Commissioner of Cent.Excise,
Bangalore Vs. M/S.
Karnataka Agro Chemicals  INSC 935 (15 May 2008)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS.378-381 OF 2008 Commissioner of
Central Excise, Bangalore ... Appellant (s) versus M/s. Karnataka Agro
Chemicals .... Respondent (s) WITH
Civil Appeal Nos. 348-349 of 2008
S.H. KAPADIA, J.
These civil appeals concern
classification of "micronutrient" compounds for the purpose of excise
According to the Department,
micronutrient is a `Plant Growth Regulator' ("PGR" for short),
therefore, it falls under CSH 3808.20 of the Central Excise Tariff as a
chemical product whereas according to the assessee it falls under CSH 3105.00 2
(other fertilizers). By the impugned judgment dated 26.2.07, CESTAT has
accepted the contention of the assessee that their product(s) "multi
micronutrient" (the impugned product) would fall under CSH 3105.00 as
contended by the respondent-assessee, hence these civil appeals are filed by
2. For the sake of convenience we
reproduce hereinbelow the facts as reproduced in the case of Commissioner of
Central Excise, Bangalore v. M/s. Karnataka Agro Chemicals [Civil Appeal Nos.
378-381 OF 2008].
manufactures "multi micronutrients" for soil application and for
The Ministry of Agriculture has
granted registration to the assessee's product(s) as "fertilizer" in
terms of Section 2(h) of the Fertiliser (Control) Order.
4. By show cause notices dated
26.8.02, 25.2.03, 1.10.03 and 24.5.04, the Department alleged that the assessee
had 3 misdeclared that the impugned product(s) contained nitrogen and had
cleared the same without payment of duty.
According to the Department, the
label on each of the products of the assessee indicated the composition of each
of the several products. The label indicated the percentage of zinc, ferrous,
manganese and boron (micronutrient elements).
In the label there was no mention
of N (nitrogen), P (phosphorus) or K (potassium). According to the show cause
notices, the chemical analysis of the samples confirmed the fact that
fertilizing elements N, P or K were not there in "micronutrient
compounds" of the assessee. According to the show cause notices, the
mixtures manufactured by the assessee did not contain N, P or K as essential
That, in any event, N, P or K are
not the essential constituents of the micronutrients. That, in the impugned
product(s) there was no N, P or K as fertilizing element. That, addition of N,
P or K was only a pretence to misdeclare their product(s).
Therefore, the impugned product(s)
were classifiable under CSH 3808.20 of the Central Excise Tariff.
5. In reply to the above show
cause notices, assessee submitted that its product(s) were got tested on three
occasions by the Department which indicated presence of nitrogen in all the
products. That, on perusal of Explanatory Note 6 to Chapter 31, it was
sufficient if nitrogen is present in the product(s) of the assessee to merit
classification under CSH 3105.00 According to the assessee, nitrogen was an
essential constituent of the assessee's product(s) and, therefore, the
product(s) came within CH 31.05 For that purpose reliance was placed by the
assessee on Explanatory Note 6 to Chapter 31. According to the assessee, even
in the trade parlance, the product(s) manufactured by the assessee are known
and used as fertilizers and since nitrogen is a fertilizing agent it was an
essential constituent in its product (s) used as fertilizers.
6. We quote hereinbelow
Explanatory Note 6 to Chapter 31 of the Central Excise Tariff which reads as
"CHAPTER 31 FERTILISERS 5
6. For the purposes of heading
No.31.05, the term "other fertilizers" applies only to products of a
kind used as fertilizers and containing, as an essential constituent, at least
one of the fertilizing elements nitrogen, phosphorus or potassium."
7. We also quote hereinbelow CSH
3105.00 of the Central Excise Tariff which reads as below:
"CHAPTER 31 FERTILISERS
Heading Sub- Description of goods Rate of No. heading duty No.
