Customs, Excise and Gold Tribunal - Delhi
Fertilisers And Chemicals, Travancore ... vs Collector Of Central Excise on 8 December, 1986
Equivalent citations: 1987(12)ECR593(TRI.-DELHI), 1987(29)ELT111(TRI-DEL)
ORDER I.J. Rao, Member (T)
1. We heard this matter as desired by the High Court of Kerala in their order dated 20th March, 1986, in O.P. No. 5728/1981-N. By this order, the High Court quashed the orders of the revisional authority, namely, the Government of India, and remitted the matter to the CEGAT, further observing that the matter deserved disposal as expeditiously as possible.
2. The appellants (The Fertilizers and Chemicals, Travancore Limited, Kerala, as also known and hereinafter referred to, as FACT) have a factory where, among others, Ammonium Chloride, Ammonium Phosphate, Superphosphate and Ammonium Sulphate are manufactured. One of the processes employed by the appellants for the production of these items - which are fertilizers - is called 'Naphtha Gasification by partial oxidation'. The Naptha required for this purpose is procured from petroleum distributing companies. Under Notification No. 187/61-CE, the appellants obntained concessional rate of duty by following the procedure set out in Chapter X of the Central Excise Rules, as the Naphtha obtained by them was intended for manufacture of fertilisers.
3. The Superintendent of Central Excise, Alwaye, in whose jurisdiction the appellants' factory is situated, issued demands for considerable amounts said to be the duty due in respect of Naphtha procured at concessional rate of duty as per the notification but utilised for purposes other than those intended by the said notification. This demand was based on the ground that quantities of Naphtha had t6 be considered as having been utilised in the manufacture of non-fertiliser products and, therefore, not eligible for the concessional rate of duty as per the notification, in which case, the appellants represented to the Assistant Collector who confirmed the demand. Ultimately, the matter went up in appeal before the Appellate Collector of Central Excise, Madras. By his orders-in-appeals Nos. 1373/72, 2029/72, 2913/72, 834/73 and 850/73, ail dated 9.11.73, the Appellate Collector held that the Ammonia and Ammonium Chloride, removed by the appellants for sale to non-fertiliser consumers, were not fertilisers covered by Tariff Item No. 14HH - GET. He, therefore, confirmed the demands for duty. While doing so, the Appellate Collector observed as follows :-
"It has been admitted that out of the raw-naphtha obtained at a concessional rate, the appellants had produced Ammonia and Ammonium Chloride and sold for use to the Cordite Factory, in Cold Storage Plants in the case of Ammonia and in the manufacture of Batteries and in Cold storage in the case of Ammonium Chloride. But the argument advanced is that Ammonia and Ammonium Chloride are in fact fertilisers. For maintaining the claim as mentioned in the foregoing paragraphs various publications and reports have been cited. It is not disputed that Ammonia and Ammonium Chloride by themselves are among the chemical fertilisers, but the real question for consideration in the context of the demands for duty and the appeals filed is whether the Ammonium Chloride and Ammonia sent out from the appellants' factory were in fact fertilisers, or they were non-fertiliser products as maintained in the concerned lower proceedings. Ammonia is generally capable of being used as fertilisers, both in the anhydrous and aqueous forms. However, for purpose of levy of Central Excise duty, Ammonia is clearly and distinctly a separate commodity falling under tariff item No. 14H and cannot therefore be considered as fertilisers; more so when the ammonia actually cleared from the appellants' factory was not marked and sold or known to the trade as fertiliser, but the product manufactured, cleared and marketted by the appellants' firm was not of the fertiliser grade. In fact the appellants had themselves claimed earlier before the jurisdictional authorities that they were producing superior technical grade of Ammonium Chloride for sale as a chemical and, therefore, the Ammonium Chloride produced by them fell outside the purview of Central Excise tariff item 14HH. When the test of marketability as fertiliser and popular use is taken into consideration, the Ammonium Chloride which has been marketted and utilised as a chemical does not fall within the scope of the Central Excise Tariff item No. 14HH viz. Fertilisers."
Dealing with the ground that some demands were time-barred, the Appellate Collector order as follows :-
"It has been contended before me that two demands, one for a sum of Rs. 8,65,412.05 and the other for Rs. 1,00,62,835.42, are barred by limitation. From the records, it is seen that the first demand was issued on 20.3.69 and the second on 13.3.72. The appellants' contention that the entire amount covered by these two demands is barred by limitation is not entirely correct. If, however, any part of these two demands had been made after expiry of the period of limitation, I hereby direct that the two demands may be modified to exclude that part of the demand as is hit by time bar."
