Income Tax Appellate Tribunal - Mumbai
Goa Carbon Ltd. vs Dy. Cit on 27 December, 2004
Equivalent citations: [2005]2SOT152(MUM)
ORDER
S.K. Yadav, J.M. All these appeals have been filed by the assessee against the different orders. Common grounds of appeal in all these appeals have been raised in respect of manufacture and export of Calcined Petroleum Coke for Deduction under section 80HHC.
2. The main dispute in all these appeals is regarding denial of deduction under section 80HHC on the ground that the commodity exported by the assessee company constituted 'mineral oil', within the meaning of section 80HHC(2)(b)(i) of the Act. Besides this there are certain other issues in some of the years which will be dealt with at appropriate place of this order.
3. The background as well as facts in brief for each year under appeal, vide order dated 4-3-1998 under section 263(1) of the Act, the CIT, 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 CIT 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 Income Tax 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 calcined coke has not only been classified under the category of residues of mineral oils but has also been defined as residue resulting from the cracking or destructive distillation of petroleum. In view of this, calcinated coke being a residue of petroleum is, therefore, a residue of mineral oil, As per the provisions of section 80HHC of the Income Tax Act, an assessee being an Indian Company, engaged in export business is entitled to a deduction equal to the profits derived from the export of eligible goods or merchandise other. than the mineral oil, minerals and ores, if the sale proceeds thereof are received in convertible foreign exchange within a period of six months from the end of the previous year. Mineral oil, minerals and ores. other than those specified in the XII Schedule are not eligible for the export incentive deduction with effect from 1-4-1991 as per Finance (No, 2) Act of 1991."
Both the appeals in assessment years 1992-93 & 1993-94 are arising out from the respective orders under section 263 of Act.
3.1. Assessment year 1995-96 - ITA No, 211 /PNJ/02-03, In the order under section 143(3) dated 25-3-1998, for assessment year 1995-96, the assessing officer, following the directions of the CIT, Panaji under section 263 for assessment year 1993-94 in assessee's own case, rejected the claim of the assessee under section 80HHC amounting to Rs. 66,84,194. On appeal, the CIT(A) Belgaum vide his appellate order ITA No. 14/PNJ/98-99, dated 22-10-1998, directed the assessing officer to consider the matter by allowing due opportunity to the assessee and after considering the assessee's arguments as detailed in the appellate order. The CIT(A) also directed the assessing officer to inspect the plant of the appellant and physically see the raw material and the finished goods to determine whether the product exported by the assessee could be said to be mineral oil with the meaning of section 80HHC(2)(b)(i) of the Act. Extracts of some of the noteworthy observations made by CIT(A) in the aforesaid appellate order are reproduced below:
"(i) The assessing officer has observed that the assessee is exporting calcined petroleum coke which is a residue of petroleum and the petroleum being a mineral oil, the assessee was not eligible for deduction under section 80HHC. The assessing officer in this regard has relied 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 finished product of calcined petroleum coke so obtained after value addition by the appellant is exported by him. Like raw petroleum coke, it is also a solid and hard substance different from the former only in the size of granules and cannot be said to be mineral oil by any amount of stretching, the appellant contends.
(iii) The basic intend of section 80HHC is to prohibit the incentive for exporting the natural wealth of the country in its original from and is not meant to cover such imported articles obtained from and is not meant to cover such imported articles obtained in the process of refining crude oil in some foreign countries which the appellant is exporting after some value addition.
(iv) I find that the processing or the value-addition done by the appellant is not material in deciding the issue. It is because processing is relevant only for minerals and ores referred to in section 80HHC (2)(b)(ii) which exempts processed minerals and ores specified in the Twelfth Schedule from this exclusion. The basic question is whether the product exported by the appellant can be said to be mineral oil within the meaning of section 80HHC(2)(b)(i).
