ORDER
P. Mohanarajan, JM.
1. These appeals are by the Revenue directed against the orders of the learned CIT(A), Coimbatore, dt. 18th Feb., 1992, and 15th June, 1992.
2. We have heard both sides and perused the records.
3. The first common ground in all these four appeals relates to the directions given by the learned CIT(A) that grant of allowances by way of either additional depreciation or under Section 80-I or as investment allowance for the assessment years under appeal shall not be withdrawn.
4. At the time of hearing of these appeals it was brought to our notice that similar issue came for consideration of this Tribunal, in the assessee’s own case, in ITA Nos. 3946/Mad/1989 & 3147 & 3148/Mad/1990 in respect of the asst. yrs. 1986-87 to 1988-89 dt. 29th April, 1997, wherein following its earlier order in ITA No. 1798/Mad/1988 relating to the asst. yr. 1983-84, in the assessee’s own case, came to the following conclusion : “We have carefully considered the rival submissions and perused the material on record. The undisputed findings of the CIT(A) are that the assessee is engaged in further processing like sizing and polishing, etc. All these activities clearly constituted manufacture of article or thing within the meaning of Section 32A of the Act. As regards the contention that the items of assets are not plant and machinery but are only in the nature of road transport vehicles, the same is concluded against the Department by the decision of the Tribunal in the assessee’s own case for the asst. yr. 1983-84. Following our own reasons given in that order, we uphold the assessee’s claim and decline to interfere.” Thus, we find that this issue is squarely covered by the decisions of this Tribunal in the assessee’s own case, in favour of the assessee. Therefore, the order of the learned CIT (A) is confirmed on this point.
5. The next issue relates to the deduction allowed by the learned CIT(A) under Section 80HHC for the assessment years under consideration. The assessee is a closely–held company carrying on business in quarrying of granite stones, cutting them into requisite sizes, turning them into shape, dressing them and exporting them to foreign countries to be used as memorials in cemeteries or for exterior decoration in building, etc. On the aforesaid export business turnover, the assessee claimed deduction under Section 80HHC for the relevant assessment years. While framing the assessment, the AO concluded that the granite is nothing but a mineral and disallowed the claim of the assessee under Section 80HHC. The AO viewed that once the granite is said to be mineral then the transactions are hit by the provisions of Section 80HHC(2)(b) of the Act. When this issue came before the learned first appellate authority it was decided in favour of the assessee, with the following observations :
“I have considered carefully the contentions of the learned authorised representative. I am not going into the validity of the reassessments as the appellant is succeeding on merits on its entitlement to deduction under Section 80HHC of the IT Act. During the asst. yr. 1989-90 considering the Hyderabad Bench’s order on this issue in favour of the appellant in the case of Evershine Granites (P) Ltd. v. ITO reported in (1991) 39 TTJ (Hyd) 88 and also the amendment made by the Finance (No.2)Act, 1991 extending the benefit to processed minerals and rocks including cut and processed granites I have directed allowance of deduction under the said section. My reasoning is contained in the appellate order in ITA No. 233-C/92-93, dt. 15th June, 1992 : “I have carefully considered the submissions of the learned representative. They are not without force. Under Section 80HHC of the IT Act, Sub-section 2(b) excludes–(i) mineral oil; and (ii) minerals and ores–from the benefit of Section 80HHC of the IT Act. It would, therefore, mean that unless, the granites quarried, dressed and further processed and exported fall within the category of minerals or ores they will be eligible ior the deduction under Section 80HHC of the IT Act in relation to the asst. yr. 1989-90. The word ‘mineral’ has not been defined under the IT Act. In the case of Swamy Sathyanada Saraswathy the Supreme Court has pointed out that the word ‘mineral’ in the absence of any special statutory definition, should be understood in the vernacular of the mining world and commercial word and among land-owners and in the case of conflict such vernacular meaning must prevail over purely scientific meaning. In the popular sense or in commercial parlance a granite stone cannot be considered either as minerals orores. The opinions given by geologists also show that granites will fall in the category of rocks and not minerals or ores. In the amendment made by the Finance (No.2) Act, 1991 wherein a new XII Schedule has been added to the statute item (x) reads as under:
“Cut and polished minerals and rocks including cut and polished granites,”
From the very fact that cut and polished granites are considered as rocks and not minerals, it will be obvious that the legislative intention is that granites are not of the same genus as minerals. This is also quite in conformity with the decision of the Tribunal, in the case cited supra of Hyderabad Bench and also the opinion of geologists. The amendment also was intended to extend the benefit from the asst. yr. 1991-92 to prohibited items like processed minerals and ores and not to deny the benefit in respect of items like granites which were entitled to the benefit even without reference to the amendment. In the light of the aforesaid discussion, therefore, the appellant is entitled to the benefit of relief under Section 80HHC of the IT Act in respect of granites quarried from own quarries as well as purchased from outsiders and processed by cutting them into requisite sizes, dressing them and chiselling them into desired shapes and exporting them to foreign countries. The AO is therefore, directed to allow the appellant the correct deduction under Section 80HHC of the IT Act for the asst. yr. 1989-90 in the computation of the assessable income.” As there are no changes in facts during the asst. yrs. 1986-87 to 1988-89 the reassessments made withdrawing the relief granted under Section 80HHC of the IT Act are cancelled. The original assessments will therefore, stand restored for the asst, yrs. 1986-87 to 1988-89.”
