ORDER Pramod Kumar, A.M.
1.This appeal is directed against the order dt. 31st Jan., 1995, passed by the CIT, West Bengal-II, Calcutta, under Section 263 of the IT Act, 1961. Although the assessee has raised as many as seven grounds of appeal, the assessee's only substantive grievance is that the assessment order sought to be revised by the CIT was not erroneous at all and, as such, the CIT's interference was uncalled for.
2. The issue in appeal lies within narrow compass of facts. The assessee is engaged in the business of processing raw mica and converting the same into 'fine mica' and 'fabricated mica products'. It is on export sales of these mica products that deduction under Section 80HHC was claimed by the assessee and the same was allowed in the assessment under Section 143(3) for the assessment year in question, which was completed on 4th Feb., 1993. The assessee was 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 Dec., 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 AO to withdraw the deduction under Section 80HHC. Pursuant to the opportunity granted by the CIT, the assessee filed elaborate written submissions vide letter dt. 8th Feb., 1955 (a copy of which is also filed before us at paper book page Nos. 1 to 8), but the CIT was not impressed. It was in the backdrop of these facts that the CIT passed the impugned order which, inter alia, 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 and for the reasons already stated the processed or polished raw mica would not come within the ambit of the Section 80HHC for any assessment year prior to asst. yr. 1991-92. I, therefore, direct the AO to revise the order of the assessment, withdrawing the benefit of deduction under Section 80HHC granted earlier to the assessee in the order of the assessment passed on 4th Feb., 1993."
3. Aggrieved by the aforesaid order passed by the CIT, the assessee is in appeal before us.
4. Rival contentions are conscientiously heard, order of the CIT as well as other documents filed before us carefully perused and relevant judicial precedent duly deliberated upon,
5. We find that, as evident from the show-cause notice dt. 21st Dec., 1994, the CIT has proceeded on the basis that "at the relevant point of time, minerals and ores, including processed minerals and ores, stood specifically excluded from the benefits of Section 80HHC". This stand is fallacious inasmuch as the words "including processed minerals and ores" were never on the statute book and, therefore, "processed minerals and ores" were never specifically excluded for the purpose of benefits of Section 80HHC. Section 80HHC(2)(b), as it then stood, read as follows :
"(b) This section does not apply to the following goods or merchandise, namely :
(i) mineral oil; and
(ii) minerals and ores"
It is well-settled in law that 'casus omissus' cannot be inferred while interpretating a legal provision. One of the important questions, therefore, is whether "processed minerals and ores" can always be said to belong to the same genus as "minerals and ores" for the purposes of IT Act.
6. Hon'ble Supreme Court's judgment in the case of Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC) seems to be relevant in this context, wherein the Tribunal had given a finding to the effect that 'granite' is a mineral under Section 80HHC(2)(b)(ii) and, accordingly, the assessee was not entitled to the claim of deduction under Section 80HHC. Hon'ble Supreme Court took note of the fact that "there is nothing on record to indicate that what the assessee exports is such value added granite so that even assuming that the said circular (dt. 1st Nov., 1995) is explanatory and, can, therefore, relate back to year in question, the assessee cannot derive any assistance therefrom". Their Lordships then observed 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 treated as anything but a mineral". In our considered view, it can thus be concluded that one of the material factors, to decide whether or not a processed mineral will be covered by the definition of "mineral or ores" is whether such a processed mineral is treated as a mineral per se in the commercial world or in the vernacular of the mining world. In our view, another important factor is the aspect of value addition during the course of processing of mineral. This aspect of the matter has also been noted by the Hon'ble Supreme Court.
7. We also find that as per CBDT Instruction (F. No. 178/206/83-IT.AI) dt. 22nd May, 1984 ('Direct Tax Circulars by, Taxman Vol. 1; p. 1965), "the export of cut and polished diamonds and gem stones will not amount to export of 'minerals and ores' and hence qualify for relief under Section 80HHC". In coming to this conclusion, the Board was, inter alia, persuaded by the reasons that "no export of raw diamonds is permitted under the import and export regulations" and that "export from India takes place of cut and polished diamonds". Referring to this very CBDT instruction, the CBDT issued following Instruction dt. 27th July, 1994, in the matter of deduction under Section 80HHC in respect of processed mica :
"Sub-section (2)(b) of Section 80HHC provides that the deduction under Section 80HHC shall not apply to minerals and ores. With effect from 1st April, 1991, processed minerals and ores specified in Twelfth Schedule are eligible for relief under this section.
2. The Board had an occasion to examine the scope of expression 'minerals and ores' in connection with certain processing of diamonds. It was clarified vide Instruction Nos. 1562, dt. 22nd May, 1984, that 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 IT Act, 1961.
3. In the case of mica, the mineral/ore is subjected to several processing operations such as disintegration, washing, drying and removal of alien metals such as ferrous and non-ferrous elements by using mechanical and other electrical implements and aids. Thereafter, the crude mica which is derived, is further subjected to cutting, polishing and shaping operations which yields various products which are known in the market by various names such as blocks in the form of regular shapes and blocks 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 condensor 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 (sic-not) qualify for relief under Section 80HHC of the IT Act, 1961.
