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TMI Blog2004 (12) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax, Panaji, revised the order under section 143(3) dated 9-1-1996 of the Assessing Officer for assessment year 1993-94, in the assessee s own case, as being erroneous and pre-judicial to the interest of revenue with direction to disallow the deduction under section 80HHC. The assessment order for assessment year 1994-95 was also similar revised by the CIT under section 263 of the Act. The Commissioner of Income-tax held as under : "I have carefully considered the submission of the assessee s Authorized Representative and find that his interpretation is incorrectly since petroleum coke is a mineral coke, which is the residue obtained on refining petroleum and only a mineral can be subjected to the process of calcinations. Therefore, the product viz. calcinated petroleum coke is a processed mineral, which is not specified in Twelfth Schedule of the I.T. Act. Calcined petroleum coke is a residue obtained from cracking/distillation of petroleum. Petroleum is a mineral oil and even the Income-tax Act has recognized this definition vide sections 42, 44BB and 293A, according to which the extended meaning of mineral oil includes petroleum and whether green coke or ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the order dated 4-3-1998 under section 263 of the Act in respect of the assessment year 1993-94 in the assessee s own case. The contention of the assessee s counsel is that the CIT s order under section 263 being for a different assessment year, the Assessing Officer was not bound by the said order in respect of this assessment year and he should have passed a speaking order in this regard giving his own finding in the matter. I find this plea is particularly significant because the appeal against the order under section 263 lies with the ITAT whereas the appeal against the Assessing Officer s order lies with the CIT(A) and the appeal has to be decided without transgressing judicial discipline. ( ii )The appellant s further contention is that only crude oil extracted from the earth comes within the purview of mineral oil. In the process of refining this crude oil into petroleum, raw petroleum coke is produced which is in solid from and is a hard material and cannot be said to be oil by any stretch of imagination. It is this raw petroleum coke that is used by the appellant as raw material for processing into calcined petroleum coke by changing its physical properties. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid position, the decision of the Hon ble Supreme Court, does not come to the rescue of the assessee as contended. ( ii )In this connection, it is necessary to keep in mind the amendment that has been brought in the statute from the assessment year 1991-92. Prior to this amendment mineral oil as well as minerals and ores in any form were not entitled for benefit under section 80HHC. By virtue of the amendment made in section 80HHC (2)( b )( ii ) w.e.f. 1-4-1991 the processed minerals and ores specified in XIIth Schedule were excluded from minerals and ores. The said inclusion is only in respect of minerals and ores only and not mineral oil. The amendment is totally silent in respect of mineral oil in all forms whether processed or not. The mineral oil whether processed or not continues to be out of the purview of benefit of section 80HHC even after amendment. ( iii )It is clear form the manufacturing process shown by the assessee that the basic raw materials for manufacturing calcined petroleum coke raw material is petroleum coke and calcination process applied over raw petroleum coke; which converts the same into calcined petroleum coke. As far as raw petroleum c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequential order dated 17-10-2002 passed under section 250 of the Act, are in the same manner, as in earlier years. 6. Assessment year 2000-01 (ITA No. 21/PNJ/03-04). For this year, the assessee claimed deduction under section 80HHC at Rs. 3,28,99,174, which was disallowed by the Assessing Officer vide his order dated 19-3-2003 passed under section 143(3). The Assessing Officer relied upon Commissioner of Income-tax s order under section 263 for assessment years 1993-94 and 1994-95 as well as his own orders for earlier years. The second issue agitated by the assessee in this year relates to the action of the Assessing Officer in treating the interest income for the banks amounting to Rs. 12,72,247 as income from other sources , as against assessee s claim as business income . 