Customs, Excise and Gold Tribunal - Delhi
Coromandel Fertilizers Ltd. vs Collector Of Customs on 11 April, 1984
Equivalent citations: 1985(21)ELT120(TRI-DEL)
ORDER G. Sankaran, Member (T)
1. This appeal is directed against Order No. C. 18 AP/34/1980 dated 1-7-1982 passed by the Collector of Customs (Appeals), Madras whereby the Assistant Collector's order dated 20-2-1980 confirming a demand for Rs. 60,34,419.56 against the appellants was upheld.
2. The appellants are manufacturers of chemical fertilizers, having their factory at Visakhapatnam. They manufacture, among other things, complex or mixed fertilizers. For the manufacture of such mixed fertilizers, they import Mono-Ammonium Phosphate (referred to hereafter, for brevity's sake, as MAP).
3. Mono-Ammonium Phosphate falls within heading 31.02/05 of the 1st Schedule to the Customs Tariff Act, 1975. Sub-heading 3 thereof reads as follows :
"31.02/05 : Mineral or chemical fertilizers, nitrogenous, phosphatic or potassic and other fertilizers.
1 * * * 2 * * *
3. Mono-Ammonium and di-ammonium ortho-phosphate, whether or not pure, and mixtures, thereof."
The rate of duty applicable to this sub-heading is 60% ad valorem. In auxiliary duty of Customs at 15% ad valorem was also applicable at the relevant time.
4. In exercise of the powers conferred by Sub-section (1) of Section 25 of Customs Act, 1962, Central Government issued a Notification No. 178/76' Cus., dated 2-8-1976 exempting ammonium phosphate when imported into India for use as manure from the whole of duty of Customs leviable thereon which is specified in the aforesaid 1st Schedule. Pursuant to this exemption, the rate of auxiliary duty of Customs was reduced to 5% ad valorem.
5. The appellants wrote to the Assistant Collector of Customs, Visakha-patnam an 14-5-1979 setting out their intention to import 5000 to 6000 metric tonnes of MAP for use as a raw material for the production of complex fertilizers. They also set out their understanding that in terms of the tariff heading and ihe notification referred to above, MAP used in the production of complex fertilizers, which, in turn, would be used as manure was exempted from the basic Customs duty as well as auxiliary duty of Customs and they sought a confirmation of this understanding. By a letter dated 19-5-1979, the Assistant Collector replied that MAP was exempt from Customs duty in terms of the notification provided a bond in the prescribed form was executed to the effect that the goods were for use as manure. He also stated that auxiliary duty would be leviable at 5% ad valorem and Additional (Countervailing) duty at 3.75% ad valorem. The appellants thereafter imported a consignment of about 5,050 M. T. of MAP at the Port of Vasakhapatnam and filed a Bill of Entry for clearance of the goods. It would appear that the Customs refused to clear the consignment free of duty and, therefore, the appellants took up the matter with the Collector of Customs, Madras. In due course, apparently under instructions from the Collector of Customs, Madras, the Assistant Collector of Customs, Visakhapatnam allowed clearance of the consignment on payment of auxiliary duty at 5% ad valorem and Additional (Countervailing) duty at 7.5% ad valorem. On the execution of a bond undertaking, inter alia, to produce before the proper officer within 3 months a clarification from the Ministry of Finance to the effect that Notification No. 178/76 would also be applicable to the consignment imported for use as an intermediate in the production of complex fertilizers which would be used as manure. In the event of failure to comply with the conditions of the bond, the appellants undertook to pay the differential amount of duty.
6. On 11-8-1979, the appellants wrote a detailed letter to the Ministry of Finance, Government of India, setting out the circumstances of the import and seeking extension of the benefit of duty exemption to the consignment in question. According to the appellants, they did not get any reply to this letter.