8. 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, as observed by the CIT himself, in the impugned order, that "the mineral in the form of raw mica extracted had admittedly undergone some process before export", though the CIT has further observed that "but they (final products) retain the basic character of minerals". Our careful perusal of documents before us do not, however, support the position that these final products retain the character of minerals, nor has the learned Departmental Representative been able to effectively discharge the onus of proving so. On the contrary, we find that the assessee had, inter alia, made following submission, vide letter dt. 8th Feb., 1995, before the CIT and which have not been refuted by the Revenue :
"That your assessee purchases from the market raw mica block as obtained from mica mines. Out of such raw mica, your assessee-company manufactures electronic fabricated mica products. The assessee-company also manufactures mica plates and blocks which are used for protection from heat. Specimen of crude mica purchased by the assessee-company and the products manufactured therefrom are produced herewith. Your assessee-company exports these processed products manufactured from mica. These products are termed as mica tubes, mica insulators, mica strainer cores, mica for soldering iron, mica tubes & washers, gaskets, protectors, etc. The sheets are also used as mica windows for kerosene heaters and stoves. These window sheets are either rectangular or oval or round in shape. A set of leaflets describing these products are manufactured by your assessee-company is also enclosed and marked with the letter 'A'. Your assessee-company is registered with the Engineering Export Promotion Council for export of electronic components manufactured or processed and fabricated out of mica. Your assessee is registered with the Council as manufacturer-exporter. A set of various bills raised by the assessee-company during the relevant previous year is also enclosed. It will be seen therefrom that the assessee-company has exported fabricated mica--electronic components and silvered mica for capacitors, mica blocks and condenser films, fabricated ruby mica, etc. Copies of such specimen bills enclosed are collectively market (sic-marked) with the letter "B". It will be seen therefrom that the assessee-company has exported products manufactured out of crude mica. It will also be seen from the record that the assessee-company has not exported at any time crude mica. On the above basis, the AO has allowed the assessee's claim under Section 80HHC of the Act. "
(copy of the above letter filed before us at pp. 1 and 2 of the paper book) While passing the impugned order, the CIT did not deal with the above contentions. Even before us, the learned Departmental Representative 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 'minerals' 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 v. CIT (supra), commercial meaning of the words must give way to the scientific meaning of those words. This view also finds some support from CBDT Instruction dt. 27th July, 1994 (supra) which, a view can indeed be taken, is equally applicable for the assessment years prior to asst. yr. 1991-92 for the reasons that it seeks to draw analogy with CBDT Instruction dt. 22nd May, 1984, which is admittedly in the context of law prevailing prior to 1st April, 1991. However, as we have arrived at our conclusion in the light of the assessee's uncontroverted submission about commercial description of products and in the light of Hon'ble Supreme Court's guidance on what will constitute 'mineral', we see no need to further examine the impact of CBDT Instruction dt. 27th July, 1994.
11. We are, therefore, of the considered view that the assessee was, on the facts of the case discussed above, entitled to deduction under Section 80HHC. In this view of the matter, we further hold that the order passed by the AO granting deduction under Section 80HHC was not erroneous. Accordingly, the CIT was not justified in assuming jurisdiction under Section 263 of the IT Act and the impugned order passed by him, therefore, must be held to be legally unsustainable. We, therefore, cancel the impugned order of the CIT.
12. In the result, the appeal is allowed.
Dr. Satish Chandra, J.M.
I have highest appreciation to my learned Brother, Shri Pramod Kumar, AM, for beautifully compiling the facts of the case in his worthy order. But with due respect, I do not agree with the concluding part of the order for the reason that during the assessment year under consideration (1990-91) the benefit of Section 80HHC was not available on minerals and ores which includes mica.
13. It was only the Finance Act, 1991, when Section 80HHC(2)(b) was amended and the said items were benefited (specified in Schedule 12) only w.e.f. 1st April, 1991 (i.e., asst. yr. 1991-92). So, the assessee cannot enjoy the benefit of the said amendment during the asst. yr. 1990-91 which is under consideration. Had it been the case of subsequent assessment year I might have gladly endorsed the view/order of my learned Brother.
14. It may be mentioned that it is neither the intention of the legislature to give the benefit of deduction retrospectively, nor the said amendment was declared clarificatory in nature, Therefore, due to the clear legislative provision, I am unable to endorse the view taken by my learned Brother. On the other hand, I agree with the order of the CIT passed under Section 263 for the reasons mentioned therein and the same is hereby upheld.
15. In the result, the CIT was right to withdraw the deduction which was wrongly given to the assessee. So, I dismiss the appeal filed by the assessee.
REFERENCE under Section 255(4) OF THE IT ACT, 1961 10th Oct., 2001 As there is a difference of opinion between the Members, we refer the following point to the Hon'ble President, Tribunal, under Section 255(4) of the IT Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the assessee was eligible for deduction under Section 80HHC of the IT 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 (asst. yr. 1991-92) ?"
M.A. Bakhshi, Vice President
1. Appeal of the assessee was earlier heard by 'B' Bench of the Tribunal constituted of two Members. Since there was a difference of opinion amongst the Members, the point of dispute was referred to me by the Hon'ble President for a decision as Third Member. Following point of difference has been formulated :
"Whether; on the facts and in the circumstances of the case, the assessee was eligible for deduction under Section 80HHC of the IT 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 (asst. yr. 1991-92) ?"
2. Parties have been heard and record perused.
3. The point of difference as stated above is relating to deduction under Section 80HHC in respect of export of processed/fabricated mica. The decision on the point of dispute will determine as to whether the CIT was justified in setting aside the order of the AO under Section 263 and in withdrawing the deduction allowed to the assessee under Section 80HHC.
