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AIT-2010-496-HC

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					                             AIT-2010-496-HC
                     IN THE HIGH COURT OF BOMBAY AT GOA

                       TAX APPEAL NO. 13 OF 2005
                                  WITH
       TAX APPEAL NOS. 11,12,14,15,16 OF 2005,65,66 OF 2007 & 20 OF
                                   2010
                        TAX APPEAL NO. 13 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                            The Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

AIT Head Note: ITAT was not right in holding that the calcined petroleum coke
manufactured by the appellant was a “mineral oil” within the meaning of Section 80
HHC (2) (b) of the Act.(Para 15)

                                       WITH
                             TAX APPEAL NO. 11 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                          The Dy. Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 12 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                          The Dy. Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                          WITH



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                             TAX APPEAL NO. 14 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                            The Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 15 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                          The Dy. Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 16 OF 2005

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                          The Jt. Commissioner of Income Tax,
       having his office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 65 OF 2007

                                  Goa Carbon Ltd.,
                      Dempo House, Campal, Panaji Goa. ... Appellant

                                        Versus

                        The Deputy Commissioner of Income Tax,
   Panaji Goa. Having office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 66 OF 2007




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                                   Goa Carbon Ltd.,
                       Dempo House, Campal, Panaji Goa. ... Appellant

                                         Versus

                 The Deputy Commissioner of Income Tax, Panaji Goa.
         Having office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

                                       WITH
                             TAX APPEAL NO. 20 OF 2010

                                   Goa Carbon Ltd.,
                       Dempo House, Campal, Panaji Goa. ... Appellant

                                         Versus

                      The Assistant Commissioner of Income Tax,
   Panaji Goa. Having office at 'Aayakar Bhavan', Patto-Plaza, Panaji Goa. ... Respondent

Mr. S. N. Inamdar, Advocate with Mr. Sudin Usgaonkar and Ms. A. Pereira, Advocates for
the Appellant.
Ms. Asha Dessai, Advocate for the Respondent.

Coram : D. G. KARNIK, & F.M. REIS, JJ.

Judgment Reserved on : 15 th SEPTEMBER, 2010 .
Judgment Pronounced on : 21 st OCTOBER, 2010 .

AIT Head Note: Whether the Hon'ble Tribunal was justified in law in holding that calcined
petroleum coke manufactured by the appellant is the “Mineral Oil” within the meaning of
Section 80HHC ?

J U D G M E N T

( Per D. G. KARNIK, J )

1. These appeals relate to the different assessment years in respect of the same assessee
namely Goa Carbon Limited and involve a common point. Hence, all the appeals are disposed
of by this common judgment. Learned Counsel for the parties stated that all the relevant
papers have been filed in Tax Appeal No. 13 of 2005. Hence it would be appropriate to state
the facts therein.

2. The appellant is a company involved in manufacture of calcined petroleum coke
(hereinafter referred to as the “CPC” ) which is used for : making pre-baked anodes or
carbon paste by the aluminum smelters for production of basic aluminum metal; as a carbon
raiser for making carbon steel by the steel mills, foundries and steel plants; production of



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titanium dioxide; cathodic protection of cross countries oil/gas pipe lines; other
miscellaneous uses for chemical industry; and anodes for dry cell batteries. Large part of
the CPC manufactured by the appellant is exported. The appellant claimed deduction in
respect of profit arising out of the export of the CPC. The Assessing Officer allowed to the
appellant a deduction of the export profit under Section 80 HHC of the Income Tax Act,
1961 ( for short 'the Act'). However, the Commissioner of Income Tax (for short the “CIT”)
exercising jurisdiction under Section 263 of the Act set aside the assessment order in so
far as it related to the deduction under Section 80HHC. The CIT was of the view that the
CPC was a mineral coke i.e. to say a residue obtained on refining petroleum crude by
subjecting it to a process of calcinations and, therefore, it was a processed mineral which
was not specified in the Twelth Schedule of the Act. Aggrieved by the decision of the CIT,
the appellant filed an appeal before the Income Tax Appellate Tribunal ( hereinafter
referred to as the “ITAT”). The ITAT held that the CPC was manufactured from the raw
material called as raw petroleum coke ( for short the “RPC”), commercially known as green
coke, which in turn was obtained from petroleum crude which was a mineral oil. Hence the
CPC was also a form of “mineral oil” and in view of sub section 2(b) of Section 80HHC, the
provision of deduction under Section 80HHC(1) of the Act was not applicable to the CPC
manufactured by the appellant. The ITAT therefore, confirmed the decision of CIT that
the appellant was not entitled for deduction of the export profit derived from exports of
the CPC under Section 80 HHC of the Act. The common decision of the ITAT dated 27th
December, 2004 passed in several appeals ( in respect of assessment years 1995-1996,
1997-1998, 1998-1999, 2000-2001) is the subject matter of this appeal.