7. In the meanwhile, the Assistant Collector of Customs, Visakhapatnam, issued a notice dated 19-11-1979 to the appellants asked them to show cause why duty amounting to Rs. 60,34,419.56, which was short levied, should not be recovered from them. The reason given was that the goods were assessable to duty under heading 31.02/05(3) of the Customs Tariff Schedule and Item No. 14HH of the Central Excise Tariff Schedule at 60%4-15%-17.5% ad valorem. Though it is not expressly set put in the show cause notice, these percentages would respectively refer to basic, auxiliary and Additional (Countervailing) duties of Custom. The appellants wrote back to say that they had taken up the matter with the Ministry of Finance and requested that the case might be kept pending till the Ministry's decision was received. However, the Assistant Collector, by his order dated 20-2-1980 confirmed the notice of demand. Against this, they went in appeal to the Collector of Customs (Appeals), Madras before whom also the appellants made a request that the appeal might be kept pending till receipt of orders from the Government of India. However, the Collector (Appeals) passed the impugned order dated 1-7-19X2 rejecting the appeal, holding that, as the imported MAP had not been used as manure directly, the exemption under Notification No. 178/76 was correctly denied. It is this order of the Collector (Appeals) that is under challenge before us.
8. Before we set out the rival contentions, it is expedient to notice at this stage certain intervening events brought on record by the Respondent. On 23-5-1980, the Secretary to the Department of Chemicals & Fertilizers, Government of India, took up with the Central Board of Excise & Customs, the question of exempting imported MAP when it is used in the manufacture of fertilizers. On 19-8-1980, the Ministry of Finance superseded Notification No. 178/76 by Notification No. 164/80-Cus. which exempted "ammonium phosphate when imported into India for use as manure or in the production of complex fertilizers from the whole of duty of Customs leviable thereon which was specified in the 1st Schedule to the Customs Tariff Act, 1975. Corresponding amendments were also made in the Notification No. 41-Cus. dated 25-3-1980 regarding the applicable rate of auxiliary duty of Customs. On the same day an explanatory memorandum was also issued explaining the effect of these changes.
9. The points put forth by the learned Counsel for the appellants may be summarised thus :
(i) Though Notification No. 178/76 mentioned ammonium phosphate, what was covered by the notification was mono or di-ammonium phosphate. MAP is produced in finely powdered form. It is not used by itself as a fertilizer in India. In support of this contention, extracts from the "Handbook on Fertilizer Technology" published by the Fertilizers Association of India, was filed. The relevant portions read as follows :
"Mono-ammonium phosphate (MAP) is a rich fertilizer/ intermediate with a high Pa Os content of about 55 per cent and nitrogen content of 11 to 12 per cent. It is produced in a powdered form, as it is primarily meant as an intermediate to produce N.P. and N.P.K. grade mixtures and granulated fertilizers. It is, however, not manufactured in India. MAP is a free-flowing and non-microscopic material. The powder stores and handles well. In can be transported in bulk."
(ii) The imported MAP is mixed with urea/potash to produce mixed or compound fertilizers. There is no chemical reaction involved in the production of mixed or compound fertilizers.
(iii) Rashtrya Chemicals & Fertilizers and Fertilizers and Chemicals, Travancore, both Public Sector Undertakings, had been importing MAP in powder form for the production of mixed fertilizers and were being granted exemption under Notification No. 178/76. As evidence of this statement, reliance was placed on a letter dated 27-7-1979 from the MMTC of India Ltd. to the Assistant Collector of Customs, Visakhapatnam. Also, a photostat copy of a Bill of Entry for a consignment of MAP cleared from the Cochin Port was produced.
(iv) In order to make sure of the position, the appellants had imported the goods only after getting a confirmation from the Assistant Collector of Customs of their understanding that imported MAP would be entitled to the exemption.
10. The following propositions were formulated by the learned Counsel for the appellants:-
(i) The expression "Ammonium phosphate" occurring in Notification No. 178/76 is generic and covers both mono and di-ammonium phosphates.
Since the Departmental Representative agreed with this proposition and sub-heading 3 of heading 31.02/05 specified mono-ammonium and di-ammonium phosphates, this proposition is self-evident and does not need to be discussed.