3.2 In the impugned order dated 17-10-2002, which giving effect to the aforesaid order of the CIT(A) Belgaum dated 22-10-1998 for assessment year 1995-96, the assessing officer came to hold as under:-
"(i) I have considered the submission of the assessee quite carefully. What I find from the submission of the assessee is that there is nothing new in the submission which was made before the CIT Panaji and reiterated before the CIT(A), Belgaum. The assessee has now sought to take the support from the ratio of the decision of Hon'ble Supreme Court in the case Stone craft Enterprises v. CIT (1999) 237 ITR 131. In the case of Stone craft Enterprises v. CIT (1999) 237 ITR 131, the Hon'ble Supreme Court has dismissed the appeals of the assessee holding that the circular issued by the CBDT dated 1-11-1995 records the boards 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 the granites, which is a value added marketing commodity cannot be of any help to the assessee as there is nothing on record to show that the assessee exports value added granite. In the light of the 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) with effect from 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 from 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 coke is concerned, it is clearly a residue of crude oil, which is necessarily a mineral oil. The slight value addition made by the assessee in converting raw petroleum coke into calcined petroleum coke does not alter the basic character of the item exported. In view of this, I am of the opinion that the export of calcined petroleum coke for which raw petroleum coke is used as a basic raw material which is nothing but residue of the crude oil and the same is obtained from cracking/ distillation of petroleum and the petroleum being mineral oil the appellant's product is also a mineral oil. The product exported remains the mineral oil with some processing and since the exclusion as made by the statute by amending section 80HHC(b)(ii) is only in respect of minerals and ore and not mineral oil, the assessee is not entitled for benefit under section 80HHC. In the light of the above, the claim of the assessee is liable to be rejected accordingly."
4. Assessment year 1997-98 (ITA No. 212/PNJ/02-03). In the original assessment order dated 11-10-2000 for assessment year 1997-98 under section 143(3), the assessing officer rejected the claim of the assessee of deduction under section 80HHC of Rs. 1,75,83,131, following the reasons given in earlier years and particularly the reasons given by Commissioner of Income-tax in order LR No. 263/7/98-99/CIT/PNJ, dated 31-12-1998 under section 263 for assessment year 1994-95 rejecting such claim. Following the reasons discussed in the appellate order dated 22-10-1998 for assessment year 1995-96, the CIT(A) Belgaum restored the issue to tile assessing officer for redetermination, vide appellate order ITA No. 10/ PNJ/2000-01, dated 17-10-2000 for this year. This consequential order passed by the assessing officer on 17-10-2002 under section 250 for this year is on the lines similar to that of assessment year 1995-96, including its text and terror.
5. "Assessment year 1998-99 (17A No. 213/PNJ/02-03). Assessee's claim of deduction under section 80HHC amounting to Rs. 4,54,42,599 for this year was disallowed by the assessing officer for the similar reasons arid in the same circumstances, as in earlier years, as revealed by order under section 143(3) dated 18-12-2000 for assessment year 1998-99. Further seen is that the appellate order (ITA No. 107/PNJ/2000-01 for assessment year 1998-99) as well as assessing officer's consequential 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. 211PNJ/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 refining process of petroleum crude commercially known as crude oil. RPC is further calcined in rotary kiln process under high temperature to produce CPC. During calcination of RPC to CPC, physical, chemical and electrical properties of Raw Coke are completely changed for desired applications of calcined coke. Thus in brief Calcined Petroleum Coke is obtained by carrying out following operations in sequence:
(1) Crude Oil Exploration.
(2) De-watering, de-salting and de-sulphurization of crude oil.
(3) Crude oil refining in Petroleum Refining Complexes and storage into separate products.
(4) Delayed coking of refinery bottom product called residue/ tarry liquid/or heavy fuel oil into the Raw Petroleum Coke carried out in coker installation of the Refinery.
(5) Calcining of Raw Coke to Calcined Coke in rotary kiln unit.
(ii) CPC produced from calcining RPC no longer can be called a mineral oil and be equated with the 'crude oil', which is intended in the legislation for attracting the negative specifications in the Act. CPC, a solid material no longer contains the physical properties of a crude oil or any of the other liquid products, derived from crude petroleum which are in the mixtures of hydro-carbon.
(iii) The Raw Material i.e., RPC and the finished product i.e., CPC both are solid and hard substances and nowhere near the description that could be attributed the 'Mineral OW(Samples of RPC and CPC were produced at the time of hearing of the appeal.)
(iv) The CPC, being a product of refining process of crude oil, it is neither a mineral nor as ore, as contemplated in the restrictive provisions of the Act.
(v) Mineral oil means any oil of Mineral origin. Oil are normally defined as greasy liquids, Petroleum coke is in solid from and very hard material and not a greasy liquid and thus cannot be classified in the category of 'Mineral Oil'.
