Customs, Excise and Gold Tribunal - Delhi
Gujarat State Fertilizers Co. Ltd. vs Collector Of C. Ex. on 19 April, 1991
Equivalent citations: 1991(56)ELT257(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. In all these matters, a common question of law and facts arises and hence they are all taken up together for disposal as per law.
2. The appellants are a Public Limited Company engaged in the manufacture of fertilizers and chemicals. One of the products manufactured by them is Melamine. The raw material used for its manufacture is Molten Urea which is an intermediate product produced in the continuous process of manufacturing Melamine from Ammonia and Carbondioxide.
3. The Central Government issued a Notification No. 40/85-C.E., dated 17-3-1985 under Rule 8 of Central Excise Rules. In the said notification, Ammonia used in the manufacture of fertilizer is exempt from the whole of the duty of excise leviable thereon. Another Notification No. 75/84-C.E., dated 1-3-1984 was also issued prior to the issue of the above cited notification. By this Notification No. 75/84-C.E. raw naptha used in the manufacture of fertilizer was granted concessional rate of duty at Rs. 4.40 per kilo-litre at 15O C Thermameter. The appellants have contended that in the process of manufacture of Melamine, Molten urea which is a chemical fertilizer is produced as an intermediate product which is in turn produced from ammonia. Ammonia is derived from raw naptha. The appellants claimed benefit of exemption under the said notification. Therefore, they filed a classification list claiming exemption in respect of quantities of Ammonia used in the manufacture of Molten urea which is ultimately consumed in the manufacture of the final product Melamine. They have also claimed concession under Notification No. 75/84-C.E. to the extent of Ammonia derived from raw naptha which is utilised for manufacture of Molten urea.
4. The Superintendent of Central Excise issued show cause notices demanding full rate of duty on the quantities of ammonia consumed by the appellants for the production of Molten urea for the various periods shown in the notices. The Department took the view that Molten urea is not used as soil fertilizer and, therefore, the benefit of exemption under the said notification would not be applicable in the present cases. They further contended that the notifications are applicable to only such Molten urea which is used as a soil fertilizer. The appellants were given opportunity for filing a reply and after a personal hearing, the Asstt. Collector has passed independent orders in respect of the said show cause notices issued by the Superintendent. The Assistant Collector has held that as the Molten urea is a chemical fertilizer classified under TI 14-HH prior to introduction of Central Excise Tariff Act, 1985 and under Chapter Heading 31 after the introduction of C.E.T.A., 1985 and therefore, were entitled for the benefit of exemption from payment of duty under the said notifications and, hence vacated the demands raised in the respective show cause notices by passing independent orders-in-original.
5. The Revenue was aggrieved by the said orders-in-original passed by the Assistant Collector and, therefore, the Collector of Central Excise, Vadodara filed an application to the Collector of Central Excise (Appeals) Bombay under Section 35E(4) of the Central Excises and Salt Act, 1944. The contention raised by the Collector in the said application was that the spirit behind the said notifications was to grant exemption from duty to Ammonia if it is used in the manufacture of the soil fertilizer and not in any other case. The appellants filed their cross objection. The learned Collector of Central Excise (Appeals) by the impugned orders-in-original, had set aside the orders-in-original passed by the Assistant Collector.
6. We shall go in brief the findings of the respective appeals by the learned Collector.
E/Appeal No. 799/89-C arises from order-in-appeal dated 9-3-1989 by which he has disposed of two orders-in-original dated 3-6-1987 and 14-7-1987. The question that arose before the Collector in the impugned orders with regard to the use of Ammonia in the manufacture of Molten urea and eligible for Notification No. 40/85-C.E., dated 12-3-1985 and also raw naptha used in the chemical fertilizers involving Notification No. 75/84-C.E., dated 1-3-1984. The learned Collector has considered Tariff Item 14-HH of erstwhile tariff as well as Chapter 31 after the introduction of Central Excise Tariff Act, 1985. He has held that Molten urea does not specify the specification prescribed in the Fertilizer (Control) Order. Hence, it was to be classified under TI 68. He has also held that Chapter Notes 1 and 2 of Chapter 31 have been used in the sense of soil fertilizer. Therefore, Molten urea not being used as soil fertilizer for which the notification is intended, the claim of the benefit under the said notifications would not be available to the appellants.
