2022 (9) TMI 738 - AT - Central Excise

Classification of foods - micronutrients - classifiable under Chapter subheading No.38089340 of the Central Excise Tariff Act, 1985 or not - demand of duty alongwith interest and penalty - extended period of limitation - HELD THAT - Clearly, macronutrients, micronutrients and plant growth regulators are three distinct known to agricultural experts, as known in the market and as clarified by the CBEC. The show cause notice proposed to classify the micronutrients manufactured by the appellant as plant growth regulators. Learned Authorized Representative for the Revenue also admits that such classification is not sustainable. Therefore, the impugned order upholding such classification and demanding differential duty cannot be sustained and needs to be set aside. One of the basic principles of natural justice is that no man shall be condemned unheard . If the proposal is to classify the goods under a different tariff heading than one proposed in the show cause notice, a show cause notice must be issued and adequate opportunity should be provided to the appellant to explain why such classification should not be adopted. The argument of the learned Authorized Representative is that although they were present in these formulations they were not essential. There are no basis to hold as to which of these elements in the products are essential and which are not. It is his submissions that they were only chelating agents. Nothing is found in the Chapter note 6 to Chapter 31 which says that Nitrogen, Phosphorous Potassium cannot be part of chelating agents or the chelating agents are not essential ingredients. There are no reason to go merely by the assertion of the learned Authorized Representative in this regard. Since one of these elements is available, the classification of the goods under Chapter heading 3105 is clearly sustainable. The alternative classification as plant growth regulators is not sustainable. Extended period of limitation - penalty - HELD THAT - There are considerable force in the argument of the learned counsel for the appellant that the dispute is regarding classification viz., opinion of the assessee versus the opinion of the Revenue and it is not a case of fraud or collusion or wilful misstatement etc. No ground, whatsoever, exists for invoking extended period of limitation. Similarly, there is no ground, whatsoever, to impose any penalty. There are favour of the assessee both on merits and on limitation - appeal allowed.

Summary

Issues Involved:
1. Classification of micronutrients.
2. Demand for differential duty.
3. Imposition of interest.
4. Imposition of penalty.
5. Invocation of extended period of limitation.
6. Correct classification of goods under Central Excise Tariff Act.

Issue-wise Detailed Analysis:

1. Classification of Micronutrients:
The appellant, M/s KPR Fertilizers Ltd, manufactures micronutrients and classified them under Chapter heading 3105 of the Central Excise Tariff Act, 1985. The Revenue proposed to classify these micronutrients as plant growth regulators under Chapter heading 38089304, which was confirmed in the impugned order. The appellant argued that micronutrients and plant growth regulators are distinct chemicals used in agriculture, with micronutrients providing nutrition and plant growth regulators regulating growth. The CBEC Circular dated 06.04.2016, after consulting the Indian Council of Agriculture and Research, distinguished micronutrients from plant growth regulators, listing elements like Iron, Manganese, Zinc, Copper, Molybdenum, Boron, Nickel, and Chlorine as micronutrients. The Tribunal found that the classification of micronutrients as plant growth regulators was not sustainable.

2. Demand for Differential Duty:
The impugned order confirmed a demand for differential duty of Rs.1,23,49,088/- under Section 11A of the Central Excise Act, 1944, for the period from April 2007 to January 2011. The Tribunal set aside this demand, finding that the classification of the goods as plant growth regulators was not sustainable.

3. Imposition of Interest:
Interest on the differential duty was demanded under Section 11AB of the Central Excise Act, 1944. Since the Tribunal set aside the demand for differential duty, the demand for interest was also set aside.

4. Imposition of Penalty:
A penalty of Rs.1,23,49,088/- was imposed under Section 11AC of the Central Excise Act, 1944. The Tribunal found no grounds for imposing a penalty as the dispute was merely a matter of classification and not a case of fraud, collusion, or willful misstatement.

5. Invocation of Extended Period of Limitation:
The appellant contested the invocation of the extended period of limitation. The Tribunal agreed, stating that the dispute was regarding classification and not due to any fraud or willful misstatement. Thus, there were no grounds to invoke the extended period of limitation.

6. Correct Classification of Goods under Central Excise Tariff Act:
The Revenue argued that the goods should be classified under CETH 3824 as chemical products not elsewhere specified or included, even though this was not proposed in the show cause notice. The Tribunal held that the classification must be based on the show cause notice and the appellant must be given an opportunity to respond to any new classification proposal. The Tribunal also found that the goods contained Nitrogen, Phosphorous, or Potassium, essential constituents for classification under Chapter heading 3105. The Tribunal rejected the assertion that these elements were not essential and found no basis to classify the goods under a different heading.

Conclusion:
The Tribunal set aside the impugned order, finding in favor of the appellant on both merits and limitation. The appeal was allowed with consequential relief to the assessee.