2002 (10) TMI 95 - SC - Central Excise

Whether TGP, insecticides etc., are classifiable under Tariff Heading 38.08 and not under Chapter 28 and 29? Held that - The HS of Commodity classification which was developed by the World Customs Organisation, Brussels was adopted by India also in the ITC (HS) Classification of Export and Import items, 2002-2007 which was issued by the Government under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with paragraph 2.1 of the Export and Import Policy, 2002-2007. The ITC (HS) like the Schedule to the 1985 Act, also contains several chapters which correspond exactly with the Schedule to the 1985 Act at least as far as the relevant parts of Chapter 38 are concerned. Chapter Note 1(a)(2) and the Heading 38.08 of the ITC (HS) are identical with the Schedule to the 1985 Act. In the ITC (HS), under the several sub-headings to Heading 38.08, the different forms of insecticides, pesticides etc. have been provided for from which it is clear that insecticides etc. in their concentrated bulk forms are covered by the Heading 38.08 at least for the purposes of the Import/Export Policy. For example, sub-heading 3808.10.11 mentions Aldrin as a form of insecticide. Against that sub-heading, it is provided that it is freely importable/exportable if registered and not prohibited for import under Insecticides Act, 1968 and formulations thereof . Similarly, 3808.90.10 provides for pesticides, not elsewhere specified . It is treated as a free item under the policy if registered and not prohibited for import under the insecticides Act, 1968 and formulations thereof. Undeniably insecticides, pesticides etc. in whatever form are covered by the Insecticides Act. The description demonstrates that bulk concentrates and formulations are covered by the sub-heading Aldrin . The use of the same words in the Tariff Heading in the Schedule to the 1985 Act as has been used for the purposes of the Import Trade Control Policy is an additional reason for holding that insecticides, pesticides concentrates in bulk forms are includible within the Tariff Heading. For all these reasons, we are unable to accept the appellants submission that the amendments to Chapter 38 in 1996 and 1997 served to exclude TGP or insecticides etc. in bulk forms from Chapter 38. Against assessee.

Issues Involved:
1. Classification of Technical Grade Pesticides (TGP) and insecticides under the Central Excise Tariff Act, 1985.
2. Impact of amendments in 1996 and 1997 on the classification.
3. Validity of the CBEC Circular dated 28th October 1997.
4. Interpretation of Chapter Notes and Tariff Headings.
5. Applicability of the Harmonized System of Nomenclature (HSN).

Detailed Analysis:

1. Classification of Technical Grade Pesticides (TGP) and Insecticides under the Central Excise Tariff Act, 1985:
The primary issue was whether TGP and insecticides should be classified under Chapters 28 and 29 or under Heading 38.08 of the Central Excise Tariff Act, 1985. The respondent, an association of manufacturers, argued that TGP and insecticides should be classified under Heading 38.08, while the appellants contended that post-1996 amendments, these products should be classified under Chapters 28 or 29.

2. Impact of Amendments in 1996 and 1997 on the Classification:
The appellants argued that the 1996 amendments to Heading 38.08 excluded TGP and insecticides in bulk form from this heading, placing them under Chapters 28 or 29. They also pointed to the 1997 amendment which added a phrase to Chapter Note 1(a)(2) of Chapter 38. However, the court found that the amendments did not change the classification of TGP and insecticides in bulk form. The 1996 amendment to Chapter Note 2 of Chapter 38 indicated that TGP was covered by Chapter 38, and the 1997 amendment did not alter this position.

3. Validity of the CBEC Circular dated 28th October 1997:
The CBEC Circular directed the classification of TGP and insecticides under Chapters 28 and 29. The Delhi High Court had struck down this circular, and the Supreme Court upheld this decision. The court noted that the circular was contrary to the statutory provisions and previous judicial decisions, including the decision in Markfed Agro Chemicals, which held that processing concentrated pesticidal chemicals did not amount to the manufacture of a new excisable product.

4. Interpretation of Chapter Notes and Tariff Headings:
The court emphasized the importance of Chapter Notes in determining classification. Chapter Note 2 of Chapter 38, introduced in 1996, stated that the addition of chemicals to pesticidal chemicals in concentrated form amounted to manufacture, indicating that TGP was covered under Chapter 38. The court also referred to the Rules for the interpretation of the Schedule, which direct that goods should be classified under the most specific heading, and if there are two specific headings, the one occurring later should be preferred. Thus, TGP and insecticides were classifiable under Heading 38.08.

5. Applicability of the Harmonized System of Nomenclature (HSN):
The court noted that the HSN provided for an identical classification of insecticides under Heading 38.08. The explanatory note to the HSN clarified that intermediate preparations with pesticidal properties were also classified under this heading. The court found that the amendments to Chapter 38 in 1996 and 1997 were intended to align the classification with the HSN, further supporting the classification of TGP and insecticides under Heading 38.08.

Conclusion:
The Supreme Court dismissed the appeal, affirming the Delhi High Court's decision to strike down the CBEC Circular and uphold the classification of TGP and insecticides under Heading 38.08. The court found that the 1996 and 1997 amendments did not exclude these products from Chapter 38 and that the classification was consistent with the HSN and the Rules for interpretation of the Schedule. The appeal was dismissed without any order as to costs.

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