4. Subject to these modifications, the Appellate Collector confirmed all the demands. Thereafter, the appellants filed a revision application to the Government of India. These revision applications were rejected. We reproduce the entire order of the Government in this regard.
"The Government of India has considered the points raised in the five Revision Applications and those urged at the time of personal hearing on 24.7.1975 at Madras and observes that the expression 'intended for use' in the relevant notification means 'designed for use' or 'for the purpose of use'. Thus, if raw naphtha is not used in the manufacture of fertilisers it is not liable for lower rate of duty under notification No. 187/61, dated 23.10.61. Fertilizers are also such goods as make a soil productive or fertilise. Goods which are not used for such purpose but only as chemicals cannot be considered as fertilizers in terms of notification. There was no separate storage of ammonia manufactured from raw naphtha and from electrolysis process. Even assuming that ammonia and ammonium chloride are used as fertilisers in these cases, they have not actually been as such. Besides, ammonium chloride manufactured by the petitioners was of superior, 'technical' grade and not of 'fertilisers' grade, as confirmed in the petitioners' letter dated 17.9.1968. It is also not established that the petitioners manufactured anhydrous ammonia, to which the Fertiliser (Control) Amendment Order 1975, referred to by the petitioners at the time of personal hearing, relates.
As for the time bar issue, duty is payable on the goods under Rule 196 to which no time limit applies.
In this consideration, the five Revision Applications are rejected."
5. It is this order that was quashed by the Kerala High Court who remanded the matter to this Tribunal.
6. We heard Shri J.B. Koshy, Advocate, for the appellants. Shri Koshy made the following submissions :-
(i) Only a small fraction of Ammonia was sold to others for non-fertiliser use. Ammonia being a fertiliser, the Naphtha used in the manufacture of the same is entitled to the concession of the notification.
(ii) Insofar as Ammonium Chloride, manufactured by the appellants, is concerned, it is admitted that part of it was sold to battery manufacturers but duty could not be demanded on the same in view of Notification No. 164/69-CE. Further, the Department artificially created two classes of Ammonium Chloride whereas in the Tariff itself there are no such grades. The Department uses the words and quotations, 'Technical grade' and -'Fertiliser Grade' artificially and without warrant. Ammonium Chloride being a fertiliser, the Naphtha used therein is exempt from duty under the notification.
The learned Advocate submitted that, according to the Fertiliser (Control) Order, Ammonium Chloride is a fertioliser and, for purposes of excise duty, the end use is not relevant. The learned Advocate drew our attention to Item 14HH (Fertilisers) and submitted that under sub item (ii)d, Ammonium Chloride, if intended to be used in dry cell batteries, was liable to nil rate of duty.
In support of his argument, the learned Counsel relied on an order of the CEGAT in Collector of Central Excise, Cochin v. FACT, reported in '1986(24) ELT 388', and another order of the Tribunal in FACT v. Collector of Central Excise, reported in '1984 ECR 716'. The learned Advocate submitted that the ISI referred to 'Technical' grade and 'Fertiliser' grade of Ammonium Chloride but the ISI standards are only for quality control and should not be utilised for purpose of classification, when the Tariff itself did not make any difference at any grades of ISI.
(iii) The learned Advocate argued that demands against the appellants could be raised only under Rule 10 of the C.E. Rules. He submitted that in view of the time-bar laid down by this rule, read with Rule 173-J, CER, the demands in Appeals Nos. 23(1967-68) and 24(1.4.68 - 31.12.71) are partly and substantially time-barred.
7. The learned JDR - Smt. J.K. Chander - opposing the arguments, submitted that the Department has not finally accepted that Ammonium Chloride used in batteries can be considered as a fertiliser for purposes of Notification No. 187/61-CE. She reiterated the Revenue's arguments, advanced in the two cases cited by the learned Advocate in support of his arguments. Further, arguing that Ammonia of Technical grade is not a fertiliser, the learned JDR cited two orders in support of the arguments. (Order No. 112/83-C - Gujarat State Fertilisers, Barods, v. Colllector of Central Excise, Baroda; and Order No. 420/86-C - M/s. Rashtriya Chemicals and Fertilisers Ltd. v. Collector of Central Excise, Bombay.) She further submitted that the Naphtha used in the manufacture of Ammonia, which was sold directly and not used in fertiliser production, should bear duty. The learned JDR argued that the demands were not under Rule 10 but were under Rule 196, CER under which there was no time bar. In support of her arguments, she cited the following cases :-
(1) 1984 (16) ELT 294 (Bajaj Tempo Ltd. Pune Vs CCE Pune) (2) 1985 (22) ELT 297 (CEE v. Amber Paints, Bombay) (3) 1983 ELT 1596 (SC) (Geep Flashlight Ind. Ltd. Vs Union of India and Ors.)