(ii) The Notification only requires that imported ammonium phosphate should be used as a manure. It does not require that the substance should be used as such, by itself, to the exclusion of all other ingredients. This would be clear from the usage of the expression "whether or not pure and mixture thereof" in the sub-heading referred to above. Despite the fact that imported MAP was not used directly as manure but used in the production of complex fertilizers which, in turn, were used as manure, the notification would apply to the import since the MAP was used as manure. If this is not the correct reading, the notification would be rendered a dead letter. MAP is produced in a finely powdered form and is not used directly in India as manure; it would be blown away by wind.
(iii) The principle of contemporanea expositio requires the construction of the notification in accordance with the contemporary understanding of the subject as revealed by the fact that Customs authorities at other Ports were allowing clearances of imported MAP free of duty in terms of Notification No. 178/76. In support of this proposition, reliance was placed on 2 decisions of the Supreme Court- Deshbandhu Gupta & Co. and Ors. v. Delhi Stock Exchange Association Ltd. (AIR 1979 CS 1049), and K.P. Verghese v. ITO, Ernakulam and Anr. SCR 1982 (Vol. I 629).
(iv) It would amount to injustice and discrimination if the benefit of the notification is denied to the appellants while it was being extended to similar imports made by other fertilizer manufacturers.
(v) The Gujarat High Court in Special CA No. 668/74--Gujarat State Fertilizer Co. Ltd., Baroda v. Union of India and Ors.-decided on 14-12-1976 had held with reference to Item No. 35 of the Indian Customs Tariff Schedule of 1934 that rock phosphate imported in pebbles and latter mechanically converted into powder form would fall within the ambit of the said item ("manures, all sorts, including...mineral phosphates, imported in a form indicative of their use for manurial purposes..."). The ratio of this decision applied with greater force in the case of the present import. Attention was drawn to certain other notifications-180/76 and 179/76 both dated 2-8-1976 wherein the condition that the imported goods-muriate of potash and urea-shall not be used for any purpose other than as manure, was expressly spelt out which was not the case with notification 178/76.
11. The points put forth by the learned Departmental Representative for the Respondent, may be summarised thus :
(i) There would be no estoppel in law against a wrong interpretation placed by the Administrative authorities on a statutory notification. In support of this point, certain authorities were cited, but since this point was not disputed by the Counsel for the Appellants, and it is a settled principle that there is no estoppel in law against fiscal statutes, we are not required to discuss these citations.
(ii) The real question is whether, in fact, there is any misinterpretation of the notification. In this connection, our attention was drawn to a letter dated 20-7-1979 from the Assistant Collector, Visakhapatnam to the appellants setting out clearly that MA Pimported not for use as manure in the form it is imported but (or production of complex fertilizers was not eligible for the concessional rate of duty in terms of Notification No. 178/76. The Asstt. Collector's earlier letter of 19-5-1979 on which much reliance has been placed by the appellants, did not say that MAP imported for production of complex fertilizers would be entitled to the benefit; it only said that if the imported MAP is for use as manure, the benefit would accrue.
(iii) Notification No. 178/76 clearly set out the condition that the imported MAP should be for use as manure. By contrast, Notification No. 177/76, also issued on 28-1976, required that di-ammonium phosphate (DAP, for short) should be for use as manure or in the production of complex fertilizers to be exempt from payment of the duty of Customs leviable thereon. This would show that in so far as MAP was concerned the exemption did not apply when it was imported for use in the manufacture of complex fertilizers.
(iv) It is not correct to say that MAP cannot be used directly as a fertilizer because it is in powder form. In this connection certain extracts from the Fertilizer Control Order, "Encyclopaedia of Chemical Technology" by Kirk-Othmer, were filed and a reference was made to "Handbook on Fertilizer Technology" relied upon by the appellants.
(v) Exemption notifications had to be strictly construed and there would be no warrant to read any intendment into them. The decisions of the Supreme Court in 1978 ELT J 350, Delhi High Court in 1980 ELT 521 and Andhra Pradesh High Court in 1979 ELT (J501) in a case of the present appellants themselves were cited.