(vi) There is no substance called Mineral coke, either it is metallurgical coke used for steel making or petroleum coke, either calcined or raw (green). Some of the liquid derivatives from crude oil are loosely mineral oil like Naptha, kerosene, diesel oil, fuel oil even petrol. Naptha is cracked into various gases and then used for making plastics or fertilizers or various petrochemicals. However, these are never called Mineral plastics, Mineral fertilizers or Mineral petro-chemicals.
(vii) 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 form.
(ix) The intention of introduction of the negative list in given the benefit of 80HHC is meant for prohibiting incentives for exporting natural wealth of the Nation in its original form without any value addition. The Calcined Petroleum Coke exported by the company is not a natural substance and is derived out of calcining of a product deduced from refining crude oil. For the subject assessment year the entire raw material used for the production of Calcined Petroleum Coke has been imported. 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 assessee is not subject to the restrictive provisions of sub-section 2(b) of section 80HHC."
7.1 It is further contended that the decision of Hon'ble Supreme Court in the case of Stonecraft Enterprises v. CIT (1999) 237 ITR 131 which is directly on the point was not available at the time of regular assessment/reversionary/appellate proceedings. It is pointed out that the Hon'ble court held that "The word 'Mineral' in sub-section (2)(b) of section 80HHC must be read in the context of 'Mineral oil' and 'ores' with which it is associated. These three words taken together are intended to encompass all that may be extracted from the Earth. "It is argued further that in view of this, assessee's product i.e., CPC, not being a good or merchandise extracted from the earth shall not be termed as 'Mineral Oil'. Assessee placed reliance on the decision of Honble Supreme Court in the case of Aspinwall & Co. Ltd. v. CIT (2001) 251 ITR 323 wherein it is held that if a change is made in the article, then the same would mean a manufacturing activity. It is the contention of the assessee that CPC, by no stretch of imagination can be called 'Mineral Oil' as the crude oil i.e., the Mineral oil has undergone several changes/transformation by way of manufacturing/processing activity, whereby the ultimate product exported i.e., CPC is evolved and it would be incorrect to contend that even after the processing/manufacturing carried out, CPC retains the identity as 'Mineral oil'.
7.2 As regards the first question as to whether the commodity exported by the assessee company i.e., the CPC can be said to be the 'mineral oil' within the meaning of section 80HHC(2)(b)(i), Learned 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 term that 'Mineral oil' is a clear, colourless liquid with almost no taste or smell, the assessee contends that the product Calcined Petroleum Coke is a solid material. The essence of assessee's further contentions is also that in order to identify the product with mineral oil, the same has to be essentially a natural substance extracted from the earth and that CPC, being entirely a new product, does not have the same characteristics of crude oil, physical or otherwise.
7.3 It is observed that the poser in the last lines in para 2.4 of order dated 22-10-1998 of CIT(A) Belgaum for assessment year 1995-96, would be near decisiveness at the level of basic authority i.e., assessing officer himself, had the mind been applied to the observations of CIT(A) contained in paras 2.3 and 2.4 of the aforesaid appellate order. 1 do not think that it has been done, through a visit appears to have been made to the factory and samples of RPC and CPC collected and witnessed. Instead, the conclusions in the impugned orders are solely based on findings of Commissioner of Income-tax, Panaji as contained in orders under section 263 of the Act for assessment years 1993-94 and 1994-95. Seemingly, there does not appear to be independent application of mind on the part of the assessing officer, except with regard to interpretation of decision of Honble Supreme Court in the case of Stonecraft Enterprises (supra). I further find that the Commissioner of Income-tax, Panaji did not simply set aside the assessment orders for the said assessment years but recorded a detailed clear finding and specifically directed to disallow the deduction claimed under section 80HHC. As stated, the same finding is the bane and guiding spirit behind the conclusions drawn in the impugned orders, as the facts and circumstances were same, through the sections under which impugned orders were passed are appealable in the technical sense and as per scheme of section 246/246A of the Act. I further note that the findings given by Commissioner of Income-tax, Panaji are subject-matter of appeal before Income Tax Appellate Tribunal also. Consequently, under these circumstances, albeit per-force, the appeals have got to be decided. However, the decision into the problem will have to be circumscribed by the parameters of Judicial decorum, discipline and propriety, without crossing the well-demarcated frontiers.
