2025 (7) TMI 722 - AT - Customs

Customs classification dispute between fertilizer and chemicals remanded for fresh adjudication considering Larger Bench decision

CESTAT Mumbai remanded a customs classification dispute concerning imported goods declared as fertilizer. The case involved determining whether goods ... Classification of imported goods - Appropriateness of the declaration that the goods merited coverage as ‘fertilizer’ - to be classified under tariff item 3101 0010 of First Schedule to Customs Tariff Act, 1975 or under tariff item 3808 8340 of First Schedule to Customs Tariff Act, 1975? - HELD THAT:- Recourse to tariff item enumerated in chapter pertaining to ‘fertilizer’ in appropriate schedule of both Customs Tariff Act, 1975 and Central Excise Tariff Act, 1985 is, invariably, susceptible to disputes as goods, covered by description as ‘fertilizer’ that, owing to its special role in the economic growth of a country, merits privilege of duty abatement, does not exclude, save by statute or notes to chapter, alternative coverage among ‘chemicals’ that may not be so privileged. By convention, ‘usage’, often evidenced by recognition in law through executive instrument or by the differentiation permitted by the notes to chapter 31 of First Schedule to Customs Tariff Act, 1975, is the criterion for the privilege and for classification. With the initiation of proceedings under Customs Act, 1962 in the present dispute, unquestionably, attributed to the proceedings concluded against M/s Agro Pack under the central excise jurisdiction, having attained finality in the latter through reference to a Larger Bench of the Tribunal in re PI Industries Ltd [2024 (9) TMI 1655 - CESTAT AHMEDABAD (LB)], the classification therein should be no less applicable to the present dispute. Though the impugned order, of itself, records genesis of the dispute, the facts, pertaining to the imports, were not of concern to the Larger Bench nor conformity thereof found necessary to be dwelt upon in the impugned order. Consequently, it would be appropriate for the dispute under Customs Act, 1962 to be revisited by the adjudicating authority in the light of the decision of the Larger Bench of the Tribunal to the extent of applicability to the facts in the dispute and absence of conflict, if any, with Customs Tariff Act, 1975. Matter remanded back to the original authority for fresh decision on the proposals in show cause notice in accordance with the findings of the Larger Bench of the Tribunal in re PI Industries Ltd. - appeal allowed by way of remand. The core legal question considered in this judgment revolves around the proper classification of imported goods described as 'ISABION' for customs duty purposes. Specifically, the Tribunal examined whether the goods should be classified as 'fertilizer' under tariff item 3101 0010 of the First Schedule to the Customs Tariff Act, 1975, or as 'plant growth regulator' under tariff item 3808 8340 of the same Schedule. This classification determines the applicable rate of customs duty and consequential penalties and interest under the Customs Act, 1962.A related issue concerns the applicability and effect of a prior Larger Bench decision of the Tribunal on a similar classification dispute involving the same or analogous goods, which had been adjudicated under the Central Excise Tariff Act, 1985. The question arises whether the findings of that Larger Bench decision should be applied to the present customs classification dispute, given the overlap in the nature of the goods and the legal principles governing tariff classification.Another subsidiary issue pertains to the procedural correctness and appropriateness of the reassessment, penalty imposition, confiscation, and fine levied under various provisions of the Customs Act, 1962, including sections 28, 28AA, 114A, 111(m), 125, and 114AA, in light of the classification dispute.In addressing the primary classification issue, the Tribunal relied heavily on the legal framework governing tariff classification under the Customs Tariff Act, 1975, and the Central Excise Tariff Act, 1985. The relevant provisions include the tariff items and explanatory notes in Chapter 31 of the Customs Tariff Act, which deals with fertilizers, and Chapter 38, which covers miscellaneous chemical products including plant growth regulators.Precedent played a pivotal role, notably the Larger Bench decision in the case involving M/s PI Industries Ltd and others, which had examined the classification of products 'Siapton 10L' and 'Isabion'. The Larger Bench held that these products merely provide nutrients to plants and do not alter physiological processes, thus qualifying as fertilizers (bio-stimulants) rather than plant growth regulators. The Tribunal noted the Larger Bench's reasoning that the amino acids and nitrogen in these products assist in cell building and plant growth through nutrient supplementation but do not function as regulators of plant growth processes.The Court interpreted the Larger Bench decision as authoritative and binding on the present dispute, emphasizing that the classification as fertilizers under tariff item 3101 00 99 was correct and that the goods should not be reclassified as plant growth regulators under tariff item 3808 93 40. The Tribunal rejected the impugned order's reclassification, which had been grounded on the findings in the related M/s Agro Pack case but which the Larger Bench had effectively overruled.Key evidence and findings include the chemical nature and functional role of the goods, the prior adjudications under central excise law, and the tariff schedules and explanatory notes. The Tribunal acknowledged that classification disputes involving fertilizers are often complex due to overlapping descriptions and the economic significance of fertilizers, which attract concessional duty rates. It recognized that usage and statutory recognition play a critical role in classification, and that the Larger Bench had clarified that the products in question do not function as plant growth regulators but as fertilizers.Applying the law to the facts, the Tribunal concluded that the reassessment of duty and penalties premised on classification as plant growth regulators was unsustainable. It held that the classification dispute under the Customs Act must be revisited by the original adjudicating authority, applying the Larger Bench's findings. The Tribunal remanded the matter for fresh adjudication consistent with the Larger Bench decision, thereby setting aside the impugned order.The Tribunal also addressed competing arguments. The appellant argued that the Larger Bench decision conclusively resolved the classification issue in their favor, while the respondent upheld the impugned order's findings. The Tribunal sided with the appellant, emphasizing the binding nature of the Larger Bench ruling and the need for consistent application of tariff classification principles across similar disputes.Regarding procedural aspects, the Tribunal implicitly found that the penalties and confiscation imposed were contingent on the disputed classification and thus could not stand without proper classification. By remanding for fresh adjudication, the Tribunal allowed the original authority to reconsider these measures in light of the correct classification.Significant holdings include the following verbatim excerpt from the Larger Bench decision cited by the Tribunal:'The two products, namely, Siapton 10L and Isabion merely provide nutrients to the plant. They do not alter the physiological processes in a desired direction. In other words, the amino acids and the nitrogen present help in cell building exercise, and thereby, help the plant grow using the nutrients (nitrogen, phosphorus and potassium). Therefore, the two products Siapton 10L and Isabion are in the nature of fertilizers (bio-stimulants) and not plant growth regulators.'This establishes the core principle that classification depends on the functional role of the product rather than merely its chemical composition or trade description, and that nutrient-providing products fall within the fertilizer category.Another key principle is that a Larger Bench decision of the Tribunal on classification under central excise law is applicable and binding on customs classification disputes involving the same goods, ensuring consistency and finality in tariff classification jurisprudence.The final determination is that the impugned order reclassifying the goods as plant growth regulators and imposing consequent duties and penalties is set aside. The matter is remanded for fresh adjudication in accordance with the Larger Bench ruling, which classifies the goods as fertilizers under tariff item 3101 0010 of the Customs Tariff Act, 1975.