1996 (9) TMI 124 - SC - Central Excise

Board circulars under s.37B are binding on collectors; later conflicting circulars must be withdrawn, micronutrients exempt

SC held the Board's earlier and later circulars were binding instructions under s.37B, addressed to collectors and field formations, and therefore ... Instructions under Section 37B - binding nature of Board circulars - classification of goods - Heading 31.05 as other fertilisers - Heading 38.08 plant growth regulators - Interpretative Rules of the Tariff - prospective operation of administrative instructionsInstructions under Section 37B - binding nature of Board circulars - Whether the Board's circulars (earlier and later) are orders, instructions or directions under Section 37B and binding on Central Excise officers - HELD THAT: - The circulars were issued by the Central Board and addressed to all Principal Collectors and Collectors, required that their contents be communicated to lower formations and that pending assessments be finalised on the stated basis; they were issued after consultation with the Chief/Deputy Chief Chemist and, in the later circular, the Ministry of Agriculture. Section 37B contemplates issuance by the Board of orders, instructions and directions to ensure uniformity in classification and requires Central Excise officers to observe and follow them. The absence of an express recital invoking Section 37B in the circulars does not deprive them of that character. In the circumstances, both circulars must be treated as issued under Section 37B and are binding on Central Excise officers and the Revenue while they remain in operation. [Paras 11, 12, 13, 14]The earlier and later circulars are instructions within the meaning of Section 37B and are binding on Central Excise officers.Heading 31.05 as other fertilisers - Heading 38.08 plant growth regulators - Interpretative Rules of the Tariff - prospective operation of administrative instructions - Whether the later circular validly reclassifies micronutrients as falling under Heading 31.05 (other fertilisers) and whether the Revenue can resist that reclassification for the periods in dispute - HELD THAT: - The later circular, after re-examination in consultation with the Ministry of Agriculture and the Chief Chemist, clarified that micronutrients listed under the Fertilizer Control Order, 1985 and their mixtures are appropriately classifiable under Heading 31.05 as 'Other Fertilizers', and withdrew the earlier contrary circular. Having held that the circulars are binding under Section 37B, the Court rejected Revenue's contention that the later circular was merely advisory or that it could be given only prospective effect to avoid altering the Tribunal's decision. Once a binding Board instruction is in operation, the Revenue cannot advance a position contrary to it; if the circular were contrary to statute it could be withdrawn, but while it remains operative it governs classification. Applying the later circular, micronutrients for the appellants fall under Heading 31.05 and are not to be treated as 'plant growth regulators' under Heading 38.08. [Paras 6, 8, 13, 15, 16]The later circular validly classifies micronutrients under Heading 31.05 as 'other fertilisers' for purposes of Central Excise and the Revenue cannot resist that classification for the periods in dispute while the circular remains operative.Final Conclusion: The appeals are allowed; the Tribunal's order is set aside and the appellants' micronutrients are to be classified under Heading 31.05 as 'other fertilisers' in accordance with the Board's later circular issued 21st November, 1994, with consequent relief (withdrawal of deposits, discharge of bank guarantees and payment of costs). Issues Involved:1. Classification of micronutrients for Excise duty purposes.2. Validity and binding nature of circulars issued by the Central Board of Excise and Customs under Section 37B of the Central Excises & Salt Act.3. Retrospective application of circulars.Issue-wise Detailed Analysis:1. Classification of Micronutrients for Excise Duty Purposes:The primary issue is the classification of micronutrients, which are mixtures of soluble salts of elements like calcium, magnesium, manganese, zinc, iron, copper, boron, and molybdenum, for Excise duty purposes. The appellants manufacture these micronutrients, which assist in plant growth. Initially, there was a dispute on whether these micronutrients should be classified as 'plant growth regulators' under Heading 38.08.90 or as 'residual products of chemical or allied industries, not elsewhere specified' under Heading 38.23.2. Validity and Binding Nature of Circulars Issued by the Central Board of Excise and Customs:The earlier circular issued on 20th June 1990, classified micronutrients under Heading 38.08 as 'plant growth regulators.' However, the later circular dated 21st November 1994, classified micronutrients under Heading 31.05 as 'other fertilizers.' The appellants argued that their micronutrients should be classified as per the later circular. The court examined whether these circulars were binding under Section 37B of the Central Excises & Salt Act, which empowers the Board to issue instructions for uniform practice in the assessment of excisable goods. The court concluded that both circulars were issued under Section 37B, making them binding on Central Excise officers.3. Retrospective Application of Circulars:The Revenue argued that the later circular could not apply retrospectively to periods already decided by the Tribunal. However, the court rejected this argument, stating that it is not open to the Revenue to raise a contention contrary to a binding circular issued by the Board. The court emphasized the importance of consistency and discipline in the application of circulars.Conclusion:The appeals were allowed, and the judgment and order of the Tribunal were set aside. The micronutrients manufactured by the appellants were classified under Heading 31.05 as 'other fertilizers,' exempting them from excise duty. The deposits made by the appellants were ordered to be withdrawn, and the bank guarantees were discharged. The Revenue was directed to pay the appellants Rs. 25,000/- as the aggregate costs of the appeals.