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CASE NO.: Appeal (civil)  319 of 2004

PETITIONER: M/s. Gem Granites        

RESPONDENT: Commnr. of Income Tax, Tamil Nadu

DATE OF JUDGMENT: 23/11/2004

BENCH: Ruma Pal, Arijit Pasayat & C.K. Thakker

JUDGMENT: J U D G M E N T

        WITH

C.A.NO.3962 OF 2003 AND SLP(C ) NOs.11251 of 2003 &  SLP(C ) No.8382 of 2004

RUMA PAL, J

The appellant exports granite.  According to the appellant  the granite is cut and polished before export.  The appellant  claims deduction under Sec. 80-HHC of the Income tax Act  1961 (hereinafter referred as ’the Act’) in respect of profits from  its export business.         The assessment year in question is 1987-1988.  Sec. 80- HHC as it then stood read as follows:

80HHC. Deduction in respect of profits  retained for export business.- (1)  Where an assessee, being an Indian  company or a person (other than a  company) resident in India, is engaged in  the business of export out of India of any  goods or merchandise to which the  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.

Xxx                     xxxx                    xxxx

2(a) This section applies to all goods or  merchandise, other than those specified  in clause (b), if the sale proceeds of such  goods or merchandise exported out of  India are receivable by the assessee in  convertible foreign exchange.

  (b)  This section does not apply to the  following goods or merchandise, namely:-        (i) mineral-oil; and        (ii) minerals and ores".

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       Thus an exporter of minerals could not avail of the benefit  of S.80 HHC. According to the appellant although granite is a  mineral, there was a distinction between granite in its raw form  and granite in its finished form or granite which has been  subjected to the process of cutting and polishing.  It is the  appellant’s case that when granite is so processed it ceases to  be a mineral.  It is also argued that the history of Sec. 80 HHC  would indicate that the object of the introduction of Sec.80-HHC  was to develop foreign markets and to earn foreign exchange.   With this object a distinction had been made between raw  mineral and processed mineral at all material times.  Reference  has been made to Circular issued by the Central Board of  Direct Taxes (CBDT) being Circular No. 178/206/83 dated  22.5.1984 which inter alia stated that the export of cut and  polished diamonds and gems would not amount to export of  minerals and ores and hence would qualify for relief under  Sec.80-HHC of Income tax Act 1961.  It is further submitted that  in 1991 the position was clarified by an amendment to Sec.80- HHC.  The amended Section in so far as it is relevant reads:

"(b) This section does not apply to the  following goods or merchandise, namely:- (i)     mineral oil; and (ii)    minerals and ores [(other than  processed minerals and ores  specified in the Twelfth  Schedule\005\005.\005\005\005\005\005\005 x) Cut  and polished minerals and rocks  including cut and polished  granite)]".

      Item No. (x) in the 12th Schedule specifies "cut and  polished minerals and rocks including cut and polished granite".   The position was further clarified, according to the appellant, by  a Circular issued by the CBDT in 1995 which while clarifying an  earlier Circular dated 7.11.1984 stated that any process applied  to granite would take it out of the category of mineral and  accordingly the profits derived from the export of such  processed granite would be eligible for deduction under Sec.80- HHC of the Act.  Reference has been made to decisions of this  Court in support of the proposition that subsequent legislation  could be looked into for the purpose of interpreting an earlier  statutory provision.  It is also the contention of the appellant that  the amendment was declaratory and therefore would take effect  from the date on which the Section 80HHC was introduced into  the statute.  According to the appellant Sec.80-HHC was  introduced to give an indirect incentive for the export of  processed products and would have therefore to be construed  keeping in view the context in which the benefit was granted.   That a liberal interpretation is to be given to such statutory  provision has been held by this Court in Commissioner of  Income-tax, Amritsar v. Strawboard Manufacturing Co.  1989 (177) ITR 431 at 433 and in  Bajaj Tempo Ltd. v.  Commissioner of Income- tax 1992 (196) ITR 188 at 193.   Reliance has also been placed on Chapters in the Customs  Tariff Act as well as Central Excise Tariff Act in which a  distinction has been drawn between minerals per se and  articles manufactured out of minerals.  Finally, it is submitted  that this interpretation sought for by the appellant was a  possible one which did no violence to the language of the  statute.  Therefore, in keeping with the object of the Section,  processed granite should not be included within the exclusion  of sub-sec. (2)(b) of Sec.80-HHC (as it stood prior to 1991) by  holding it to be a ’mineral’.  It is also agued that this Court in

