Case Law Details
Yara Fertilizers India Private Limited Vs Commissioner of Customs (CESTAT Mumbai)
Introduction:
The case of Yara Fertilizers India Private Limited vs Commissioner of Customs, adjudicated by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Mumbai, revolves around the classification dispute of the imported product ‘yaravita zintrac (zinc oxide suspension concentrate).’ The disagreement stems from its declaration as ‘other fertilizer’ and the subsequent assessment of duty under tariff item 3105 9090.
Detailed Analysis:
The dispute originated when the assessing officer, after ascertaining the composition, reported 09.9% nitrogen and 39.5% zinc, leading to a need for reclassification. The original authority discarded the claim for ‘other fertilizer’ classification, opting for tariff item 3808 9340 (‘plant growth regulators’). The first appellate authority, in the impugned order, classified the goods under tariff item 3824 9090 (‘chemical products not elsewhere defined’).
The appellant contested the rejection of declared classification based on the insignificance of nitrogen and argued that the first appellate authority exceeded its jurisdiction. They emphasized compliance with the Fertilizer (Control) Order, 1985, and the issuance of a valid license for the micronutrient.
Conclusion:
The CESTAT Mumbai, in its ruling, set aside the impugned order, citing an excess of jurisdiction. The tribunal emphasized the need for conformity with note 6 of chapter 31 of the Customs Tariff Act, 1975, focusing on the essentiality of ‘nitrogen.’ The decision highlighted the hazard in finding alternative fitment without procedural adherence and called for a fresh decision on the correctness of the original authority’s order.
This ruling underscores the importance of adherence to procedural norms, the essentiality of fertilizing elements, and the nuanced interpretation of tariff classifications in resolving disputes related to imported goods.
Dispute pertains to composition of the imported ‘yaravita zintrac (zinc oxide suspension concentrate)’ declared in bill of entry no. 3141559/03.11.15 as ‘other fertilizer’ for being subjected to rate of duty applicable for tariff item 3105 9090 of the First Schedule to Customs Tariff Act, 1975 which, upon ascertainment at the behest of the assessing officer, was reported to contain 09.9% nitrogen as fertilizing agent and 39.5% zinc as micronutrient and, thereby, necessitating classification elsewhere.
In the proceedings before the original authority, the claim for classification as ‘other fertilizer’ on the basis of exclusions from other headings in the chapter was discarded owing to the high presence of zinc as micronutrient meriting the alternative classification of tariff item 3808 9340 corresponding to ‘plant growth regulators’ in the First Schedule to Customs Tariff Act, 1975. In the impugned order, the first appellate authority has held that the goods are neither classifiable as ‘other fertilizer’ nor as ‘plant growth regulator’ but as tariff item 3824 9090 corresponding to ‘chemical products not elsewhere defined’ in the First Schedule to Customs Tariff Act, 1975.
The classification adopted by the original authority, and impugned before the first appellate authority, has its roots in the quantum of ‘nitrogen’ without ascertainment of conformity with
‘products of a kind used as fertilisers’
in note 6 of chapter 31 of First Schedule to Customs Tariff Act, 1975 with its emphasis on use before dovetailing it with the proposition of Learned Authorized Representative supra of the essentiality of ‘nitrogen’ to the imported product. The jettisoning of the permission for import by the competent authority makes that deficiency in the order of the original authority obvious. With the impugned order departing from the framework of appellate resolution, the merging of the order of the original authority within it is not a proposition that is tenable; setting aside the order of the first appellate authority may not, of itself, impact the order of the original authority. Our appellate competence is limited to the propriety and legality of the order impugned before us which, in the peculiar circumstance of the decision of the first appellate authority, does not encompass the order of the original authority within it. As the two appeals, thus far, have been of the appellant herein, it would hardly do for the appellant to be placed in this tenuous position. A finality to the dispute is called for.
We, therefore, set aside the impugned order for having exceeded jurisdiction.
FULL TEXT OF THE CESTAT MUMBAI ORDER
In this appeal of M/s Yara Fertilizers India Private Limited against order-in-appeal no. 754(Gr.IIA-F)/2017 (JNCH)/Appeal-II dated 30th October 2017 of Commissioner of Customs (Appeals-II), Jawaharlal Nehru Customs House, Mumbai – II, the dispute pertains to composition of the imported ‘yaravita zintrac (zinc oxide suspension concentrate)’ declared in bill of entry no. 3141559/03.11.15 as ‘other fertilizer’ for being subjected to rate of duty applicable for tariff item 3105 9090 of the First Schedule to Customs Tariff Act, 1975 which, upon ascertainment at the behest of the assessing officer, was reported to contain 09.9% nitrogen as fertilizing agent and 39.5% zinc as micronutrient and, thereby, necessitating classification elsewhere.