7. During the proceeding before the first appellate authority the silent features of the assessee s contentions, submissions and arguments, as regards the first issue as to whether the product exported by it can be said to be mineral oil within the meaning of section 80HHC(2)( b )( i ), are as under : "( i ) Raw Petroleum Coke (RPC), commercially known as green coke is a product derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Chambers dictionary defines Mineral as a substance produced by nature process of inorganic nature. Ore means a solid naturally occurring mineral. Once minerals and ores are treated/processed, these are no more in naturally occurring form and lose their natural identity and cannot be anymore classified as Minerals or Ores. All the items specified in the XII Schedule of the Act the minerals and ores obtained naturally from beneath the earth and not by a process which is not natural. ( viii ) Without prejudice it may be noted that for the purpose of sections 42, 44BB and 293A any reference to mineral oil shall include petroleum and natural gas as per explanation given in the said sections. It will be appreciated that these are special incentives and related provisions for the business of prospecting etc., of mineral oil and where the word Mineral Oil has been broad based to include certain other products. Whereas section 80HHC which is also an incentive provision, has not given similar expression for the word mineral oil, from which it is obvious that the expression mineral oil under section 80HHC shall mean only crude oil which is mined from the earth and in its natural for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of section 80HHC(2)( b )( i ), Ld. CIT(A) has given serious and thoughtful consideration to the submissions made by the Learned Authorised Representative not only before various authorities at different stages but also in the course of appellate proceedings as well. The fact that the assessee manufacturers Calcined Petroleum Coke at its factory from the raw material called RPC, is not in dispute. It is also not in dispute that the raw material i.e., RPC was entirely imported by the assessee from abroad. The long journey of technical process starting form crude oil being mined beneath the surface of the earth and undergoing various stages of transformation including refining operation, resulting in a large number of joint products including the Raw Petroleum Coke, can also not be doubted, if flow sheets filed earlier and flow chart filed at the time of hearing of the appeal are gone into. As per Revenue s theory, the product exported by the assessee i.e., Calcined Petroleum Coke is a residue of crude oil which is necessarily a mineral oil and, therefore, hit by negative provisions of section 80HHC(2)( b )( i ). Per contra, based on various definitions assigned to the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 7.4 There may be substance in the contention that the basic intent of section 80HHC(2)( b ) is to prohibit the incentive for exporting the natural wealth of the country in its original form and is not meant to cover such imported articles obtained in the process of refining crude oil in some foreign countries which the assessee is exporting after some value addition. There may be further merit in another contention that after having undergone numerous operations on crude oil, the product (CPC) is altogether a new product which cannot be termed as a natural substance extracted from the earth, (though, in common parlance, many people may still term it as a residue of crude oil and correctly so because the product traces its origin to the product obtained from mother earth). There is, however, a genuine difficulty in adopting and holding such a view on account of following inhibiting factors : "( i )Taking one from observation of CIT(A) Belgaum (as contained in para 2 of appellate order dated 22-10-1998 for assessment year 1995-96) that the appeal against the order under section 263 lies with the ITAT, whereas the appeal against the Assessing Officer s order lies with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready noted, 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 is explanatory and can, therefore, relate back to the year in question, the assessee cannot derive any assistance therefrom." 7.5 In the backdrop of above peculiar facts and circumstances of the case, I am unable to interfere with the impugned orders, as regards the first question. The related grounds in these four appeals, on this issue are treated as dismissed. 8. Before us ld. AR raised various contentions in support of its claim and the department submitted the written reply to the same which are as under : Admissibility of deduction under section 80HHC This issue is there for all the 6 years. The arguments, therefore, should be considered as argument on behalf of the Department for all these years. These arguments are in addition to arguments advanced by CIT (for 263 orders), CIT(A) at the time of passing of the Appellate order and Assessing Officer at the time of passing assessment orders. The moot point is whether the assessee is entitled for deduction under Chapter 80HHC or not. The perusal of provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of Petroleum Coke begins after all the petrol, paraffin, gas oils, lubricating oils and other products have been distilled form crude oil. Pumps then force the heavy residual oil that remains through pumps of furnace. There, the oil is heated to a high temperature. The heated oil then stews in coking drums until it becomes a solid coke which is called Raw Petroleum Coke. Raw Petroleum Coke a product of refining operations is in solid form and vary hard material and not a greasy liquid. Therefore, Petroleum Coke raw/calcined cannot be classified in the categories of Mineral Oils. Mineral Oil means any oil of