Aggrieved with the above findings, the Revenue is in appeal before this Tribunal.
6. The learned Departmental Representative, Sri Prabhakar, vehemently contended that the assessment years under consideration fall from 1986-87 to 1989-90 which is much earlier to the period of introduction of XIIth Schedule to the Act and hence the provisions that were prevailing during the time of assessment years alone are applicable. The products of the assessee are nothing but mineral as they are excavated from the earth. Therefore, in view of the provisions of Section 80HHC (2) (b)(ii) as prevailed in the statute book during the relevant point of time, the assessee is not entitled to the relief. The learned Departmental Representative also relied on the decision of the apex Court in the case of Stonecraft Enterprises v. CIT (1999) 237ITR 131 (SC).
7. The learned counsel for the assessee, Shri Sridhar, contended that the assessee is carrying manufacturing activities. The assessee manufactures dimensional granite stones, after unearthing the raw granite for the purpose of export. Before that the assessee had to necessarily perform the process of cutting/polishing, etc. to the required sizes for the purpose of export. Thus, after the raw rocks were excavated value of such things are added by several processes, fit for export to the tastes of the customers/buyers. The learned counsel further contended that the decision of the apex Court relied on by the learned Departmental Representative–(1999) 237 ITR 131 (SC)–is not applicable to the ‘ present case and factually distinguishable. The apex Court was pleased to hold against the assessee in that case as there was nothing on record to indicate that what the assessee had exported was such value added granite. The learned counsel for the assessee relied on the order of this Tribunal in the case of Asstt. CIT v. Enterprising Exporters (P) Ltd., in ITA No. 1630/Mad/1992 dt. 14th Oct., 1999. He also relied on the decision of the Karnataka High Court in the case of God Granites v. Dy. CIT (1999) 240 ITR 343 (Kar).
8. We have heard rival submissions and perused the records. In the order of this Tribunal dt. 14th Oct., 1999, cited supra, reliance has been placed on the order of this Tribunal in ITA Nos. 1040 and 1041/Mad/1986 and in ITA Nos.822 and 823/Mad/l990. For better appreciation of the facts and the legal position, we may import the circular issued by the CBDT, namely Circular No.729, dt. 1st Nov., 1995, [reported in (1995) 216 ITR (St) 141], wherein in para 3 it is mentioned as below :
“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, hairline 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.”
A careful study of the aforesaid circular clearly indicate that certain clarifications had been given in respect of allowability of certain claim under Section 80HHC. What is explained by the circular is that if any value is added to the raw granite by applying any process by cutting the rough granite into dimensional blocks of uniform colour and size, then export of such article would qualify for deduction under Section 80HHC and by carrying out such mechanical process of cutting, polishing, etc. to remove various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hairline cracks, etc., the granite loses the character of the mineral. This clarification was not available in the statute book prior to 1st Nov., 1995. This clarification does not specify that it should apply retrospectively.
9. After carefully considering the facts of the case, we are of the considered opinion that the assessee’s case falls within the ambit of the Circular No. 729, dt. 1st Nov., 1995. Any clarification issued to reduce the rigour or mischief of the particular provision, more particularly relating to provisions of exemptions, such clarifications are applicable retrospectively for the simple reason a person cannot be a woman till certain point of time and the man thereafter. Similarly, extending the same analogy, holding that value added granite is a mineral upto a particular point of time and after that point of time not a mineral would look ridiculous,
10. We may now refer to the decision relied on by the learned Departmental Representative, (1999) 237 ITR 131 (SC) (supra). In this decision while dismissing the appeal by the assessee the apex Court made the following observations ;
“that the circular issued by the CBDT is dt. 1st Nov.,1995, and records of the Board’s opinion that while granite alone can be considered as a mineral, any process applied to granite would deprive the quality of rough minerals from the dimensional blocks of granite, which is a value added marketable commodity; therefore, the profits derived from the export of granite dimensional blocks would be eligible for deduction under Section 80HHC. There was nothing on record to indicate that what the assessee exported was such value added granite so that, even assuming that the said circular was explanatory and could, therefore, relate back to the year in question, the assessee could not derive any assistance therefrom. The assessee was not entitled to special deduction under Section 80HHC in respect of granite exported from India, for the asst. yrs. 1985-86,1987-88 and 1988-89.”
