Case: M/s. Gem Granites Vs. Commissioner of Income Tax, Tamil Nadu

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 of 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. 17. No support to the appellants 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 regulations.(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.) 18. 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.19. The 1994 and 1995 notifications both relate to the interpretation of item No. (x) in the Twelfth Schedule read with Section 80HHC 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.20. 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.21. 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 22. 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 Appeal No. 319 of 2004 - M/s. Gem Granites vs. Commnr. of Income Tax, Tamil Nadu, we set aside the decision of the High Court and allow the Departments appeal. Civil Appeal No. 7574 & 7573 of 2004 (Arising out of SLPs. 11251/03 & 8382 of 2004 23. Leave granted. 24. Fo

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]16. 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 countrys 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 of 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.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.19. The 1994 and 1995 notifications both relate to the interpretation of item No. (x) in the Twelfth Schedule read with Section 80HHC 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.20. 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.21. 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.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 Appeal No. 319 of 2004 - M/s. Gem Granites vs. Commnr. of Income Tax, Tamil Nadu, we set aside the decision of the High Court and allow the Departments appeal.