Mineral origin. Oils are normally defined as greasy liquids. This means that Mineral Oils are greasy liquids of mineral origin and occur only in liquid state and not in solid form. Petroleum Coke is a solid form and very hard material and not a greasy liquid. Therefore, Petroleum Coke cannot be classified in the category of Mineral Oil. Likewise, denying that Calcined Petroleum Coke is a Mineral or Ore it is stated that even raw petroleum coke from which it is produced is not a mineral or ore since it does not occur in nature by itself and it is not a substance got by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived out of calcining of product deduced from refining crude oil. The entire raw material used for the production of Calcined Petroleum Coke has been imported. There is no out go of the minerals produced in the country. It was contended that value additions have been made to such imports resulting in the finished product, ( i.e., Calcined Petroleum) Coke which has been exported by the assessee company. Hence even on the basis of the intent of the law, the assess is not subjected to the restrictive provisions of sub-section (2)( b ) of section 80HHC. For assessment years 1993-94 and 1994-95 the appeal is against order of CIT under section 263 of the Income-tax Act. The Assessing Officer failed to examine whether the assessee is entitled to deduction under section 80HHC and what is the exact nature of the product being exported. Since, the Assessing Officer failed to make the necessary inquiries into the matter and accepted the contention of the Assessing Officer without investigating the facts; the assessment order is erroneous and prejudicial to the revenue. CIT has rightly set-aside the assessment. Reliance is placed on the decisions of Devi Saraigu v. CIT [ 67 ITR 84 ], T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the amendment was brought in and an exception to the above restriction in section 80HHC(2)( b ) was carved out and consequently export of processed minerals and ores as specified in XIIth Schedule was made eligible for deduction under section 80HHC. It is worth mentioning that no such amendment was brought in for deduction under section 80HHC. It is worth mentioning that no such amendment was brought in for mineral oils . In other words, mineral oils whether processed or unprocessed are not eligible for deduction under section 80HHC. I shall like to take liberal recourse to the Burmah Shell case to elucidate the meaning of mineral oil . The brief facts of the Burmah Shell ( supra ) are as under : The petitioner company (Brumah Shell Refineries Ltd.) filed a writ against the Union of India (Income-tax Department) for the quashing of provisional Assessment Order whereby it was being treated as company not in the business of manufacture or production of mineral oil (which was entitled for rebate of 35% in comparison to non-manufacturing company which was eligible for rebate of only 30%). The petitioners were carrying business of refining of crude oil for large number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any has been given as refining crude oil . The dictionary meaning of the word crude oil in Webster s Dictionary (page 545), (volume I) is : Crude oil or crude petroleum : petroleum as it occurs naturally, as it comes from an oil well or after extraneous substances (as contained water, gas and minerals) have been removed. In the Illustrated Petroleum Dictionary and Products Manual by Petroleum Educational Institute, California it has been mentioned : Crude Oil. See petroleum. Petroleum has been described - crude oil as it come from the ground in its natural state or when secured from coal, shale and other sources. Its origin is not definitely known. The word is derived from the two Latin words, petra, meaning rock and oleum meaning oil and frequently called rock oil or earth oil. Sometimes found ozzing from the surface and called seepage, but usually found far below the surface and in every continent on earth. Also known as mineral oil, crude oil and crude naphtha. In the Petroleum Dictionary by Lalia Phipps Boone (page 104), it has been mentioned : Crude mineral oil - petroleum. The word "crude" before Mineral Oil has been sued to distinguish it from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Finance Act, 1965, and item 3 in both the Fifth and Sixth Schedules to the Income-tax Act, 1961 A question has been raised whether a company carrying on the business of refining crude oil into motor spirit, aviation spirit, kerosene and allied articles can be said to be engaged in the manufacture of production of mineral oil for purpose of calculating the super-tax rebate under the Finance Act, 1964, and the Finance Act, 1965. The Board have been advised that the term Mineral oil covers both crude oil (crude petroleum) and the liquid products derived from crude petroleum which are in the nature of mixtures of hydrocarbons, namely, motor spirit, aviation spirit, kerosene and other allied articles. It therefore, follows that the profits and gains attributable to the business of refining of crude oil would quality for higher rebate in respect super-tax available in relation to the profits and gains attributable to the business of manufacture and production of mineral oil under the Finance Act, 1964, and the Finance Act, 1965, provided the other conditions specified in this behalf are fulfilled. 