For more than two decades, there was no excise duty for Fertilizers and the exemption continued up to 28.02.2011. Excise Duty was imposed in the 2011-12 Union Budget, effective from 01.03.2011 for Chapter 31 which covers Mineral or Chemical Fertilizers containing Nitrogenous, Phosphatic and Potassic. Except 3101, all other fertilizers listed under Heading Nos. 3102, 3103, 3104 & 3105 were brought under excise net @1%, with a view to move towards GST. Three notifications were issued for the applicability of excise duty for fertilizers during the year 2011.
Notification No.1/2011-CE dt 01.03.2011 -1% ad valorem is levied vide serial No.40 of the notification for Chapter 31 : “All goods, other than those which are clearly not to be used as fertilizers” provided Inputs or tax on input services are not availed.
Notification No. 2.2011-CE dt 01.03.2011- 5% ad valorem is levied vide serial No.21 of the notification for chapter 31: “All goods, other than those which are clearly not to be used (a) as fertilizers or (b) in the manufacture of other fertilizers, whether directly or through the stage of an intermediate product”. For paying 5% ED, CENVAT benefit is allowed.
There was another notification issued vide notification No. 4/2011-CE dt 01.03.2011 substituting some entries to the effect to exempt certain fertilizers used in the manufacture of other fertilizers. The entry reads as under:
Sl.No.63 –Chapter 31 : All goods, other than those which are clearly not to be used in the manufacture of other fertilizers, whether directly or through the stage of an intermediate product. –NIL.
From the above notifications the following points can be observed.
- 1% Duty is payable for Fertilizers covered under chapter heading no.3102,3103,3104 & 3105 without CENVAT benefit and 5% Duty (now it is 6%) is payable for fertilizers with CENVAT benefit as per 2011-12 Budget notification.
- No Duty is payable if all goods, which are clearly to be used in the manufacture of other fertilizers whether directly or through the stage of an intermediate product.
In other words, when complex fertilizers are manufactured such as Complex 15:15:15, Complex 17:17:17, the ingredients (inputs) are not attracting Excise Duty 1% or 5%, as the case may be, and only the end product attracts duty.
While it is so, the fertilizer mixture manufacturing industry has not received any clarification/communiqué from the Department of Revenue, Ministry of Finance as to whether similar benefit is passed on to fertilizer mixtures also. In this case, the NPK mixture manufactures are getting their fertilizers with Duty element and again their end products attract Excise duty. They are not eligible for CENVAT benefit also (who opts to pay 1% duty). It would result in double taxation. The process is nothing but activity of mixing various chemical fertilizers which is a manufacturing activity as per Section 2(f) of the Central Excise Act, 1944 and in accordance with the principles laid down by the Hon’ble Supreme Court in the case of UOI Vs DCM 1977 ELT 199 SC.
While greater importance is given to Agro industry by the Central Government, as the Fertilizer mixtures are used by the Farmers, why not a circular can be sent clarifying that either Fertilizer mixtures are to be given duty exemption as the raw materials have already suffered Excise duty or the duty is to be exempted when the fertilizers (inputs) are to be used in the manufacture of fertilizers whether directly or through stage of an intermediate product. It is also emphasized that all other inputs like Naptha, Sulphuric Acid, Ammonia, ammonium Chloride, Manganese Sulphate etc., which go into the production of Fertilizers also given exemption (General Exemption No.50).
And lastly, various State Governments such as Tamilnadu, Kerala, Punjab, Haryana have also given VAT exemption on their part for the sale of fertilizers and its mixtures in order not to increase the selling price of the Fertilizers which are ultimately used by the Farming community.
In the author’s opinion, the Central Government can look into the complexities involved in this cenvat issue and consider issuing a circular for the fertilizer mixing industries.
R.K RENGARAJ M.COM., MBA., LL.B
ADVOCATE AND TAX CONSULTANT
The author can be reached at firstname.lastname@example.org Mobile: 09244219688