4. The learned AM has expressed his view in favour of the assessee. Sum and substance of his conclusion is that the prohibition for grant of deduction under Section 80HKC is in regard to minerals and ores and the said prohibition will not extend to processed minerals and ores. The learned JM in his dissenting order has pointed out that the legislature has incorporated the words 'other then processed minerals' in Sub-section (2) of Section 80HHC w.e.f. 1st April, 1991, and, therefore, the assessee was not entitled to the benefit of the amendment retrospectively. The assessment year involved in this appeal is 1990-91.
5. Parties have been heard. The record and the orders of my learned Brothers have been perused.
6. In this case the assessee had filed a return of income for the asst. yr. 1990-91 on 12th Dec., 1990, showing income of Rs. 32,750. The return had been processed under Section 143(1)(a). Subsequently the case was selected for scrutiny and accordingly statutory notices issued. Assessment under Section 143(3) was made by the AO on 4th Feb., 1993. The AO in the assessment order under Section 143(3) has recorded that the assessee's business was processing of raw mica to fine mica including export sales. He has made reference to the deduction under Section 80HHC claimed by the assessee for which necessary certificate of the auditor had also been 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 IT 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 quality for deduction under Section 80HHC w.e.f. 1st April, 1991, only and, therefore, the action of the AO in allowing the deduction to the assessee for the asst. yr. 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 AO 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 learned AM is the appropriate view as against the view expressed by the learned JM. The learned counsel also filed written submissions in which it has been claimed that the assessee is a private limited company and was engaged in the business of manufacturing and/or producing various electronic components out of raw mica purchased by the assessee. It has also been claimed that the assessee has set up a factory at Giridih in the State of Bihar (now Jharkhand). In support of the claim that the assessee owns a factory it was contended that the contributions under the Employees State Insurance Act for the workmen working in the establishment were made by the assessee. It was further claimed that the assessee has also installed various processing machinery and that various items manufactured by the assessee are mica tubes, mica insulators, mica strainder cores, mica for shouldering iron, mica washers, gaskets, electronic components; silvered mica for capacitors, condenser films, etc. It was pointed out that the assessee has incurred expenditure by way of wages, power, fuel and other stores for carrying out various processing and manufacturing activities.
8. The learned counsel for the assessee pointed out that deduction under Section 80HHC was claimed for the first time in the year under appeal as in earlier years the assessee had incurred losses. The AO had accepted the claim of the assessee in an assessment under Section 143(3). It was further contended that in response to show-cause notice received from the CIT, the assessee had produced the specimen crude mica as also various sale bills in respect of products exported by the assessee. It was claimed that the assessee had not exported any mineral or ores per se. The AO, according to the learned counsel for the assessee, had rightly allowed the deduction under Section 80HHC. It was further contended that it is not disputed that the assessee has not exported the raw mica as mined from the mines, The assessee had purchased mica which was subjected to the various processes and manufacturing operations and as such what the assessee exported was the finished product and not the raw mica. Reliance was placed on the decision of the Karnataka High Court in the case of Muddeereswara Mining Industries v. CIT (1993) 204 ITR 550 (Kar) and on the Calcutta High Court decision in the case of Kumardhubi Fire Clay and Silica Works Ltd. v. Asstt. Director, Tax Credit (Exports) and Ors. (1980) 123 ITR 899 (Cal) in support of the contention. It was pointed out that in the case of Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC), 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 learned 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 God Granites v. Dy. CIT (1999) 240 ITR 343 (Kar) 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 (Cal) 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. Sky Room (P) Ltd. (1992) 195 ITR 763 (Cal) was dissented from by the Hon'ble High Court. Referring to the observations of the Calcutta High Court in the case of East India Hotels (supra) it was pointed out that the important test for determining as to whether there was manufacture of any articles or things lies in the answer to the question whether it was processed or produced and that product is commercially known as a different product from the materials out of which it is so produced, According to the learned counsel for the assessee in the present case the end products manufactured and/or processed and exported by the assessee were distinct and different from the raw materials used to manufacture the same. These products are classified as electronic components, etc. According to the learned counsel for the assessee these products could not be termed as minerals and ores. It was pleaded that ornaments made out of gold and utensils made out of silver or copper cannot be termed as gold/silver/copper. Similarly, mica tubes, silvered mica plates, mica nite sheets, mica insulators, etc., cannot be termed as minerals and ores.
9. Reliance has been placed on the decision of the Supreme Court in the case of Chrestien Mica Industries Ltd. v. State of Bihar 12 STC 150 (SC) where the issue involved was whether processing of mica mined from mica mines amounted to production and/or manufacture and, therefore, liable to sales-tax under Bihar ST Act, 1947. Their Lordships held that the assessee in that case had split the crude mica into thinner plates and cut them into commercial sizes and different product had emerged from the same. It was, accordingly, held that the assessee in that case was liable to sales-tax as the product was produced in Bihar and, accordingly, liable to tax. Reliance has also been placed on the decision of the Calcutta Bench of the Tribunal in the case of Asstt. CIT v. Perfect Project Ltd. (2002) 253 ITR 16 (AT) (Cal), wherein it has been held that the assessee is entitled to deduction under Section 80HHC in respect of profits derived from the export of mica products. It has been pointed out that the Tribunal has followed its earlier order on similar issue in the case of Inder Chand Rajgaria and Sons (P) Ltd. in ITA Nos. 2738 to 2740/Cal 1990-91 (order dt. 30th Dec., 1997). The Tribunal has particularly noted that the export of mica in the original form was 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 learned Departmental Representative the answer is no. It was further contended by the learned 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 product emerging after processing was not a different product with properties different from mica. It was further contended by the learned Departmental Representative that the legislature had in its wisdom extended the benefit of deduction under Section 80HHC to the processed minerals and ores w.e.f. 1st April, 1991, and, therefore, the interpretation that the deduction under the said section was permissible even before the amendment is logically not acceptable. Reference has been made to the following statement of the Finance Minister while proposing the amendment in the Parliament--"I also propose to extend the concession under Section 80HHC to the export of processed minerals." According to the learned Departmental Representative, the word 'extend' in the speech of the Finance Minister makes it amply clear that the benefit of Section 80HHC was not available in the case of export of minerals after processing when the original properties of the mineral were retained, It was contended that had the deduction under Section 80HHC been available on the processed minerals and ores prior to the asst. yr. 1991-92 there was no need to make amendment in Section 80HHC. The legislature does not use any words in the statute unnecessarily. The decision of the Tribunal in the case of Perfect Projects Ltd (supra), therefore, had proceeded on the wrong assumptions. It was, accordingly, pleaded that the appeal of the assessee may be dismissed.
