Case Law Details
Dharti Agro Chemicals Pvt Ltd Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
Conclusion: Matter for denying the lower rate of duty prescribed for heading no. 3105 corresponding to ‘other fertilisers’ in Schedule to Central Excise Tariff Act, 1985 was remanded back to the original authority for subjecting the statement of the employee, considered to be of particular relevance in determining the outcome of the impugned order, to the prescriptive mandate of section 9D of Central Excise Act, 1944.
Held: The issue in dispute is the classification of forty items manufactured and cleared by appellant of which thirty one were held to conform to descriptions corresponding to tariff item 2833 2990, 2834 2990, 2839 9090, 2840 1900, 2922 5090, 3808 9340 and 3808 9910 of Schedule to Central Excise Tariff Act, 1985 thereby denying them the lower rate of duty prescribed for heading no. 3105 corresponding to ‘other fertilisers’ in Schedule to Central Excise Tariff Act, 1985. Four other products were being cleared at rates of duty prescribed for tariff item 2833 2990 and 2922 5090 of Schedule to Central Excise Tariff Act, 1985. Consequently, differential duty liability of ₹ 18,74,59,366/- was sought to be fastened on the appellant herein under section 11A of Central Excise Act, 1944 along with applicable interest under section 11AA of Central Excise Act, 1944.Though Revenue contended that the statement of the employee was clear enough evidence that presence was questionable which required that the statement of the said employee, being in total variance with the test reports that indicated presence of the fertilizing elements, should be discarded. Apellant contended that the relevancy of the said statement had not been examined by the adjudicating authority in the manner mandated in section 9D of Central Excise Act, 1944 and the statement of the employee could not be taken at face value as the denial of deployment of nitrogen, phosphorous or potassium in the impugned goods was contradicted by the test reports. It was held that section 9D of Central Excise Act, 1944 appeared to have been observed in its breach and must be remedied. Therefore, the impugned order was set aside and the matter was remanded back to the original authority for subjecting the statement of Mr Sanjay considered to be of particular relevance in determining the outcome of the impugned order, to the prescriptive mandate of section 9D of Central Excise Act, 1944. The adjudicating authority should afford assessee herein sufficient opportunity, in accordance with the principles of natural justice, to rebut the contents of the show cause notice both by submission as well as through documents.
FULL TEXT OF THE CESTAT MUMBAI ORDER
In this appeal of M/s Dharti Agro Chemicals Pvt Ltd the issue in dispute is the classification of forty items manufactured and cleared by appellant of which thirty one were held to conform to descriptions corresponding to tariff item 2833 2990, 2834 2990, 2839 9090, 2840 1900, 2922 5090, 3808 9340 and 3808 9910 of Schedule to Central Excise Tariff Act, 1985 thereby denying them the lower rate of duty prescribed for heading no. 3105 corresponding to ‘other fertilisers’ in Schedule to Central Excise Tariff Act, 1985. Four other products, viz., Vasundhara, Jalpurti, Purti, Rasna Chelated and Rasna Plus were being cleared at rates of duty prescribed for tariff item 2833 2990 and 2922 5090 of Schedule to Central Excise Tariff Act, 1985. Consequently, differential duty liability of ₹ 18,74,59,366/- was sought to be fastened on the appellant herein under section 1 1A of Central Excise Act, 1944 along with applicable interest under section 1 1AA of Central Excise Act, 1944.
2. Learned Senior Counsel appearing for the appellant contends that the foundation of the proceedings initiated against them are the findings in the test report coupled with circular no. 1022/10/201 6-Cx dated 6th April 2016 of Central Board of Excise & Customs (CBEC) articulating that ‘essential’ in note 6 in chapter 31 of Schedule to Central Excise Tariff Act, 1985 means ‘significant’, statement of an employee of the appellant, incharge of production facility, denying the presence of nitrogen, phosphorous or potassium in the said products and the packaging and label indicating these to be ‘plant growth regulators, plant growth promoters/micro nutrients’ is not sustainable.