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 orderlies with the CIT(A) and the appeal has to be decided without transgressing judicial discipline, I feel that it would be improper and against the propriety to unsettle the finding recorded by a parallel authority i.e., Commissioner of Income-tax and consider the entire issue afresh, merely because technically the orders under section 263 were for different years though the facts and circumstances remained the same in impugned years. The interchange or reversionary and appellate jurisdiction is not permissible, nor contemplated by the statute. Certainly the reversionary authority cannot nullify or set-aside the appellate order and so is vice-versa.
(ii) As the orders under section 263 of CIT are subject-matter of appeal before ITAT, it would amount to usurping the jurisdiction of superior judicial authority. An act by a lower authority in rendering the matters pending before a superior forum infractuous will be against judicial decorum and propriety.
(iii) Reliance by the assessee on the decision in the case of Aspinwall& Co. Ltd. (supra) appears to be out of the context. The said decision was in relation to the issue concerning meaning of 'Manufacture'. There is no such dispute in the appellant's case.
(iv) With utmost respect and humility, the effect of the statute as in the decision of Hon'ble Supreme Court in the case of Stonecraft Enterprises (supra), appears to be different to me. Following observations of Hon'ble court may make this impression clear:-
"It is the contention of learned counsel for the assessee that while granite is a mineral in the general sense, it is not a mineral for purposes of section 80HHC and that, therefore, the deduction provided for therein is available to the assessee. Our attention has been withdrawn to the provision as it read before the appropriate year and thereafter. Our attention has also been drawn to a Circular issued in the context of the later provision. This circular, issued by the CBDT is dated 1-11-1995 and records 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 was value-added marketable commodity; therefore, the profits derived from the export of granite dimensional blocks would be eligible for deduction under section 80HHC of the Act. As we have already 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 circulars 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 learned authorised representative 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 provisions of Chapter 80HHC shows that any Indian company or resident of India, who is engaged in the business of exporting out of India any, goods or merchandise other than those specified in sub-section (2) is entitled for deduction under the section 80HHC, if the sale proceeds of such goods or merchandise are received in or brought into India in convertible foreign exchange within a period of 6 months from the end of the previous year in which the export took place or in such extended period allowed by the Competent. Authority.
Sub-section (2)(b) stipulates those goods/ merchandise export of which is not eligible for deduction under section SOHHC. These goods (for relevant assessment years) are:
"(i) Mineral Oil; &
(ii) Minerals and Ores other than those processed minerals and ores specified in the Twelfth Schedule.
It is pertinent to mention that the words 'other than those processed minerals and ores specified in the Twelfth Schedule' were added with effect from 1-4-1991. In other words, minerals and ores which are processed and specified in Twelfth Schedule are now after 1-4-1991 eligible for deduction under section 80HHC. The issue is whether calcined petroleum coke is falling under 'mineral, oil' or 'minerals and ores' other than those specified in XIIth Schedule (this is definitely not these in XIIth Schedule). The expression 'mineral oil' has not been defined in the section. Likewise, the expression 'minerals & ores' has not been defined in section 80HHC. These expressions have, however, been used in other enactments and may be in other sections of the Income Tax Act.
During the course of hearing before the Bench, the learned counsel of the assessee relied upon two cases namely Stonecraft Enterprises v. CIT (1999) 237 ITR 131 (SC) and Burmah Shell Refineries Ltd. 61 ITR 493. In the case of Burmah Shell the expression 'mineral oil' has been judicially considered. Before we go further let us examine the stand taken by the Appellant. It has stated Raw Petroleum Coke which is the Raw Material for production of Calcined Petroleum Coke is a product of refining activity carried out on crude oil. Therefore, since it is a product of refining process of crude oil it is neither a mineral nor ore as contemplated in the restrictive provisions of the Act as above. Raw Petroleum Coke is a product obtained in refining Crude Oil, i.e., Petroleum. The production 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 arid occuronly in liquid state and not in solid form. Petroleum Coke is a solid form and very hard material arid 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 mining. Raw Petroleum Coke is a product derived on the refining of crude oil (Mineral Oil). It further stated that in Chambers Dictionary it has been defined as 'Minerals and Ores are substances that are produced by the process of inorganic nature or a substance got by mining of Ores or a substance neither of animal nor of vegetable origin'.