(1) (2) (3) (4) 31.05 3105.0
Mineral or chemical fertilizers, 16% 0 containing two or three of the
fertilizing elements, nitrogen, phosphorous and potassium; other fertilizers
8. We also quote hereinbelow
Explanatory Note 1 to Chapter 38 of the Central Excise Tariff which reads as
"CHAPTER 38 6 MISCELLANEOUS
CHEMICAL PRODUCTS Notes:
1. This Chapter does not cover:
(a) Separate chemically defined
elements or compounds with the exception of the following:
(1) Artificial graphite (heading
(2) Insecticides, rodenticides,
fungicides, herbicides, anti-sprouting products and plant-growth regulators,
disinfectants and similar products, put up as described in Heading
9. We also quote hereinbelow CH
3808 of the Central Excise Tariff which reads as below:
"CHAPTER 38 MISCELLANEOUS
CHEMICAL PRODUCTS Heading Sub- Description of goods Rate of No. heading duty
(1) (2) (3) (4) 38.08
Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products
and plant growth regulators, disinfectants and similar products, put up in
forms or packings for retail sale or as preparations or articles (for example,
sulphur-treated bands, wicks and candles, and fly-papers) 7 3808.2 Plant growth
regulators 16% 0 3808.9 Other 16% 0
10. We also quote hereinbelow
Circular No.392/25/98-CX., dated 19.5.1998 issued by CBEC which reads as
Classification of [Chapter 28/31] Circular No. 392/25/98-CX., dated 19-5-1998 [From
F.No. 106/1/98-CX.3] Government of India Ministry of Finance (Department of
Revenue), New Delhi Subject : Central Excise - Classification of Micronutrients
- Clarification Regarding.
Attention is invited to the
instructions contained in Board's Circular No. 79/79/94-CX., dated 21-11-1994
[See 1994 (74) E.L.T. T46] wherein Board had clarified that Micronutrients
listed under the Fertiliser (Control) Order, 1985 and their mixtures (with or
without N.P.K.), as notified by the Central Government or a State Government
would be classifiable under CET Chapter 31.05.
2. A doubt has been raised
regarding classification of certain Micronutrients such as compounds of Zinc,
Boron, Manganese, Molybdenum, Iron etc., which are required in minor quantities
to regulate 8 plant growth - whether classifiable as fertilisers (31.05), plant
growth regulators (38.08) or as separate chemically defined compound (Ch. 28).
3. The matter has been re-examined
in the light of Supreme Court judgment in the case of Ranadey Micronutrients v.
Collector of Central Excise - Civil Appeal No. 5404 of 1993, decided on
10-9-1996 - 1996 (87) E.L.T. 19 (S.C.). Micronutrients are basically salts of
elements such as Zinc, Boron, Manganese, Molybdenum, Iron etc., known as trace
elements. These are essential for plant growth in small amounts only and their
absence leads to stunted growth. These elements are supplied in minor
quantities to regulate the formation of hormones etc., which in turn alter life
processes of the plant so as to accelerate growth, enhance yield and improve
quality, thus indirectly contributing to regulate plant growth.
4. According to HSN Explanatory
Notes, plant growth regulators are applied to alter the life process of the
plant so as to accelerate or retard growth, enhance yield, improve quality of
facilitate harvesting, etc.
Plant hormones are one type of
plant growth regulators. Synthetic organic chemicals are also used as plant
5. Fertilizers are materials added
to soil and, sometimes to foliage to supply nutrients to sustain plants and
promote their abundant and fruitful growth. The elements that constitute these
plant foods are divided into three classes - (1) Primary-Nitrogen (N),
Phosphorous (P) and Potassium (K), (2) Secondary - Calcium (Ca), Magnesium (Mg)
and Sulphur (S) and (3) Minor or so called micronutrients - Iron (Fe),
Manganese (Mn), Copper (Cu), Zinc (Zn), Boron (B) and Molybdenum (Mo). However,
for the purpose of classification of micronutrients as `Other Fertilizers' in
Heading 31.05 CET, the scope of the term `Other Fertilizers' has to be
determined in the light of Note 6 of Chapter 31. Further, the specific
exclusion of separate chemically defined compounds as laid down in the HSN
Explanatory Notes to Heading 3105.90, must also be borne in mind. If, the
micronutrient is a separate chemically defined compound, it will be
classifiable under Chapter 28/29. If not so, and if in accordance with Note 8
to Chapter 31, it contains N, P or K, it will be classifiable under Chapter
6. Further it is also stated that
notification under F.C.O. is irrelevant for deciding classification under the
Central Excise Tariff and regardless of such notification, the appropriate
consideration should be :- (i) whether or not the micronutrient in question is
a separate chemically defined compound. If it is, then classification under
31.05 is ruled out; and (ii) if it is not, whether it contains N, P or K as
laid down in the Explanatory Notes.