8. We have carefully considered the arguments of both the sides.
9. We have also perused the documents placed before us.
10. In so far as the question of limitation is concerned, we have referred to the orders of the Appellate Collector (para 3 supra). The Appellate Collector's order does not indicate any rule under which period of limitation should be calculated but it appears that he applied Rule 10 read with Rule 173J of Central Excise Rules, because it is only under this provision that he could have limited the demands. To us, it appears that the correct provision applicable to the demands would have been Rule 196 which provides for demand by the proper officer for immediate payment of duty in respect of goods not duly accounted for and obtained at concessional rate of duty .under Rule 192 of Central Excise Rules. In spite of this, we cannot overlook the position that the Appellate Collector granted to the appellants benefit of limitation. There was no proposal at the instance of the Revenue to review or revise this order nor was the order reviewed or revised at the instance of the Revenue. Before us, the Revenue has not filed any crosas objection challenging this finding as to limitation in favour of the appellants given by the Appellate Collector of Central Excise. The order passed by the Government of India in revision application at the instance of the appellants has already been quashed by the Kerala High Court. Thus, the finding as to limitation given in favour of the appellants by the Appellate Collector of Central Excise has attained finality. Even though we might agree with Smt. Chander's contention that correct provision invokable was Rule 196 under which there is no limitation for such demands, on that ground aline, in absence of any proposal to revise it or a cross objection by the Revenue, we cannot set aside this finding in favour of the appellants.
11. One plea of the appellants is that duty should not be charged on ammonia chloride sold to battery manufacturers. They submitted that department created two articial classes in ammonia chlkoride, namely, technical grade and fertiliser grade. The appellants drew our attention to item 14-HH of Customs Excise Tariff wherein item 2(d) (Notification No. 164/69) is as follows :-
"(d) Ammonia chloride (A) if intended to be used in the manufacture of (i) Dry cell batteries, (ii) Yeast Food, (iii) Ice (B) if intended to be used as (i) Tinning flux, (ii) Soldering and galvanising materials, (iii) Tanner's bate, (iv) Fire proofing agents, (v) Alkaline cleaner, (vi) Casting sealer, and (vii) Water purifying agents."
12. We note that, according to this item, aluminium chloride, if intended to be used in the manufacture of dry cell batteries, would bear duty of 'Nil1 per cent. The Tariff does not make any differentiation between Technical Grade and Fertilizer Grade of ammonium chloride. The learned JDR submitted that Central Government did not accept this position finally, but this ground does not hold. She citred two Show Cause notices in review issued by the Government of India seeking to review two orders of Appellate Collector of Madras. These orders are dated 26.5.1982 and 6.10.1982. The two do not relate to the present proceedings. The learned JDR did not show why we should ignore the wording of Tariff and follow the contents of the review notices cited before us. In this context, we referred to para 6 of the earlier order of the Tribunal in respect of the same appellants, contained in Orders Nos. 124 and 125/86-C dated 27.2.1986. This is reproduced for ready reference :-
"6. We have carefully considered the facts of the case and the submissions made by both sides. We find that Notification No. 164/69-C.E., dated 11th June, 1969, exempts fertilizers of specified description under Item No. 14HH of the First Schedule to the Central Excises and Salt Act 1944 subject to conditions already specified. There is no qualification or restriction in this description with reference to grade or purity of ammonium chloride. In fact, as provided, it is reasonable to conclude that ammonium chloride is held to fall under the description of fertilisers entitled to exemption subject to the specified conditions. The pertinent specified condition in this case covers ammonium chloride which is. intended to be used in the manufacture of dry cell batteries. That is to say, ammonium chloride which is used as a chemical in the manufacture of dry cell batteries is not only clearly held to be classifiable as fertilizer falling under Item No. 14HH of the Central Excise Tariff but it is also exempted under the Notification. The Department's case is that it is only ammonium chloride of lower purity, which is stated to be of fertilizer grade, as distinct from ammonium chloride of higher purity which is stated to be of chemical grade, which is covered by the exemption provided under Notification 164/69, when such ammonium chloride of lower purity is diverted for use in dry cell batteries. We find that there is no support at all for this interpretation of the Notification. As already stated, ammonium chloride figures in the Notification without reference to purity or grade and any ammonium chloride which is used in the manufacture of dry cell batteries has been specifically exempted. In fact, it can be implied that ammonium chloride, whether of fertilizer grade or technical grade, if used as a chemical in dry cell batteries, is specifically covered for the exemption."