11. I have given my careful consideration to the rival contentions. The fundamental issue involved in this case is as to whether the CIT was right in law in invoking his powers under Section 263 and in setting aside the assessment order on the ground that the action of the AO in allowing deduction under Section 80HHC in respect of minerals was erroneous and prejudicial to the interests of the Revenue. In exercising the powers under Section 263 the CIT has expressed the view that the assessee is not entitled to deduction in view of the specific prohibition of deduction under Section 80HHC(2) on minerals. Therefore, before forming an opinion as to whether the CIT was justified in exercising the jurisdiction under Section 263 in withdrawing the deduction allowed to the assessee under Section 80HHC it would be necessary to consider as to whether the assessee is entitled to deduction on the mica products exported by them in the asst. yr, 1990-91. It would be useful to reproduce the relevant portion of Section 80HHC applicable for asst. yr.1990-91 :
"80HHC. (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 this 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 :
(b) This section does not only 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 asst. yr. 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 1st April, 1991, Section 80HHC(2)(b) was amended to read as under :
(i) Mineral oil, and
(ii) minerals and 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, micanite, silvered mica, punched mica, mica paper, mica tapes, mica flakes.
(vi) to (x)...........
Explanation : For the purposes of this Schedule 'processed' in relation to any mineral or ore, means :
(a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substance or through other means without altering the mineralogical identity;
(b) pulverisation, calcinations or micronisation;
(c) agglomeration from fines;
(d) cutting and polishing;
(e) washing and levigation;
(f) benefication by mechanical crushing and screening through dry process;
(g) sizing by crushing, screening, washing and classification through wet process;
(h) other upgrading techniques such as removal of impurities through chemical treatment, refining by gravity separation, bleaching, floatation or filtration.
13. It may be useful to refer to the relevant notes on clauses of the Finance (No. 2) Act, 1991, as under :
"Clause 28 seeks to amend Section 80HHC of the IT Act, relating to deduction in respect of profits retained for export business.
Sub-clause (a) seeks to extend the benefit of deduction under Section 80HHC to profits derived from export of processed minerals and ores specified in XII Schedule proposed to be inserted vide Clause 69."
14. The CBDT in Circular No. 621, dt. 9th Dec., 1991, explained the intention of the legislature in respect of amendment of Section 80HHC(2)(b)(ii). The same is reproduced hereunder :
"Tax concession for export of processed minerals and ores
31. Under the existing provisions of Section 80HHC of the IT Act, exporters are allowed, in the computation of their total income, a deduction of the entire profits derived from export of goods or merchandise other than mineral oil, minerals and ores.
31.1. In view of the fact that significant value addition is achieved when a mineral is processed or when a stone is cut and polished, it is desirable to encourage their export. The benefit of deduction under Section 80HHC has, therefore, been extended to exporters of processed minerals. The list of processed minerals, in respect of which this concession is being extended, is being provided in a new Twelfth Schedule to the IT Act.
31.2 This amendment takes effect from the 1st day of April, 1991, and will accordingly apply in relation to the asst. yr. 1991-92 and subsequent years."
15. It is observed from the notes on 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 learned JM as also by the learned 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 Lordships of the Supreme Court in the case of CWT v. Kripashankar Dayashankar Worah (1971) 81 ITR 763 (SC). This view was again reiterated by their Lordships of the Supreme Court in the case of Grasim Industries v. Collector of Customs (2002) 128 STC 349 (SC) : 2002 (3) SCC 555. Their Lordships' relevant observations are as under :
"It is the elementary principle of interpretation that every statute is an edict of the legislature. In interpreting any word, while considering a statute, is to gather the mens or sentential legis of the legislature. Where the words are clear and there is no obscurity and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the Court to take upon itself the task of amending or altering the statutory provisions. Wherever the language is clear, the intention of the legislature is to be gathered from the language used. While doing so, what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support, addition or substitution of words or which results in rejection of words has to be avoided."
17. In the case of Indian Hotels Co. Ltd. and Ors. v. ITO and Ors. (2000) 245 ITR 538 (SC), their Lordships of the Supreme Court held that a statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme context and to the legislative history of the provision.
18. Their Lordships of Supreme Court in the case of CST v. Parson Tools and Plants (1975) 35 STC 413 (SC) held that the Court is only a jus decree and not jus dare, which means the Court is to pronounce the judgment and not to make law.