7. Therefore, it is clarified that
classification of micronutrients may be done in accordance with the above
8. The above clarification may be
brought to the notice of the lower field formations and the trade interests may
also be suitably advised.
9. Board's earlier Circular No.
79/79/94-CX, dated 21-11-1994 stands modified accordingly.
10. All pending assessments may be
finalized on the above basis."
11. At this stage we need to
consider the order passed by the Adjudicating Authority. The main issue which
arose for determination was: whether the impugned product(s) manufactured by
the assessee was classifiable as Plant Growth Regulator ("PGR") under
CSH 3808.20 or whether it was "other fertilizer" under CSH 3105.00.
The main submission made by the Department in the show cause notices was that to
classify the impugned product(s) under CSH 3105.00, nitrogen is not the
essential element of micronutrients. That, though in the impugned product(s)
nitrogen did exist, it did not exist as a fertilizing element but as a
chelating agent and consequently the impugned product (s) was not classifiable
under CSH 3105.00. In this connection, the Adjudicating Authority placed
reliance on the Report of the Chemical Examiner dated 12.7.01. According to 1 0
the Adjudicating Authority, in any event, mere trace of nitrogen in the
impugned product(s) was not sufficient to classify the same under CHS 3105.00.
Reliance was also placed on the labels, affixed on the impugned product(s), by
the Adjudicating Authority to show that "Multi Micronutrients"
manufactured by the assessee for
soyabean, coffee, citrus, tea nursery etc. only indicated that they could be
used to increase or improve the yield in terms of quality and quantity and
since PGRs are organic chemicals synthesized in the plant to regulate its
growth and development the impugned product(s) fell under CSH 3808.20 of the
Central Excise Tariff. According to the Adjudicating Authority, the content of
nitrogen, present in the impugned product(s), was only 0.31%, which was not
sufficient to be called as "fertilizing element" and that the said
nitrogen was used only as a chelating agent and, therefore, it was not
sufficient enough to act as a fertilizing element, consequently the impugned
product(s) fell under CSH 3808.20. According to the Department, PGR is an item
in CH 38.08. The said item is a specific item which would override the item
"other fertilizers" in CSH 3105.00. According to the 1 1 Adjudicating
Authority "fertilizer" is a general entry whereas PGR is a specific
entry and, therefore, the specific entry will override the general entry in the
matter of classification.
12. The order of the Adjudicating
Authority was overruled by the Tribunal which came to the conclusion by the
impugned judgment that PGRs are chemical compounds; that in the show cause
notices there was no allegation made by the Department that the impugned
product(s) was a chemically defined compound; that in fact the impugned
product(s) was a mixture of various inorganic substances and, therefore, it
cannot be classified under CSH 3808.20. According to the Tribunal,
classification of "micronutrients" has been the subject-matter of
three circulars issued by CBEC, the first was dated 24.5.90 in which
micronutrients were classified under CH 38.08 on the ground that it did not
contain nitrogen, phosphorus or potassium; the second was issued on 21.11.94 in
which it was stated that micronutrients with or without N, P, K stood
recognized as a fertilizer and on 19.5.98 third Circular was issued clarifying
that in order to classify 1 2 micronutrients two tests are required to be
followed, namely, whether or not the micronutrients is a separate chemically
defined compound and if it is so then classification under CH 31.05 shall stand
ruled out and if the said micronutrients is not a separate chemically defined
compound then one has to find out whether it contains N, P or K in terms of
Note 6 to chapter 31. In this case the Tribunal observed that even in the
Circular dated 19.5.98 issued by CBEC there is no prescribed percentage of any
of the above elements in the impugned product(s). According to the Tribunal,
there is also no specific mention of micronutrients in the said Explanatory
Note which has led to confusion. Therefore, according to the Tribunal even a
trace of nitrogen in the impugned product(s) was sufficient to classify
micronutrient as "other fertilizer" in CSH 3105.00, hence these civil
appeals by the Department.
13. At the outset, it may be
stated that in a generic sense "micronutrients" may be a kind of
fertilizer in the functional sense but for the purposes of Central Excise
Tariff they are excluded from the scope of CH 31.05 (fertilizers) by virtue of
1 3 Chapter Note 6 which requires the term "other fertilizers" to
include only those products used as fertilizers and containing N, P or K as an
essential constituent which is not the case in respect of micronutrients.