2. In the proceedings before the original authority, the claim for classification as ‘other fertilizer’ on the basis of exclusions from other headings in the chapter was discarded owing to the high presence of zinc as micronutrient meriting the alternative classification of tariff item 3808 9340 corresponding to ‘plant growth regulators’ in the First Schedule to Customs Tariff Act, 1975. In the impugned order, the first appellate authority has held that the goods are neither classifiable as ‘other fertilizer’ nor as ‘plant growth regulator’ but as tariff item 3824 9090 corresponding to ‘chemical products not elsewhere defined’ in the First Schedule to Customs Tariff Act, 1975.
3. According to Learned Counsel for the appellant, the rejection of the declared classification by the lower authorities was solely on the ground that the fertilizing agent, nitrogen, in the impugned product was of such relative insignificance as to merit exclusion from the heading sought for by operation of note 6 in chapter 31 of the First Schedule to Customs Tariff Act, 1975. He further contends that presence of ‘zinc oxide suspension concentrate 39.5% (Zn)’, reported in the analysis dated 22nd December 2015 of Regional Fertilizer Control Laboratory, is listed among ‘micronutrient’ at serial no. 16, sub-heading 1(f) of part A of Schedule I of the Fertilizer (Control) Order, 1985 and that valid licence had been issued in consequence thereof. He argued that the first appellate authority had exceeded his jurisdiction in adopting a classification that had not been proposed as alternative in assessment of bill of entry and that, having rejected the substitute classification, the impugned order should have upheld the one declared by them. He cited the decisions of the Hon’ble Supreme Court in Reckitt & Colman India Ltd v. Collector of Central Excise [1996 (88) ELT 641 (SC)], in Hindustan Polymers Co Ltd v. Collector of Central Excise, Guntur [1999 (106) ELT 12 (SC)] and in Warner Hindustan Ltd v. Collector of Central Excise, Hyderabad [1999 (113) ELT 24 (SC)] in support of his contention that the exercise of vicarious authority to determine classification afresh should have been preceded by notice of intent. It is also pointed out that the Tribunal, in Haver Standard India P Ltd v. Commissioner of Central Excise, Vadodara [2009 (245) ELT 216 (Tri. – Ahmd.)], in Shri Krishna Keshav Laboratories Ltd v. Commissioner of Central Excise, Ahmedabad [1999 (105) ELT 117 (Tri. – Ahmd.)], in Ispat Industries Ltd v. Commissioner of Central Excise, Nagpur [2012 (280) ELT 236 (Tri. – Mumbai)] and in Usha Industrial Corporation v. Commissioner of Central Excise, Ahmedabad [2001 (130) ELT 785 (Tri. – Del.)], has held that the first appellate authority is not competent to alter the classification at the appeal stage. It was further contended that the resort to residuary description, and tariff item, in the face of their specific declaration and the alternative proposed by the assessing officer is not consistent with the General Rules for Interpretation of the Import Tariff.
4. Referring to the note 6 of chapter 31 of the First Schedule to Customs Tariff Act, 1975, he contends that the presence of one of the three fertilizing elements suffices for classification under heading 3105 of the First Schedule to Customs Tariff Act, 1975. He further contends that the coverage under the Fertilizer (Control) Order, 1985, as well as the permission for import granted by the competent authority, leaves no room for doubt that the impugned goods are fertilizer.
5. According to him, the decision of the Tribunal, in Commissioner of Central Excise Mumbai – II v. Aries Agro –Vet Industries Ltd [2018-VIL-463-CESTAT-MUMBAI-Central Excise Act, 1944], holding that
‘22. Therefore, we may sum up our findings thus:
i. ‘Micronutrients’ and ‘macronutrients’ are required for agriculture as fertilizers. In classifying them thus, it is the intended use that must prevail as inferred from the scheme of Schedule. ‘Micronutrients’ are not ‘plant growth regulators’. With the notices proposing classification of the products as ‘plant growth regulators’, the proceedings against respondent fails on this count alone.
ii. To the extent that these are enumerated with reference to note 2 of chapter 31, the specific compounds of nitrogen, phosphorous and potassium, even if not designated as ‘fertilizer’ would be classifiable in chapter 31 along any others described as ‘fertilizer’ except those under heading 3105, with the exception of the compound specified in note 5, and those containing any one of the three primary fertilizing elements. The notes in the chapter are not intended to restrict classification in chapter 31 when intended for use as ‘fertilizer’ unless specifically and deliberately excluded by the notes of the chapter.
iii. The circulars and precedent judgements, save the decision of the Tribunal in the dispute of the respondent themselves, have not examined the classification and scope of heading 3105 of First Schedule of Central Excise Tariff Act, 1985.
iv. The presence of nitrogen in chelates is sufficient to bring it within the ambit of heading 3105 of First Schedule of the Central Excise Tariff Act, 1985 owing to its indispensability despite the negligibility of the quantity. Classification under heading 3105 claimed by the manufacturer cannot be denied to them.’
furnishes the framework for resolution of the dispute.
