Court denies manufacturing relief under Section 32A and export benefits under Section 80HHC for processed minerals.

The High Court ruled against the assessee and in favor of the Revenue regarding the entitlement to relief under Section 32A of the Income-tax Act, stating that the activities did not amount to manufacturing. Additionally, the court denied relief under Section 80HHC for the assessment year 1988-89, emphasizing that the amendment allowing processed minerals and ores to qualify for benefits was prospective, not retrospective. The court dismissed the relevance of circulars and highlighted the lack of evidence of value addition in the exported granite blocks, ultimately ruling against the assessee in both aspects.

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Issues Involved:
1. Entitlement to relief under Section 32A of the Income-tax Act.
2. Entitlement to relief under Section 80HHC for the assessment year 1988-89 in terms of Circular No. 729 dated November 1, 1995.

Issue-Wise Detailed Analysis:

1. Entitlement to Relief Under Section 32A of the Income-tax Act:
The first question was whether the assessee is entitled to relief under Section 32A of the Income-tax Act. The Tribunal had previously held that the assessee's activities of extracting, cutting, and exporting granite stones constituted a manufacturing activity, thereby qualifying for investment allowance under Section 32A. However, the High Court cited its earlier judgments in CIT v. Gomatesh Granites and CIT v. Bishal Enterprises, which concluded that such activities do not amount to manufacturing. Consequently, the High Court answered the first question in the negative, ruling against the assessee and in favor of the Revenue.

2. Entitlement to Relief Under Section 80HHC:
The second question concerned whether the assessee was entitled to relief under Section 80HHC for the assessment year 1988-89, considering Circular No. 729 dated November 1, 1995. The Tribunal had granted this relief based on the circular, which clarified that processed granite could qualify for deduction under Section 80HHC.

The High Court examined the statutory provisions of Section 80HHC, which explicitly excluded minerals and ores from the benefits of this section. The amendment introduced by the Finance (No. 2) Act of 1991, effective from April 1, 1991, allowed processed minerals and ores specified in the Twelfth Schedule to qualify for benefits under Section 80HHC. However, the court emphasized that this amendment was prospective and not retrospective.

The court rejected the argument that the amendment should be applied retrospectively to advance the legislative intent of benefiting exporters. It relied on established principles of statutory interpretation, stating that laws must be understood based on the language used and the scheme of the Act. The court cited several judgments, including CWT v. Varadharaja Theatres P. Ltd. and CIT v. N.C. Budharaja and Co., to support its conclusion that the amendment was not intended to apply retrospectively.

The court also dismissed the relevance of Circular No. 729 and Circular No. 693, stating that these circulars were issued to clarify the goods eligible for benefits under the amended provision from April 1, 1991, onwards. Since the amendment did not apply to the assessment year 1988-89, the circulars could not support the assessee's claim.

The High Court further noted the lack of material evidence to demonstrate that the exported granite blocks were value-added products. The Tribunal's conclusion that cutting rough edges and processing granite constituted manufacturing was not supported by detailed findings. The court referenced the Supreme Court decision in Stonecraft Enterprises v. CIT, which required clear evidence of value addition for such claims.

The court distinguished the present case from the Karnataka High Court's decision in CIT v. God Granites, where the assessment years were post-amendment, and there was clear evidence of value addition. Similarly, it did not concur with the Karnataka High Court's judgment in CIT v. Mysore Minerals Ltd. (No. 2), which granted relief based on the circular for the assessment year 1989-90, as it held that the amendment was prospective.

Therefore, the High Court answered the second question in the negative, ruling against the assessee and in favor of the Revenue.

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