14. Therefore, one needs to
ascertain the composition of micronutrients. In this connection, we wish to
quote from certain encyclopedias/chemical dictionaries as follows:
(i) According to the
by Van Nostrand,
"fertilizer" is a substance which is often a combination of
substances of organic composition, natural or manufactured, in solid or liquid
form. The "micronutrient"
consists of Boron (B), Copper (Cu),
Iron (Fe), Manganese (Mn), Zinc (Zn) and Molybdenum (Mo).
15. The important thing to be
noted is that N, P or K is not mentioned as an element of
(ii) According to the
"Gardener's Guide to Fertilizing Trees and Shrubs" plants require 17
elements for normal growth. Carbon, 1 4 hydrogen and Oxygen are found in air
and water. Nitrogen, potassium, magnesium, calcium, phosphorous and sulfur are
absorbed from the soil. The last 6 elements are used in large amounts by the
plant and are called macronutrients. There are 8 other elements which are used
in smaller amounts. These are called micronutrients or trace elements which
include iron, zinc, molybdenum, manganese, boron, copper, cobalt and chlorine.
The nutrients that are most likely to limit plant growth are nitrogen,
phosphorus and potassium.
(iii) According to the
by Van Nostrand, a `plant growth
regulator' is essentially a chemical substance which is concerned with plant
growth and which provides tonic to the plant growth. It is a plant hormone. It
is an organic compound which controls growth.
(iv) According to the
www.en.wikipedia.org "micronutrients" are vitamins and minerals.
Vitamin is an organic compound.
Vitamins are classified by their biological activities and 1 5 not by their
structure. Vitamins have diverse bio-chemical functions including functions as
hormones, therefore, plant hormones are also known as plant growth regulators.
Plant hormones are made of chemicals that can vary in structure from one plant
(v) According to the
"McGraw-Hill Encyclopedia of Science & Technology" materials
added to the soil or applied directly to crop, to supply elements needed for
nutrition of the plant is called as "fertilizers". The chemical
elements - nitrogen, phosphorus and potassium are macronutrients or primary
fertilizer elements which are required in greatest quantity.
Sulphur, calcium and magnesium are
secondary elements necessary for the health of vegetation. They are required in
lesser amounts as compared to macronutrients. The other elements include boron,
cobalt, copper, iron, manganese, molybdenum and zinc.
These are required in traces.
These minor elements are called micronutrients. Many commercial fertilizers,
therefore, contain more than one of the primary fertilizer elements. It is
important to note that none of N, P or K can constitute 100% plant nutrient.
1 6 (vi) According to the
"Encyclopedia Americana", the nutrients required in the largest
amounts are calcium, magnesium, nitrogen, phosphorous, potassium and sulfur.
These elements are generally required in quantities ranging from 10 to 400
pounds per acre (11.2 to 440 kg per hectare). At the same time, plants also
need small amount of boron, chlorine, cobalt, copper, iron, manganese, molybdenum
and zinc (micronutrients or trace elements). They are required in quantities of
about one-fifth ounce per acre (6 grams per hectare) of molybdenum to 10 ounces
per acre (280 kg per hectare) of iron and manganese.
16. Therefore, it is clear that
"micronutrients" do not include N or P or K.
"Micronutrient" is required in very small quantity, almost a trace in
the plant nutrients.
17. The issue involved in this
civil appeal is: whether the impugned product(s) is a PGR or a fertilizer? 1 7
18. The contention of the
Department in its show cause notice is that the micronutrient compounds
manufactured by the respondent-assessee were liable to be classified under CSH
3808.20 and not under CSH 3105.00 on account of absence of N, P or K in the
impugned product(s). According to the Department, there is 0.31% of nitrogen in
the impugned product as a chelating agent and not as a fertilizing element and
that even if it is a fertilizing agent, its quantity of 0.31%, would not amount
to "essential constituent" in terms of explanatory note 6 to Chapter
19. We have examined several
reference books, some of which are quoted hereinabove, which shows that
micronutrients per se, as against macronutrients, do not contain N, P or K.
20. Micronutrient(s) functionally
may be a Fertilizer but not in terms of composition. In fact, N, P or K is the
constituent element of macronutrient and not of micronutrient.