6. Learned Authorised Representative submits that
‘This chapter also excludes micronutrient preparations which are applied, to seeds, to foliage or to soil to assist in seed germination and plant growth. They may contain small amounts of the fertilizing element Nitrogen, Phosphorous and Potassium, but not as essential constituents.’
in the Explanatory Notes of Harmonized System of Nomenclature (HSN) pertaining to chapter 31 suffices to classify micronutrients elsewhere. Furthermore, he contends that, with the sparse presence of fertilizing element in the tested sample drawn from the impugned goods, the claim of the appellant that it conforms to the requirement of nitrogen to be essential constituent has no merit. According to him, the reliance placed on the several judgments does not merit consideration as the HSN Explanatory Notes were not considered in these. He made further arguments on the correctness of the order of the first appellate authority by referring to circular no. 1022/10/2016-Cx dated 6th April 2016 of the Central Board of Excise and Customs restricting ‘plant growth regulators’ to organic compound which the impugned goods are not.
7. The decisions of the Hon’ble Supreme Court in Hindustan Ferodo Limited v. Collector of Central Excise, Bombay [1997 (89) ELT 16 (SC)] and in HPL Chemicals Ltd v. Commissioner of Central Excise, Chandigarh [2006 (197) ELT 324 (SC)] afford the fundamental framework within which classification disputes are to be resolved, viz. discharge of onus by tax authorities to find fitment within the description corresponding to a heading on its own and, thereafter, apply the rule for breaking a tie should the two stand on the same footing. The original authority reversed the sequence and, after discarding the classification claimed by the importer, set out to find an alternative; such a process may have found favour in appeal if the relevant chapter notes did, specifically, exclude the impugned goods from the claimed classification but that does not appear to be so. The hazard in such an exercise is that the alternative fitment is borne out of need rather than appropriateness. Moreover, the first appellate authority was not in favour of either and preferred to insinuate yet another without compliance of procedure set out for in second proviso of section 128A of Customs Act, 1962. That puts paid to the classification determined in the impugned order. That, also, casts doubts on the validity of classification adopted by the original authority for being in discord with the General Rules for Interpretation of the Import Tariff in Customs Tariff Act, 1975. The competent authority for review did not consider it necessary to appeal against that finding and, probably, owing to the primary objective of denying the classification claimed by the appellant herein.
8. The appellant had imported the impugned goods with necessary permissions under the Fertilizer (Control) Order, 1985; the goods are, in essence, fertilizers and there is no reason, except in extraordinary circumstances of non-fitment within any of the headings therein, to seek an alternative classification. The schema of chapter 31 of First Schedule to Customs Tariff Act, 1975 is critical to this; there are two principal types: fertilizers of animal or plant origin and mineral and chemical fertilizers. Taking into account the essentiality of ‘macronutrients, the latter, constituting the bulk of the headings, are grouped again as nitrogenous, phosphatic and potassic corresponding to the trio: nitrogen, phosphorus and potassium as well as in all the permutations and combinations of the three. Products in packed form are assigned special enumeration within heading 3105 of First Schedule to Customs Tariff Act, 1975 besides ‘other fertilizers’ as a residuary enumeration and it is on the appropriateness of this tariff item that the dispute revolves.
9. The nomenclatures of ‘macronutrient’ and ‘micronutrient’ has nothing to do with the overwhelming presence of these in the samples.
The three macronutrients – nitrogen, phosphorus and potassium – are critical for agriculture and are found in abundance in soil; it is the relative deficiency of any one or more of these that are remedied by addition of fertilizer of the appropriate type or combination thereof. Likewise, the concentration of ‘micronutrient’ in a sample does not alter its fitment within ‘fertilizer’ merely owing to relatively minor presence of the fertilizing element; that is a remedial offered in particular circumstances of deficiency in the soil. Of significance is the essentiality of the fertilizing element as opposed to accidental presence. This distinction does not appear to have been appreciated by Learned Authorized Representative in his submissions on the relevance of the Explanatory Notes in the Harmonized System of Nomenclature.
10. The classification adopted by the original authority, and impugned before the first appellate authority, has its roots in the quantum of ‘nitrogen’ without ascertainment of conformity with
‘products of a kind used as fertilisers’
in note 6 of chapter 31 of First Schedule to Customs Tariff Act, 1975 with its emphasis on use before dovetailing it with the proposition of Learned Authorized Representative supra of the essentiality of ‘nitrogen’ to the imported product. The jettisoning of the permission for import by the competent authority makes that deficiency in the order of the original authority obvious. With the impugned order departing from the framework of appellate resolution, the merging of the order of the original authority within it is not a proposition that is tenable; setting aside the order of the first appellate authority may not, of itself, impact the order of the original authority. Our appellate competence is limited to the propriety and legality of the order impugned before us which, in the peculiar circumstance of the decision of the first appellate authority, does not encompass the order of the original authority within it. As the two appeals, thus far, have been of the appellant herein, it would hardly do for the appellant to be placed in this tenuous position. A finality to the dispute is called for.
11. We, therefore, set aside the impugned order for having exceeded jurisdiction. The appeal of the importer before the first appellate authority is restored for a fresh decision on the correctness of the order of the original authority in the light of our enunciation supra. Appeal is disposed off by remand.
(Order pronounced in the open court on 09/06/2022)
