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TMI Blog2006 (8) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... and dressing charges of Rs. 64,450), proportionate indirect expenses of Rs. 8,21,571 and had shown export profit of Rs. 43,07,338, on which deduction under section 80HHC at the rate of 80 per cent was claimed at Rs. 34,45,870. On examination of the sales invoices and the bills of lading, certificates of origin etc. It was found that the assessee had exported only dressed marble blocks, which were not polished. It was also noticed that the assessee had not shown any polishing charges under the head 'Direct expenses' in its audit report. On being called upon to explain the position, the assessee vide its reply dated 16-2-2004 submitted that it had purchased marble blocks and the same were processed from outside party. It was further claimed that the assessee had exported the marble blocks after processing as was evident from the export invoices. By elaborating further it was put forth that the rough marble blocks purchased by it underwent the process of dressing etc. and had been changed to dimensional blocks of uniform colour and size and in the said process of dressing, the polishing was also involved to remove various flaws. Copies of bills [4 in total] for processing of the marb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the deduction under section 80HHC was not available. It was also opined the circular No. 729 was applicable to granite only and for other rocks including the marble, the earlier circular No. 693 was to have force. In the backdrop of this position, the claim for deduction under section 80HHC was jettisoned. The assessee failed to convince the ld. CIT(A) to fall in line with its submissions. 3. Before us it was contended by the ld. AR that the authorities below had erred in appreciating the factual and legal position in assessee's case because the polishing was done and there was a substantial value addition in the marble blocks exported by it. Referring to page 5 of his written submissions, it was stated that the raw material cost was only Rs. 18,66,778 on which dressing charges were incurred at Rs. 64,450 while other direct expenses amounted to Rs. 14,21,416. The proportionate indirect expenses were to the extent of Rs. 8,21,571 making the total cost of the goods exported at Rs. 41,74,215. It was against this that the export worth Rs. 84,81,553 was made, which resulted into the export profit of Rs. 43,07,338. It was further argued that circular No. 729, dated 1-11-1995 was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in extenso and perused the relevant material on record in the light of precedents relied upon. Insofar as the preliminary argument of the ld. DR about the applicability of the Third Member decision in the case of Arihant Tiles Marble (P.) Ltd. is concerned, we are not inclined to accept the same for the reason that the said decision has been rendered in the context of section 80-IA, the provisions of which are materially different from those of section 80HHC under consideration. The former section deals with the deduction in respect of profits and gains derived from any business of industrial undertaking etc. engaged in the 'production or manufacture' of specified articles or things and hence the availability of deduction is directly connected with the manufacturer or production. On the other hand section 80HHC is not restricted in its scope for granting deduction only on manufacture or production of specified articles, but extends to the export out of India of 'any goods or merchandise'. The availability of deduction under this section has direct link with the export, which may be of manufactured or produced or traded goods. So long as export proceeds are flowing in India, subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reads as: "Cut and polished minerals and rocks including cut and polished granite". Explanation to this Schedule gives meaning to "processed" in relation to the clauses (a) to (h). When this Schedule is read in entirety the position which emerges is that the items at (i) to (x) should be processed within the meaning of clauses (a) to (h). It is not disputed that the case of the assessee falls under item (x) which has mandatorily to be processed under clause (d) of the Explanation because the words "Cut and polished" are prefixed to "minerals and rocks" in the item (x). Thus if an assessee claims deduction for export of "rock", then it should be a "processed rock" which here means that it has undergone the process (d) of Explanation viz. "cutting and polishing". 7. At this juncture it would be appropriate to consider the relevant Circulars referred to by both the sides, which have clarified the position. Circular No. 693, dated 17-11-1994 reads as under:- "Benefit of section 80HHC for export of processed minerals-Clarification regarding export of cut and polished dimensional blocks, granite or other rocks. Section 80HHC of the Income-tax Act allows a deduction from the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dimension and export proceeds are realized on volume and dimensional basis. Thus, the dimensional blocks of granite are exported only after going through a mechanical process, involving substantial value addition to rough granite. 3. The Board is, therefore, of the view that while granite can alone 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 such as colour variations, grain variations, joints, fissures, moles, patches, hair line cracks, etc. The profits derived from the export of such granite dimensional blocks would, accordingly, be eligible for deduction under section 80HHC of the Act." 8. The case of the revenue is that circular No. 729 is confined to granite alone and the satisfaction of the dual conditions of "cut and polished" in the Twelfth Schedule still hold good for other rocks including marbles as provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in circular Nos. 693 and 729, both in headings and contents. From the use of the expression "minerals and rocks including granite", the intention of the Legislature has been clearly divulged that granite has been given a separate identification from the marble, if both these terms viz. marble and granite had to have the same treatment for the purposes of deduction under section 80HHC, there was no need to specifically mention 'including granite' which is a kind of rock as 'marble'. 