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Stone Craft Enterprises v. Commissioner of Income Tax  1999 (3) SCC 343  had recognized the possibility of such an  interpretation but had, on the facts, found against the assessee  inasmuch as the assessee in that case had been unable to  prove that the granite exported had been cut and polished.         Learned counsel appearing on behalf of the Department  has submitted that the 1994 and 1995 Circulars did not apply to  the assessment years prior to the 1991 amendment of Sec.80- HHC.  As far as the 1984 circular is concerned, it is submitted  that the same only dealt with diamonds and not with granite.  It  is argued that had the intention of Parliament been to give  retrospective effect to the 1991 amendment, this would have  expressly been provided for.  It is submitted that there is no  reason for giving a restrictive interpretation to the word ’mineral’  as occurring in Sec.80-HHC (2)(b).  Certain authorities had  been cited to contend that the granite was in fact a mineral.         The High Court in this particular case proceeded on a  concession of counsel appearing on behalf of the assessee that  the issue, namely, whether the appellant was entitled to relief  under Sec.80-HHC in respect of the assessment year in  question was concluded against the assessee by the decision  of this Court in Stone Craft Enterprises v. Commissioner of  Income Tax (Supra) as well as by the decision of the Division  Bench of the Madras High Court in Commissioner of Income  Tax, Tamil Nadu IV v. M/s. Pooshya Exports (Pvt)  Ltd.  reported in (2003) 262  ITR 417.         The issue raised in this appeal is common to the other  appeals which are being disposed of by this judgment.  One of  the petitions, M/s. Mithy Granite (P) Ltd. v. Income Tax  Officer,  Bangalore (SLP(C) No. 8382/2004) has impugned  the decision of the Full Bench of the Karnataka High Court  which has taken the same view as the Madras High Court but  with a reasoned judgment.          Tax relief in respect of export turnover was granted for the  first time by the Finance Act 1982 by the introduction of  Sec.89A in the Act.  Section 89A provided for relief at a  particular percentage in respect of the export turnover for a  period of five years commencing from 1st April, 1983 on goods  and merchandise exported as specified by the Central  Government by Notification in the Official Gazette.  In  specifying such goods or merchandise for the benefit under  Sec.89A, sub-sec. (4) of Sec.89A provided that Central  Government shall have record to the following factors:

"(a) the cost of manufacture or production  of such goods or merchandise and prices  of similar goods or merchandise in the  foreign markets;

(b) the need to develop foreign markets  for such goods or merchandise;

(c) the need to earn foreign exchange;

(d) any other relevant factor".  

It is not the appellant’s case that the Central Government  had in fact specified granite or articles of granite for the purpose  of granting benefit under that Section. Sec.89A was subsequently re-enacted by the Finance Act  1983 as Sec.80-HHC of the Act.  Except for a change of  percentage of the rates of deduction permissible on the export  turnover, the substantive provision as quoted earlier continued  up to 1991.   In 1991 the general exclusion relating to export of

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minerals and ores from the benefit of Sec.80-HHC was itself  subjected to an exception as quoted earlier.  The primary  question therefore is whether this 1991 amendment was merely  clarificatory of the law as it always stood or whether it  introduced a benefit in respect of cut and polished granite for  the first time in 1991. The answer to this question would lie in the interpretation  of sub section 2(b) of Sec.80-HHB as it stood prior to its  amendment and as it stands after 1991.  That the word  ’mineral’ as used in sub section 2(b) to Sec.80-HHC is to be  widely construed has been decided by this Court in Stone Craft  Enterprises (supra) where it was held:

"The word "minerals" in sub-section (2)(b) of  section 80-HHC must be read in the context of  "mineral oil" and "ores" with which it is associated.   It seems to us that these words taken together are  intended to encompass all that may be extracted  from the earth.  All minerals extracted from the  earth, granite included must, therefore, be held to  be covered by the provisions of sub-section (2)(b)  of section 80-HHC, and the exporter thereof, is  therefore, disentitled to the benefit of that section".           There are no words of restriction which qualify the word  "minerals" and it would be reasonable to assume that in the  absence of any such limitation, the word must be read to  include all kinds of minerals in all its forms i.e. whether  subjected to any process or not as long as it continued to retain  the characteristics of the mineral.     To hold that the word  ’minerals’ never included processed minerals would require our  reading words of limitation into an otherwise clear and  unambiguous statutory provision.  There is no dispute that  granite is covered by the word ’minerals’ in the exclusionary  clause (b) of  sub sec. (2) of Sec.80-HHC.   It would follow that  for the unamended Sec.80-HHC(2)(b) cut and polished granite  would also be a mineral.         The introduction of the phrase "other than" in clause (b) of  sub-section 2 of Section 80 HHC in 1991 in our opinion,  indicates the carving out of a specific class from the generic  class of "minerals and ores". This means  that were it not for the  exception, the specified processed minerals and ores would  have been covered by the words ’minerals and ores’.   It also  indicates that only the minerals and ores subjected to the  process of cutting and polishing would be entitled  to the benefit  of Section 80 HHC meaning thereby that all other species of  processed minerals and ores would continue to be covered by  the general exclusion applicable to the generic class.  The 1991  Amendment to Sec.80-HHC thus conclusively demonstrates  that the words "minerals and ores" must be construed widely  and in an unrestricted manner. As has been held in   Municipal  Committee V. Manilal 1967 (2) SCR 100 and  Pappu Sweets  and Biscuits V. Commissioner of Trade Tax, U.P. 1998 (7)  SCC 228    subsequent legislation may be looked into  to fix the  proper interpretation to be put on the statutory provisions as it  stood earlier.   The benefit of Section 80 HHC has been  extended by the amendment to a specific kind of mineral and  was introduced for the first time in 1991. If we were to hold that  the word "minerals" in sub section 2(b) never included  processed minerals then the 1991 Amendment excepting  processed minerals from the exclusionary effect of the sub  section would be rendered meaningless and an exercise in  futility.  Every statute is prima facie prospective unless it is  expressly or by necessary implication made to have

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retrospective operation. [See: Keshavan  v. State of Bombay  AIR 1951 SC 128, 130]. There is nothing in the wording of the  1991 amendment to suggest that it was to operate  retrospectively.  Apart from the lack of any express words  indicating such intention, there is nothing in the statute from  which we can infer on any principle of interpretation that the  intention of Parliament was to give the amendment  retrospective effect.   An argument founded on what is claimed to be the  intention of  Parliament may have appeal but a Court of law has  to gather the object of the Statute from the language used.   What one may believe or think to be the intention of Parliament  cannot prevail if the language of the Statute does not support  that view.  It may be that the object of the introduction of  Section 80 HHC was to encourage export and as an incentive  to exporters to increase exports for the purpose of earning  foreign exchange to bolster up the country’s exports.  But the  object can be given effect to only if the statutory expression is  ambiguous.  There was no ambiguity in Sec. 80-HHC(2)(b)  prior to its amendment.  It does not in any event appear that the  Government had sought to grant blanket incentive to all  exports.  There is in the circumstances no warrant for reading  the word ’minerals’ as occurring in Section 80 HHC in any other  manner or in any restricted sense on the basis of any  policy of  the Government at the relevant point of time. On the contrary  the history of Section 80 HHC as narrated by us would show  that there has been a cautious and gradual extension of the  field of operation of Section 80 HHC.  The 1994 circular also  speaks of  the Finance Act 1991 extending the benefit of  Section 80 HHC to export of processed minerals and ores  mentioned in the 12th Schedule to the Act.         No support to the appellant’s contention can also be  drawn from the 1984 circular which reads thus:

"Export of cut and polished diamonds and  gem stones \026 Whether eligible for  deduction under section 80 HHC  

’Section 80HHC has been inserted in the  Income-tax Act, 1961, by the Finance Act,  1983, and the deduction under this provision  is admissible in relation to assessment year  1983-84 and subsequent years.  The tax  concession is, however, not admissible in  relation to export of, inter alia, minerals and  ores.

