Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs), New Delhi
Subject: Classification of Pesticides for the purpose of levy of excise duty and countervailing duty – Reg.
I am directed to say that certain doubts have been raised regarding the proper classification of bulk insecticides, pesticides and other similar chemicals. Some of the associations have pointed out that there is no uniformity in the practice of assessment and in some commissionerates, excise duty is being charted @ 18% whereas in other places, such bulk pesticide chemicals are classified under heading No. 38.08 of the Central Excise Tariff.
2. Technical grades of insecticides, pesticides etc. manufactured by them contains active ingredient in a highly concentrated and toxic form and these cannot be used as such by the ultimate customer. These manufacturers clear the said technical grade chemicals in bulk (generally in drums of 200-250 Kgs) to formulators. The formulators, in turn, prepare formulations by adding items such as inert carriers, solvents, surface active agents deodorants, masking agents, attractants. Such formulations can be used by the ultimate user and are therefore, packed in packages for retail sale. Chemically the technical grades of insecticides, pesticides are distinct from formulation or preparation and in commercial parlance, these are recognised as separate items. Technical literature on pesticides clearly indicates that Technical grade pesticides are distinguishable from formulations or preparation. Insecticides Act and Rules distinguish them and prescribe different types of packings for them.
3. It appears that doubts may have arisen mainly because of Section -37B order No. 40/2/95-CX dated 27th July “95. This order directed,inter-alia, that pesticides chemicals will be classified under heading No. 38.08 of CETA, 1985.
However, these instructions would no longer be valid in their entirety since the tariff description for pesticides was changed by the 1996 Finance Bill No. (2)
For classification of pesticides, two factors are relevant. First Note 1(a) (2) of Chapter notes under Chapter-38. This provides that Chapter-38.
“does not cover separate chemically defined elements or compounds with the exception of the following:-
“(2) Insecticides …………………….. and similar products”.
The second is the description of heading No. 38.08. Prior to the 1996 Finance Bill (2), there was no distinction between bulk packings and retail packings, and all pesticides were falling under heading No. 38.08. The section- 37B order was relevant in that context.
4. The situation underwent a complete change in 1996 when Finance Bill 92) was introduced in July, 1996. the tariff description of heading No. 38.08 was amended to cover only insecticides put up in forms or packings for retail sale. There was, however, no change in chapter Note 1(a) (2). As a result, pesticides in bulk form were excluded from heading No. 38.08. Bulk pesticides, if these were separately defined elements or compounds, got covered under chapter-28 or 29 depending on the composition. If these were not separately defined, the bulk pesticides would have fallen under heading No. 38.23. In either case, the rate of excise duty would have been 20% in 1996 Budget, and reduced to 18% in the 1997 Budget.
5. It is clear that the Technical grade pesticides, insecticides etc. are neither cleared in form or packing foe retail sales nor are they in the nature of an article. Further, these items are also not in the nature of preparations. As per HSN Explanatory Notes pertaining to heading 38.08, “preparations” consist of suspensions or dispersions of active product in water or any other liquid or other mixtures. Solutions of active products in solvents other than water are also included. Intermediate preparations, requiring further compounding to produce the ready-for-use insecticides, fungicides, disinfects etc. are also classifiable here, provided they already possess insecticidal, fungicidal properties. The Insecticide Act and Rules also distinguish Technical grades pesticide etc. from preparations, intermediate preparations and formulations. In Form XV and XVI prescribed under Rule 15 of the Insecticides Rules, 1971, the stock of Technical grade pesticides and quantities of preparations/ formulation, made out of such Technical grade material is required to be shown separately. It is, thus, clear that the Technical grade of pesticides, insecticides, etc. are different from the preparations and intermediate preparations mentioned under heading 38.08 of the Central Excise Tariff. In fact, Technical grade materials are used for the manufacture of formulations/ preparations/ intermediate preparations.
6. These was a further change in 1997 Finance Bill when the chapter note 1(a) (2) was amended to read as under:-
“This chapter does not cover separate chemically defined elements or compounds with the exception of the following:-
(2) Insecticides ………put up as described in heading No. 38.08″
Consequently, all separate chemically defined pesticides, other than retail packings, will fall outside the scope of chapter 38, and will be assessed on merits under chapter 28 & 29 which are the relevant chapters for chemicals. The excise duty will be 18% and not 8% which is applicable only to pesticides put up in forms or packing for retail sale.
7. To sum up, after the 1996 Budget, pesticides in bulk form will not fall under heading No. 38.08. These will fall either under chapters applicable to chemicals in general or under heading No. 38.23, depending on whether these are separately defined elements or compounds or not. Changes made in the 1997 Budget does not make any material change in the above position.
8. It appears that the changes made in the 1996 and 1997 budgets have not been fully appreciated. The practice in some Commissionerates for charging bulk pesticides under heading 38.08 is not correct as explained above in the light of the changes made in the tariff.
9. I am directed to state that considering the aforesaid facts, it has been decided that the classification of Technical grade of pesticides, insecticides etc. claimed by the manufacturers to be insecticides, rodenticides, fungicides, herbicides etc. falling under heading 38.08 of the Central Excise Tariff should be immediately re-examined by the Commissioners of Central Excise. Since these items are separate chemically defined compounds their classification should be redetermined depending upon their chemical nature. The duty short levied resulting from mis-classification of these products may be recovered immediately.
9(A) Accordingly, the product should be similarly clarified for the purposes of CVD on imported goods.
10. Receipt of this letter may kindly be acknowledged and particulars of recoveries made may be reported within one moth of the issue of this Circular.