Here the expression /meaning assigned in Chambers Dictionary means Mineral is a substance produced by natural process of inorganic nature. The word inorganic means not organized or not organic (structured or organized) or not belonging to an organism and is not accidental (natural origin) or not developed.
Similarly it is relevant to see the definition of Ore which means a solid naturally occurring mineral aggregate of economic interest from which one or more valuable constituents may be recovered by treatment. From the above definitions of Minerals and Ores it is evident that Minerals and Ores are the same and naturally occurring materials. Once Minerals and Ores are treated /processed these are no more in naturally occurring form and lose their natural identity and cannot be any more classified as Minerals or Ores. The assessee relied upon Stonecraft decision in this light. But the facts are not applicable to the present case under consideration. As a corollary since Calcined Petroleum Coke is manufactured with the input of Raw Petroleum Coke which is not a mineral is again a product which is organized, structured /developed belonging to an organism and is of actively natural origin. Further, perusal of list of minerals specified in XIIth Schedule shows that these are such minerals and ores which occur naturally beneath the earth. None of them has properties mentioned in the processing in XII Schedule which occur naturally in them but are such as has been added through the man made process. Therefore, Calcined Petroleum Coke is not a Mineral. It was further stated that Raw Petroleum Coke does not fall in the category of either Mineral Oil or in the category of Mineral and ores.
The other argument taken was that 'The intention of introduction of the negative list in giving the benefit of section 80HHC is meant for prohibiting incentives for exporting natural wealth of the Nation in its original form without any value addition. The Calcined Petroleum Coke exported by the company is not a natural substance and is derived 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), Tara Devi Agarwal (58 ITR 323), Gee Vee Enterprises (99 ITR 375), Duggal& Co. (220 ITR 546), CIT v. Pushpadevi (164 ITR 639), Addl. CIT v. Mukur Corporation (111 ITR 313), Malabar Industries Ltd. v. CIT v. Emery Stone Manufacturing (243 ITR 843) in support of action of CIT in setting aside the orders of assessing officer.
It is relevant to mention here that most of the requirement of mineral oils of the country is made through import of the mineral oil either in crude form or refined form i.e., Kerosene, Diesel, Petroleum, aviation fuel, furnace oil, naptha etc. It is not, therefore, surprising that assessee company is not exporting the domestically produced 'mineral oil'. However, according to the admission of assessee before the assessing officer, it was purchasing raw petroleum coke, the starting material for the assessee from the Barauni Refinery for several years in the beginning. Probably, the commercial considerations and not the national sentiments per se, are the reasons for presently importing the raw material. Be what it may be, nowhere in section 80HHC(2)(b) restriction is on the basis that minerals and ores or the mineral oil should be 'produced/ extracted in India'. It is respectfully submitted that this restriction has to be interpreted in plain and simple language used in the section. The accepted cannon of interpretation is that supposed intention of Legislature need not be looked into if there is no ambiguity in plain language used in the section. The assessee does not get any entitlement for deduction under section 80HHC just because it is using imported raw material.
Further, it is relevant to mention here that assessee is using raw petroleum coke for preparing calcined petroleum coke. As stated by the assessee while explaining in detail alongwith flow chart, the technical process of preparing calcined petroleum coke that basic raw material is green petroleum coke which is a residue remaining after refining process of crude oil. It is relevant to understand the meaning of mineral oil as elucidated in the judgment of Bombay High Court in Burmah Shell case (supra). It is pertinent to mention here that prior to assessment year 1991-92, the export minerals and ores whether in raw form or processed form were not entitled for deduction under section 80HHC. After considering representations from various quarters, 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 (Burmah 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 years and this fact was known to the department. However, in assessment year 1965-66 provisional assessment was made on the ground that assessee was not manufacturer or producer of mineral oil. The department contended that mineral oil meant crude oil and not its products and that the petitioner was getting supply of crude oil for refining purposes and was neither manufacturer nor producer of the crude oil.