2. On a parity of reasoning, the business of refining of crude oil will be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coke (CPC), both are residues of the Refining Process . It is submitted with respect that the basic premise itself is wrong. When we talk of Residue it comes out of the same process or a series of processes for the purpose of obtaining a product. However, Crude Oil , which is the original product, is extracted from earth or oil wells and it is being processed for different objects. The Refineries , who process Crude Oil , convert the same into Asphalt or bitumen . These are the products in the nature of Viscous Black Liquid . This itself constitutes a product, which is directly used for construction of roads and as binder . This can also be used as raw material for manufacture of raw petroleum coke . Thus, it no longer can be called a residue . In turn, raw petroleum coke is used as raw material for producing CPC. The raw petroleum coke itself is not a refinery product, but is a product as a result of Delayed Coker Operations . The refineries may manufacture raw petroleum coke, but it is neither a residue nor a refinery product for the simple reason that the product does not come into existence as a result of refinery process . It comes into existence by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not been correctly understood, as they were made in the context of the processes carried out by the refinery itself. 8.1.4 It may be mentioned here that, in the Notices issued under section 263 for assessment years 1993-94 and 1994-95, it was not the case of the Hon ble CIT at II that CPC is the Mineral Oil , whereas it was proposed to hold CPC as a processed mineral . However, in the orders passed under section 263, he held CPC as a Mineral Oil . This stand has been taken by the Assessing Officers in subsequent years, following the Revision Order as above. Without Prejudice therefore, the assessee would now also like to make submissions to answer the question whether CPC can be described as a Mineral or an Ore . It is nobody s case that it is an Ore . Therefore, one has to consider whether it can be called a mineral . 8.1.5 The word Mineral according to its etymology means only those products, which are derived from a mine. In its widest sense, the term Mineral comprises everyone of the productions, which constitute what is called a Crust of the Earth . In this sense, sand may be regarded as mineral . In the Mines and Minerals [Regulation and Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different from the original crude oil, like fertilizers and plastics. Just as fertilizers and plastics cannot be called minerals or processed minerals , the CPC also cannot be called a minerals . 8.1.8 The Board Circular cited by the Learned DR completely supports the stand of the Assessee, as it specifically says that the Board has been advised that the term mineral oil covers both crude oil and the liquid products derived from the Crude Petroleum, viz. , motor/automobile spirit, aviation spirit, kerosene and other allied articles. This cannot be stretched to include a product like the CPC. Section 80HHC is an incentive section and, therefore, must be interpreted liberally to advance the object of the section to earn foreign exchange and to prevent export of natural wealth of the country. 9. The brief facts emerge from above discussion are that the appeal in assessment years 1993-94, 1994-95 are against the respective orders under section 263 while appeal for assessment years 1995-96, 1997-98, 1998-99 and 2000-01 are arising from the respective orders of CIT(A) on the common issue of allowability of deduction under section 80HHC in respective export of calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh to include both petroleum as well as the products produced from petroleum by refining, or the products secured from raw petroleum or crude oil". It has been also held that both "crude oil as well as products produced from it have its origin in or have its basic substance as Mineral Oil". It is evident on the perusal of the judgment of the Hon ble Bombay High Court in the aforesaid case that any product produced or secured from crude oil would have its origin in or have its basic substance as mineral oil. There is no dispute in the case before us that raw petroleum coke was a product secured from crude oil and thus had its origin in or have its basic substance as Mineral Oil . The same raw petroleum coke was subjected to the process of calcination by the assessee and what was ultimately produced and exported was nothing but another form of Coke , i.e. , Calcined Petroleum Coke . The basic character of coke remained the same. Coke in both the forms, viz. raw petroleum coke and calcined petroleum coke would, therefore, fall under the definition of mineral oil as interpreted by the Hon ble jurisdictional High Court in Burmah Shell Refineries Ltd. s case ( supra ). Respectful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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