2007 (2) TMI 95 - AT - Central Excise

Department raised two issue (i) As per department micronutrient Fertilizer classified under CH 38.08 (ii) Re-packing of multiplex Samras into retail quantities from tankers amount to manufacture - Held that (i) the said good classified under CH 31.05 (ii) Not amounts to manufacture

Issues Involved:

1. Classification of Micronutrient Fertilizers.
2. Presence and role of Nitrogen in Micronutrient Fertilizers.
3. Application of the Fertilizer (Control) Order, 1985.
4. Interpretation of Chapter Notes and Explanatory Notes.
5. Re-packing and re-labeling as a process of manufacture.
6. Time-barred demands and limitation period.
7. Penalties under Section 11AC and Rule 25.

Detailed Analysis:

1. Classification of Micronutrient Fertilizers:
The primary issue is whether the Micronutrient Fertilizers should be classified under Chapter 31.05 as "Other Fertilizers" or under Chapter 38.08 as "Plant Growth Regulators." The Revenue classified the goods as "Plant Growth Regulators," while the assessees contended they fall under "Other Fertilizers." The Tribunal concluded that the impugned products, being mixtures and not chemically defined compounds, should be classified under Chapter 31.05 as "Other Fertilizers."

2. Presence and Role of Nitrogen in Micronutrient Fertilizers:
The Tribunal examined whether the Nitrogen present in the Micronutrient Fertilizers acts as a fertilizing element. Despite the Chemical Examiner's initial opinion that Nitrogen was present as a chelating agent, further expert opinion confirmed that Nitrogen, regardless of its source, functions as a fertilizing element. Thus, the Tribunal held that the presence of Nitrogen, even in small quantities, qualifies the products as "Other Fertilizers."

3. Application of the Fertilizer (Control) Order, 1985:
The Tribunal noted that the Micronutrient Fertilizers were recognized as fertilizers under the Fertilizer (Control) Order, 1985, and licensed by the State Government. The Ministry of Agriculture's classification of the products as fertilizers was deemed significant, and it was held that the Central Excise Authorities should not contradict this classification.

4. Interpretation of Chapter Notes and Explanatory Notes:
The Tribunal referred to Chapter Note 1(a) of Chapter 38, which states that "Plant Growth Regulators" should be chemically defined compounds. Since the impugned products were mixtures of various inorganic substances, they did not meet this criterion. The Tribunal also referenced various authoritative sources and case laws to support this interpretation.

5. Re-packing and Re-labeling as a Process of Manufacture:
The Tribunal addressed the issue of whether re-packing and re-labeling activities amounted to manufacture under Chapter Note 2 to Chapter 38. It was held that re-packing from tankers to retail packs does not constitute manufacture. Consequently, the demand related to re-packing of Multiplex Samras and other products was not sustainable.

6. Time-barred Demands and Limitation Period:
The Tribunal found that the Show Cause Notice issued to Karnataka Agro Chemicals was time-barred as it covered a period beyond the normal limitation period. The Tribunal noted that the department had previously decided the issue in favor of the appellant and that the CBEC had not been clear on the issue, thereby ruling out the invocation of a longer period for demand.

7. Penalties under Section 11AC and Rule 25:
Given the Tribunal's findings on classification and the non-sustainability of the demands, the penalties imposed under Section 11AC on the appellant company and under Rule 25 were deemed unjustified and were set aside. Penalties on the managing partner and another individual were also not sustainable and were accordingly set aside.

Conclusion:
The Tribunal allowed the appeals, ruling in favor of the assessees on the classification of Micronutrient Fertilizers under Chapter 31.05, rejecting the Revenue's classification under Chapter 38.08. The demands and penalties were set aside, and the appeals were allowed with consequential relief. The Tribunal also directed that the original authority verify the exclusion of values for computing exemption limits and extend benefits of Modvat and cum-duty price where applicable.

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