The main legal point established is that unpolished granite does not qualify for deduction under s. 80HHC, as it does not meet the processing requirements specified in the Twelfth Schedule.

R.V.Raveendran, J.

1. THE petitioner is an exporter of cut and dressed granite (unpolished). According to petitioner, it selects and marks the quarrying area/rock, cuts the rock by burner/bore cutting, drills holes and after blasting, removes the blocks and exports the granite in an unpolished condition. In regard to the asst. yr. 1993-94, petitioner filed a return claiming deduction of the profit derived by the export of such unpolished granite from the total income under s. 80HHC of the IT Act, 1961 ('Act' for short). Petitioner contended that the material so exported is 'rock' falling under Item (x) of the Twelfth Schedule to the Act and thus the benefit of deduction under s. 80HHC was available. In response to the said return, the Assessing Officer (AO) (fourth respondent) sent an intimation dt. 31st March, 1995 (Annexure C) under s. 143(1)(a) of the Act regarding the total income, tax and interest payable by the petitioner, disallowing the deduction claimed under s. 80HHC. In the Adjustment Explanatory Sheet, attached to the said intimation, the following reason is given for the disallowance of the deduction claimed under s. 80HHC :

"80HHC is not allowed, as assessee is exporting cut granites (rough granites) as per s. 80HHC report. As per Schedule 12 of IT Act, 80HHC deduction is allowed only to cut and polished granites exporting."

2. ACCORDING to petitioner, deduction claimed under s. 80HHC was disallowed by the AO on account of the instructions contained in Circular No. 693, dt. 17th Nov., 1994 (Annexure-A) issued by the CBDT and the said circular is contrary to the provisions of the Act. Hence, the petitioner has filed this petition : (a) seeking a declaration that Circular No. 693, dt. 17th Nov., 1994 issued by the first respondent is illegal; and (b) for quashing the intimation dt. 31st March, 1995 (Annexure C) issued under s. 143(1)(a) of the Act.

Before referring to the contentions, it is necessary to refer to the relevant provisions of the Act and the impugned circular.

3.1 Sub-s. (1) of s. 80HHC provides that an assessee engaged in the business of export of any goods or merchandise to which the said section applies, shall be allowed a deduction of the profits derived from the export of such goods or merchandise, in computing his total income, in accordance with and subject to the provisions of the said section. Clause (a) of sub-s. (2) provides that the section applies to all goods other than those specified in cl. (b). Clause (b) of sub-s. (2) provides that section does not apply to the following goods : (1) Mineral oil; and (ii) Minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). The Twelfth Schedule is extracted below :

THE TWELFTH SCHEDULE

Processed minerals and ores

(i) to (ix) - (omitted as not relevant).

(x) Cut and polished minerals and rocks including cut and polished granite :

Explanation. - For the purpose of this Schedule "Processed" in relation to mineral or ore, means :

(a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the mineralogical identity;

(b) pulverisation, calcination or micronisation;

(c) agglomeration from fines;

(d) cutting and polishing;

(e) washing and levigation;

(f) benefication by mechanical crushing and screening through dry process;

(g) sizing by crushing, screening, washing and classification through wet process;

(h) other upgrading techniques such as removal of impurities through chemical treatment, refining by gravity separation, bleaching, floatation or filtration.

3.2 The words "(other than processed minerals and ores specified in the Twelfth Schedule)" after the words "minerals and ores" in sub-s. 2(b)(ii) of s. 80HHC and the Twelfth Schedule to the Act were added w.e.f. 1st April, 1991 by Finance (No. 2) Act, 1991. Before the said amendment, all minerals and ore, without exception, whether processed or not, were excluded from s