3. By an order dated 29th August, 2005, this Court admitted the appeal on the following
substantial question of law :

       “Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal
       was justified in law in holding that calcined petroleum coke manufactured by the
       appellant is the “Mineral Oil” within the meaning of Section 80HHC ?”

4. The appellant has annexed to this appeal a technical note describing the process of
manufacture of the calcined petroleum coke (CPC ) at Exhibit 'A'. The correctness of the
note is not disputed by the revenue before us. The process of manufacture of the CPC is
summarized below :

5. The petroleum crude oil is a naturally occurring petroleum substance quite deep beneath
the surface of the earth and is obtained from on-shore/off-shore wells by an oil
exploration process. Since the petroleum crude oil is a naturally occurring substance below
the surface of the earth, it is some times referred to as “mineral oil” and is commonly called
as “petroleum crude” or “crude oil” or “petroleum crude oil”. This petroleum crude oil which
is produced by several companies like ONGC, OIL INDIA and some foreign companies is sold
to the refineries like Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Indian Oil
(IOC) and IBP for processing into various petroleum products. After dewatering, de-salting
and de-sulphurization, the petroleum crude oil, which is in liquid form at normal
temperature, is then processed in petroleum refinery complexes to produce LPG, gasoline,
jet fuel, naphtha, kerosene, stove distillate, tractor and diesel oil, gas oil, light motor oil,



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medium motor oil, heavy motor oil, extra-heavy motor oil, paraffin wax, steam cylinder
stock, petroleum wax, greases and solvents, fuel oil, asphalt and tar, and bituminous
materials . These petroleum products are in liquid state other than LPG which is in gaseous
state and is compressed to liquid form and sold in LPG cylinders. The aforesaid various
products are obtained by vacuum distillations and fractionation, catalytic cracking and
reforming, thermal cracking and reforming, dewaxing and solvent extraction, filtering and
finally blending. These operations are carried out at various temperatures and the products
are manufactured and then stored and distributed to the consumers through petrol
pumps/sales depots and other commercial outlets. These operations are carried out by the
companies like BPCL, HPCL, IOC and IBP and now Reliance Industries by setting up
refineries at mega investments. The products known as asphalt, tar and bituminous
materials are obtained as bottom products of atmospheric and vacuum distillation when
petroleum crude oil is distilled at high temperature to produce various products mentioned
above. Asphalt, tar and bituminous materials are very heavy, viscous and tarry materials and
are sold in the market very cheap. Some refineries, depending upon economic viability,
convert these heavy fractions into value added light products as gas, gasoline and diesel oils
by dealkylation and dehydrogenation at very high temperature and pressure in a separate
plant called as delayed cooking units, commonly known as delayed cokers. Once asphalt, tar
and bituminous materials are converted by dealkylation and dehydrogenation process in
delayed cokers into gas, gasoline and diesel oil, the residue that remains at the bottom of
the delayed cokers is a solid material and is called the “Raw Petroleum Coke” ( RPC) which is
commercially known as “green coke”. The RPC/green coke is a solid and hard material, black
in colour and is obtained in powder form or lumps. The RPC/green coke is used as a raw
material for the production of the CPC. The CPC is produced by calcining the RPC/green
coke available as a residue from the delayed cokers. The appellant uses the RPC as raw
material and manufactures the CPC from this RPC/green coke by subjecting it to a
manufacturing process commonly called as the calcining process. The calcining process
consists of the RPC/green coke being thermally upgraded for removal of associated
moisture and volatile combustion matter and to otherwise improve critical physical
properties i.e. electrical conductivity, real density and oxidation characteristics. The
calcining process is essentially a time temperature function with the most important control
variables being the hearing rate, volatile combustion matter/air ratio and final calcination
temperature. By the calcination process the physical properties of the RPC change
completely and a new product commercially known as the CPC comes into existence. A part
of the CPC manufactured by the appellant is sold in domestic market which is consumed by
the industry for making pre-bakes or carbon paste by aluminium smelters for production of
basic aluminium metal, as a carbon raiser for making carbon steel by steel mills, foundries
and steel plants, for production of titanium dioxide, cathodic protection of cross countries
oil/gas pipe lines and other miscellaneous uses for chemical industry and manufacturing of
anodes for dry cell batteries. The remaining CPC is exported by the appellant. In respect of
the profit earned by the appellant out of the export of the CPC, the appellant claimed
exemption under Section 80 HHC of the Act.