3. Learned Senior Counsel further informed that the circular, relied upon by the adjudicating authority, has since been rendered inapplicable by the decision of the Hon’ble High Court of Bombay, in their own case, vide order dated 29th August 2018 disposing off writ petition no. 1176 of 2017 in Dharti Agro Chemicals Pvt Ltd and Another v. Commissioner of Central Excise, Nagpur – II and Another. He further contends that the employee, viz., Mr Sanjay Shembekar, General Manager, a chemical engineering graduate, had not been examined in accordance with section 9D of Central Excise Act, 1944. He further argues that the statement of the employee could not be taken at face value as the denial of deployment of nitrogen, phosphorous or potassium in the impugned goods is contradicted by the test reports. He also submits that the packaging and labeling are acceptable criterion for determination of classification for which reliance was placed on the decision of the Tribunal in Commissioner of Central Excise, Mumbai – III v. Johnson & Johnson Ltd [2010 (252) ELT 369 (Tri.-Mumbai)] and on the decision of the Hon’ble Supreme Court in Commissioner of Central Excise v. Wockhardt Life Sciences Ltd [2012 (277) ELT 299 (SC) which held that
‘30. There is no fixed test for classification of a taxable commodity. This us probably the reason why the ‘common parlance test’ or the commercial usage test’ are the most common [see A. Nagaraju Bors. v. State of A.P., 1994 Supp (3) SCC 122 = 1994 (72) ELT 801 (SC)]. Whether a particular article will fall within a particular Tariff heading or not has to be decided on the bases of the tangible material or evidence to determine how such as article in understood in ‘common parlance’ or in ‘commercial world’ or in ‘trade circle’ or in its popular sense meaning. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intension, when the statute was enacted [see D. C.M. v. State of Rajasthan, 1980 (4) SCC 71 = 1980 (6) E.L. T. 383 (S. C.)]. One of the essential factors for determining whether a product falls Chapter 30 or not is whether the product in understood as a pharmaceutical product in common parlance [see C. C.E. v. Shree Baidyanath Ayurved, 2009 (12) SCC 413 = 2009 (237) E.L. T. 225 (S. C.)]; Commissioner of Central Excise, Delhi v. Ishaan Research Lab (P) Ltd. – 2008 (13) SCC 349 = 2008 (230) E.L. T. 7 (S. C.)]. Further, the quantity of medicament used in a particular product will also not be a relevant factor for, normally, the extent of use of medicinal ingredients is very low because a larger use may be harmful for the human body. [Puma Ayurvedic Herbal (P) Ltd. v. C.C.E., Nagpur – 2006 (3) SCC 266 = 2006 (196) E.L.T. 3 (S. C.)]; State of Goa v. Colfoax Laboratories – 2004 (9) SCC 83 = 2003 (158) E.L.T. 18 (S.C.)]; B.P.L. Pharmaceuticals v. C.C.E. – 1995 Supp (3) SCC 1 = 1995 (77) E.L.T. 485 (S.C.)].
31. However, there cannot be a static parameter for the correct classification of a commodity. This Court in the case of Indian Aluminium Cables Ltd. v. Union of India, 1985 (3) SCC 284 = 1985 (21) E.L. T. 3 (S. C.), has culled out this principle in the following words :
“13. To sum up the true position, the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in with the expression used in the Tariff….”
32. Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance [see O.K. Play (India) Ltd. v. C.C.E., – 2005 (2) SCC 460 = 2005 (180) E.L.T. 300 (S.C.); Alpine Industries v. C.C.E., New Delhi – 1995 Supp. (3) SCC 1; Sujanil Chemo Industries v. C.C.E. & Customs – 2005 (4) SCC 189 = 2005 (181) E.L.T. 206 (S.C.); ICPA Health Products (P) Ltd. v. C.C.E. – 2004 (4) SCC 481 = 2004 (167) L.T. 20 (S.C.); Puma Ayurvedic Herbal (supra); Ishaan Research Lab (P) Ltd. (supra); C.C.E. v. Uni Products India Ltd., 2009 (9) SCC 295 = 2009 (241) E.L.T. 491 (S.C.)].