7. Appeal No. 2010/89-C arises from the impugned order-in-appeal dated 17-4-1989 which arose from order-in-original dated 12-11-1986 pertaining to the period February, 1986 to March, 1986. The issue was with regard to the availability of concession from payment of duty in respect of Ammonia used in the manufacture of Molten urea under Notification No. 40/85-C.E., dated 17-3-1985. The appellants had also claimed benefit of Notification No. 217/86-C.E., dated 2-4-1986. The learned Collector rejected the claim under Notification No. 217/86 dated 2-4-1986 as this was not raised before the Assistant Collector. The learned Collector held that Molten urea was being used in the manufacture of Melamine which was not a fertilizer and, therefore, he rejected the claim of the appellants and set aside the orders of the Assistant Collector which were in the appellants' favour.
8. E/Appeal No. 2011/89-C arises from impugned order-in-appeal dated 21-3-1989 which arose from order-in-original dated 3-8-1987. The question that arose before the Collector (Appeals) was with regard to the grant of concessional rate of duty in respect of Ammonia derived from raw naptha which was in turn, used for manufacture of Molten urea. The said Molten urea was used as an intermediate product for manufacture of final product Melamine. The appellants had sought the concessional rate of duty as per Notification No. 75/84-C.E., dated 1-3-1984 which gave benefit to Ammonia derived from raw naptha which was used in the manufacture of fertilizer. The learned Collector considered the TI 14-HH prior to Central Excise Tariff Act, 1985 and also Chapter 31 after its introduction. He has held that the final product was not being used as soil fertilizer. The notification was intended to grant concessional rate of duty on raw naptha used in the manufacture of fertilizer. As Melamine was not a fertilizer, the claim for concessional rate of duty was rejected by allowing the Revenue's appeal before him and by setting aside the order passed by the Assistant Collector.
9. E/Appeal No. 2052/90-C arose from order-in-appeal dated 15-5-1989 which has arisen from order-in-original dated 29-9-1987. The question that was before the learned Collector, was with regard to the grant of concession to Ammonia which was used for manufacture of intermediate product Molten urea. The learned Collector has held that the benefit of the notification was not applicable as the Molten urea was used as an intermediate product for manufacture of Melamine which is not a soil fertilizer. He has held that the notification was intended to give benefit only to fertilizer. Chapter Note 1 of Chapter 31 to which the Molten urea was classified, defined the word 'fertilizer' to be used in the sense of soil fertilizer. Therefore, he allowed the Revenue's appeal by setting aside the order-in-original.
10. Appeal No. 2053/89 arose from order-in-appeal dated 15-5-1989 which arose from order-in-original dated 29-7-1987. The issue in this appeal was similar to E/Appeal No. 2052/89.
11. E/Appeal No. 3013/89-C arose from order-in-appeal dated 25-7-1989 which arose from order-in-original dated 1-3-1989. The issue is same as in appeals No. 2052-2053/89-C.
12. The appellants have given the process of manufacture of Melamine in their appeal Memo which is reproduced below :-
"(1) The Melamine plant is based on Chemieline process. In this process, Molten urea from Urea plant is injected in Urea compressor over a fluidised bed. The heat required for the decomposition of urea is supplied from Molten Salt system. The urea is decomposed into a gaseous mixture of isocyanic acid and ammonia. The mixture is then passed over a catalyst bed where isocyanic acid is converted into Melamine. The Melamine vapour alongwith gaseous ammonia and carbondioxide escapes convenor at reaction temperature and is at once quenched in a scrubber by direct aqueous solution where melamine in aqueous solution is formed.
