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CASE NO.: Appeal (civil)  5210 of 2006

PETITIONER: M/s. Deepak Agro Solution Ltd

RESPONDENT: Commissioner of Customs, Maharashtra

DATE OF JUDGMENT: 08/05/2008

BENCH: S.B. SINHA & V.S. SIRPURKAR

JUDGMENT: JUDGMENT

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                                                        REPORTABLE

                IN THE SUPREME COURT OF INDIA

                CIVIL APPELLATE JURISDICTION

                 CIVIL APPEAL NO. 5210 OF 2006

M/s. Deepak Agro Solution Ltd.                              ....Appellant

           Versus

Commissioner of Customs, Maharashtra                       .... Respondent

                          JUDGMENT

S.B. SINHA, J.

1.    Whether "Brimstone 90" which contains about 90% of Sulphur

and 10% of Bentonite by way of inert filler would come within the

classification under "Heading 25.03" of the Customs Tariff and the

Central Excise Tariff or "Heading 38.08" is the question involved in this

appeal.

2.    Appellant imported 200 MT of "Brimstone 90". The certificate of

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analysis available on record shows the Sulphur content of the imported

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goods was 90.10 % , inert filler (Bentonite) at 9.60 % and, the moisture

content was 0.30 %.

3.     "Brimstone 90" was classified under the Customs Tariff heading

25.03 by the Customs, Excise and Service Tax Appellate Tribunal in the

case of Deepak Fertilsers & Petrochmeicals Corporation Ltd.             vs.

Commissioner of Customs, Nhava Sheva : 2002 (139) E.L.T. 328. The

Tribunal held :-

            "8. Elemental sulphur has vide use as a fertiliser.              Elemental sulphur has to be oxidised to sulphate              before it can be absorbed by the plant. The rate of              oxidisation depends upon the surface area of the              sulphur particles. Rapid oxidisation is possible where              the particle size is small. The fine particles, however,              create handling problems. They can also be blown              away by wind. They may float on the irritation to the              eyes and lungs. They can also be blown away by              wind. They may float on the irrigation water. To              enable the sulphur to be applied in a safe manner it is              mixed with other fertilisers such as phosphate, etc., or              with inert fillers such as bentonite clay. Such mixture              is applied to the plants. On application of water              bentonite expands and disintegrates the sulphur              particles surrounding it. Over the years 10% bentonite              in the mixture has been established as appropriate.

            9. The addition of bentonite clay does not alter the              chemical properties of the sulphur particles. Therefore              even in admixture of the bentonite the sulphur does              not merit classification under any other tariff entry.              The sulphur component of such mixture also              continues to fall under the term ’unrefined sulphur’.              Therefore such unrefined sulphur tracing its origin in              refinery processing natural gas, etc. of which it is a

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           by-product would continue to merit the title ’unrefined             sulphur’ without or without mixture with bentonite."

4.    Appellant filed the bills of entry on 31st May, 2004 classifying the

goods under "Heading 25.03" of the Customs Tariff.         However, the

Deputy Commissioner of Customs by his order dated 7th July, 2004

opined that the imported goods were classifiable under "Heading 38.08"

of the Customs Tariff.

5.    Indisputably a Notification bearing No.21/02-Cus., dated 1st

March, 2002 had been issued granting benefit of exemption in respect of

"crude or unrefined Sulphur" falling under heading 25.03. Consequent

upon the said decision of the Deputy Commissioner of Customs dated 7th

July, 2004, the benefits of the said exemption notification was not

accorded to the appellant.

6.    An appeal was preferred thereagainst before the Commissioner

(Appeals). The Commissioner (Appeals) by an order dated 20th August,

2004 allowed the same relying on or on the basis of the said decision in

Deepak Fertilisers and Petrochemicals Corporation Ltd. (supra).

7.    Respondent preferred an appeal thereagainst before the Customs,

Excise and Service Tax Appellate Tribunal. A Division Bench of the

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Tribunal was of the opinion that its earlier decision in Deepak Fertilisers

and Petrochemicals Corporation Ltd. (supra) was not correct. It referred

the matter to a Larger bench stating :-

            "3. We have considered the submissions and the              claim under Chapter 3808 canvassed by Revenue.              We cannot appreciate that a packaging of 25 kgs. Of              the product as imported would be included under              Heading 38.08 when we find that Notes under              Heading 2503 specifically excludes sulphur put up in              forms of packing for reail sale as fungicide etc. which              fall in Heading 3808. The sulphur in this case is              packed in 25 kgs. Pack and there is no material for us              to conclude that this packaging is for retail sale and              therefore classification under heading 3808 cannot be              approved. The order of lower authorities also did not              bring out very clearly how this packaging is              considered by them to be fit for retail sale. We would              consider the Heading 3825 to be more appropriate              after considering the Heading and Chapter Notes on              Fertiliser. However, as in the appellants’ own case,              the sulphur imported was classified under Chapter 23              we would request the President to constitute a Larger              Bench to determine the question of classification of              the entity herein since the decision in appellants’ own              case is by a coordinate Bench of two members. The              question referred to this case would be classifiable              under Chapter 2503 as per importers or under              Heading 3808 by Revenue or under 3825 as a product              of Chemical Industries as viewed hereinabove."