2. The Board has received a large number of  references on whether the export of cut and  polished diamonds and gem stones will qualify  for deduction under section 80HHC.  The  Board are advised of the following features in  the export of cut and polished diamonds and  gem stones:          (i)     No export of raw diamonds is permitted  under the import and export regulations.

(ii)    Export from India takes place of cut and  polished diamonds.

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(iii)   Raw diamonds imported from abroad  after being cut and polished are  exported in the processed form and this  will be supported by documents  scrutinized and certified by the Customs  Department.

(iv)    Import of rough diamonds is allowed as  replenishment against the actual exports  of cut and polished diamonds, after the  actual exports take place, not  necessarily in the previous year.

(v)     Import of rough diamonds is allowed as  replenishment on the basis of licences  issued by the Joint Chief Controller of  Imports and Exports, on the basis of the  requisite documents produced by the  exporters.

     Rough diamonds are also allowed to be  imported on the basis of import licence  issued by the licencing authorities for which  the importer has to execute a bond with the  Government of India for re-export after  cutting and polishing within a prescribed time  for a value worked out on a given formula.   Detailed procedure in this regard is  explained in the Import-Export Policy.

3.  In view of the position brought by the  above features, the export of cut and  polished diamonds and gem stones will not  amount to export of "minerals and ores" and  hence will qualify for relief under section  80HHC of the Income-tax Act, 1961".

[Source: Circular letter F.No.178/206/83-IT  (A-I) dated 22nd May, 1984.]

       It is clear from the language used that the CBDT gave its  understanding of sub-section 2(b) of Section 80HHC as it stood  prior to the 1991 amendment with regard to  diamonds and gem  stones alone having regard to the peculiar facts and features  relating to the export and import of diamonds.  Apart from the  fact that the circular contains no reference to granite at all, we  are not prepared to extend the understanding of the Board  with  regard to exclusion of cut and polished gems from the word  "minerals" to granite in the absence of the special features  mentioned in the 1984 Circular, more so when the statute itself  has not drawn any such distinction.   The 1994 and 1995 notifications both relate to the  interpretation of item No. (x) in the Twelfth Schedule read with  Section 80 HHC as amended in 1991.   They are confined to an  exposition of the phrase of "cut and polished" used in Item No.  (x) and do not seek to interpret the word ’minerals’ in general.   The 1994 circular clarified that the phrase ’cut and polished’  minerals meant exactly that and could not be extended to any  other process. The 1995 circular  modified the rigour of the  1994 circular to the extent that it recognized some other  processes as falling within the phrase ’cut and polished’.  Both  circulars clearly state that benefit of Section 80 HHC was  available to cut and polished granite only with effect from 1.4.91  by virtue of insertion of item (x) in the Twelfth Schedule to the

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Act.         Doubtless, the Customs Tariff Act and the Central Excise  Tariff Act both draw a distinction between minerals and  processed minerals.  For example in Chapter 27  of the  Customs Tariff, a distinction has been drawn between mineral  fuels, mineral oils and mineral products.  However a  classification which is relevant for the purpose of determination  of rate of duty cannot be imported into the Income tax Act which  makes no such distinction.

        Consequently, even if the concession of the appellant  before the High Court is ignored, the benefit of Section 80 HHC  cannot be granted to the appellant for the Assessment Year in  question.  The appeal is accordingly dismissed without any  order as to costs.

Civil Appeal No. 3962 of 2003         In this case, the High Court has clearly proceeded on a  mis-reading of the 1984 circular by holding that the circular  expressly provided  that polished  and processed granite did  not fall within the meaning of the word  "minerals" occurring in  sub-clause (b) of sub-section (2) of Section 80 HHC as it stood  before 1991.  It did nothing of the sort. The judgment cannot,  therefore, be sustained.  In view of our conclusion in Civil Apeal  No. 319 of 2004 \026 M/s Gem Granites V. Commnr. Of Income  Tax, Tamil Nadu, we set aside the decision of the High Court  and allow the Department’s appeal.   

CIVIL APPEAL NO.     OF  2004 (Arising out of SLPs.  11251/03 & 8382 of 2004

       Leave granted.         For the reasons stated in Civil Appeal No. 319 of 2004,  these appeals are dismissed.