Full Judgment Text
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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.