19. Their Lordships of the Madras High Court in the case of CIT v. Pooshya Exports (P) Ltd. had the occasion to consider the amendment made in Sections 80HHC(2)(b)(ii). The relevant facts in the case before the Madras High Court, as stated in the judgment, are as under :
"2. The assessee is a company doing business of mining and quarrying of granite stones and exporting them as finished goods to various countries. Before exporting these granite stones as per the specification of the customers, the stone undergoes various types of manual and machinery processes such as removal of overburden of the quarry by manual process, location and drilling of the boulders, eschewing of waste, drilling of holes, 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 flaws such as air-pores, 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 the facts, their Lordships of the Madras High Court held as under :
"It is well-settled principle of construction of the provision 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 without a declaration to that effect from the legislature. Every case of removal of hardship by the legislature does not indicate a Parliamentary intention to remove the hardship from an anterior date unless the scheme of the Act, the context in which the amendment was made and the language of the amendment warrant such a view. When the benefit of Section 80HHC is specifically excluded in respect of goods or merchandise like minerals and mineral ores originally and by means of subsequent amendment certain exception has been carved out from and out of excluded goods or merchandise for the purpose of giving the benefit, such exclusion cannot be regarded as indicative of an intention on the part of the legislature to have treated what is subsequently included as having been included at the inception of the provision. It would not also be permissible for the Court to supplement words of its own to the words employed by the legislature in the name of giving effect to the supposed intention of the legislature in bringing out the amendment. The object of the provision has to be gathered on a reasonable interpretation of the language employed by the legislature. For the above proposition we draw the support of the Division Bench judgment of this Court in the case of CWT v. Varadharaja Theatres (P) Ltd. (2001) 250 ITR 523 (Mad) and also from the case of CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412 (SC)."
Their Lordships further held as under :
"The contention of the learned counsel that the amendment inserted by Finance (No. 2) Act of 1991 w.e.f. 1st April, 1991, should be made applicable even to the years prior to the amendment cannot be accepted for the simple reason that the amendment has not been introduced with retrospective effect and it is amply clear from the amended provision that the amendment is only prospective in nature and not retrospective."
21. When attention of their Lordships of Madras High Court in the aforementioned case of CIT v. Pooshya Exports (P) Ltd. (supra) was invited to the CBDT Circular No. 729, dt. 1st Nov., 1995 and Circular No. 693, dt. 17th Nov., 1994, their Lordships held that the aforementioned circulars were applicable prospectively w.e.i 1st April, 1991 and are not applicable, in respect of law prevailing upto 31st March, 1990. The relevant observations of their Lordships contained in para 19 of the order 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, dt. 1st Nov., 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 dt. 17th Nov., 1994 were issued to clarify the goods which are included for the benefit under Section 80HHC by means of the amendment from 1st April, 1991, onwards. When we concluded that the amended provision itself is not available for the assessment year under consideration, the clarification issued by the CBDT through the above circular would not any way further the case of the assessee."
22. In view of specific amendment of Section 80HHC(2)(b) w.e.f. 1st April, 1991, extending the benefit of deduction to the export of processed minerals as specified under XIIth Schedule and in the light of the aforementioned principles of law, it cannot but be said that the benefit of deduction was not available on the export of such processed goods upto 31st March, 1991. Contrary view renders the amendment to Section 80HHC(2) as superfluous. Such an interpretation as per guidelines of the Hon'ble Supreme Court is to be avoided. Thus, on the basis of the amendment of Section 80HHC(2) w.e.f. 1st April, 1991 and the principles of law enumerated above, I hold that deduction on the processed minerals specified under XIIth Schedule was not available upto 31st March, 1990.
23. What has been derived so far is on the basis of amendment of Section 80HHC(2)(b) w.e.f. 1st April, 1991. Now the issue may also be considered without the aid of the said amendment. Therefore, it would be relevant to find out as to whether the assessee was engaged in the manufacture or production of articles and, if not, whether the processing carried out by the assessee had the effect of transformation of mica into a different product not recognized as mineral in the commercial world. I am hasten to add that the mere fact that the restriction on grant of deduction under Section 80HHC was not available in respect of processed minerals specified under XIIth Schedule upto 31st March, 1990, it cannot be presumed that the restriction for deduction under Section 80HHC also applied to such processed mineral products which are commercially recognized as different products after processing. It may be stated that the minerals and ores can be classified in the following categories for the sake of having a better appreciation of the issue at hand :
(1) Minerals and ores as extracted from mines without having undergone any process at any stage.
(2) Processed minerals and ores not undergoing the changes affecting the basic characteristics of the minerals and continued to be recognized as a mineral in the commercial world.
(3) Mineral products manufactured or produced, the end product of which is recognized as a different product then minerals in the commercial world.
24. There is no dispute that deduction under Section 80HHC 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 Stonecraft Enterprises (supra) 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 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 80HHC and the export thereof is disentitled to the benefit of that section."
25. Mica, it is not disputed, is a mineral and, therefore, deduction under Section 80HHC is not permissible in respect of the export of the same. It would be relevant to ascertain the nature of the products exported by the assessee. In the assessment order, there is no information about the products exported by the assessee except that what has been exported is the processed minerals. However, the assessee in the written submission before the CIT had claimed that the assessee had exported "fabricated mica", i.e., electronic component and silvered mica for capacitors, mica blocks and condenser films, etc. The assessee had furnished some specimen bills which have also been placed before the Tribunal in the paper book marked as Annexure 'B'. A perusal of these bills reveals that the assessee had exported the following items :
(1) Fabricated mica termed as electronic components; (2) Silvered mica; and (3) mica plates.