(ii) The Melamine suspension is filtered in rotary pressure filter. The humid Melamine collected on rotary filter is dried in a dryer. Agglomeration if any, are ground in a pin disk mill and the product is bagged. The off-gas containing ammonia and carbondioxide is absorbed in ammonia carbonate towers where entire carbondioxide and portion of ammonia are absorbed in circulating ammonium carbonate solution. The unabsorbed ammonia gas is compressed and recycled back to urea decompressor. The ammonia split is compressed, liquefied and sent to Horton sphere. The ammonium carbonate solution coming from ammonium carbonate tower is further treated for separation of ammonia and carbondioxide gases".
13. The appellants have contended in these appeals that the benefit of exemption under Notification No. 40/85 would be available to their product as the said notification does not contain any qualification that it applies only to ammonia which is used in the manufacture of soil fertilizer. They have also relied on Rule 1 of Interpretation of the Schedule which requires classification to be done according to the terms of the headings and relevant section of Chapter Notes. They have contended that Chapter Note 1 of Chapter 31 covers fertilizers. Molten urea being a fertilizer, the concessions under the said notification are automatically available to them. They have contended that the classification under Chapter 31 not being in dispute, the benefit cannot be denied to them.
14. As regards concessional rate of duty with regard to raw naptha being used in the manufacture of Molten urea, they have contended that the benefit of concessional rate of duty under Notification No. 75/84 cannot be denied to them, as the notification does not contain any qualification for grant of benefit as held by the learned Collector.
15. Shri S.M. Thakare, learned Advocate appeared for the appellants and Shri L. Narasimha Murthy, learned DR appeared for the respondents. Shri Thakare submitted that Molten urea, irrespective of its use, is being classified as a fertilizer under Chapter 31. Chapter 39 which deals with organic chemicals by its Chapter Note 2-E has excluded urea falling under Chapter 31. There is no other chapter available for classifying Molten urea and, therefore, there is no dispute with regard to the classification of Molten urea under Chapter 31. He contended that there was no chapter notes in the erstwhile tariff and, therefore it was classified as fertilizer under Item 14-HH. He further contended that as the Department had considered it as a fertilizer on the basis of its classification, the notification not having any restrictions, the benefit has to be extended automatically. However, he admitted that the final product Melamine is not a fertilizer. In any event of the matter, he contended that as long as the product was being classified as a fertilizer, the benefit of the notification for fertilizer, cannot be denied to them. In this connection, he relied upon the rulings mentioned below :-
Hemraj Gordhandas v. H.H. Dave, Asstt. Collector of Central Excise & Customs, Surat and Ors. 1978 ELT J-350 Basf India Ltd. v. Collector of Central Excise 1989 (40) ELT 363 (Tribunal) Collector of Central Excise, Cochin v. Fertilizers and Chemicals Tranvancore Ltd. 1986 (24) ELT 388 (Tribunal) S.K.F. v. Collector of Central Excise 1990 (49) ELT 649.
16. Shri L. N. Murthy, learned DR contended that only those urea which are fertilizer and falling under Chapter 31 are excluded from Chapter 29 as evident from Note 2(e) of Chapter 29. Urea has several uses as can be seen from the definition and uses of urea appearing at page 1073 of Condensed Chemical Dictionary, 10th Edition which is reproduced below -
"Urea (Carbamide) CO (NH2)2. Occurs in urine and other body fluids. The first organic compound to be synthesized (Wobler 1824) 14th highest volume chemical produced in US (1979) (as primary solution).
Properties - White crystals or powder almost odorless, saline taste - sp - gr. 1.335 m. p. 1.327°C decomposes before boiling. Soluble in water, alcohol and benzene; slightly soluble in ether, almost insoluble in chloroform. Low toxicity. Non-combustible.
Derivation - Liquid ammonia and liquid carbon dioxid at 1750-3000 psi and 160-200°C react to form ammonium carbamate. NH4 CO2 NH2 which decomposes at lower pressure (about 80 psi) to urea and water. Several variations of the process include once through partial recycle and total recycle.
Method of purification - Crystalization Grades - Technical CP USP fertilizer (45-46% nitrogen); feed grade (about 42% nitrogen).