33. A commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense [see Akbar Badrudin v. Collector of Customs, 1990 (2) SCC 203 = 1990 (47) E.L.T. 161 (S.C.); Commissioner of Customs G.C. Jain, 2011 (12) SCC 713 = 2011 (269) E.L.T. 307 (S.C.)]. A residuary entry can be taken refuge of only in the absence of a specific entry; that is to say, the latter will always prevail over the former [see C.C.E. v Jayant Oil Mills, 1989 (3) SCC 343 = 1989 (40) E.L.T. 287 (S.C.); H.P.L. Chemicals v. C.C.E, 2006 (5) SCC 208 = 2006 (197) E.L.T. 324 (S.C.); Western India Plywoods v. Collector of Customs, 2005 (12) SCC 731 = 2005 (188) E.L.T. 365 (S.C.); C.C.E. v. Carrier Aircon, 2006 (5) SCC 596 = 2006 (199) E.L.T. 577 (S.C.)]. In C.C.E. v. Carrier Aircon, 2006 (5) SCC 596 = 2006 (199) E.L.T. 577 (S.C.), this Court held :
“14. ………. There are a number of factors which have to be taken
into consideration for determining the classification of a product. For the purposes of classification, the relevant factors inter alia are statutory fiscal entry, the basis character, function and use of the goods. When a commodity fall within a tariff entry by virtue of the purpose for which it is put to (sic. produced), the end use to which the product is put to, cannot determine the classification of that product.”
34. In our view, as we have already stated, the combined factor that requires to be taken note of for the purpose of the classification of the goods are the composition, the product literature, the label, the character of the product and the user to which the product is put. However, the miniscule quantity of the prophylactic ingredient is not a relevant factor. In the instant case, it is not is dispute that this is used by the surgeons for the purpose of cleaning or degerming their hands and scrubbing the surface of the skin of the patient that portion is operated upon. The purpose is to prevent the infection or disease. Therefore, the product in question can be safely classified as a “medicament” which would fall under chapter sub-heading 3003 which is a specific entry and not under chapter sub-heading 3402.90 which is a residuary entry.’
4. Furthermore, reliance was also placed on the decision of the Hon’ble High Court of Bombay in Godavari Khore Cane Transport Co v. Commissioner of Central Excise [2013 (29) STR 31 (Bom.)] holding that
‘3. It is not in dispute that although the employee of the assessee during the course of recording statement had admitted and expressed willingness to pay service tax, in the affidavit-in-reply to the show-cause notice, the liability to pay service tax was specifically denied and even before the adjudicating authority it was contended that service tax was not leviable. Though documentary evidence in that behalf were not produced before the adjudicating authority, the same was produced before the CESTAT and argued that the levy of service tax for the period involved herein is unjustified. However, the CESTAT based on the statement of the employee of the assessee has upheld the levy of service tax without considering the merits of the case and without considering the documents furnished by the assessee. It is well established in law that it is open to the assessee to demonstrate on the basis of the documentary evidence that the statement recorded is erroneous. In these circumstances, in our opinion, it would be just and proper to set aside the impugned order of the CESTAT dated 28th April 2011 [2012 (26) S.T.R. 310 (T)] and restore the appeals to the file of the CESTAT for fresh decision on merits. Accordingly, the impugned order of CESTAT in so far as it relates to confirming the duty, interest and penalty is quashed and set aside and the matter is restored to the file of CESTAT for fresh decision on merits.’
to contest the validity of the supposition that statement of employee is sacrosanct.
5. According to Learned Authorised Representative, the Hon’ble High Court of Bombay, in disposing off the writ petition of the appellant herein, had directed that expert opinion be solicited and inherent in reliance on the statement of the employee is the mandate to the adjudicating authority. He further contends that the impugned goods contain only trace of the fertilizer elements, nitrogen, phosphorous or potassium, which renders those to be ‘plant growth regulator/plant growth promoters/ micro nutrients’ as evident from the statement of their own employee. He further contended that the incorrect classification of the said goods as ‘other fertilisers’ has been clearly brought out in the impugned order.
6. The Tribunal, in several decisions relating to similar disputes on classification, has consistently held that the presence of nitrogen, phosphorous or potassium, notwithstanding the significance as content but intended for agriculture and horticulture, suffices for it to be ‘fertiliser’ assigned a special status among industrial products for its role in sustenance of dietary requirements of human beings and animals with usage as the touchstone for classification.
7. It is on record that the impugned goods are included in the Fertilizer Control Order (FCO) which satisfies the first condition of note 6 to chapter 39 of Schedule to Central Excise Tariff Act, 1985 as set out by
‘10. In addition to a patient hearing accorded to both sides, we have considered the literature made available to us during the hearing. Before proceeding to render our decision, it is necessary to ponder over the importance of fertilising agents, the scheme of the Schedule of the Tariff, the manner in which classification is mandated to be undertaken, the scope of the circulars on the subject and, not the least, the precedent decisions.