     The Larger Bench of the Tribunal, however, by its order dated 27th

January, 2006 came to the conclusion that the said goods were

classifiable under "Heading 3808.19 (sic) 3808.90".

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8.    Mr. A.R. Madhav Rao, learned counsel appearing on behalf of the

appellant would submit that the Larger Bench of the Tribunal in arriving

at the impugned judgment failed and/or neglected to consider not only

the manufacturing process of "Brimstone 90", and the purpose for which

the same is used but also the technical materials produced before it.

9.    Mr. T.S. Doabia, learned senior counsel appearing on behalf of the

respondent, however, would support the impugned judgment.

10.   We may, at the outset, place on record the manufacturing process

of the product in question, as noticed by the Tribunal itself:-

            "2. The manufacturing process and catalogue of              Product was called as the goods were claimed to be              crude and unrefined Sulphur. However, invoice              described the goods as Brimstone 90 (Agricultural              Sulphur). The product catalogue read as follows :-

            ‘(a)   The Brimstone 90 plant that entered service in                     Saudi Arabia for NEAIS is based on Sandvik                     process system well known Roto form system.                     According to        Sandvik     by consistent                     incorporation 8-10 % of Bentonite in the                     Sulphur, the release qualities of the Sulphur in                     the soil are improved. In addition to this                     process, product is consistently sized granules                     with low flexibility and low dust content that                     are free flowing and easy to handle in storage                     and application.

(b)   Liquid Sulphur is trucked to the facility in the NEAIS tanker       fleet. From the Aramco Refinery, a DISTANCE OF SOME       130 Kms. and is combined with the imported swelling       agents at the plant. The specially developed Rotoform       Process involve mixing liquid sulphur and powdered

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     Bentonite with batch handling in two mixing vessles       overcoming the complications of processing the abrasive       Bentonie and allowing semi continuous production of the       fertilizer.

(c)   The elements of this Sulphur based fertilizer process system       is that the Liquid Sulpher arrives from the refinery at a       temperature of 135o C and is pumped to a mixing vessel of       approximately 25 cubic meters volume which contains a       specially designed uniter Powered Bentonite, along with       other agents, is fed into the liquid Sulphur and a       homogeneous mixture obtained by intense stirring. The       mixture is then pumped through a uniquely designed       filtration sytem into the Rotoform System. Which consists       of a Rotoform feed unit and a Sandvik steel belt cooler.       Pastilies are discharged at the end of the steel belt cooler       into bags which are then Palletised for shipping."

11.   Section V deals with "Mineral Products". Chapter 25 deals with

Salt, Sulphur, Earths and Stone; Plastering Materials, Lime and Cement.

     Chapter Note 1 to Chapter 25, whereupon reliance has been placed

by the Tribunal, reads as under :-

                   "1. Except where their context or Note 4 to              this Chapter otherwise requires, the headings of this              Chapter cover only products which are in the crude              state or which have been washed even with chemical              substances eliminating the impurities without              changing the structure of the product), crushed,              ground, powdered, levigated, sifted, screened,              concentrated by flotation, magnetic separation or              other mechanical or physical processes (except              crystallization), but not products that have been              roasted, calcined, obtained by mixing or subjected to              processing beyond that mentioned in each heading."

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12.   Entry 2503 speaks of Sulphur of all kinds, other than sublimed

sulphur, precipitated sulphur and colloidal sulphur.

     Entry 2503 00 10 read as under :

             "Sulphur recovered as by-product in refining of crude oil".

13.   Heading 3808 deals with insecticides, rodenticides, fungicides,

herbicides,   antisprouting   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).       3808 10 speaks of insecticides;

3808 20 fungicides ; 3808 30 herbicides, anti-sprouting products and

plant-growth regulators and while 3808 90 speaks of other in the

Schedule as stated by the Tribunal. There is no entry 3808 19.

14.   The principal question which arises for our consideration is as to

whether on the face of the said entries Chapter Note 1 of Chapter 25

would be applicable.