21. Coming to PGRs, it needs to be
emphasized that they are organic compounds, other than nutrients, which in
small quantity inhibits, promotes, alters or modifies physiological processes
22. In the present case, the
impugned product(s) is "multi micronutrient". It is contended on
behalf of the assessee that the impugned product(s) contains nitrogen, hence it
is classifiable as "other fertilizer" under CSH 3105.00. It is
contended that nitrogen is an essential constituent of the impugned product(s)
and, therefore, the same is classifiable as "other fertilizers".
23. Therefore, the relevant
question to be asked is- what is the method of manufacture of "multi
micronutrient"? This question becomes relevant as the impugned product(s)
is a mixture of various inorganic substances. It is the "method of
manufacture" which has a strong bearing on the question whether the
product(s) needs to be classified under CSH 1 9 3808.20 or under CSH 3105.00.
This aspect has not been examined by the Adjudicating Authority.
24. It is alleged by the
Department that N, P or K are not the essential constituents of micronutrient(s).
We agree. However, in this case, the impugned product(s) is "multi
which the assessee claims to be a
mixture of various inorganic substances. In this connection it is important to
note that two tests have been formulated in the circular of CBEC dated
19.5.1998, namely, whether the subject-product(s) is a chemically defined
compound, if so, it goes out of CSH 3105.00. If not, whether the said
product(s) contains N, P or K as constituent element in terms of explanatory
25. In the show cause notice, no
allegation was made by the Department that the impugned product(s) is a
distinct chemical compound. Therefore, the only question is whether the
impugned product(s) contains nitrogen as an "essential constituent".
According to the assessee, the impugned product (s) is a mixture of various
inorganic substances whose 2 0 essential constituent is nitrogen which makes it
a fertilizer. It is this point which arises for consideration, viz, whether
0.31% of nitrogen found to exist in the impugned product(s) would make it a
fertilizer. In this connection, the aforestated scientific study indicates that
PGRs are organic compounds, other than nutrients. As compared to nutrients
which play a major role in the plant growth as a whole, PGRs. play a
restrictive role. PGR do not contain N, P or K. In the impugned product(s)
manufactured by the assessee, PGR exists.
Therefore, the question to be
asked is whether presence of mere 0.31% of nitrogen would make the PGR in the
impugned product classifiable as "other fertilizers" in CSH 3105.00.
In our view, essentially the impugned product is PGR. However, assessee
contends that the impugned product(s) is a mixture of various inorganic
substances and, therefore, it is for the Adjudicating Authority to go into
composition and find out whether 0.31% of nitrogen would convert PGR into
nutrient falling under CH 31.05. Whether with addition of 0.31% of nitrogen,
the PGR becomes "other fertilizers" in CSH 3105.00 is the question
which needs to be examined by the 2 1 Adjudicating Authority as it is the case
of the Department that the assessee has added nitrogen only as a pretence so
that the impugned product(s) could be classified as "other
under CSH 3105.00.
26. For the aforestated reasons,
on the point of classification and not on the point of invocation of larger
period (which is separately dealt with hereinafter) we set aside the impugned
judgment dated 26.2.07 of CESTAT and remit the matter to the Adjudicating
Authority for de novo determination of the said case in accordance with law.
27. On the question of invocation
of extended period of limitation, we are in agreement with the view expressed
by the Tribunal that the larger period of limitation was not invokable by the
Department. As stated above, three Circulars have been issued by the
Department. Till today, the controversy regarding the classification of
"micronutrient fertilizers" was not settled. There is even a conflict
of views between Ministry of Finance and Ministry of Agriculture. In the
circumstances, 2 2 question of invoking extended period of limitation does not
arise. It is well-settled that mere non-declaration is not sufficient to invoke
the larger period but some positive act of suppression is required for invoking
larger period of limitation under Section 11A of the Central Excise Act, 1944
Padmini Products v. Collector of
Central Excise - 1989 (43) ELT 195 (SC) ]. Therefore, in the present case,
there is no warrant to invoke larger period of limitation or to impose penalty
and to that extent we uphold the order of the Tribunal.
28. Accordingly the civil appeals
are partly allowed to the extent indicated above with no order as to costs.
(B. Sudershan Reddy) 2 3 New
May 15, 2008.