11. Plant life is critical to the existence of living world; the single distinguishing feature of the fundamental dichotomous grouping of living world is the absence of ability to generate food in the life process of the animal kingdom. Animals feed upon other animals and plants but animal life would have been extinct in the absence of plant life which is blessed with the capacity of photosynthesis. Plants deploy resources available around them at three levels. Hydrogen, carbon and oxygen are drawn from air and water while the fertilizing agents are drawn from the soil. These consist of major and minor fertilizers with nitrogen, phosphorous and potassium being the former. The correction of deficiency in, or the enrichment of, any of these is remedied by human intervention. Thus fertilizers are essential for survival of the eco-system and are, deservingly, bestowed with hallowed status in policy formulation all over the world. To the extent that ‘micronutrients’ are ‘fertilizers’, denial of that privilege imperils the very sustainability of human life.
12. A scientific and rational tariff bears the distinct advantage of easy formulation of duty structure for insertion against the appropriate heading without exhaustive Coupled with exemptions notified under section 5A of Central Excise Act, 1944, the government is thus enabled to implement its tax policy. Manufacturers are also enabled to ascertain the classification that their products would best fit – and extending to goods that are yet to be thought of, or engineered by, human ingenuity. The range, and the limitation thereof, necessitates certain rules for fitment that have evolved by consensus.
13. On examination of the Schedule, we note that ‘fertilizers’ and ‘pharmaceuticals’ are favoured enough to merit separate chapters on their own, justified by their importance for the human race. At the same time, they, being chemicals, are ensconced in section VI of the Schedule to the Central Excise Tariff Act, 1985, i.e. PRODUCTS OF CHEMICAL AND ALLIED INDUSTRIES – reflecting strict adherence to the arrangement of goods in the Schedule. The section, commencing with organic chemicals and inorganic chemicals, recognises that ‘fertilizers’ and ‘pharmaceuticals’ may fall under either and acknowledges that they are to be distinguished from their doppelganger in the other two chapters. Though, the Hon ’ble Supreme Court has held in Commissioner of Central Excise v. Mannampalakkal Rubber Latex Works [2007 (217) ELT 161 (SC)] that, in ascertainment of classification, intended use cannot normally be a determining factor, specific qualification in the particular heading or in the notes to the chapter or section are deviation sanctified by law. Again, as per rule 1 of General Rules for Interpretation of the First Schedule of the Central Excise Tariff Act, 1985, though titles of sections or chapters have no legal standing, they do, assuredly, act as guidance for ascertainment. The statutory carving out of some chemicals, coupled with the titles assigned to chapter 30 and chapter 31, evidences the legislative intent to sanctify use as the determinant. This ascertainment is further facilitated by the regulatory mechanism, under central and/or state legislation, for ‘fertilizer’ and ‘pharmaceutical’ industry. Statutory authorities administer these regulations and, while we concur with Revenue that jurisdiction assigned over some chemicals to these regulators should not, generally, influence the classification, that very jurisdiction indicates the use.
14. Of no less import are the notes in chapter 31, of which note 1(b) excludes separate chemically defined compounds but with the qualification
‘other than those answering to the descriptions in Note 2(a), 3(a), 4(a) and 5 below’
implying that where the use is unambiguous, its twin heading in another chapter merits discarding. These notes refer to ‘mineral or chemical fertilizers’ distinguished by the presence of primary element, viz., nitrogenous, phosphatic or pottasic, in combination, besides ‘ammonium dihydrogen orthosphate’ and ‘diammonium hydrogen orthophosphate’. From a straight reading of the relevant notes, it would appear that classification as ‘fertilizer’ is merited on clearance of goods specified in the referred notes pertaining to heading 3102, 3103 and 3104 cleared in bulk packing, even if these may find fitment in other chapters. From the remaining sub-notes pertaining to these headings, it is apparent that these are the only compounds where such ambivalence exists owing to specific description elsewhere whereas chapter 31 may contain only a generic description. The individual identification of two compounds in note 5 as classifiable in chapter 31 does not exclude others which answer to the description in heading 3105. Learned Authorized Representative places heavy emphasis on note 6, i.e.