The Hon'ble court allowed the petition and quashed the order of the department. It observed as under :-
The expression 'mineral oil' has not been defined anywhere in the Act. In Webster, Third New International Dictionary (Volume 11, page 1438), the meaning of 'mineral oil' has been given as:
'Mineral oil, a liquid product of mineral origin that is within the viscosity limits recognized for oils (as petroleum, shale oil, or any oil obtained from them by refining), esp. liquid petroleum compare Hydrocarbon oil, paraffin oil.' In Oxford English Dictionary, edited by Murray (volume 6, page 467), the meaning of 'mineral oil' is given as:
'Mineral oil a general name for petroleum and the various oils distilled from it.' In Petroleum Dictionary by Lalia Phipps Boone (page 199), the meaning is:
'Mineral oil'
1. Crude Petroleum and its products.
2. Liquid petroleum.
In the Illustrated Petroleum Dictionary and Products Manual compiled and edited by the editorial staff of the Petroleum Educational Institute (page 269), the meaning is:
'Mineral oil. Petroleum as it comes form the ground is frequently called mineral oil because it comes from a mineral surrounding; also to distinguish it from oil secured from vegetable and animal sources. It may refer to (1) crude oil coming naturally from the ground or secured from coal, shale or any other natural source; (2) any one of the many products secured from the crude oil or secured from coal, shale or other natural sources'. From the meaning of the word 'mineral oil' as given in Webster's and Oxford Dictionaries as well as in the technical dictionaries, viz., the Petroleum Dictionary and the Illustrated Petroleum Dictionary, it is clear that the expression 'mineral oil' is wide enough to include both the petroleum in its crude form as well as the products secured or obtained from the crude oil by refining. We have already stated that in the petition the business of the petitioner company 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 Petroleup n 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 Latia 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 the 'refined oils' manufactured from it, Petroleum : An inflammable liquid, only mixture of a great many hydrocarbons found in the earth. The quality and quantity of the deposits of pools vary almost as widely as the localities in which they are found.' The same dictionary also gives so many other names by which petroleum is referred to, such as black gold, black gold of Transylvania, blackjack, black oil, etc. It is pertinent to quote from the order of the Hon'ble High Court. 'Reading the aforesaid definition of "crude oil' is apparent that petroleum as it comes from ground is generally understood or generally referred to as crude oil and the expression "mineral oil' is wide enough to include not only the crude oil but also any oil obtained from it b v refining, or any products secured from the crude oil,' "...... We have referred to the meaning given to the terms 'mineral oil' and 'crude oil' in the aforesaid dictionaries, which indicate that the crude oil means petroleum in its raw form as it comes from the ground, and the expression "mineral oil is wide enough to include both petroleum as well as the products produced from petroleum by refilling, or the products secured from raw petroleum or crude oil.
'...... Suffice it to say that it is not impossible to say with certaint that the petitioner company is not engaged in the business of or production of mineral oil. On the hand, the contention of the petition cr that it is engaged in the business of mineral oil Prima facie appears to be well founded.' From the above it is clear that the expression mineral oil' is wide enough to include not ordy crude oil but also products prodneed form pclwo by refining. This interpretation also finds support from th, Circular No.7 issued by C.B.D.T. on 23-3-1991 explaining the scope of the term 'mineral oil'-item 3 of the part IV of the 1st Schedule to the Finance Act, 1964, item 3 of part 111 of 1 st Schedule to the Finance Act, 1965 and item 3 in both the Fifth & Sixth Schedules to the Income Tax Act, 1961.
Circular No. 57 : Scope of the tern) 'Mineral oil'- Item 3 of- Part TV of the First Circular No. 57, dated 23rd March, 1971 F.No. 156/26/71 -TPL Subject : Scope of the term 'mineral oil'- Item 3 of the Part IV of the First Schedule to the Finance Act, 1964, item 3 of Part III of the First Schedule 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, arid 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 arid other allied articles. It therefore, follows that the profits and gains attributable to the business of refining of crude if 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 regarded as priority industry for purposes of section 80-I and section 80M of the Income Tax Act, 1961, and also as business of manufacture or production of 'Mineral oil' for purposes of calculating the development rebate in respect of machinery, and plant under section 33 of that Act.
Likewise, sections 42, 44BB and 293A define mineral oil in inclusive manner by including petroleum and natural gases. In other words, it will be incorrect to confine the term mineral oil to merely crude oil. The expression 'Mineral oil' includes as stated above products produced after refining of crude oil.