26. In my view, it would be necessary to ascertain, from facts and circumstances of this case, as to whether the processing of the aforementioned goods exported by the assessee amounted to the manufacture or production of the goods. Whether the processing involved in making the mica blocks into commercially saleable mica amounts to manufacture or production of articles different from mica (a mineral), it would be relevant to refer to the decision of the Supreme Court in the case of Dy. CST v. Pio Food Packers (1980) 46 STC 63 (SC), where their Lordships of the Supreme Court have held as under :
"Commonly, manufacture is the result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place."
27. In the case of Chowgule & Co. Ltd. v. Union of India (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 propessing 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 possessing 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 Supreme Court further considered whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The Supreme Court discussed at length the various definitions of "processing" and held that the blending of ore in the course of loading through the mechnical handling plant amounted to "processing" of ore.
28. In the case of CIT v. Gem India Manufacturing Co. (2001) 249 ITR 307 (SC), their Lordships of the Supreme Court held that the cutting and polishing of diamond does not amount to manufacture of any article or thing. Similarly, in the case of Indian Hotels Co. Ltd. v. ITO (supra), their Lordships of the Supreme Court held that preparation of food article does not amount to any manufacture or production of any article or thing. From the aforesaid decisions, it is clear that the true test for determining whether there is any manufacture is whether the commodity subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity.
29. In the light of the above guidelines, let me proceed to consider the facts and material on record in order to ascertain whether the goods exported by the assessee had been manufactured or produced.
30. In this case the assessee had filed return of income declaring income of Rs. 32,750. The assessee had claimed deduction under Section 80HHC. The deduction was supported by a certificate of the chartered accountant. As per the assessment order the assessee was engaged in the business of processing of raw mica to fine mica and exporting the same. Following observation in the assessment order may be relevant :
"It is submitted by him that the assessee's business is processing of raw mica into fine mica including export sales. During the year under consideration, the assessee-company sold mica as local sales 10,192.65 kg. It also made export sales 1,18,114.06 kg. The assessee claimed deduction under Section 80HHC for which necessary certificate in the prescribed Form No. 10CCAC filed which is verified with reference to the accounts produced. Further details in respect of expenses claimed are also produced for verification."
The trading and P&L a/c filed along with the return of income for the year ended 31st March, 1990, i.e., for the year under appeal also being relevant is reproduced hereunder :
Previous year Rs. . P.
46,73,624 To Opening Stock :
Mica 2,98,966.650 gm 71,33,626.05 1,23,36,701 Stores To mica Purchases Kg. 69,946.470 gm 63,850.16 71,94,476.20 1.21,15,792.54 3,72,574 To Stores Purchases To Wages For :
1,04,531.85 1,22,20,324.39 Cutting & Sortings 1,34,789.74 Splittings 28,083.57 Condenser Passing/opening 1,79,554.50 Leave Wages & Others 21,232.90 69,926 To Cartage. Collies & Transport 3,63,660.71 2,61,429 To Shipping charges 1,01,766.16 98,327 To Packing Charges 2,80,860.02 1,481 To Factory expenses 1,19,913.19 19,77,487 To Gross Profit C/D 1,712.55 28,22,399.50 1,97,31,559 Kg. 4,68,913.120 gm.
2,31,08,112.72 1,25,84.083 By Sales :
Mica: Local Sales Kg. 10,192.565 gm.
5,74,882.14 Mica: Foreign Sales Kg. 1,18,114.065 gm.
1,83,96,672.42 1,89,71,554.56 Less:
Export duty 7,36,559.86 M.T.C. S/Charges 3.53.625.80 10.90.185,66 1,78,81,368.90 71,97,476 By Closing Stock : At Cost as taken, valued & certified by the Management 51,73,768.25 Mica Stores Kg. 3,09,945.760 gm.
52,975.57 52,26,743.82 Wastage Kg. 30,660.740 gm.
1,97,81,559 Kg. 4,68,913.120 gm.
31. This brings me to the audit report furnished by the assessee. As per Item No. 12 of the Form No. 3CD of the tax audit report, it is clearly mentioned that the assessee is not engaged in the manufacture of any articles and things. Col. No. 12 of the report is reproduced hereunder :
"12. In case of manufacturing concerns, full quantitative details of principal items of raw materials and finished products as indicated below :
Raw Materials :
(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 gm
(b) Purchase during the year : 1,69,946.470 gm
(c) Quantity manufactured during the year :Nil 4,68,913.120 gm
(d) Sales during the year : 1,28,306.630 gm 3,40,606.490 gm
(e) Closing stock at the end of the year : 3,09,945.750 gm 30,660.740 gm
(f) Shortage and percentage thereof (Wastage) : 30,660.740 gm
32. In the return of. income following information has been furnished by the assessee :
Main business/profession : Export and processing of mica Main item manufactured/traded : Processed mica Nature of business or profession (p. 7 of ITS-1) : Processing and export of mica In the registration-cum-membership certificate issued by the Engineering Export Promotion Council, the assessee has given the following information in the application :
Description of export product for which : Fabricated mica parts.
registration is sought.
In the certificate issued, it has been mentioned that the assessee is registered for export of processed and fabricated mica.
33. Thus, as per the return of income, trading and P&L a/c, audit report and membership certificate, it is evident that the assessee was not engaged in the manufacture of any articles and things.