15.   Entry 2503 speaks of Sulphur of all kinds other than those which

are specifically mentioned therein. It is, therefore, evident that the said

entry is of broad nature. Indisputably the product does not come within

the purview of the excluded category.

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16.     It is well settled what is not excluded would be held to be

included. Within the category of Sulphur, Sulphur recovered as by-

product in the process of refinement of crude oil also finds place.

17.     Chapter Note 1 of Chapter 25 starts with the words "except where

their context or Note 4 to this Chapter otherwise requires".

       It is, therefore, difficult to hold that the headings of the Chapter

would cover only the products which are in the crude state or comes

within the purview of other activities contained therein.

       Interpretation of the said Note will depend upon the context in

which the entries have been worded. If an entry is clearly worded and is

broad    in character, the same would lead to the conclusion that the

context otherwise required.

18.     An entry is to be given its ordinary meaning. If any goods fit in

within one entry, the same for any purpose would not be held to be

included in the other and in particular the residuary.

19.     "Salt and Sulphur" are dealt with in Chapter 25. Sulphur may be

used for different purposes including agricultural purposes.     Brimstone

90 is used for agricultural purposes as would appear from the

descriptions referred to hereinafter.

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20.   We may at this stage also notice that Sulphur does not find place in

Chapter 38 which deals with agricultural operation. In all probabilities

as Sulphur is dealt with in Chapter 25, it was not found necessary to be

dealt therewith.

21.   Appellant had filed certain documents by way of compilation

before the Tribunal. We may notice some of them.

     In Ullmann’s Encyclopedia of Industrial Chemistry relating to

Sulfur para 9.2.3 deals with formed Sulfur. It refers to the Sandvik Test.

It is a granulating process undertaken for the purpose of transportation of

Sulfur and better used in the agricultural processes. How this process is

employed in the agricultural operation would appear from the "Journal

Fertilizer Focus, April 1977" issue in the following terms :-

            "Brimstone 90

                  The Technology

            The Brimstone 90 plant that entered service in Saudi              Arabia for NEAIS is based on Sandvik process system              well known Rotoform system. According to Sandvik              by consistent incorporation 8-10 % of bentonite in the              Sulphur, the release qualities of the Sulphur in the soil              are improved. In addition, this process, produces              consistently sized granules with low flexibility and              low dust content that are free flowing and easy to              handle in storage and application"

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22.   Manufacturing process of Brimstone 90 would appear from

Physical and Chemical Analysis report dated 11th August, 2003 issued by

the National Est. for Agricultural and Industrial Sulphur, Dammam in the

following terms :-

           "        Manufacturing Process of Brimstone 90

                  We are submitted herewith the brief             manufacturing process of Brimstone 90 received from             our principals National Establishment for Agricultural             and Industrial Sulphur. They receive molten sulphur             from the refinery. It is pumped to a mixing vessel,             which contains specially designed unit. Powdered             bentonite along with other agent is fed into the liquid             sulphur & a homogenous mixture is obtained by             intense stiring. The mixture is then pumped through a             uniquely designed filtration system into the roto form             system, which consist of a roto form filtered unit &             sandvik steel belt puller. The product from the steel             belt puller is discharged into the bags which are then             palletized for shipping."

23.   Palletization means "the transportation and storing of loads by

means of putting them onto a wooden frame or pallet" and "using pallets

to carry a number of individual’s packages for shipment. How that is

done, as indicated hereinabove, is contained in the Sandvik Process

System.

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24.   The Fertilizer Research on Elemental Sulfur fertilizers and their

use on crops and pastures published by Kluwer Academic Publishers

show as under :-

            "Key words : Bentonite, cube root model, elemental              sulphur fertilizers, rate of oxidation, sulphur coated              urea.

            Introduction

            Elemental sulfur (S) is an ideal slow release sulfur (S)              fertilizer. It is 100 % nutrient and this restricts the              amount of fertilizer required. It is insoluble in water              and therefore stable in damp or humid conditions.              Although S is unavailable for plant uptake, it is              oxidized to the plant-available sulfate-S form by soil              micro-organisms. The key to its success as a fertilizer              is the rate of oxidation from S to sulfate. Factors              which affect the rate of oxidation in soils have been              reviewed [51.139]. A cubic model of the oxidation              process has been developed [65.142] and is discussed              by Warkinson and Blair [143] in this journal."

25.   Appellant contends, which has not been denied or disputed that

Brimstone 90 is used for agricultural purposes.