It is worth pointing out that assessee is producing calcined petroleum coke by calcinations (heating at a temperature of around 1250 degree centigrade in controlled conditions) of raw petroleum coke. The green petroleum coke (raw petroleum coke) is derived as a residue of refining process of' crude oil. It is also relevant to mention that Standing counsel of the assessee mentioned in the Tribunal before the Hon'ble Bench while arguing the case that there are several refineries in the world which produce even upto stage of the clacined petroleum coke. Most of the refineries in India stop at the level of producing various products like kerosene, diesel, motor spirit, aviation spirit, kerosene and other allied articles. Raw petroleum coke is almost a waste of this refining process of' crude oil. The 'calcination' of this raw petroleum coke results in calcined petroleum coke. The calcined petroleum coke appears to be a 'mincral oil' even after all the processing of calcinations it has gone through. Since, no exception on the lines of 'Mineral and ores' (since 1991, the export of processed 'mineral and ores' specified in the XII Schedule are now eligible for deduction under section 80HHC) for processed mineral oil has been made in the Income Tax Act, it appears that benefits of section 80HHC cannot be given to the assessee (the calcined petroleum coke appears to be a processed 'mineral oil' only). The Hon'ble Tribunal is requested to dismiss the appeal on this issue and restore the order of the assessing officer."
8.1 In rejoinder to departmental submissions assessee summarized its submissions which are as under:
a. Admissibility of deduction under section 80HHC The learned Departmental Representative has proceeded on the assumption that the 'Raw Petroleum Coke'(RPC) and 'Calcined Petroleum Coke(CPC), both are vesidues 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 operations, independent of the refinery and by the 'Delayed Coker Operations'.
8.1.1 This now constitutes the raw material for producing 'Calcined Petroleum Coke' to increase the 'carbon contents'. This is done by a process call ed 'Calcining', which is totally an independent process than the one carried out by the refineries. The word 'refining' itself means to bring one carried out by the refineries. The word 'refining' itself means to bring to a fine or a pure state, free from impurities. The object of the 'Delayed Coking Operations', and thereafter, the 'Calcining' is not to remove the impurities or to fine-tune the 'Crude Oil', which is already done by the refineries at the first stage itself but to bring into existence a totally independent commercial product, which is industry specific. The CPC is used by the Graphite, Aluminium and Steel industries. It is also used for the production 'Titanium Dioxide' and also 'Anodes' for dry cell batteries. Thus, it will be appreciated that it is not a 'residue' at all in any sense of that word. It is a manufactured product by using huge plant and machinery from RPC, which can be bought in the market.
8.1.2 The learned Departmental Representative then heavily relied on the Hon'ble Bombay High Court's decision in Burmah Shell Refineries Ltd. v. G.B. Chand, Income Tax Officer (1966) 61 ITR 493. Though the Hon'ble Bombay High Court was constructing the expression 'mineral oil' in a different context, actually, the decision fully supports the stand taken by the assessees. The Hon'ble Bombay High Court has categorically held on page 501 of the Report that - 1t is clear that the expression 'mineral oil' is wide enough to include both, the petroleum in its crude from as well as the products secured or obtained from the crude oil by refining." Thus, it is only to the extent the crude oil is refined and impurities removed, the products thus obtained like petrol, diesel, kerosene etc. can at best be considered as 'mineral oil'. It must be remembered that it is not treated as 'mineral oil' because they are residues of the crude oil.
8.1.3 In the facts of our case, we have pointed out that our raw material, viz. Raw Petroleum Coke is imported as a commercial product and the final product i.e. CPC, is manufactured and exported. There is, therefore, no question of there being any residues or CPC being a residue of refining. The statements made, have 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) Act of' 1948, the term 'Minerals' is defined inclusive wise to include free stone, lime stone, granite stone, clay and stone used Wharton's Law Lexicon given the definition of 'Mineral' as a term including all substances of' commercial value, which can be got from beneath the earth; either by mining or quarrying. Thus, it will be seen that CPC can in no sense be called a 'Mineral'. Treating it as a 'mineral' is not only doing violence to the language, but ignoring several independent processes, which are carried out to obtain the product. It was mentioned in the course of hearing that to manufacture CPC of the Assessee's Plant Production capacity, an investment in excess of Rs. 150 crore is required and the plant works on a 'stand-alone basis' without any reference to any refinery.