6. Section 80 HHC of the Act provides for a deduction in respect of the profit earned from
the export business. The section, so far as it is relevant for the purpose of our decision,
reads as follows :-



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       “80HHC : Deduction in respect of profits retained for export business :

       (1) Where an assessee, being an Indian company or a person ( other than a company )
       resident in India, is engaged in the business of export out of India of any goods or
       merchandise to which this section applies, there shall, in accordance with and
       subject to the provisions of this section, be allowed, in computing the total income
       of the assessee, a deduction of the profits derived by the assessee from the export
       of such goods or merchandise :

       Provided that : (Proviso not typed as not relevant )

       (1A)( not typed as not relevant)

       (2)(a) This section applies to all goods or merchandise, other than those specified in
       clause (b), if the sale proceeds of such goods or merchandise exported out of India
       are received in, or brought into, India by the assessee ( other than the supporting
       manufacturer) in convertible foreign exchange within a period of six months from
       the end of the previous year or, where the Chief Commissioner or Commissioner is
       satisfied ( for reasons to be recorded in writing ) that the assessee is, for reasons
       beyond his control, unable to do so within the said period of six months, within such
       further period as the Chief Commissioner or Commissioner may allow in this behalf.

       2(b) This section does not apply to the following goods or merchandise, namely :-

       (i) mineral oil; and

       (ii) minerals and ores (other than processed minerals and ores specified in the
       Twelfth Schedule).

       Explanation 1 & 2 ( not typed as not relevant )

       Sub-section (1) of Section 80 HHC of the Act provides for a deduction in respect of
       profit earned from the export business and says that where an assessee, being an
       Indian company or a person ( other than a company ) resident in India, is engaged in
       the business of export out of India of any goods or merchandise to which the
       section applies, he shall be allowed in computing the total income of the assessee a
       deduction of the profits derived by him from the export of such goods or
       merchandise.

Clause (a) of sub-section 2 of Section 80HHC provides that the section applies to all the
goods or merchandise, other than those specified in clause (b), if the sale proceeds of such
goods or merchandise exported out of India are received in, or brought into India by the
assessee in a convertible foreign exchange within a period of six months from the end of
the previous year or such extended period as the Chief Commissioner may allow. Clause (b)
of Section 2 of Section 80HHC which provides that the section would not apply to (i)



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mineral oil, and (ii) minerals and ores other than processed minerals and ores specified in
the Twelfth Schedule to the Act.