(vi) Notification No. 178/76 was superseded and replaced by Notification No. 164/80 extending duty concession to imports of MAP for the production of complex fertilizers. This latter notification was issued by Government in the wake of the correspondence exchanged between the Department of Chemicals & Fertilizers and the Central Board of Excise & Customs. It would clearly show that the benefit was correctly denied to the present import. It was not correct that the other importers were given the benefit of Notification No. 178/76. The letter dated 23-5-1980 of the Secretary to the Department of Chemicals & Fertilizers would show that its genesis was the objection raised by Customs against imports by Rashtrya Chemicals & Fertilizers.
(vii) The doctrine of conteniporaneg, expositio, far from supporting the appellants' stand, would support the Respondent's case. The doctrine is to be turned to only as a last resort and the exchange of correspondence referred to, together with the issue of Notification No. 164/80 would show the real contemporary understanding.
12. In his reply, the learned Counsel for the appellants made the following points :-
(i) It is true that there is no warrant to read into exemption notifications any intendment. However, Notification No. 178/76 did not require the direct use of MAP as manure. Nor did it debar its use in admixture with other substances.
(ii) Reference to the specifications in the Fertilizer Control Order, etc., would not be of help since that order set out the ideal specifications or standards. That is not the question here.
(iii) Even granting that MAP could be manufactured in granular form, the present import has been used, after conversion into complex fertilizer as manure. The form in which the substance is imported is not material. Reference to Notification No. 180/76 exempting muriate of potash and Notification 179/76 exempting urea and contrasting them with Notification No. 178/76 exempting MAP would show that, according to the principle of contemporary understanding, the last mentioned notification did not prohibit the use of MAP in admixture and did not require its direct use as manure.
(iv) Attention was drawn to Notification No. 181/76 exempting kyanite imported in a form "indicative of use as manure". These very words occurring in item No. 35 of the 1934 Customs Tariff Schedule were interpreted by the Gujarat High Court in the GSFC case (already referred to) and the ratio of this decision would apply to the present case.
(v) The exchange of correspondence between the Department of Chemicals & Fertilizers and the Central Board of Excise & Customs and the supersession of Notification No. 178/76 would show that there was ambiguity in the matter and Notification 164/80 was meant to remove the ambiguity. The amendment was thus of a clarificatory nature.
13. We have carefully considered the rival contentions and perused the record.
14. The issue for determination is whether the subject consignment of MAP imported, admittedly, not for direct use as manure, but for use in the production of complex fertilizers which, in turn, were for use as manure was eligible to the duty concession granted by Notification No. 178/76 dated 2-8-1976.
15. The appellants relied heavily on the exchange of correspondence with the Assistant Collector prior to the import of the consignment. It must be stated that the appellants very clearly set out the purpose of the import, namely, use in the production of complex fertilizers and asked for a specific confirmation that MAP imported for such use would be entitled to the exemption in Notification No. 178/76. Instead of giving a clear and direct reply, the Assistant Collector merely paraphrased the notification. This, to our mind, was a piece of dodge, particularly viewed in the context of the objection raised to the clearance of the consignment after its import. Be that as it may, we must observe that the Assistant Collector's letter dated 19-5-1979 to the appellants in reply to their letter of 14-5-1979 did not hold out any promise that the consignment of MAP imported for use in the production of complex fertilizers would be exempted from duty in terms of the notification. If the Assistant Collector evaded the issue, the appellants were not cautious enough to persist in getting a clear cut answer but proceeded on their understanding of the Assistant Collector's letter. Let it be stated that the Assistant Collector was not authorised to give any assurance of exemption not warranted by the notification. Even if he had given one, it would not be enforceable in law. For, it is well settled that there is no estoppel against a fiscal statute.
