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PETITIONER: M/S. RANADEY MICRONUTRIENTS

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT:       10/09/1996

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) VENKATASWAMI K. (J)

ACT:

HEADNOTE:

JUDGMENT:                             WITH                 CIVIL APPEAL NO.5405 OF 1993                          O R D E R      These   appeals    concern   the    classification   of micronutrients   for    the   purposes   of   Excise   duty. Micronutrients are  mixtures of  soluble salts  of  elements like calcium,  magnesium,  manganese,  zinc,  iron,  copper, boron and  molybdenum. They  are mixed in stated percentages to get  a formulated  product which  assists the  growth  of plants. The appellants manufacture micronutrients.      The facts being similar, we set out those of one of the two appeals.      During the  period October,  1989, to  November,  1989, samples of  micronutrients were  drawn  and  tested  by  the Deputy Chief  Chemist of  the union of India who opined that micronutrients were  not "plant growth regulators". However, on 6th  November, 1989,  the  Collector  of  Central  Excise issued to  the appellants(in Civil Appeal No 5404 of 1983) a notice to  show cause  why the  micronutrients made  by them should not  be classified as "plant growth regulators" under heading 38.08.90. The show-case notice related to the period 1st April,  1986, to  23rd September,  1989. The  appellants showed cause and led evidence at the personal hearing before the Collector on 6th December, 1989. On 11th December, 1989, an Addendum  was issued  to the  show-cause notice dated 6th November, 1989,  which required the appellants to show cause why their  micronutrients should  not  be  classified  under heading 38.23  as "  residual products of chemical or allied industries, not  elsewhere  specified’.  On  22nd  February, 1990, a  Corrigendum was  issued to  the  show-cause  notice aforementioned which  sought to  classify the micronutrients under heading  38.23 as  "chemical products and preparations of  the  chemical  or  allied  industries  (including  those consisting of  mixture of  natural products  ) not elsewhere specified ".  On 14th  April, 1990,  the  appellants  showed cause.      On 20th,  June, 1990,  a circular  (now  called  "  the

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earlier circular") was issued by the Central Board of Excise and Customs  (now called  "the Board  "), addressed  to  all collectors  of   Central  Excise,  on  the  subject  of  the classification of micronutrients for the purposes of Central Excise. The  circular stated that a doubt had been expressed regarding  the  classification  of  micronutrients,  namely, whether they  should be  classified under heading 31.05 as " fertilizers"  or   under  heading  38.08  as  "plant  growth regulators". The  matter had  been examined  in consultation with the  Deputy Chief  Chemist who  had opined that heading 31.05 covered  only those  compounds in  which  one  of  the elements was  nitrogen or  phosphorus  or  potassium.  Since micronutrients did not contain these, micronutrients did not merit classification as fertilizers under heading 31.05. The opinion of  the deputy chief chemist was that micronutrients contained other  elements which  made them  classifiable  as "plant growth  regulators". "In  view  of  the  above",  the earlier  circular   stated,    "it  is  clarified  that  the appropriate classification  of  the  product  ’plant  growth regulator’ would be under heading 38.08 of CET". The earlier circular required the collectors of  central Excise to bring the clarification  it contained  to the  notice of the lower field formations  and suitably  advice trade  interests. The earlier circular  also stated,  "All pending assessments may be finalized on the above basis".      On 23rd  July, 1990,  the collector  of Central  Excise wrote to the appellants a further letter in connection  with the show-cause  notice dated 6th November, 1989. It canceled the Addendum  dated 11th December, 1989, and the Corrigendum dated 22nd  February,1 990,  and reverted to the stand taken in  the   show-cause  notice   itself,  namely,   that   the micronutrients  were   classifiable  as   "   plant   growth regulators"  under   heading  30.08.   After   hearing   the appellants  appealed   to  the   Central  Excise   and  Gold (Control). Appellate  Tribunal which,  by  the  order  under appeal, upheld  the classification but limited the demand to the period  of six  months preceding  the date  of the show- cause notice.      Subsequent to the filing of the appeals in the Court, a circular (now called "the later circular") was issued by the Board which  is crucial to these appeals. The later circular is dated  21st November,  1994.  It  was  addressed  to  the Collectors  of   Central  Excise   on  the  subject  of  the classification of micronutrients for the purposes of Central Excise. The  later circular invited attention to the earlier circular and  "and the  instructions contained"  therein. It noted  that   the   earlier   circular   had   stated   that micronutrients were appropriately classifiable under heading 38.08  a  "  plant  growth  regulators".  The  Indian  Micro Fertilisers Manufacturer‘s  Association had represented that micronutrients should  be classified  under heading 31.05 as ‘other fertilizers‘and  had produced  certificates issued by various Agricultural  Universities as evidence in support of their claim  . The Board had carefully reexamined the entire issue in  consultation with  the Ministry of Agriculture and the  Chief   Chemist.  The   Ministry  of  Agricultural  had clarified that  micronutrients were recognized a fertilizers under the  Fertilizer Control Order, 1985. The Chief Chemist had opined  that in technology and trade micronutrients were classifiable along  with fertilizers.  In terms of Rule 4 of the Interpretative  Rules  if  the  Central  Excise  Tariff, micronutrients merited  classification as  fertilizers . The later circular added:      "4. Therefore, it is clarified that      micronutrients listed under Sr. No.