7. The short question that arises for our consideration is whether the CPC manufactured
and exported by the appellant falls within the clause (b) of Section 2 of Section 80 HHC so
as to refuse to it deduction in respect of the export profits arising out of the manufacture
and export of the CPC. Before we actually turn to the question at hand, it would be
appropriate to refer to the object and purpose of Section 80 HHC of the Act. Undoubtedly,
the exports by a country are necessary for its economic development. Every country needs
to import raw materials as well as manufactured products which it does not produce or
manufacture on its own, for meeting needs of its population and development of the country.
The price required to be paid for such imports is met out of the convertible foreign
exchange it earns by exports. Where the price of the imports exceeds the price of the
exports made by a country, the difference is called as a trade deficit. Bulging trade deficit
affects the economy of a country and even its ability to import in future. The trade deficit
in India is growing and in order to narrow the gap between the imports and exports steps
were required to be taken for promoting exports. After giving several incentives like
cheaper rates of interest on borrowings made for exports and other export packages to
further promote exports, the legislature thought it fit to give a concession in the shape of
deduction of export profit while computing liability for income tax. Section 80 HHC was
introduced to promote the exports by giving a tax concession. Sub-section 1 of Section 80
HHC ( as substituted by the Finance Act of 1985 ) provides for a deduction to be granted in
respect of a profit earned by a company or a resident of India from a business of export
out of India of any goods or merchandise. At the same time, while granting the export
incentives, the legislature has taken care to ensure that the natural resources of the
country are not squandered by exports. The minerals and natural resources are required to
be preserved for the posterity. The profit derived by a company or a person arising out of
the export of mineral oil and minerals and ores ( except processed minerals specified in the
Twelfth Schedule ) is therefore not be allowed to be deducted while computing the total
income of the exporter. Clause (b) of sub section 2 of Section 80HHC ensures that the
profit earned by exporting the natural resources i.e. mineral oil and minerals ( other than
the processed minerals specified in the Twelfth Schedule ) is not admissible for deduction
under Section 80 HHC of the Act. We are inclined to interpret clause (b) of sub section 2
of Section 80 HHC of the Act keeping in mind the purpose of it.

8. Clause (b) of sub section 2 of Section 80 HHC of the Act provides that the section would
not apply to (i) mineral oils and (ii) minerals and ores other than processed minerals and ores
specified in the 12th Schedule. ITAT has held that since the CPC is derived from the crude
petroleum which is a mineral oil, the CPC is a mineral oil. It was not the case of the Revenue
before the ITAT that the CPC is a mineral or ore falling under sub clause (ii) of clause (b)
of Section 80 HHC(2) but it was its case that the CPC is a mineral oil. Even before us
learned Counsel for the Revenue did not contend that the CPC is mineral or ore but
submitted that it is a “mineral oil” being derived from the mineral oil. We would presently
proceed to examine whether the CPC can be regarded as a “mineral oil”.




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9. The term ''mineral oil'' is not defined in the Act. Therefore, submitted Mr. Inamdar, the
expression ''mineral oil'' must be interpreted in the common parlance language. In Indian
Hotels Co. Ltd., & others V/s Income Tax Officer & others (2000) 245 ITR 538 (SC), while
interpreting the expression ''industrial undertaking'' appearing in Section 80J of the
Income Tax Act, the Supreme Court held that since the expression 'industrial undertaking'
was not given any meaning under the Act it must be understood as per common parlance
language. Similarly in Commissioner of Income Tax V/s Babcock & Wilcox of India Ltd.,
(2000) 242 ITR 583, a Division Bench of the Calcutta High Court while interpreting Section
32A of the Income Tax Act has held that when a 'word or phrase' is not defined under the
Act, a normal meaning of that word should be taken, which is understood in common
parlance. In Commissioner of Income Tax V/s Madgul Udyog ( 1994) 208 ITR 541, relied on
and cited by Mr. Inamdar appearing for the appellant, a Division Bench of Calcutta High
Court held that the words which are not applied to any particular science or art are to be
construed as they are understood in common parlance. The obvious and popular meaning of
the language should be followed. If a statute contains language which is capable of being
construed in a popular sense, such statute is not to construed according to the strict
technical meaning of the language contained in it, but it is to construed in its popular sense
that the people conversant with the subject-matter with which the statute is dealing could
attribute to it. In Commissioner of Income Tax V/s Teritex Knitting Industries Pvt. Ltd.,
(1978) 114 ITR 634, a Division Bench of this Court has held that while interpreting the
words used in statute, in case of difficulty or ambiguity a reference to a dictionary is
permissible. In our view, from the above cited decisions, the following principle can be
derived. When interpreting a word and used but not defined in an Act, the word must be
understood as per the common parlance language. In case of a word or an expression, which
relates to an article which is commonly used in commerce, the meaning in which the
commercial men usually dealing with the subject matter understand the word or expression
is required to be taken into consideration and often that meaning is to be applied. While
considering the meaning of a word, it is also permissible to look to the dictionary but where
the meaning of a word or expression has been indicated by the higher Courts in its earlier
decisions the meaning attributable to the word or expression given by the higher Court,
unless there are compelling reasons to hold otherwise, must be followed. Keeping in mind
these principles, we would now consider whether the calcinated petroleum coke (CPC) is a
mineral oil.

