2024 (2) TMI 767 - AT - Central Excise

Micronutrient fertilizers classified under CSH 3808.20 as nitrogen functions as chelating agent not essential constituent

CESTAT Bangalore upheld classification of micronutrient fertilizers under CSH 3808.20 rather than Chapter 31.05 of CETA 1985. Following SC remand, ... Classification of micronutrient fertilizers - Presence of nitrogen as a chelating agent - essential constituent - Analysing implementation of the observation/direction of the Hon’ble Supreme Court [2008 (5) TMI 14 - SUPREME COURT] in remanding the case for deciding the classification of the products viz. micronutrients - classifiable under Chapter Heading 3105 of Central Excise Tariff Act, 1985 or under chapter sub-heading 3808.20 of CETA, 1985? - Extended period of Limitation - HELD THAT:- The adjudicating authority, pursuant to the remand, commenced the de novo proceeding by appointing a Committee of Officers to examine the process of manufacture of the impugned products and submit their report accordingly. The Committee comprising of two Superintendents visited the factory of the Appellant, examined the process of manufacture and submitted their report to the Commissioner on 08.5.2009. Based on the said legal advice/opinion, the Commissioner himself visited the factory premises of the appellant on 16.12.2009 and examined the process of manufacture of the impugned products - The procedure adopted by the learned Commissioner in carrying out the direction/observation of the Hon’ble Supreme Court, in the denovo proceeding has been assailed by the appellant. The Ld. Commissioner while analyzing the said allegations of the appellant held that since his predecessor after receiving the report of the Committee of officers neither commented nor recorded his opinion on the report, therefore, with a change of adjudicating authority, a reference was made to the departmental standing counsel seeking legal opinion on delegation of the task of examination of method of manufacture to the Committee of officers. The opinion of the learned Standing Counsel was that constitution of a Committee without express permission of the Hon’ble Supreme Court would be ultra vires of the direction of the apex court. It is found that reading the Committee”s Report on the process of manufacture and that of recorded by the Ld. Commissioner after visit to the factory premises of the appellant, we do not see any material difference on the facts. What is noticed is that in addition to stating the process of manufacture, the committee of officers in its report proceeded further by interpreting the order of the Hon’ble Supreme Court, applicability of Note 6 of Chapter 31 and Circular dated 19.5.1998 observing that the goods are rightly classifiable under Chapter 31.05 and the products may not be called as “Plant Growth Regulator. Their Lordships analysing the scope of the terms micronutrient, PGR and other fertilizers, in the backdrop of rival claims, observed that admittedly nitrogen is present as a chelating agent, not as a fertilizing agent; even if it is a fertilizing agent, would not amount to an essential constituent under explanatory note 6 of chapter 31. In the de novo proceeding, the learned Commissioner after verifying the process of manufacture held that it is purely a physical process of mixing of various constituents; the Nitrogen which is added in the form of urea does not undergo any chemical reaction with any of the constituent of the impugned product, it remains as it is, therefore, adding the same at the beginning or at the end of the process of physical mixing would not make any difference. Accordingly, he has concluded that the process of mixing undertaken by the appellant could not lead to their claim that adding Nitrogen containing chemical urea converts PGR into nutrient falling under Chapter 31.05. The said finding of the Ld. Commissioner answers/satisfies the question raised by the Hon’ble Supreme Court in remanding the case to ascertain whether process of manufacture would demonstrate the presence of “Nitrogen” as an essential constituent though present as a “chelating agent”. The finding of the Ld. Commissioner that the impugned goods merit classification under CSH 3808.20 (38089340) of CETA, 1985 upheld - confirmation of demands with interest is also upheld. Since the issue relates to classification and interpretation of law, imposition of penalty under Rule 25 on the company and personal penalty under Rule 26 CER, 2002 on the Appellant Shri Mahesh G Shetty is unwarranted and accordingly set aside. Appeal allowed in part. Issues Involved:1. Classification of micronutrient fertilizers.2. Essentiality of Nitrogen in the product.3. Validity of the process of manufacture.4. Adherence to Supreme Court's directions.5. Imposition of penalties.Summary:1. Classification of Micronutrient Fertilizers:The primary issue was whether the micronutrient fertilizers manufactured by the appellant should be classified under Chapter Heading 3105 as 'other fertilizers' or under Chapter Heading 3808 as 'Plant Growth Regulators' (PGR). The Tribunal upheld the Revenue's contention that the products are classifiable as PGR under Chapter Heading 3808, based on the findings that Nitrogen was not an essential constituent of the products and the manufacturing process did not alter this classification.2. Essentiality of Nitrogen in the Product:The adjudicating authority concluded that Nitrogen, added in the form of Urea, was not an essential constituent of the micronutrient fertilizers. The Tribunal agreed, noting that the presence of Nitrogen as a chelating agent did not meet the requirement of being an essential constituent under Note 6 of Chapter 31 of the Central Excise Tariff Act, 1985. The Tribunal emphasized that the Hon'ble Supreme Court had already indicated that mere presence of Nitrogen was insufficient for classification under Chapter 3105.3. Validity of the Process of Manufacture:The Tribunal examined the manufacturing process and found that it involved merely mixing various raw materials without any chemical reaction. The addition of Urea (Nitrogen) did not change the nature of the product. Consequently, the manufacturing process did not support the appellant's claim that Nitrogen was an essential constituent, and thus, the products could not be classified as fertilizers under Chapter 3105.4. Adherence to Supreme Court's Directions:The Tribunal noted that the Hon'ble Supreme Court had remanded the matter for de novo adjudication to examine the manufacturing process and determine the essentiality of Nitrogen. The adjudicating authority initially constituted a committee to study the manufacturing process but later, based on legal advice, conducted the examination personally. The Tribunal found no error in this approach and upheld the findings of the adjudicating authority.5. Imposition of Penalties:The Tribunal upheld the confirmation of demands with interest but set aside the imposition of penalties under Rule 25 on the company and personal penalty under Rule 26 on the appellant, Shri Mahesh G Shetty, citing the issue's relation to classification and interpretation of law.Conclusion:The appeals were partly allowed, confirming the classification of the products under Chapter Heading 3808 and setting aside the penalties. The Tribunal emphasized adherence to the Supreme Court's directions and the proper examination of the manufacturing process in determining the classification.