34. The next question that arises for consideration is as to whether the products exported by the assessee are recognized as minerals in the commercial world or whether after processing the goods had lost the identity as minerals.
35. Their Lordships of the Supreme Court in the case of Stonecraft Enterprises (supra) held that "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." On the basis of the above observations, the learned AM has held that the products exported by the assessee are recognized as different products in the commercial world than the minerals. It has been pointed out that the raw mica after processing is differently known in the commercial world, than the minerals. In my view there is nothing on record to establish that what the assessee had exported is not known as mineral in the commercial world. The learned AM has relied upon the abovequoted 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 learned AM 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 Stonecraft Enterprises (supra), their Lordships of the Supreme Court held that granite is a mineral and falls within the ambit of restriction under Section 80HHC(2). Taking a cue from the aforementioned decision 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 commercial world. Therefore, the area of inquiry should not to be restricted in respect of the product name given in the commercial world to the mineral product but the inquiry, in my view, has got to be as to whether the product exported by the assessee is recognised as a mineral in the commercial world or has the product ceased to be recognized as a mineral after processing done by the assessee.
36. It is not disputed that the mica is a mineral. The mica blocks have been processed. Whether the processed goods have ceased to be minerals as understood in the commercial world, I am unable to find any material on record to base the finding that the fabricated mica, silvered mica, mica plates, etc., are not known as minerals in the commercial world. Mere fact that the word "mica" is prefixed or suffixed by some words my not, in my view, be sufficient to hold that such items cease to be recognized as minerals in the commercial world. As point out earlier, commercial name of a particular type or quality of mineral is not a guiding factor to jump to the conclusion that such an item is recognized as something other than mineral. For example, pure gold is known as primary gold. Pure gold may be converted into gold biscuit, gold coins, gold bars, gold sheets, gold threads, gold dust, gold leaves, etc. Though all the aforementioned items of gold are having a different commercial name, yet most of these items are recognized as nothing but pure gold in the commercial world. The same may not be true in respect of gold ornaments and jewellery. Such items are recognized as different items made from pure gold. This is perhaps because gold ornaments are made after mixing copper, etc. to pure gold. Similarly, gold jewellery is made after embedding jewels, diamonds, etc. in the gold. In these items there is apparently some addition to pure gold. Therefore, the mere commercial name by itself is not a determinative factor for ascertaining as to whether fabricated mica, silvered mica, mica plates, etc. are recognized something other than minerals in the commercial world, merely because some words have been prefixed and suffixed to the word "mica". In my humble view, a distinction is to be drawn between commercial name and commercially recognized as a different item. The decision of the Supreme Court in the case of Indian Hotels Co, Ltd. v. ITO (supra) would also be relevant for the purpose 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 ML. Rajgarhia for Mica Manufacturing Co. (P) Ltd." The learned 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 learned 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 Mines, Washington 25, D.C. 1962 pp. 240 (4) S.S, Montague : Mica, Pub. In 'Industrial Minerals & Rocks' by The American Institute of Mining, Metallurgical & Petroleum Engineers, Inc. N.Y. pp. 34."
The learned author states at p. 7 of the said book "India enjoys vast natural resources of mica and roughly meets more than 90 per cent of the world-requirement of natural sheet mica. Its mica-bearing pegmatites are deep and massive in nature. India would probably continue to hold her position for a long time to come by virtue of its enormous known resources, technical know-how and abundant availability of skilled as well as cheap labour force".
Explaining commercial mica, the learned author states as under :
"Mineralogists recognize roughly nine common varieties of mica of which muscovite and phlogopite are the two principle micas of commercial importance.
Muscovite or potash mica is a hydrous potassium aluminium silicate, having an approximate chemical formula H2Kal 3 (Si04)3."
The learned author further says that it is relatively soft, but harder than other micas, and can be easily cut, punched or stamped. It is almost insensitive to atmosphere weathering and offers greater resistance to outside chemical influence.
38. Processing : Phlogopite, a hydrous-magnesium aluminium silicate having the approximate chemical formula H2 Mg3 Al (SiO4)3, is commony called 'amber' mica. The learned author explains the processing of mica as under :
"The ordinary mica crystals as they come out of a mine is in the form of rough books or lumps of irregular shape, size and thickness associated with impurities and structural imperfections. They have to undergo long operation of cutting, sorting and processing from crude to commercial quality. The waste resulting from the production of crude to commercially useful sheet mica forms about 90 per cent of the total output of mica from a mine, which are sold are scrap mica for use as ground mica.
No machine has yet been designed to process mica mechanically. The processing technique, therefore, involves only a pair of hands, eyes and a simple knife. The operations performed consists of cobbing or cleaning the crude crystals as extracted from the mine with its associated impurities; rifting or splitting the cobbed mica into usable sheets by sickle and then by sharp knife removing major flaws and structural imperfections, such as, cracks, holes, reeves, crossgrains 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 learned 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 learned 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 30 to 35 cm. sq. (12 to 14 inches sq.) beyond which is practically rare and far too expensive. It is available in sheets with an average thickness between 0.18-0.75 mm (0.007-0.030 inch). Block mica is supplied both in nature (random) and calibrated thickness as per customers demand.
Thin mica : Knife dressed sheet mica in any specified range of thickness between 0.05 upto 0.18 mm (0.002 to 0.007 inch), is called thin mica.