10. Since the expression 'mineral oil' is not defined in the Act, the meaning of the
expression would have to be gathered from the common parlance. We would have to
consider how the commercial men concerned with or dealing in “mineral oil” and other
related commodities understand the expression 'mineral oil'. If a trader were to go in the
market to buy and asks for a mineral oil, he may be shown crude oil and anything and
everything but the calcined petroleum coke ( CPC). Although the CPC is a product which is
derived from the crude oil no trader in the market would call the CPC a crude oil or mineral
oil. In the common parlance, no body would mistake the CPC for a crude oil. 11. Looking the
meaning given in different dictionaries, the Oxford Advanced Learner's Dictionary, 7th
Edition, gives meaning of the word “mineral oil” to be (1) Petroleum (2) Liquid paraffin. The
Oxford English Dictionary, 1970 reprint, ( Volume VI ) states the word “mineral oil”, to be a
general name for petroleum and the various oils distilled from it. It defines separately the



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word “mineral tar” to be : pissasphalt ; mineral wax as Ozocerite. Legal dictionaries do not
give precise definition to the expression “mineral oil” but give the meaning of the word
“mineral”. The word “mineral” is defined in Black's Law Dictionary, 6th Edition as any
valuable inert or lifeless substance formed or deposited in its present position through
natural agencies alone, and which is found either in or upon the soil of the earth or in the
rocks beneath the soil. It then says that the word is not a definite term and is susceptible
of limitations or extensions according to the intention with which it is used. In its ordinary
and common meaning it is a comprehensive term including every description of stone and
rock deposit whether containing metallic or nonmetallic substances. Stroud's Judicial
Dictionary, 5th Edition, Volume 3 says the word “minerals” to means primarily all substances
– other than the agricultural surface of the ground - which may be got for manufacturing or
merchantile purposes, whether from a mine, as the word would seem to signify, or such as
stone or clay, which are got by open working. From the meaning given in the Judicial
Dictionary, it is clear that the expression “minerals” is used for primarily substances found
on the earth or below the land and does not denote a product manufactured from the
minerals found on the land or below the land. In stone craft Enterprises Vs CIT, AIR 1999
SC 1638 the Supreme Court held that granite exported by the appellant therein, without
subjecting it to any process, was a mineral and the appellant was not entitled to the benefit
of deduction of export profit in view of section 80 HHC (2) (b) of the Act. However, as
mentioned earlier it is not the case of the revenue that “the CPC” is a mineral but is a
“mineral oil”. Hence the decision has no application to the case at hand. The word “oil”
ordinarily means a substance which is in liquid form and does not include a rock or solid
substance or cystalised substance. A sample of CPC which was produced for our inspection
shows that it is in the form of :lumps or crystals and is in no way in a liquid or oil form. For
the purpose of a substance to be regarded as mineral oil, it must ordinarily be a substance
in liquid form and derived or extracted from the earth or land, from the surface of the
earth or from below the earth. We express no opinion, as unnecessary in this case, as to
whether a gaseous substance or a natural gas which is or can be converted in liquid form like
Liquid Petroleum Gas or Compressed Natural Gas is a mineral oil. It would be ordinarily a
primary substance and not a substance which is manufactured out of a mineral extracted
from the earth. The mineral would ordinarily be a solid substance and mineral oil ordinarily
would be in a liquid form or at least capable being converted into liquid form like LPG or CNG
by simply applying or subjecting it to pressure. If these tests are applied, the CPC would not
be a mineral oil.

