Micro Nutrient Mixtures -Whether it is Plant Growth Regulator or Other Fertiliser under Central Excise classification?
Introduction:
The CESTAT, Bangalore has recently held in the case of KPR Fertilizer Ltd Vs Commissioner of Central Excise, Service Tax and Customs, Visakhapatnam II 2014-TIOL-2001-CESTAT-BANG that Micronutrient Mixtures are not Plant Growth Regulators if it contains Nitrogen or Phosphorous or Potash and would be classifiable as “Other Fertiliser” falling under Chapter Sub-Heading No.31059090and not 38089340 as claimed by the Department and therefore the Appellant has a prima facie case on merits. This has given a sigh of relief to the Fertiliser Industry as the requirement of pre-deposit is waived and stay against recovery granted during the pendency of appeal in this case by the Hon’ble Tribunal. Earlier in the case of Shivashakthi Bio Plantteec Ltd and this Tribunal vide Order No. 20207-20208/2014 dated 07.02.2014 (2014 (10) TMI 441 - CESTAT BANGALORE) had taken a view for the similar issue that requirement of pre-deposit can be waived and have taken a prima facie view that the product can be classified as other fertilizers.
Brief Facts and background of the case:-
During the verification of Assessee’s records, departmental officers found that assessee had manufactured and cleared micronutrient from April 2007 onwards without intimating the department and without discharging the duty liability. Subsequently these clearances were reflected from 10.09.2009 as clearances made under exemption Notification No. 4/2006-CE dated 01.03.2006 as amended. The appellants classified the micronutrients under tariff item No. 31059090 of Central Excise Tariff Act 1984. According to the Revenue this is a residual entry covering other fertilizers and micronutrients are out of scope and are not covered by this tariff heading. Thereafter the samples were drawn and chemical test was made and after investigation and issue of show-cause notice the impugned order has been passed confirming demand for central excise duty of more than Rs. 1.23 Crores on the ground that the micronutrients are classifiable under CETH 3808 9340 of the schedule to the Central Excise Tariff Act 1985. Penalty equal to the duty also has been imposed besides demanding interest.
The Appellants argument is Micronutrient Fertilizers in question containing N, P or K (nitrogen, phosphorous and potassium) would fall under the category of ‘other fertilizers' and would rightly classifiable under tariff heading no.31059090 which attracts Nil rate of duty during the period in question and the Chapter 38 covers mainly chemical products.
According to the Revenue this is a residual entry covering other fertilizers and micronutrients are out of scope and are not covered by this tariff heading and the applicable classification should be under Chapter Heading No. 38089340.
Reasoning of Judgment.
Plant Growth Regulators do not contain N, P or K. According to the Chemical Examiner's report submitted by the appellant and it forms part of the records and not disputed by the Revenue, micronutrient fertilizers manufactured by the appellants contain N, P or K. The above discussion would show that the appellants have made out a prima facie case on merits. Accordingly the requirement of pre-deposit is waived and stay against recovery granted during the pendency of appeal.
In the year 1994, the Board has clarified that the micronutrient mixtures are classifiable under 3105 as ‘other fertilisers’ and not “plant growth regulators” and the circular is extracted below.
Circular No. 79/79/94-CX
Dated 21/11/94
F.No.106/1/94-CX.3
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Excise and Customs, New Delhi
Subject : Central Excise-Classification of Micro Nutrients-clarification regarding
Attention is invited to the instructions contained in Board's Circular No. 26/90-CX.3 dated 26.6.90, clarifying that 'micro nutrients' would be appropriately classifiable under heading No. 38.08 as "plant growth regulator'.
2. Now the Indian Micro Fertilizers Manufacturers' Association has represented that 'micro nutrients' should be classified under Heading 31.05 as 'other fertilizers'. They have also produced certificates issued by various Agriculture Universities as evidence in support of their claim.
3. The Board has carefully re-examined the entire issue in consultation with the Ministry of Agriculture and the Chief Chemist, CRCL, New Delhi. The Ministry of Agriculture has clarified that the Micronutrients listed under Sr. No. 1(F) of Schedule 1 Part (A) of the Fertilizer (Control) Order, 1985 and their mixtures (eith or without N.P.K) as notified by the Central Government or a State Government has been recognised as fertilizers under Fertilizer (Control) Order, 1985. The Chief Chemist has also opined that in technology and trade micronutrients are classifiable along with fertilizers. Further, in terms of Rule (4) of the interpretative rules of the Central Excise Tariff micronutrients would merit classification as fertilizers.
4. Therefore, it is clarified that micronutrients listed under Sr. No. 1(f) of Schedule 1 Part (A) of the Fertilizer (Control) Order, 1985 and their mixture (with or without N.P.K) as notified by the Central Government or a State Government would be appropriately classifiable under heading No 31.05 as "other Fertilisers".
5. The above clarification may be brought to the notice of the lower filed formations and the trade interests may also be suitably advised.
6. Board's earlier circular no. 26/90-CX.3 dated 26.6.90 accordingly stands withdrawn.
7. All pending assessments may be finalised on the above basis.
Sd/-
(Arvind Singh)
Deputy Secretary to the Government of India
Later, in the year 1998, after re-examining the entire issue the circular was modified vide circular No. Circular No. 392/25/1998-CX, dated the 19/05/1998, F.No.106/1/98-CX.3 stating that “A doubt has been raised regarding classification of certain Micro- nutrients such as compounds of Zinc, Boron, Manganese, Molybdenum, Iron etc., which are required in minor quantities to regulate plant growth -whether classifiable as fertilisers (31.05), plant growth regulators (38.08) or as separate chemically defined compound (Ch. 28).that “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 com- pound, 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 Heading 31.”
After this circular, the Department started issuing notices to the entire fertiliser industries demanding excise duty reclassifying the impugned product as Plant Growth Regulators. Also, the Apex Court in the case of Commissioner Of Central Excise Vs M/S. Karnataka Agro Chemicals on 15 May, 2008 has observed that the issue involved in this civil appeal is: whether the impugned product(s) is a PGR or a fertilizer?
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.
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 in plants.
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.
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 3808.20 or under CSH3105.00. This aspect has not been examined by the Adjudicating Authority.
So the Supreme Court set aside the impugned judgment dated 26.02.07 of CESTAT and remitted the matter to the Adjudicating Authority for de novo determination of the said case in accordance with law. Based on the direction, the Hon’ble CESTAT, Bangalore in the present case (KPR Fertilisers Ltd) after getting the products tested confirming the Micronutrient mixtures manufactured by the appellants contain NPK, has granted stay and waived the pre-deposit classifying the impugned products as “Other Fertilisers” classifiable under Chapter Heading No.31059090.
Before parting... In the author’s opinion, as long as the product, micronutrient mixtures contain N or P or K as per the test results and further the licenses are granted by the Agricultural Department treating the product as Fertilisers and also, the said product is treated as “fertilizer" in terms of Section 2(h) of the Fertiliser (Control) Order, 1985 as the products are used for the plant as fertilisers and even in the Circular dated 19.05.98 issued by CBEC there is no prescribed percentage of any of the above elements in the impugned product(s) it is to be classified as “Other Fertilisers” falling under Chapter 3105 as per the section notes.
R.K Rengaraj,
Advocate, Swamy Associates
CAclubindia