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    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      fertilizers."      5. The  above clarification  may be      brought to  the notice of the lower      field  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."      The appellants  have placed  the later  circular on the record, annexed  to an affidavit, and have relied upon it in argument  and   contented  that,   in  view  thereof,  their micronutrients  cannot   be  classified  except  as  therein stated. It  has also  been  pointed  out  that  for  periods subsequent to  those with  which we  are concerned  in these appeals, their  micronutrients have been classified in terms of the later circular.      To  the  affidavit  annexing  the  later  circular,  an affidavit in reply has been filed by M. K. Gupta, working as Director in  department of Revenue, Ministry of Finance, New Delhi. He  states that  Section 37B  of the Central Excise & Salt Act  empowers the  board to issue instructions in order to ensure  uniform practice of assessment of excisable goods throughout the country. Instructions thus issued by invoking Section 37B  get "statutory  status and  significance:.  Any instructions  issued   otherwise  by  the  board  through  a circular, but  without invoking Section 37B, are advisory in nature and  do not  possess statutory  significance. In this sense, the  earlier circular,  not having  been issued under Section 37B, had to be regarded as advice. The Section notes and Chapter in the Tariff Act were enacted provisions. Thus, Note 6  of Chapter 31 governed the issue.(It states that for the purposes of  heading 31.05 the term "other fertilizers " applies only to products of a kind used as fertilizers which contain as  an essential  constituent at  least one  of  the fertilizing elements,  nitrogen, phosphorous  or potassium.) Such products  as   did not contain these elements could not be brought  under statutory definition of fertilizers by the invocation of  the interpretative  rules.  The  earlier  and later circulars, not having been issued under the provisions of Section 37B, were merely advisory in nature and could not have any  statutory effect.  The  scope  of  Chapter  31  to include micronutrient   mixtures as fertilizers had to be by enactment and  not by  advisory circulars. In the absence of any amendment  by enactment  of Chapter  31, the  appellants could not  take shelter  under the  later  circular  in  the matter  of   the  classification  of  their  product,  which classification had  already been  judicially decided  by the Tribunal to  be under  heading 30.80.90.  The later circular could  not   be  given   retrospective   effect   once   the classification dispute  for the  relevant  period  had  been settled by the earlier circular.      Learned counsel  for the  appellants  relied  upon  the later circular and proceed further, but we intervened for we wanted to  hear learned  counsel for  the Revenue  upon  the earlier and later circulars.