26.   What meaning should be assigned to Brimstone 90 may be noticed

from Encyclopedia of Chemical Technology Fourth Edition at page 255,

which states :-

            "Brimstone         - see crude sulfur.

            "crude sulfur      - commercial nomenclature for

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                                 elemental sulfur; may be bright or                                   dark but is free of arsenic,                                   selenium, and tellurium."

27.   The dictionary meaning of Brimstone is ‘crude sulfur’.

28.   The description in the tariff entry not only covers refined but also

unrefined Sulphur. Sub-notes to the tariff entry on the HSN prescribe the

scope of the goods falling thereunder, the relevant part whereof is

reproduced hereto below:-

            "(4). Unrefined sulphurs recovered as by-products in              the purification of coal gas by the scrubbing of              sulphurous furnace gases, from sour, natural gas and              from the refining of sour crude miner oils, etc. These              recovered sulphurs, sometimes referred to as "purified              sulphur" or precipitated sulphur", must not be              confused with the precipitated sulphur desired in the              Explanatory Notes to heading 28.02"

29.   Keeping in view the aforementioned background, we may have an

analytical look at tariff entry No. 2808.

     It principally deals with insecticides, fungicides, herbicides etc.

The same is to be put up in forms or packings for retail sale or as

preparations of articles. What has been stated by way of example is

sulphur treated bands, wicks, candles and fly-papers and not Sulphur

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itself. Sulphur treated bands etc. would be different from crude Sulphur

or Brimstone 90.

30.   The question which, therefore, should have been posed by the

Tribunal while differing with the correctness of its earlier decision was

as to whether the product is such which can be said to be insecticides,

fungicides and herbicides etc. It is also of some significance that the

Revenue was of the opinion that the product would come within the

Entry 3808 30 40 being plant-growth regulators. The reference was in

regard to the applicability of Entry 2503 and/or 3808 30 40.          The

Tribunal, however, made a new case by opining that it would come

within Entry No. 3808 90, which is impermissible in law. [See - Saci

Allied Products Ltd., U.P. vs. Commissioner of Central Excise, Meerut :

2005 (183) ELT 225(SC)].

31.   The words ‘for example’ must be given its ordinary meaning. The

principle of ejusdem generis noscitur a socis in a case of this nature

would be applicable.

32.   Sulphur which finds place in the said entry must be used for the

purpose of insecticides, fungicides, herbicides etc. It is nobody’s case

that crude Suphur is used for the said purpose.        Only some bands,

candles, fly-papers etc., which are only Sulphur treated, are used.

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33.   The Tribunal itself in its referral order opined :-

           "The Sulphur in this case is packed in 25 kgs. Pack             and there is no material for us to conclude that this             packaging is for retail sale and, therefore,             classfication under heading 3808 cannot be approved.             The order of lower authorities also did not bring out             very clearly how this packaging is considered by them             to be fit for retail sale:"

34.   The Tribunal also noticed that the heading 25.03 includes :-

           "25.03 Sulfur of all kinds, other than sublimed Sulfur,             precipitated Sulfur and colloidal Sulfur.

           The heading include :

(1)   crude mineral sulfur occurring in the free state, whether or       note concentrated by mechanical processes to remove part of       the rocky matter.

(2)   Unrefined sulfur extracted from mineral sulfur by melting.       This process may be carried out in sulfur kilns (calcaroni)       furnaces (Gill furnaces), etc., or may be effected in the       deposit itself by forgoing superheated steam through pipes       sunk in a bore hole (Frasch process).

(3)   Unrefined sulfur obtained by the roasting pyrites or by the       treatment of other sulfur minerals.

(4)   Unrefined sulfurs recovered as by products in the       purification of coal gas, by the scrubbing of sulfurous       furnace gases, from sour natural gas and from the refining of       sour crude mineral oils, etc. These recovered sulfurs,       sometimes referred to as "purified sulfur" or "precipitated       sulfur". Must not be confused with the precipitated sulfur       dined in the Explanatory Note to heading 28.02

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                       The unrefined sulfurs in the last three                   paragraphs are sometimes fairly pure. This is                   especially true of the sulfur produced by the                   Frasch process which contains such small                   proportions of impurities that it is practically                   never refined; it is usually presented in rough                   lumps or as dust.

(5)   Refined sulfur, obtained by rapidly distilling crude sulfur       and condensing it in the liquid state; sulfur thus obtained       can then be moulded into sticks or cakes, or crushed after       solidification.

(6)   Triturated sulfur, which is sulfur (impure or refined) in the       form of a finely divided powder obtained by grinding and       then sieving, either mechanically or by the gas suction.       These products are known as "sieved sulfur", Winnowed       sulfur", "automized sulfur", etc., according to the process       employed and the fineness of the parties.

