(g) of the Bihar Sales Tax Act, 1947. Therefore, the ratio of the said decision is inapplicable to the controversy involved in this case. Similarly CBDT Instructions [F.No. 178/206/83 (IT)(Al) dated 22-5-1984] relates to cut and pol4bed diamonds and is not relating to mica products. More ..... X X X X Extracts X X X X X X X X Extracts X X X X
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