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    Learned counsel  for the  Revenue  submitted  that  the later circular  "flies in the face" of note 6 of chapter 31. Micronutrients  did  not  contain  any  of  the  fertilizing elements, nitrogen,  phosphorous and potassium and, thereof, the later  circular had  no effect  on their classification. Both the  earlier and the later circulars were only advisory in nature because it was clear on the face thereof that they had not  been issued  by invocation  of  the  provisions  of Section 37B.  In any  event, and  assuming  that  the  later circular had  been issued  under the  provisions of  Section 37B, it  could only  have prospective  effect not  alter the decision of the tribunal in the present appeals.      We may  add that learned counsel for the Revenue stated that there  was no  provision in  the Excise  Act other than Section 37B by which the board could issue circulars such as the earlier  and later  circulars, but he submitted that the board had been issuing circulars even before Section 37B was introduced into the Excise Act. Section 37B reads thus :-      " S.37-B.-  Instructions to Central      Excise Officers.- The Central Board      of Excise  and Customs  constituted      under the Central Boards of Revenue      Act, 1963  (54 of  1963) may, if it      considers it necessary or expedient      so  to   do  for   the  purpose  of      uniformity in the classification of      excisable goods  or with respect to      levy of  duties of  excise on  such      goods,    issue     such    orders,      instructions and  directions to the      Central Excise  Officers as  it may      deem fit, and such officers and all      other  persons   employed  in   the      execution of this Act shall observe      and     follow     such     orders,      instructions and  directions of the      said Board:-  Provided that no such      orders, instructions  or directions      shall be issued-      (a) So  as to  require any  Central      Excise Officer to make a particular      assessment  or   to  dispose  of  a      particular  case  in  a  particular      manner; or      (b) So  as to  interfere  with  the      discretion  of   the  Collector  of      Central  Excise  (Appeals)  in  the      exercise    of     his    appellate      functions."      Section 37B contemplates the issuance by the Board of orders, instructions and directions to Central Excise officers. Such orders, instructions and directions are to be issued when the Board considers it necessary or expedient to do so to achieve uniformity in classification of excisable goods and the levy of excise duty thereon. Central Excise officers are obliged to observe and follow these orders, instructions and directions. The orders, instructions and directions may not relate to a particular assessment or case or interfere with the appellate functions of a Collector.      The  first   question,  now,  is  whether  the  earlier circulars are  orders, instructions or directions to Central Excise officers  within the meaning of Section 37B which the Central Excise  officers are  bound to  observe and  follow. Both circulars are addressed to all Principal Collectors  of Central  Excise  and  Customs,  all  Collectors  of  Central

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Excise, all  Collectors of  Customs and  all  Collectors  of Central Excise and Customs (Appeals). Both circulars require that their  contents "be  brought to the notice of the lower field  formations  and  the  trade  interests  may  also  be suitably advised".  Both  circulars  require,  "All  pending assessments may  be finalized on the above basis". The later circular refers  to the  contents of the earlier circular as "instructions". Both  circulars  have  been  issued  in  the context of  doubts having  arisen and representations having been received  by the Board. Both circulars have been issued by the Board in consultation with the Chief and Deputy Chief Chemist and, in the later case, the Ministry of Agriculture.      There  can   be  no   doubt   whatsoever,   in      the circumstances, that  the earlier  and later  circulars  were issued by  the Board under provisions of Section 37B and the fact that  they do  not so recite does not mean that they do not bind  Central Excise  officers  or  become  advisory  in character. There  can be no doubt whatsoever that after 21st November,  1994,   Excise  duty   could   be   levied   upon micronutrients only under the provisions of heading 31.05 as "other fertilizers".  If the  later circular  is contrary to the terms  of the  statute, it  must be withdrawn. While the later circular  remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid.      We reject  the  submission  to  the  contrary  made  by learned counsel  for the  Revenue and in the affidavit by M. K. Gupta,  working as Director in the Department of Revenue, Ministry of Finance. One should have thought that an officer of the  Ministry of  Finance would  have greater respect for circulars such  as these  issued by  the Board,  which  also operates under  the aegis of the Ministry of Finance, for it is the  Board which  is, by statute, entrusted with the task of  classifying   excisable  goods   uniformly.  The   whole objective of  such circulars  is to adopt a uniform practice and to  inform the trade as to how a particular product will be treated  for the purposes of Excise duty. It does not lie in the  mouth of  the Revenue to repudiate a circular issued by the  Board on  the basis  that it  is inconsistent with a statutory provision.  Consistency and discipline are of  far greater importance  than the  winning  or  losing  of  court proceedings.      The  argument   that  the   later  circular   has  only prospective operation  and it  cannot apply to these appeals because the  Tribunal had  already decided them must also be rejected. It is not contrary to a binding circular issued by the Board. It cannot but urge the point of view made binding by the later circular.      The appeals  are allowed. The judgment and order of the Tribunal under  appeal  is  set  aside.  The  micronutrients manufactured by  the  appellants  being  exempt  from    the payment of  excise  duty,    no  order  in  this  regard  is required.      The deposits  made by  the appellants,  pursuant to the interim orders  of the Tribunal and continued by the interim orders of this Court, may now be withdrawn by them. The bank guarantees given  by the appellants, pursuant to the interim orders of  the Tribunal  and continued by the interim orders of this Court, shall now stand discharged.      The Revenue shall pay to the appellants the sum of Rs. 25,000/- (Rupees twenty five thousand) as the aggregate costs of these appeals.