‘For the purposes of heading 3105, the term “other fertilisers” applies only to products of a kind used as fertilizers and containing, as an essential constituent, at least one of the fertilising elements nitrogen, phosphorous or potassium.’
to contend that the impugned goods are separately defined compounds and, not being ‘fertilizer’, in the absence of nitrogen, phosphorous or potassium, must not be accorded the privilege due to ‘fertilizers.’ According to him, this was the very error that the adjudicating authority was led into. It was further contended that this exclusion could not have been overcome, as the adjudicating authority did, by retaining an incorrect classification even where the alternative proposed was not in compliance with the General Rules for Interpretation of the First Schedule of the Central Excise Tariff Act, 1985. The adjudicating authority, after considering the allegations in the show cause notice against acceptance of the declared classification and the finding of non-applicability of the proposed classification, did resort to rule 4 of General Rules for Interpretation of the First Schedule of the Central Excise Tariff Act, 1985, viz.,
‘Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are akin.’
15. We are unable to approve of the proposition made on behalf of Revenue that the classification claimed should have been rejected. Rejection of a claimed classification is not an end in itself as duty liability can be computed only after application of the rate legislated by Parliament to the appropriate value. Such application will require ascertainment of the rate and a plethora of judgements have squarely placed the onus at the doorstep of tax authorities to determine a rate if not satisfied with a claim for a particular We refer to the decision of the Hon ’ble Supreme Court in Hindustan Ferodo Ltd v. Commissioner of Central Excise [1997 (89) ELT 16 (SC)] and in HPL Chemicals v. Commissioner of Central Excise, Chandigarh [2006 (197) ELT 324 (SC)]. Having made ourselves clear on this point, we do not, at this stage, examine the merit of adopting rule 4 supra to which we shall address ourselves presently.
16. Four circulars issued by Central Board of Excise & Customs are relevant to this proceeding. Having considered the importance of the products, it was thought fit, in circular 26/90-CX dated 26th June 1990, that ‘micronutrient’ should be classified as ‘plant growth regulator’ under heading 3808 of First Schedule of the Central Excise Tariff Act, 1985. On reconsideration, in circular no. 79/79/94-CX dated 21st November 1994, it was advised that ‘micronutrients’ listed in Fertiliser (Control) Order, 1985, and whether containing nitrogen, phosphorous or potassium or not, should be classified under heading 3105 of the First Schedule to the Central Excise Tariff Act, 1985; apparently, the wisdom of the regulatory authority in bringing ‘micronutrients’ under regulatory control was sufficient to consider these as fertilizers for classification. When this latter was sought to be disowned, as having been invalidated by being contrary to law, leading to disapproval by the Hon ’ble Supreme Court, in re Ranadey Micronutrients, of the denial of classification as ‘fertilizer’, the view was again altered in circular no. 392/25/98-CX dated 19th May 1998 to classify ‘micronutrients’ as ‘other fertilizers’ in heading 3105 of the First Schedule of the Central Excise Tariff Act, 1985 to conform with note 6 in chapter 31 of the First Schedule. This circular, while not excluding coverage of ‘micronutrients’ under the broad heading of ‘other fertilizers’, required the field authorities to ascertain if these were ‘separate chemically defined component’ and, if not, to be subjected to ascertainment of the presence of the primary elements, before allowing classification as ‘other fertilizers.’ Even here, the confusion is palpable for the circular requires such goods, as are found to be ‘separate chemically defined compounds, to be classified under chapter 28 or 29 as organic or inorganic chemicals. Obviously, it does not envisage the classification now espoused by Learned Authorized Representative.