8.1.6 The above explanation read with the description of the processes and the Flow Chart will clearly establish that is not even a 'Processed mineral'. The expression 'processed mineral must first refer to a 'mineral'. The section does not speak of 'processed mineral oil' but of 'processed mineral'. In fact, it is a common ground that it is not a' processed mineral' and therefore, there is no need to refer, to the XIIth Schedule at all. Once it is out of the XIIth Schedule, all that one has to consider is-whether it is a 'mineral'. This issue is directly covered by the decision of the Hon'ble Supreme Court of India in the case of Stonecraft Enterprises v. CIT (1999) 237 ITR 131. In this case, the Hon'ble Supreme Court was considering the expressions - 'mineral oil', 'minerals' and 'ores' in the context of section 80HHC itself and it categorically held that - "The word minerals in subsection 2(b) of section 80HHC must be read in the context of 'mineral oil' and 'ores' with which it is associated. These three words taken together are intended to encompass all that may be extracted from the earth."
8.1.7 The product, CPC which is not only extracted from the earth, but is a result of an independent manufacturing operation, can never be called 'mineral' an, therefore, even a' processed mineral'. The value addition and the end-use are so drastically different that it sheds all its characters from the original crude oil. The best illustration is 'Naphtha'. Which may trace its origin to crude oil, but once cracked, it results into production of a material, which is vastly 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 Departmental Representative 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 calcined petroleum coke.
10. Provisions of section 80HHC deal with deduction in respect of profit retained for export business. One of the conditions for availing deduction under section 80HHC is that the assessee should have been engaged in the business of export out of India of any goods or merchandise to which section 80HHC is applicable. The provisions of section 80HHC do not apply to mineral oil; and minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Section 80HHC(2)(b). The limited question before us is, whether the goods or merchandise exported by the assessee out of India were 'mineral oil', or 'mineral' and 'ores' other than those processed minerals and ores specified in Twelfth Schedule so as to deny the benefit of deduction under section 80HHC to the assessee. The facts available on record indicate that the assessee was procuring raw petroleum coke and calcinating it before exporting the same as calcined petroleum coke. Raw petroleum coke is nothing but the residue left out on refining the crude oil. Thus, raw petroleum coke is a product secured from raw petroleum or crude oil. The raw petroleum coke procured by the assessee was subjected to calcination by the assessee leading to the production of calcined petroleum coke. Calcination is nothing but a heating process. The raw material i.e. raw petroleum coke and the finished product i.e. calcined petroleum coke thus retained their basic character of being coke and a product secured from raw petroleum or crude oil. The process of calcination of raw coke undertaken by the assessee did not change the basic character of coke from being coke. On these facts the question is whether the calcined petroleum coke exported by the assessee ceased to be the mineral oil. The term 'mineral oil' was subject-matter of extensive analysis by the Hon'ble jurisdictional High Court in Burmah Shell Refineries Ltd. v. G.B. Chand, Income Tax Officer (1966) 61 ITR 493 (at 501 to 503) (Bom.). The Hon'ble jurisdictional High Court has held that the term 'mineral oil' is "wide enough to include not only the crude oil but also any oil obtained from it by refining or any product secured from the crude oil". Thus any product, i.e., coke secured from the crude oil would qualify to be called 'mineral oil'. The Hon'ble High Court has further held that the expression 'Mineral oil' is "wide enough to include both petrolcum 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 Honble jurisdictional High Court in Burmah Shell Refineries Ltd.'s case (supra). Respectfully following the decision of the jurisdictional High Court in Burmah Shell Refineries Ltd.'s case (supra) it is held that what the assessee exported during the previous year was nothing but mineral oil within the meaning of section 80HHC(2) and hence was not eligible for deduction under section 80HHC in respect of the income derived from export of calcined petroleum coke. In conclusion we agree with the views taken by the CIT(A) that the assessee is not entitled to deduction under section 80HHC.
11. We also agree with his conclusion that the income derived by way of interest from deposit in bank cannot be said to have been derived from export business. This view is supported by the judgment of the Hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278. In view of the above, we are in complete agreement with the order of the CIT(A), the same is upheld.
12. As a result, all the six appeals of the assessee are dismissed.