16. Notification No. 177/76, dated 2-8-1976 issued on the same date as Notification No. 178/76, exempted DAP when imported for use as manure or in the production of complex fertilizers. It would, therefore, be reasonable to conclude that Notification No. 178/76 did not exempt MAP imported for use in the production of complex fertilizers which, in turn, would be used as manure. The fact that this notification was superseded by Notification 164/80, dated 19-8-1980 exempting ammonium phosphate imported for use as manure or in the production of complex fertilizers amply supports this view. "
17. The exchange of correspondence between the Department of Chemicals and Fertilizers and the Central Board of Excise and Customs goes to show that imports effected by Rashtrya Chemicals & Fertilizers of MAP for use in the production of complex fertilizers ran into difficulties with the Customs authorities. A case was apparently made out for exempting MAP imported for such use and the Ministry notified the exemption on 19-8-1980. This only shows that the Customs, for some time, were apparently proceeding on a misreading of Notification No. 178/76 that it conferred exemption on MAP imported for such use. That would not sanctify the erroneous assessments and entitle the appellents to the benefit of a similar erroneous assessment. We think, the principle of contemporanea expositio does not help the appellants in the present ease. They have not produced any documents notified or published by the exemption giving authority in support of their stand. On the other hand, the documents filed by the Respondent, read with Notification No. 177/76 and the fact of supersession of Notification 178/76 by Notification 164/80 can lead only to one conclusion, namely, that there were certain erroneous assessments. Those erroneous assessment would not, however, constitute the basis for a correct interpretation of Notification 178/76.
18. Reference to the notifications exempting muriate of potash and urea also does not help the appellants in the light of what is set out in the previous paragraph.
19. The appellants have urged that MAP cannot be used directly as manure and to deny the benefit of the notification to the present consignment on this ground would render the notification as a dead letter and such a construction should be avoided. We do not think that this contention has any force. The "Handbook on Fertilizer Technology" published by the Fertilizer Association of India describes MAP as "a rich fertilizer/intermediate." It goes on to say that MAP is produced in a powdered form as it is primarily meant as an intermediate to produce N.P. andN.P.K. grade mixtures and granulated fertilizers. The Fertilizer Control Order of 1957 issued under the Essential Commodities Act, also describes mono-ammonium phosphate as a fertilizer. The Condensed Chemical Dictionary by G. Hawley (10th edition, page 62) shows the uses of ammonium phosphate, mono-basic as "fertilizsrs, flame proofing agent, to prevent after glow in matches, plant nutrient solution, manufacture of yeast, vinegar, yeast foods and bread improvers; food additives; analytical chemistry". In the light of the multifarious uses to which MAP can be put, it becomes clear why even when it is imported as manure, Notification No. 178/76 required the importer to execute a bond for payment of duty leviable on such quantity thereof as is not proved to have been used as manure. Again, in this light, the extension of the exemption to MAP imported for use in production of complex fertilizers by Notification No. 164/80 must be regarded as a new concession not available till then.
20. For the same reason, we agree with the Departmental Representative that there is no scope or warrant to read into Notification No. 178/76 the concession which was given for the first time on 19-8-1980 by Notification > o 164/80. It is a well settled principle that there is no room for intendment in construing exemption notifications. We do not think it necessary to refer to and discuss the decisions relied upon by the Departmental Representative in this regard.
21. The appellants have relied upon the Gujarat High Court decision in the GSFC case (Special Petition CA No. 668/74). The dispute in that case was whether rock phosphate in all forms imported into India for use as or in the manufacture of fertilizers was eligible to be assessed as manure, under item No. 35 of the Customs Tariff Schedule of 1934. The Department's case was that GSFC was not importing rock phosphate in powder form but in the form of pebbles and that, therefore, it could not be said to be imported in "a form indicative of their use for manurial purposes" as laid down in the said item No. 35. It was not the case of the Department that rock phosphate, if imported in pebble form and later mechanically converted into powder form, changed character of the rock phosphate or that it became a new substance or a new chemical. The Court held that rock phosphate, even if imported in pebbles, would not cease to be rock phosphate and item No. 35 would be attracted provided it was used for manurial purposes. Although there is a reference to the manufacture of fertilizers, the decision itself was on the basis that the Department's contention that the pebble form was not indicative of the imported rock phosphate being used for manurial purposes was not correct. In the circumstances, we do not think that this decision has application to the facts of the present case.
22. In the result, the appeal fails and is rejected.