In the case before the apex Court there was nothing on record to indicate that what the ‘assessee exported was value added granite. Therefore, the case relied on by the learned Departmental Representative is factually distinguishable. However, at the same time the observation of the apex Court extracted above would certainly indicate that circular dt. 1st Nov., 1995 is explanatory.
11. Further, it is to be seen that the circular issued by the CBDT is binding on the authorities and other persons employed in executing the IT Act. In the decision of the Karnataka High Court in the case of God Granite (supra) reference has been made in respect of the decisions in Stone Craft Enterprises v. CIT (1993) 204 ITR 550 (Kar) and (1999) 237 ITR 131 (SC) (supra). In this decision, (1999) 240 ITR 343 (Kar) (supra), the decision of the Single Judge in God Granites v. Under Secretary, CBDT (1996) 218 ITR 298 (Kar) was reversed by the Division Bench of the Karnataka High Court. In the Division Bench decision of the Karnataka High Court (1999) 240 TTR 343 (Kar) (supra), it has been observed as follows :
“When rough granites are cut into dimensional blocks of uniform colour and size and when a certain amount of dressing and polishing is done which would remove various natural flaws such as colour variations, etc., it would certainly amount to processing of the granite, and it adds value to it. The Act does not specifically say that the minerals and granites should be given the final cut and be finally polished before they are exported. The CBDT in its Circular No. 693, dt. 17th Nov., 1994, laid down that 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. On a representation made by the Association of Exporters of Granite, the CBDT issued a subsequent Circular No.729, dt. 1st Nov., 1995, retracting its earlier view on the question of availability of deduction under Section 80HHC in respect of the exports of granite blocks and took a different view, very much favourable to the exporters. The circular stated that ‘when rough granite is cut into dimensional blocks of uniform colour and si2e, 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. The subsequent circular modifies the view of the CBDT about the same facts relating to the condition in which granite blocks are exported. There is no change in the procedure undertaken by the exporters which necessitated the CBDT to issue the subsequent circular. The procedure remains the same. The CBDT being of the view that earlier it had taken a wrong view about the nature of export of granite blocks, on full appraisal of facts expressed the correct factual view in its later circular. Clarificatory amendments in law are always retrospective unless the statute provides otherwise. Hence, the subsequent circular would be applicable to assessment years preceding the issuance of this circular as well.”
Their Lordships in this decision while considering the earlier decision of the Karnataka High Court made the following observations: “After the conclusion of the arguments and reserving the order, the judgment of the Supreme Court in Statecraft Enterprises v. CIT (1999) 237 ITR 131 (SC), came to our notice by which the view taken by this Court in Stonecraft Enterprises v. CIT (1993) 204 ITR 550 (Kar), was affirmed. We heard counsel for the parties afresh regarding the applicability of this judgment to the facts of this case. In our view, this judgment would not affect the merits of the present case as it is relatable to the assessment years before the corning into force of the Finance (No.2) Act of 1991. Statecraft Enterprises’ case (1999) 237 ITR 131 (SC), was concerned with the asst. yrs. 1985-86, 1987-88 and 1988-89. Sec. 80HHC(2) (b) excluded the application of section to “minerals and ores”. This was the position until 31st March, 1991. It was only w.e.f. 1st April, 1991, the words “other than processed minerals and ores specified in the Twelfth Schedule” were added by the Finance (No. 2) Act of 1991. Hence, until 31st March, 1991, there was no question of claiming any exemption in respect of the profits from exports of minerals and ores. The only argument available to the assessee was that granite was not a mineral. If granite was not a mineral, then the non-application of the section would not have been attracted and, consequently, the assessee claimed exemption. The assessee’s argument was that granite was not a mineral. The Supreme Court rejected the contention of the assessee and held that granite is a mineral. Reference to the circular dt. 1st Nov.,1995, by the Supreme Court was purely tangential. Circular obviously has relevance only after 1st April, 1991, when an exception was made in respect of minerals and ores specified in the Twelfth Schedule, It seems the attention of the Supreme Court was not drawn to the fact that a crucial amendment was made w.e.f. 1st Apnl, 1991, and the circular, if at all, had relevance only in respect of the period ‘after 1st April, 1991. The Supreme Court has also recorded a finding that there was nothing on record to indicate that what the assessee exports is value added granite. The Supreme Court had, therefore, declined to examine the question. On the contrary in the present case there is a positive finding of the Tribunal that the assessee did in fact do cutting and dressing, including some polishing and that what was exported was dimensional granite blocks which are a valued added item. The case of Stonecraft Enterprises (1999) 237 ITR 131 (SC), would not make any difference to the arguments advanced in the present case.”