17. Learned Authorized Representative and Learned Senior Counsel invited our attention to circular no. 1022/10/2016-CX dated 6th April 2016 which, having rescinded all the above referred circulars, went on to instruct field authorities to classify ‘micronutrients’ as ‘other fertilizers’ only if the three macronutrients are essential to the goods and to classify under chapter 28 or 29 if these were ‘separate chemically defined compounds’; it is abundantly clear that these are not ‘plant growth regulators’. There are inconsistencies, however, in this sample of distilled wisdom. Highlighting the extending of concessional rate of duty for ‘micronutrients’ under chapter 28, 29 and 38 that are also covered by Fertilizer (Control) Order, 1985, there is an explicit denial of relevance to the said order in determining classification. This is contrary to the law laid down by the Hon ’ble High Court of Calcutta in Naffar Chandra Jute Mills Ltd v. Assistant Commissioner of Central Excise [1993 (66) ELT 574 (Cal)] and by the Hon ’ble Supreme Court in Maestro Motors Ltd [2004 (174) ELT 289 (SC)] requiring that the same rules of interpretation should apply to the classification as well as for coverage in exemption notification. The reference to Fertilizer (Control) Order, 1985 in the exemption notification should apply equally to classification as ‘fertilizers’ especially in conjunction with note 6 of chapter 31 of First Schedule of the Central Excise Tariff Act, 1985. In paragraph 5, the circular overlooks its own instruction in paragraph 2.3 to direct classification under residual heading 3824 as ‘chemical products not elsewhere specified’ if these micronutrients be composed only of trace elements. This instruction to classify ‘micronutrients’ under the residual sub-heading 3824 90 of a residual chapter 38 of the First Schedule to the Central Excise Tariff Act, 1985 runs counter to the statutory mandate to assign classification with reference to notes of chapter and sections in rule 1 of the General Rules for Interpretation of the First Schedule of the Central Excise Tariff Act, 1985; note 1(a) of chapter 38 clearly excludes separate chemically defined compounds, barring a few, from coverage under this chapter and, if ‘micronutrients’ are not fertilizers, they are to be classified on merit based on their composition. The decisions of the Tribunal in Rajasthan Synthetic Industries Ltd v. Collector of Central Excise [1989 (42) ELT 24 (Tribunal)] and of the Hon ’ble High Court of Bombay in Subash Photographics v. Union of India [1992 (62) ELT 270 (Bom)] leave no room for doubt on this score. The impugned goods will have to be classified under section 28 or 29 if they be separate chemically defined compounds. Consequently, considering the nature of heading 3808 of the First Schedule of the Central Excise Tariff Act, 1985, it would appear that unless intended use of the goods is markedly inherent in commercial nomenclature, classification will have to be restricted to chapter 28 or 29.
18. In re Ranadey Micronutrients, though the dispute pertained to classification as ‘other fertilizers’ claimed by the manufacturer on the basis of the circular of 1994, the Hon ’ble Supreme Court was called upon to adjudge on the propriety of disowning of a circular by the Central Board of Excise & Customs. According to Learned Authorized Representative, the Hon ’ble Supreme Court in Commissioner of Central Excise v. Karnataka Agro Chemicals [2008 (227) ELT 12 (SC)], had accorded a finality to the dispute by holding that ‘micronutrients’, which do not contain any one of the three macronutrients, was liable to duty as ‘plant growth regulators’ and that the remand to original authority was merely to ascertain the threshold of presence of macronutrients for qualification as essential. Learned Senior Counsel urged us to follow the decision of Hyderabad bench of the Tribunal in Commissioner of Central Excise & Service Tax, Hyderabad-IV v. Aries Agrovet Industries Ltd [Final order no.30767-30768/2017 dated 19th June 2017] confirming the very same goods under heading 3105 of the First Schedule to the Central Excise Tariff Act, 1985. We find ourselves unable to agree with the far-fetched proposition of Learned Authorized Representative; the decision of the Hon ’ble Supreme Court in re Karnataka Agro Chemicals Ltd, by remanding the matter for a decision on the extent to which composition of micronutrient would determine essentiality to the metal, has concurred with the Tribunal that note 6 of chapter 31 in the First Schedule cannot be interpreted to exclude classification under heading 3105 and has not endorsed the circular of Central Board of Excise & Customs on classification as ‘plant growth regulator.’ The observations that Learned Authorized Representative highlighted to presage approval of the stand of Revenue is nothing but reiteration of the view of the Hon ’ble Supreme Court in re Ranadey Micronutrients that the circular would prevail unless its validity was in doubt. We have expressed ourselves sufficiently on the credibility of these circulars.