11. At this stage, it would be appropriate to note that all mineral exported by an assessee do not entitle him to claim deduction under section 80HHC. It was in 1984 vide Board's Circular F. No. 178/206/83-IT [A-1], dated 22-5-1984 that the export of cut and polished diamonds was brought within the scope of this section. Here, it would be relevant to note the meaning of diamond as per Britannica Ready Reference Encyclopaedia, which is as under: "Mineral composed of pure carbon, the hardest natural occurring substance known and a valuable gemstone. Diamonds are formed deep in the Earth by tremendous pressure and temperatures over long periods of time." The same Encyclopaedia defines mineral as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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. It was in 1991 that the processed minerals and ores specified in XIIth Schedule were made eligible for deduction under this section after the diamonds were so qualified in 1984 which, in turn, contains clause (x) as cut and polished minerals and rocks including cut and polished granite. Albeit, both 'granite' and 'marble' are species of 'rock', yet they are formed differently, their composition is different and both of them are known differently in commercial world having different monetary values. We are, therefore, of the considered opinion that it is incorrect to equate marble with granite or using these two terms interchangeably. The ld. AR has relied on Notification No. 280 of 2004, dated 16-11-2004 reported at (2004) 192 CTR (Statutes) 32 onwards by laying emphasis on entry at Code 011: "Marble Granite". According to him this entry clearly indicates that both marble and granite have been treated as one and the same thing insofar as the class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word 'marble' cannot be inferred by necessary implication in this circular. It is further found that the Hon'ble Supreme Court in the case of Gem Granites has found in para 17 as under: "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 the circulars clearly state that the benefit of section 80HHC was available to cut and polished granite only with effect from 1-4-1991, by virtue of insertion of Item No. (x) in the Twelfth Schedule to the Act." From the above interpretation by the Hon'ble Apex Court it is clear that the scope of circular has to be restricted to granite only. We have held in an earlier para that although both marble and granite are forms of rocks, yet they are heterogeneous, being different in nature, composition and value, etc. and it is wholly incorrect to call them as one and the same thing. To sum up, we hold that circular No. 693 applies to all rocks including marble and the later circular is a sort of extension of the earlier circular confined to a particular species of rock which liberalized rigour to 'granite' alone. No other kind of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making glossy by rubbing. Thus, if a substance is made smooth alone without making it glossy, the same can be rightly said to have been polished. It is the extent and degree of polishing which makes it either primarily smooth or secondly glossy. Turning to the Twelfth Schedule, we find that the word used is 'polished'. This polishing may be of a primary degree [making smooth] or of advanced degree [making glossy]. In the absence of the Legislature having used the prefix like 'finally' before the words 'cut' and 'polish' it clearly brings out the intention that any level of cutting or polishing enables the assessee to take advantage of the provision. The Hon'ble Karnataka High Court in the case of CIT v. God Granites [1999] 240 ITR 343 had an occasion to interpret of the words 'cutting and polishing' in the same context. It observed as under: "Under the Twelfth Schedule what is required is only cut and polished minerals including granites should be exported for entitlement to deduction under section 80HHC. In the Explanation to the Twelfth Schedule 'processed' has been defined to mean in relation to any mineral or ore mentioned in items (a) to (h). The Act does not prescribe the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Director of M/s. Vinayak Marmo Pvt. Ltd., who stated that as per office copies of the above invoices "polishing charges" were not ticked by his office. He confirmed that only the "dressing charges" were ticked in three invoices and in invoice No. 113, even the dressing charges were also not ticked. 17. The ld. DR has placed before us a copy of the statement of Shri Anil Suwalka, Director along with the invoices in which polishing was not ticked. 18. We have gone through his one page statement in which only one question was asked to explain as to whether the polishing charges were ticked in the office copies of other invoices or not, to which he replied in negative. Nowhere any question was raised as to whether any polishing was done by the processor or not. In these circumstances, could it be presumed that the jobber has done only cutting and not polishing? If we go by this statement alone, then it would turn out that the had neither done any cutting nor polishing in respect of invoice No. 113, dated 31-3-2001 for Rs. 22,000 because as per this invoice neither dressing charges nor polishing charges were ticked. 19. On the contrary, it has been emphasized by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on refers to the cost incurred by the assessee on the processing of the marble blocks, which in this case is as low as Rs. 64,450 only. It has been contended by the ld. D.R. that in percentage terms it comes to nominal 3.45 per cent of the raw material cost. On the contrary, the ld. AR has submitted that the making of export at such exorbitant figure is the high value addition to the cost of the marble blocks. 20. Let us understand the process of dressing the marble block, which was got done by the Assessing Officer. When a rough marble block comes from the quarry, its all sides are rough because one cannot see cracks, black spots, crinkles, veins, patches, colour variations, etc. In the process of dressing, a block is taken into the factory, it is lifted by the crane from the truck and taken in to the dressing machine. A dressing machine is made of iron frame with the dimension of 10m X 4m X 1 mtr. fitted with various hydraulic jacks. Electrical panels, hydraulic pistons, oil tanks, water tank, cutting block, trolley for shifting the blocks, installed on concrete structure of 3m X 10m. The crane unloads the undressed block on dressing trolley. Dressing trolley brings down the bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d beyond due dates under the provisions of the respective Acts. 24. The Assessing Officer had drawn a chart on page 7 of the assessment order to show that the assessee failed to deposit the contributions within the prescribed period amounting to Rs. 4,71,415 and hence disallowed the claim under section 43B. No relief was allowed in the first appeal. 25. We have heard both the sides and perused the relevant material on record. Without entering into the details of the submissions made by both the parties, we find that the issue involved in this ground is squarely covered in assessee's favour by a recent Special Bench Decision of the Tribunal in Kwality Milk Foods Ltd. v. Asstt. CIT [2006] 100 ITD 199 (Chennai) in which it has been held that the amendment brought out by the Finance Act, 2003, enabling the assessee to deduction even if the payment is made before the due date of furnishing return under section 139(1) is retrospective and hence applicable to the earlier years as well. From the chart prepared by the Assessing Officer in the assessment order, it is noticed that the cheques for the deposit of the EPF and ESI contributions were got cleared much prior to the due date unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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