2008 (5) TMI 14 - SC - Central Excise

Classification of micronutrient compounds for the purpose of excise duty - According to the Department, micronutrient is a Plant Growth Regulator ( PGR for short), therefore, it falls under CSH 3808.20 of the Central Excise Tariff as a chemical product whereas according to the assessee it falls under CSH 3105.00 (other fertilizers) - Since the matter is controversial, the extended period of limitation is not invokable - matter remanded to examine the method of manufacture.

Issues Involved:
1. Classification of "micronutrient" compounds for excise duty purposes.
2. Determination of whether the impugned product is a Plant Growth Regulator (PGR) or a fertilizer.
3. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944.

Detailed Analysis:

1. Classification of "Micronutrient" Compounds for Excise Duty Purposes:
The primary issue revolves around the classification of "micronutrient" compounds. The Department argued that micronutrient is a 'Plant Growth Regulator' (PGR) and falls under CSH 3808.20 of the Central Excise Tariff as a chemical product. Conversely, the assessee contended that it falls under CSH 3105.00 (other fertilizers). The Tribunal accepted the assessee's contention, leading to the Department's appeal.

The Ministry of Agriculture had granted registration to the assessee's products as "fertilizer" under Section 2(h) of the Fertiliser (Control) Order. The Department issued show cause notices alleging misdeclaration by the assessee, stating that the products did not contain nitrogen, phosphorus, or potassium (N, P, or K) as essential constituents, thus classifying them under CSH 3808.20.

2. Determination of Whether the Impugned Product is a PGR or a Fertilizer:
The Adjudicating Authority initially classified the impugned products as PGRs under CSH 3808.20, relying on the Chemical Examiner's report and the labels on the products, which indicated their use for improving yield quality and quantity. The Authority argued that the nitrogen content of 0.31% was insufficient to classify the products as fertilizers under CSH 3105.00 and that the nitrogen was used only as a chelating agent.

The Tribunal overruled this decision, stating that PGRs are chemical compounds and that the impugned products were mixtures of various inorganic substances, not chemically defined compounds. The Tribunal cited three CBEC circulars, emphasizing that even a trace of nitrogen could classify micronutrients as "other fertilizers" under CSH 3105.00.

The Supreme Court noted that while micronutrients might function as fertilizers in a generic sense, they are excluded from CH 31.05 (fertilizers) by Chapter Note 6, which requires N, P, or K as essential constituents. The Court examined several scientific references, concluding that micronutrients do not typically include N, P, or K and are required in trace amounts.

The Court emphasized the need to ascertain the method of manufacture of "multi micronutrient" products, as this impacts their classification. The Department's allegation that N, P, or K are not essential constituents of micronutrients was accepted, but the Court remitted the matter to the Adjudicating Authority to determine whether the 0.31% nitrogen content in the impugned products qualifies them as fertilizers under CSH 3105.00.

3. Invocation of the Extended Period of Limitation:
The Court agreed with the Tribunal that the extended period of limitation was not invokable by the Department. The controversy regarding the classification of "micronutrient fertilizers" remained unsettled, and there was a conflict of views between the Ministry of Finance and the Ministry of Agriculture. The Court cited the need for a positive act of suppression to invoke the larger period of limitation under Section 11A of the Central Excise Act, 1944, which was not present in this case.

Conclusion:
The Supreme Court set aside the Tribunal's judgment on the point of classification and remitted the matter to the Adjudicating Authority for de novo determination. However, the Court upheld the Tribunal's decision regarding the non-invocation of the extended period of limitation and the imposition of penalties. The civil appeals were partly allowed with no order as to costs.

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