REPORTABLE

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

J U D G M E N T

S.H. KAPADIA, J.

These  civil  appeals  concern  classification  of

“micronutrient”  compounds  for  the  purpose  of  excise  duty.

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

(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 the

Department.

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].

3. Respondent-assessee  manufactures  “multi

micronutrients” for soil application and for foliar application.

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

2

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 constituents.

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.

3

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 below:  

“CHAPTER 31 FERTILISERS

4

Notes :  

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 No.

Sub- heading No.

Description of goods Rate of duty

(1) (2) (3) (4) 31.05 3105.0

0 Mineral  or  chemical  fertilizers, containing  two  or  three  of  the fertilizing  elements,  nitrogen, phosphorous  and  potassium;  other fertilizers

16%

8. We  also  quote  hereinbelow  Explanatory  Note  1  to

Chapter 38 of the Central Excise Tariff which reads as below:

“CHAPTER 38

5

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 No.38.01);

(2) Insecticides,  rodenticides,  fungicides,  herbicides, anti-sprouting  products  and  plant-growth regulators, disinfectants and similar products, put up as described in Heading No.38.08.”

9. We  also  quote  hereinbelow  CH  3808  of  the  Central

Excise Tariff which reads as below:

“CHAPTER 38 MISCELLANEOUS CHEMICAL PRODUCTS

Heading No.

Sub- heading No.

Description of goods Rate of 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)

6

3808.2 0

Plant growth regulators 16%

3808.9 0

Other 16%

10. We also quote hereinbelow Circular No.392/25/98-CX.,

dated 19.5.1998 issued by CBEC which reads as follows:

“Micronutrients — 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

7

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 growth regulators.

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 Heading 31.

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.

8

7. Therefore, it is clarified that classification of micronutrients may be done in accordance with the above guidelines.

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

9

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 0

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 1

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 2

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  “Scientific  Encyclopedia” 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 “micronutrient”.

(ii) According  to  the  “Gardener’s  Guide  to Fertilizing Trees and Shrubs” plants require 17  elements  for  normal  growth.   Carbon,

1 3

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  “Scientific  Encyclopedia” 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 4

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 to another.

(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 5

(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 6

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 31.

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.

1 7

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 in plants.

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 8

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 micronutrient”

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 note 6.

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

1 9

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 0

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  fertilizer”

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 1

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  [See:

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.         

……………………………J.                                    (S.H. Kapadia)

……………………………J.                                               (B. Sudershan Reddy)

2 2

New Delhi; May 15, 2008.

2 3