Whether profits derived from export of cut and polished dimensional blocks, granite or other rocks is eligible for deduction under section 80HHC
Section 80HHC of the Income-tax Act allows a deduction from the gross total income of the entire profits derived from export of goods other than minerals. Finance (No. 2) Act, 1991 extended the benefit to export of processed minerals and ores mentioned in the Twelfth Schedule to the Income-tax Act. Item (x) of the Schedule mention “cut and polished minerals and rocks including cut and polished granite”.
Some organisations and individual taxpayers have raised doubts whether the deduction under section 80HHC is available in respect of export of granite or other rocks that are cut and exported as raw blocks after being washed and cleaned.
The entry in the Twelfth Schedule is very clear and unambiguous and uses the term “cut and polished”. Therefore, for availing of the benefit under section 80HHC, it is necessary that the rock is not only cut into blocks but also polished before it is exported. This is in line with Government’s policy to encourage export of polished granite and other rocks where value addition before export is high and to discourage export of raw blocks where value addition is low (See also Sl. No. 557)
Circular : No. 693, dated 17-11-1994.
JUDICIAL ANALYSIS
EXPLAINED IN – God Granites v. Under Secretary, CBDT [1996] 218 ITR 298/85 Taxman 536 (Kar.) with the following observations :
“Circular No. 693 dated November 17, 1994, clarifying that rock should not only be cut into blocks, but also be polished, before it is exported to avail of the benefit of section 80HHC, is valid as it is in accordance with section 80HHC and the Twelfth Schedule to the Act. The Government’s policy to encourage export of polished granite and other rocks where value addition before export is high and to discourage export of raw blocks where value addition is low, is evident from section 80HHC, as it extends its benefit not to all minerals, but only to ‘processed minerals specified in the Twelfth Schedule’ and the word ‘processed’ with reference to rocks/granite, means ‘cut and polished’.
EXPLAINED IN – God Granites v. ITO [1998] 65 ITD 302 (Bang.) with the observation that the Karnataka High Court, in assessee’s own case God Granites v. Under Secretary, CBDT [1996] 218 ITR 298/85 Taxman 536 has made an obiter observation “that admittedly by the ‘rock’ and ‘granite’ exported by the petitioner had not undergone any of the processes including polishing and cutting listed in the Explanation to the Twelfth Schedule and, hence, the petitioner was not entitled to claim deduction under section 80HHC”. In this, it was influenced by the idea expressed by the CBDT in its Circular No. 693, dated 17-11-1994 to the effect that ordinary exporters of granite like the assessee did not export ‘cut and polished’ granites. The said view of the CBDT was, however, revised on factual basis in its latter circular dated 1-11-1995. This was not on the basis of a change in the procedure udnertaken by the exporters of late. On the other hand, the CBDT had a wrong view about the nature of state of export of granite blocks and on full appraisal of facts, it expressed a correct factual view in its latter circular. Hence, the latter circular must be considered to be applicable to the trade of export of granites in a general manner even covering a period prior to the issue of latter circular. Admittedly, before being exported, the granite ores and boulders extracted from the quarries are cut to certain suitable sizes. In the language of CBDT, in this process, dimensional blocks of granite are made.
Further held that since by latter circular, CBDT corrected wrong view after full appraisal of facts, it could be treated as general in nature and applicable to earlier years as well, even though it was stated that said circular was applicable prospectively from assessment year 1996-97 only.