12. The learned Counsel for the Revenue referred to a decision of this Court in Burmah
Shell Refineries Ltd., V/s G.B. Chand (1966) 61 ITR 493 and invited our attention to the
following sentence appearing at page 501 of the report :

       “................. 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”.

Strongly relying upon this observation the learned Counsel submitted that since the CPC is
admittedly a product derived form a crude oil or mineral oil, it must be held to be included
in the meaning of the expression “mineral oil”. It is settled principle of law that the



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judgments or decisions of the Courts are not to be read like a statute. A sentence here and
sentence there cannot be picked up and read as a sentence of a statute. The judgment must
be read as a whole. The observations made in a judgment are to be read in the context in
which they are made. The decision in a case is an authority for what it actually decides. The
ratio decidendi of a case is binding. The obiter dicta ( except of the Supreme Court ) only
has a persuasive value. A casual observation in a decision has no predential value. We would
therefore examine the decision in the case of Burmah Shell Refineries Ltd. ( supra ) to find
out its ratio. There, the Burmah Shell Refineries Ltd., ( hereinafter referred to as the
company ) was carrying on business of refining crude oil. It filed a return of income for the
assessment year 1964-65, corresponding to the calendar year 1963 ending on 31st
December, 1963. The Assessing Officer made a provisional assessment under Section 141 of
the Act by granting to the company rebate of 30% and thereafter charged surtax at the
rate of 25%. The company by its letter dated 21st October, 1966 requested the Assessing
Officer to rectify the rebate at the rate of 35% and not 30% on the basis that the
petitioner was a company engaged in the business of manufacture and production of mineral
oil. Since no reply was given to the letter of the company, it filed a Writ Petition praying for
mandamus directing the Assessing Officer to rectify the provisional assessment order by
granting to the company the rebate of income tax at the rate of 35% instead of 30%
allowed by him. At page 500 of the report, the Court formulated the question which arose
for it is consideration in the following words :

       “The first question that arises is whether it could at this stage be said that the
       company prima facie appears to have been engaged in the business of manufacture
       or production of 'mineral oil' or whether it could at this stage be said that the
       company prima facie does not appear to have been so engaged.” ( Underlying supplied
       ).

Then the Court went on to consider whether the products manufactured/produced by the
company were “mineral oil”. There the company was involved in the business of refining
petroleum crude. It was in that connection the Court held that prima facie the company
appears to have been engaged in the business of manufacture or production of 'mineral oil'.
It may be noted from the aforementioned passage that the Court was considering only
prima facie whether the company was engaged in the business of mineral oil. The stage
before the Court was of provisional assessment. Further more the company was admittedly
engaged in the business of refining crude oil which undoubtedly is a mineral oil. The final
product in that case appears to be refined crude oil and not the CPC with which we are
concerned. It was in this context the observation was made in the decision that the
expression mineral oil would include the products secured from the crude oil by refining.
The Court was not required to consider whether the CPC, which is a different commercial
product manufactured from the Asphalt or Tar ( a residue obtained in the refining process
), was a mineral oil. The decision has no application to the facts of the case at hand.