19. With this trove of knowledge, we turn to ‘plant growth regulators.’ Plants gather nutrients from air, water and soil. These, in normal circumstances, may be sufficient for normal growth of, and yield, from plants. While air and water are not within the power of humankind to replicate or relocate, enrichment of deficient soil is. This is where macronutrients, comprising of nitrogen, phosphorous and potassium, in various chemically defined compounds supplied through fertilizers, are important. Micronutrients in trace quantity also remedy deficiency of such soil. These are administered by adapting the metal element with a chelate to attach a chemical that would either prevent the alkalinity of soil from rendering a ‘micronutrient’ insoluble and unusable by the plant or overcome imperviousness of foliage that blocks assimilation of the ‘micronutrient.’ A chelate does not alter the essential character of the ‘micronutrient’ as a metal nutrient needed by plants. Such chemically modified metals, denominated as coordinating complex compounds, have widespread use in various delivery systems in the pharmaceutical or metallurgical industries but in the agricultural sector when these are designated as chelate. The chemical used for engineering the chelate contains nitrogen; indeed, without that nitrogen it would not be able to provide the barrier necessary for impeding insolubility of the metal. The contention of Learned Authorized Representative that, being chemical compounds, the impugned goods are not classifiable under chapter 31 of First Schedule to Central Excise Tariff Act, 1985 is out of accord with our finding on the scope of exclusion of ‘separate chemically defined compounds’ supra.
20. ‘Micronutrients’ manufactured in factories are, in our opinion, ‘fertilizers’, both by use as reflected in Fertilizer (Control) Order, 1985 and the deficiency that is sought to be remedied by their addition to the soil or by foliage The chelated metal that is designated as ‘micronutrient’ requires nitrogen to be such. The test results relied upon by Learned Authorized Representative is not conclusive on the absence of nitrogen and, from the contents of the report, it would appear that the test was limited to ascertainment of conformity with declaration of ingredients on the product itself. That may explain the want of the test memo and test report in the appeal filed by Revenue. Notwithstanding the argument of Learned Authorized Representative that the decision of the Tribunal in the respondent’s own case at Hyderabad, which for want of benefit of the decision of the Hon ’ble Supreme Court is not good law, considering the extent of finality in the said judgement noted supra by us and our finding on the existence, nay, essentiality of nitrogen in any ‘micronutrient’, we cannot but be in agreement with the Hyderabad bench.
21. The circular of Central Board of Excise & Customs issued in 2016 has discarded the earlier advice to classify ‘micronutrients’ as ‘plant growth regulators.’ And not without reason. ‘Plant growth regulators’ are hormones. Plants lack glands that produce hormones; cells themselves can be induced to produce hormones but these are not sufficient to engineer the growth of a plant in a desired way. Hormones are signalling molecules that direct a cell to act in a particular manner. Hence these regulators, grouped as ‘plant growth promoters’ (auxins, gibberllins and cytokinins) and ‘inhibitors’ (abscisic acid and ethylene), are not essential for plants but are a means for human interference in normal plant growth distinct from nutrient enrichment. As regulators are not nutrients, ‘plant growth regulators’ does not include ‘micronutrients’. In accordance with our findings on the scope of classification under heading 3808 of First Schedule to the Central Excise Tariff Act, 1985, ‘plant growth regulators’ are such as may be generically described elsewhere but are made available as ‘plant growth regulator’ by the manufacturer and are subject to such regulation as such specific products are bound, under particular statutes, to comply with.
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 Classification under heading 3105 claimed by the manufacturer cannot be denied to them.’
in the decision of the Tribunal in Commissioner of Central Excise, Mumbai – I v. Aries Agro- Vet Industries Ltd [2018 SCC OnLine CESTAT 5885]. The only issue that remains for consideration is the presence of fertilizing element as explained in the decision in re Aries Agro- Vet Industries Ltd.
8. It is seen from the test report there is no doubt about the presence of the said fertilizing elements in the impugned goods. Though it is the contention on behalf of Revenue that the statement of the employee is clear enough evidence that presence is questionable which, according to Learned Senior Counsel, required that the statement of the said employee, being in total variance with the test reports that indicate presence of the fertilizing elements, should be discarded. It is his submission that the relevancy of the said statement had not been examined by the adjudicating authority in the manner mandated in section 9D of Central Excise Act, 1944.
9. Section 9D of Central Excise Act, 1944 appears to have been observed in its breach and must be remedied. To enable that, we set aside the impugned order and remand the matter back to the original authority for subjecting the statement of Mr Sanjay Shembekar, considered to be of particular relevance in determining the outcome of the impugned order, to the prescriptive mandate of section 9D of Central Excise Act, 1944. Needless to say, the adjudicating authority shall afford the appellant herein sufficient opportunity, in accordance with the principles of natural justice, to rebut the contents of the show cause notice both by submission as well as through documents.
The appeal is accordingly allowed by way of remand.
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