13. We, therefore, accept the appellants' plea in this regard and hold that no duty was leviable on ammonium chloride sold to battery manufacturers.
14. Another question that was raised for decision was about the liability to duty in respect of ammonium chloride. The appellants submitted that ammonium chloride is a fertilizer according to Fertilizer (Control) Order, copy of which was filed before us. This question has already been decided in CEGAT Order dated 27-2-1986 (supra) and, for convenience, we reproduce para 7 of this order :-
"7. The Department has referred to the Fertilizer Control Order as well as the Glossary of Terms used in Fertilizer Trade and Industry (15:1304-1980). But this has been an exercise in futility as reference to both these authorities only establishes that ammonium chloride of high technical purity as well as lower purity is fully covered in the broad specifications applicable to fertilizers. In this situation, the burden of proof, that the product in question is not a fertilizer,, is on the Department and they have failed to discharge this burden. In view of the definitions contained in the Fertilizer Control Order Glossary of Terms used in the Fertilizer Trade and Industry as well as the specific wording of Notification No. 164/69, there is hardly any justification for going into the end use of the product in question. We cannot also lightly brush aside the argument that if at all there was any doubt as regards the alternative classification, then, as per accepted principles, a specific tariff entry is to be preferred to the general entry and also the view favourable to the assessee will have to be accepted. We are also quite clear that the allegation of suppression of facts, that is now being made in the course of arguments, is wholly untenable. This allegation is not contained in the show cause notices and in view of regular submission of classification lists, we find that there is no substance in the 'allegation that there has been suppression of .facts by the assessee. In this view of the matter, we agree that the demands of duty would also be essentially barred by limitation. However, this issue is largely academic, in view of the fact that the goods in question are being held to be fully covered by the exemption Notification No. 164/69."
15. Department's reliance on the two judgements of the Tribunal has been noted. The first judgement: '1986(24) ELT 388 (Tribunal)1 before the CEGAT, Special Bench 'C', New Delhi, was in respect of the-appellants. In this judgement, the Tribunal held that, in view of the definitions contained in the Fertilizer Control Order, Glossary of Terms used in the Fertilizer Trade and Industry as well as the specific wording of Notification No. 164/69, there is hardly any justification for going into the end use of the product in question. The product in question was ammonium chloride.
16. The second judgement cited by the learned JDR is: '1984 ECR 716 (CEGAT)1, Special Bench 'C' Appeal No. ED(SB)(T) A.No. 833/80-C Order No. C-354/83 dated,25-11-1983. In this matter, the Tribunal was examining the scope of Notification No. 164/69. We have already commented on this aspect. There is nothing in this judgement to support the arguments of Revenue. We, therefore, agree with the appellants' arguments and order that ammonium chloride should be given the benefit of Notification No. 164/69.
17. Still another question for decision before us is liability of Naphtha used in ammonia, sold directly for non-fertilizer use, to duty. It has been pleaded for the appellants that only a small fraction of ammonia was sold to others for non-fertilizer use. The argument was that ammonia being a fertilizer, the Naphtha used for the manufacture of the same is entitled to the concessions of the notification. We do not agree with this argument. Ammonia cannot be considered as fertilizer. It has not been established before us that it is so used. The appellants were not able to show any reason why ammonia should be considered as fertilizer.
18. The appellants seek benefit of Notification No. 187/61-Excise, as amended, to claim the above benefit. We have carefully examined this notification, which grants concessional rate of assessment to Naphtha for manufacture of fertilizer subject to two provisos. The first is that it is proved to the satisfaction of the Assistant Collector that such Naphtha is intended for use in the manufacture of fertilizer. The second proviso is that the procedure, set out in Chapter X, is followed. The Notification further provides the extension of the exemption to Naphtha used in the manufacture of ammonia provided such ammonia is used elsewhere in the manufacture of fertilizer and procedure set out in Chapter X, CE Rules, is followed. In view of the very clear wording of the Notification, we do not see how ammonia, sold for non-fertilizer purpose, can be eligible to concessional rate of assessment provided in Notification No. 187/61-CE. We reject the claim of the appellants in this regard.
19. The appeals are, thus, partly allowed and partly rejected, and are disposed of in the terms detailed above.