Film mica : Knife dressed sheet mica splitted from superior quality block mica to a specified range of thickness between 0.02 upto 0.18 mm (0.0008 upto 0.007 inch), is called film mica. Film mica is used as a dielectric in capacitors and other electronic products, Splitting mica : Laminae split from block and thin mica, the thickness of ten sheets of which taken together does not exceed 0.30 mm (0.012 inch), is called splitting mica. Splitting mica chiefly is used in the manufacture of built-up mica of micanite products as raw material for ultimate use as an insulating material."
The learned author has further described classification for muscovite mica block. He has stated that following are the verbal descriptions of physical classifications for muscovite mica block, things and films as adopted by the Indian Standard Institution (IS 1175-1957) :
(a) V-1, Ruby Clear; (b) V-2, Ruby Clear and Slightly Stained; (c) V-3, Ruby Fair Stained; (d) V-4, Ruby Good Stained; (e) V-5, Ruby Stained A Quality; (f) V-6, Ruby A Q; (g) V-7, Ruby Stained B Quality; (h) V-8, Ruby B Q; (i) V-9, Ruby Heavy Stained; (j) V-10, Ruby Densely Stained; (k) V-11, Black Dotted; (1) V-12, Black Spotted (Or Spotted 1st Quality); (m) V-13, Black/Red Stained (Or Spotted end Quality); (n) V-14, Green/Brown First Quality; (o) V-15, Green/Brown 2nd Quality; (p) V-16, Green/Brown Stained Or B Q.
39. From the information about the nature of processing involved in the transformation of mica blocks into commercially saleable mica and in the light of the principles of law referred to above, it is evident that in this case there is no manufacture or production of any article or thing, It is abundantly clear that the process involved in the goods exported by the assessee does not bring into existence of any goods recognized as something different than mineral in the commercial world. Fabricated mica, silvered mica, mica paper, reconstituted mica and ground mica are nothing but different 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 learned AM 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) w.e.f. 1st April, 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 in respect of which deduction under Section 80HHC(2) was not permissible upto asst. yr. 1990-91. I, therefore, agree with the conclusion of the learned JM that the assessee was not entitled to deduction under Section 80HHC for asst, yr. 1990-91 in respect of the export of processed mica products.
40. Incidentally, it may be pointed out that the AO 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 whether the assessee was entitled to deduction in respect of the processed mineral. It is not even disputed by the assessee that AO allowed the claim without enquiry. In my considered view, the AO had miserably failed to address the issue and record a finding one way or the other in regard to deduction under Section 80HHC. Therefore, the order passed by the AO was erroneous and since granting of deduction to the assessee without verification of the claim had resulted in prejudice to the Revenue the conditions for invoking the jurisdiction under Section 263 are satisfied in this case. For this I derive support from the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) where it has been held that orders passed by the AO without application of mind fall within the category of erroneous orders within the ambit of Section 263 of the IT Act, 1961. The relevant observations of their Lordships of the Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT and Ors. (1975) 99 ITR 375 (Del) at p. 376 are also reproduced hereunder :
"The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for future inquiry. It is his duty to ascertain the truth of the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in Section 263 includes the failure to make such an enquiry."
41. In the light of the above conclusion, I would like to point out with utmost respect that the Tribunal in the case of Perfect Projects Ltd. (supra) has proceeded on the wrong assumption that the circulars issued by the Board were applicable even before the amendment of Section 80HHC. The said decision has been rendered without taking into consideration the legislative intention behind the amendment made in Section 80HHC(2) w.e.f. 1st April, 1991. The Tribunal in that case have taken into account the fact that the export of raw mica was banned as per the export policy of the Government of India. In my considered view, if the restriction under Section 80HHC(2)(b) was applicable only in respect of rough minerals, then the prohibition provided under Section 80HHC(2) would be redundant. As has been pointed out earlier, there is no presumption that 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 v. Dy. CIT (supra) relied upon by the assessee's representative is in respect of asst. yrs. 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- CIT v. East India Hotels (supra) relating to the meaning of the words "manufacture and production" is impliedly overruled by the Hon'ble Supreme Court in the case of Indian Hotels. Co. Ltd. v. ITO (supra). In the case of Chrestien Mica Industries Ltd. v. State of Bihar (supra), the issue in the Supreme Court related to as to whether the process of mining mica is a process of production within the meaning of Section 2(g) of the Bihar ST 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(AI), dt. 22nd May, 1984, relates to cut and polished diamonds and is not relating to mica products. Moreover the view expressed by the Board is contrary to the decision of the Supreme Court in the case of CIT v. Gem India Manufacturing Co. (supra).
43. For the aforementioned reasons, I hold that the assessee was not eligible for deduction under Section 80HHC for asst. yr. 1990-91 in respect of export of fabricated mica products, particularly in view of the amendment in Section 80HHC(2)(b) w.e.f. 1st April, 1991, applicable for asst. yr.1991-92 and, accordingly, agree with the conclusion of the learned JM.
44. Thus, as per this order the appeal of the assessee is dismissed.
45. Let the matter be placed before the regular Bench for passing the consequential order in accordance with the majority view.
Pramod Kumar, A.M.
1. On a difference of opinion between the Members originally constituting this Bench, Hon'ble President, appointed the Third Member under Section 255(4) of the IT Act, 1961. The point of difference was formulated as follows :
"Whether, on the facts and in the circumstances of the case, the assessee was eligible for deduction under Section 80HHC of the IT 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 (asst. yr. 1991-92) ?"
2. The Third Member has, for the detailed reasons set out in his order, concurred with the conclusion arrived at by the learned JM.
3. Thus, in accordance with majority view, the appeal is dismissed.