Gem Granites Vs. Commnr. of Income Tax, Tamil Nadu  Insc 710 (23 November
Ruma Pal, Arijit Pasayat & C.K. Thakker 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
(b) This section does not apply to the following goods or merchandise,
namely:- (i) mineral-oil; and (ii) minerals and ores".
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. 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
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 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
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
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 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
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 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
(ii) Export from India takes place of cut and polished diamonds.
(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 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 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