The aforesaid observations by the Karnataka High Court are self-explanatory. The following observations are also found in the decision which would clearly establish that the circular dt. 1st Nov., 1995, is explanatory and, therefore, can relate back to the years in question :
“Incidentally, the Supreme Court in Stone Craft Enterprises’ case (1999) 237 ITR 131 (SC), has observed that the circular is explanatory, and, therefore, can relate back to the year in question. The view taken by us is also in conformity with the observations made by the Supreme Court in the said case. This lends support to the view that the subsequent circular would be applicable to the assessment years previous to the issuance of this circular as well.”
Thus, our view is fully fortified by the decision of the Division Bench of the Karnataka High Court reported in (1999) 240 ITR 343 (Kar).
12. It is also relevant to note that certain explanations/clarifications were issued to Section 43B of the Act. Amendment by way of inserting the first proviso to Section 43B w.e.f. 1st April, 1988, stood for consideration before the apex Court in the case of Allied Motors (P) Ltd. v. CIT (1997) 91 Taxman 205 (1997) 224 ITR 677 (SC). This was considered to be curative in nature and has to be read into Section 43B from its inception, therefore, even prior to insertion of first proviso sales-tax collected by an assessee for the last quarter of relevant accounting year and paid after the end of the accounting year but within the time allowed under relevant sales-tax law could not be disallowed under Section 43B. The same position prevailed in the case where the Schedule III to WT Act which was inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, was directed to be considered as having retrospective effect by the apex Court in the case of Bharat Hari Singhania v. CWT (1994) 207 ITR 1 (SC) and in the case of CWT v. Sharvankumar Swarup & Sons (1994) 210 ITR 886 (SC).
13. For all the aforesaid reasons, we confirm the findings of the learned CIT(A) on this issue.
14. In ITA No. 2025/Mad/92, there is one another ground raised by the Revenue, which relates to deletion of the addition towards closing stock. It was contended by the learned counsel for the assessee that the assessee has been consistently following the method for valuation of its closing stock and there was no warrant for the AO to disturb the consistent method followed by the assessee for the first time during the asst. yr. 1989-90. As mentioned in the earlier part of this order, the assessee exports granite, after cutting, dressing, polishing, etc. and the export depends upon the inception by the foreign buyer and their satisfaction as to their quality and specifications. The learned counsel for the assessee further submitted that in case of a minute hole or a crack in the granite stones to be exported, it will result ultimately in rejection of the goods by the foreign buyers. On such rejection the appellant cannot sell them locally and no such sale has also been ever effected even in the past. On such facts put-forth before the learned first appellate authority, after considering the facts, the learned CIT(A) observed in para 7 of his appellate order dt. 15th June, 1992, as under:
“I have carefully considered the submissions of the learned representative. The fact remains that the appellant has only been exporting the granite stones cut and processed to foreign countries. There has been no instance of sale of the goods within India whether rejected or otherwise. As contended by the appellant unless the goods are inspected by the foreign buyers and found fit for export according to the appellant there is no realisable value for such goods pending inspection. This method of valuation has been consistently followed by the appellant and has also been accepted till the asst. yr. 1988-89. On principle also, it cannot be found fault with. The Madras High Court in the above cited case has approved this method of valuation. Besides, the learned representative submitted there will be only detriment to the Revenue as a result of the addition made by the Asstt. CIT during the asst. yr. 1989-90. In the light of the above-said discussion, the addition made is deleted. (Rs. 2,35,500).”
Further, it is brought to our notice that such valuation of closing stock has been accepted by the Hon’ble Madras High Court in the case of K. Mohammad Adam Sahib v. CIT (1965) 56 ITR 360 (Mad).
15. We have considered the facts narrated above. After going through the observations and findings of the first appellate authority and also considering the facts available on record and the submissions made, we do not find any infirmity in the order of the learned CIT(A) on this point. The assessee has been exporting the granite stones cut and processed to the foreign countries. There was no instance of sale of goods within India whether rejected or otherwise. Further, the assessee has been consistently following the same method of valuation and the same has been accepted by the Revenue till the asst. yr. 1988-89. Therefore, we do not find any infirmity in the order of the learned first appellate authority.
16. In the result, the appeals preferred by the Revenue are dismissed.