2018 (9) TMI 311 - HC - Central Excise

Classification of goods - 36 products of fertilizers marketed as Plant Growth Promoters - claim of the petitioners is that all 36 products manufactured and marketed by them contain at least one of the fertilising elements of Nitrogen, Phosphorus or Potassium as an essential constituent and the products are known as PGP - validity of Circular No.1022/10/2016 CX, dated 6 /4 /2016 - scope of Jurisdiction. Whether the circular No.1022/10/2016 CX, dated 6 /4 /2016 issued by the Central Board of Excise and Customs travels beyond the scope of the jurisdiction under Section 37 B of the Central Excise Act, 1944 and is violative of Note 6 in Chapter Heading 3105 defining the term other fertilizers? Whether the Appellate Authority is bound by the circular dated 6/ 4 /2016 having no jurisdiction to set it aside even if it is found running beyond the scope of power under Section 37 B of the Central Excise Act, 1944 and violative of Note 6 under Chapter Heading 3105 in the Central Excise and Tariff Act, 1985? Held that - The said circular extensively provides guidelines to classify the products covered by various headings in Chapters 28, 29, 31 and 38. Not only that, but the circular interprets, clarify and declare what is meant by the term other fertilizers in Note 6 of Chapter 31, which applies only to the products of a kind used as fertilizers and containing, as an essential constituent, at least one of the fertilizing elements Nitrogen or Phosphorus or Potassium. It holds that in the trade parlance, the sale of micronutrients as micronutrient fertilizers would not lead to classification thereof under Chapter 31 as fertilizers for the purposes of the Central Excise Tariff. It clarifies that for any product to merit classification under CETH 3105 as other fertilizers , the product must have Nitrogen or Phosphorus or Potassium or their combination as an essential constituent providing essential character to the product. Thus, the circular explains the term essential constituent to mean essential character, which is broader in nature than the earlier. Whether the circular can be issued to provide an extended meaning to the term essential constituent employed in Note 6 in Chapter 31? - Held that - The answer would be clearly in the negative. The interpretation of the terms of the Statutes cannot be guided by the circulars, which merely represents the understanding of the statutory provisions by the Department. It is for the Court to declare what the particular provision of the Statute says and it is not for the Executive - the said circular cannot be sustained and has to be set aside on the ground that it travels beyond the scope of the authority under Section 37 B of the said Act and violates the restraint or prohibition statutorily imposed under the proviso therein. Whether the Appellate Authority is bound by the circular having no jurisdiction to set it aside? - Held that - The issuance of circular under Section 37 B of the said Act is the statutory exercise of the power which binds not only the Departmental Authorities but also the quasi judicial authorities functioning under the Act to adjudicate the disputes based upon such circular. The competency to issue such circular or the question of such circular being ultra vires the power conferred, cannot be gone into by the Tribunals constituted under the Act, even if it finds that it interfers with exercise of its discretion. It is not the question of applicability of circular which is involved in this case, but it is the question of interference with the exercise of discretion by the quasi judicial authority which is involved. The only remedy available is to challenge such circular by filing the writ petition by invoking the jurisdiction under Article 226 of the Constitution of India. The Circular No.1022/10/2016 CX, dated 6/ 4 /2016 issued by the Central Board of Excise and Customs in exercise of its power under Section 37 B of the Central Excise Act, 1944, is hereby quashed and set aside, being ultra vires - The parties are relegated back to the appellate jurisdiction where the appeal is pending for decision of the remaining questions in accordance with law - petition allowed.

Summary

Issues Involved:
1. Validity of Circular No.1022/10/2016-CX dated 6-4-2016 issued by the Central Board of Excise and Customs (CBEC) under Section 37-B of the Central Excise Act, 1944.
2. Whether the Appellate Authority is bound by the circular and lacks jurisdiction to set it aside.

Issue-wise Detailed Analysis:

1. Validity of Circular No.1022/10/2016-CX:

The petition challenged the order dated 8-3-2018 by the Commissioner, CGST & CX, Nagpur, classifying 36 products of fertilizers marketed as 'Plant Growth Promoters' (PGP) as excisable goods under different tariff items, attracting excise duty at rates between 12.36% to 12.50%. The petitioners argued that these products, containing Nitrogen, Phosphorus, or Potassium, should be classified as 'other fertilizers' under Chapter Heading 3105, attracting a duty of 1%.

The key contention was whether the circular dated 6-4-2016 issued by CBEC, which provided guidelines for classifying micronutrients and fertilizers, extended beyond the scope of Section 37-B of the Central Excise Act, 1944. The circular interpreted 'essential constituent' in Note 6 under Chapter Heading 3105 to mean 'essential character,' which the petitioners argued was not permissible. The court agreed, stating that the interpretation of statutory terms is the function of the judiciary, not the executive. The circular was deemed to interfere with the discretion of quasi-judicial authorities and was thus ultra vires and set aside.

2. Binding Nature of the Circular on the Appellate Authority:

The court examined whether the Appellate Authority is bound by the circular and lacks jurisdiction to set it aside. It referred to several precedents, including the Punjab & Haryana High Court's decision in Vardhman Polytex Limited v. Union of India and the Madras High Court's decision in Madura Coats Ltd. v. C.B.E. & C., which held that circulars issued under Section 37-B cannot override the quasi-judicial powers of authorities under the Excise Act. The court concluded that the issuance of such circulars binds departmental authorities but cannot foreclose the discretion of quasi-judicial authorities. The competency to issue such circulars or their ultra vires nature cannot be adjudicated by tribunals under the Act; such matters must be challenged via writ petitions under Article 226 of the Constitution of India.

Judgment:

The court allowed the petition, quashing Circular No.1022/10/2016-CX dated 6-4-2016 for being ultra vires. The parties were directed back to the appellate jurisdiction for the decision of remaining questions in accordance with the law. The challenge on merits of the show cause notice was left open to be decided by the Appellate Authority. The rule was made absolute with no order as to costs.