13. LPG, motor spirit, diesel, jet fuel, paraffin wax, tar and bituminous materials are
produced by refining petroleum crude/crude oil. These products are produced simply by
atmospheric and vaccum distillation without subjecting the crude oil to any other
manufacturing process. Asphalt, tar and bituminous materials are the bottom products



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obtained at the fractional distillation process. They are very heavy, viscous and tarry
materials and are sold very cheap to be used as a raw material for producing further goods.
By subjecting bituminous material to a process of dealkylation and dehydrogenation in
delayed cokers, the Raw Petroleum Coke (RPC ) or green coke is produced. This raw
petroleum coke is a hard material or raw material used for the production of the CPC. The
CPC is produced by calcination process carried out in specified high temperature up to 1200
– 1350 degree centigrade or higher. This process changes the crystalline structure of raw
petroleum coke/green coke and converts it into the calcined petroleum coke ( the CPC). A
different product known by the specific name “calcined petroleum coke” in the commercial
world comes into existence by the calcination process. Physical properties like electrical
conductivity, real density and oxidation characteristics are altered by subjecting the raw
petroleum coke or the green coke to a calcination process. It brings into existence a
different product which is sold in the market by a different name having different
characteristics.

14. The learned counsel for the Revenue however submitted that the calcination process
cannot be regarded as a manufacturing process as it is a simple process of applying heat,
may be by specialized methods, and mere heat treatment cannot be regarded as a
manufacturing process and no new product therefore comes into existence. We are unable
to agree. In Commissioner of Income Tax V/s Tamil Nadu Heat Treatment & Fetting
Services (P) Ltd. (1999)238 ITR 529, a Division Bench of the Madras High Court has held
that simply by a process of heat treatment of raw untreated crankshafts, a new product of
different quality and use comes into existence and this process of heat treatment was a
manufacturing activity entitling the assessee to claim investment allowance under Section
32A of the Income Tax Act. In the case of Sonebhadra Fuels V/s Commissioner, Trade Tax,
(2006) 7 SCC 322, the Supreme Court has held that the 'coal briquettes' also known as
'coal tikli' produced by the assessee by grounding coal to a particular size and thereafter
pressing it to form briquettes amounts to manufacture which includes processing, treating
or adapting of coal. It cannot therefore be said that the appellant is not involved in the
manufacture and does not apply any manufacturing process for converting the green
coke/raw petroleum coke into the calcined petroleum coke (CPC). In our view, the appellant
is engaged in the business of manufacture of the CPC. Though the initial raw material used
for manufacture of the CPC is a petroleum crude oil extracted from the earth, the product
which is manufactured by the appellant is an entirely different product commercially known
and regarded as different from petroleum crude and which is different than the one which
is derived by mere distillation of the petroleum crude which is a mineral oil. The appellant
does not merely squander away the mineral resource of the country by exporting a mineral
resource or by superficial or inconsequential treatment to an extracted mineral oil. The
mineral oil is first subjected to a distillation process wherein all valuable products like
motor spirit, diesel, jet fuel etc., are taken out and what remains is a residue in the form of
tar or bituminous products. This residue is again subjected to a manufacturing process
known as delayed cooking process to convert the tar and bituminous material into a green
coke or raw petroleum coke. Yet another manufacturing process, though only a specified
heat treatment, is applied to the green coke to convert it into CPC. More than one
manufacturing processes are applied to the original mineral oil and a different commodity is
manufactured and comes into existence which is different from the mineral oil. The mineral



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oil which is sold at few dollars a barrel is converted into a far higher valuable product which
is sold for hundreds of dollars per ton. Valuable foreign exchange is earned not by exporting
a natural resource of the country viz. the mineral oil but by exporting an entirely different
value added product which is produced from the mineral oil. The CPC cannot be regarded as
a mineral oil only because the original raw material is mineral oil.

15. For these reasons, we are of the view that the ITAT was not right in holding that the
calcined petroleum coke manufactured by the appellant was a “mineral oil” within the
meaning of Section 80 HHC (2) (b) of the Act. The question of law accordingly is answered
in favour of the assessee and against the Revenue. The decision of the ITAT confirming the
order of the Commissioner of Income Tax as also the judgment and order of the
Commissioner of Income Tax dated 4th March, 1998 under Section 263(1) of the Income
Tax Act, 1961 are quashed and set aside.




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