(7)   Sulfur, obtained by the sudden cooling of sulfur vapours       without passing through the liquid phase, which is insoluble,       particularly in carbon disulphide (sulfur u).

                  The various types of sulfur classified in this             heading are used in the chemical industry (preparation             of numberous, sulfur compounds, sulfur dyestuffs,             etc.) for vulcanizing rubber, as a fungicide in             viticulture, in the manufacture of matches and sufur             wicks and for the preparation of sulfur dioxide in the             bleaching industries, etc.

                  The heading excludes sublimed sulfur,             precipitated sufur and colloidal sulfur (heading             28.02). Sulfur put up in forms or packings for retail             sale as fungicides, etc., falls in heading 38.08."

35.   Paragraph 2 of the said heading refers to ‘Frasch process’ which

indicates pumping hot water to get slurry out. It is not a permitted

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process under Note 1. Only paragraph 4 refers to the product in question.

It is not the case of the Revenue that clauses 5, 6 and 7 are attracted to

the process which are used in obtaining crude Sulphur.

36.   Regarding packaging of 25 kg., the Tribunal itself has noticed :-

            "The present purchase order was made in 25 kg. flat              woven PE/PP bags with stickers of one ton Jumbo              bags as per requirement. All bags were required to              bear flexographic printing in English language. The              markings should reflect the following.                    ‘Product.....                    Supplier.....                    Origin......                    Gross/Net weight......                    Sate of Mfr......                    Batch No.......                    Imported and Marketed by Deepak Agro                    Solutions Limited. -                    For Agricultural Use only’ "

37.   The Tribunal’s finding that it was marketed by the importer in

retail bags may not be correct as an agriculturist ordinarily would not

purchase a bag containing 25 kgs. "Brimstone"

38.   In H.P.L. Chemicals Ltd.          vs.   Commissioner of C. Excise,

Chandigarh : 2006 (197) E.L.T. 324 (S.C.) whereupon strong reliance

has been placed by Mr. Doabia, this Court was concerned with

classification of Salt and ‘denatured salt’, The Tribunal in that case also

held :-

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             "...On a study of the process of manufacture we find               that certain chemicals are reacted, none of these               chemicals are classifiable under chapter 25, thus the               Residue in question cannot be a product obtained               after chemical processing e.g. (electrolysis). None is a               bye-product of a treatment of certain ores. The               product is obtained after crystallisation. The product               is obtained as a bye-product or Residue while               manufacturing Hydrazine. Hydrazine is admittedly a               chemical. Thus the Residue in the instant case is               nothing but a residue of chemical and allied               industries. We note that there is specific heading for               Residue of chemical and allied industries under the               present chapter Heading 38.24. Since there is specific               heading, we need not go to decide the issue by               resorting to be Rules for interpretation of tariff. These               Rules are attracted only when the heading is not               specific or the product is a composite one."

     The said finding of the Tribunal was held to be not correct by this

Court stating that "Denatured Salt" is specifically included in Chapter

Heading No. 25.01.

39.   In regard to Chapter Note 1 of Chapter 25 in HSN, this Court

observed :-

             "Apart from this, similar chapter notes also appears in               Chapter No. 1 of Chapter 25 in HSN which clearly               provides that residuary Sodium Chloride left after               chemical processing is covered by Heading No. 25.01.               Chapter note 2 does not provide anywhere that in               order to be covered by Heading No. 25.01 the product               must not contain impurities. The bracketed portion in

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              Chapter note 2 is being totally misread by the                Revenue. The only effect of the bracketed portion is                that if the goods in question are washed, such wash                may be even with chemical substances eliminating the                impurities without changing the structure of the                product. It is not as if Chapter note 2 provides that in                order to be covered by Heading No. 25.01, all                impurities must be removed. Similarly, it is not                provided either in Chapter 25 of the Central Excise                Tariff or in Chapter note 2 or in HSN that in order to                be covered by Heading No. 25.01, the starting                material must be salt. Residuary Sodium Chloride left                after chemical processing is clearly covered by                Heading No. 25.01 as per HSN."

40.   We are, therefore, of the opinion that the Tribunal was not correct

in its view.

41    For the aforesaid reasons the impugned judgment cannot be

sustained and it is set aside accordingly. The appeal is allowed with no

order as to costs.

                                                          .....................                                                                           .....J.                                                         ( S.B. SINHA )

                                                          .....................                                                                           ......J.                                                       ( V.S. SIRPURKAR ) New Delhi May 8, 2008