Containers - 80, 10 lb bags 100, 225 lb drums. Solution in tank cars and tank trucks.
Uses - Fertilizer - animal feed, plastics, chemical intermediate, stabilizer in explosives, medicine (diuretic) adhesives, separation of hydrocarbons (as urea adducts); pharmaceuticals, cosmetics, dentifrices, sulfamic acid production, flameproofing agents, viscosity modifer for starch or casein based paper coatings preparation of biuret".
His contention is that urea which is used as a fertilizer, is classifiable under Chapter 31 and not Molten urea which is used in the manufacture of Melamine, which is admittedly not fertilizer. His contention is that Molten urea is neither a mineral or chemical fertilizer and Chapter Note 1 of Chapter 31 clearly lays down that Headings 31.02, 31.03, 31.04 and 31.05 cover mineral or chemical fertilizer, even when they are clearly not to be used as fertilizer. While Chapter Note 2 states "for the purpose of Heading 31.05, the term 'other fertilizer' applies only to products of a kind used as a fertilizer and containing an essential constitute, at least one of the fertilizing element - Nitrogen, Phosphorus or Pottasium. He contended that Trade parlance and Chemical uses are the factors determinative for the purpose of classification. The product Molten urea not being a fertilizer, it cannot be classified under Chapter 31 but only would be classified under Chapter 29 and as this is a matter of classification, the Tribunal has got the powers to remand the matter for fresh consideration, even if a cross appeal is not filed by the Revenue.
17. We have carefully considered the submissions made by both the sides, perused the orders and the materials placed before us. As has been rightly contended by the learned DR, Chapter Notes 1 and 2 of Chapter 31 covers Mineral or Chemical fertilizer which are excluded from Chapter 29 by virtue of Note 2(e) of Chapter 29. The learned DR has also shown to us from the extracts of Chemical Dictionary regarding the uses of Urea which are noted above. The Urea has got various uses and only such urea which are used and understood as mineral or chemical fertilizer, are classifiable under Chapter 31. In the present case, Molten urea is being utilised for manufacture of Melamine which is not a fertilizer at all. Therefore, it follows that Ammonia which is extracted from raw naptha for the manufacture of Molten urea, is ultimately not being utilised for the manufacture of fertilizers. The benefit of the notification would be available only if the ammonia is utilised for ultimate manufacture of fertilizer. The various products which may arise may not be important so long as the process is continuous and the final product which emerges is a fertilizer.
18. From this point of view, the non-applicability of the notifications in question to the ammonia which has gone into the manufacture of products other than fertilizer in this case - Melamine has to be upheld. But however, it has to be pointed out that the classification of Molten urea which is an intermediate product which has been done under Chapter 31, does not appear to be correct in view of Chapter Notes 1 and 2 of Chapter 31 which applies only to chemical and mineral fertilizers. The appellants have not produced any Trade understanding and usage with regard to the Molten urea being a mineral or chemical fertilizer falling under Chapter 31. Therefore, the Department is entitled to reconsider the question of its classification. The question of classification is not before us but only the question of applicability of notification is under consideration. The Department is at liberty to reconsider the question of classification independently.
19. The rulings brought to our notice clearly laid down that notification has to be strictly construed and that there is no room for any intendment, but regard must be had to the clear meanings of the words (Hemraj Gordhandas case supra). Therefore, the notification clearly stipulates that the benefit of concession is applicable to ammonia which is used for the manufacture of fertilizer, it follows that the final product should be fertilizer. In this case, admittedly Molten urea is not a fertilizer and therefore, by a clear reading of the notification, the benefit of the notifications cannot be extended in this case. The classification of intermediate product - Molten urea under Chapter 31 is not determinative in this case for the grant of the concession, as it is the final, product which emerges by a continuous process which should be a fertilizer.
20. The appellants have contended that they have paid duty on the final product but it is only the concession of rate of duty on Molten urea which they are claiming. In this case, Molten urea is not being cleared for manufacture of fertilizer for grant of benefit of exemption under the said notifications. As Molten urea has emerged as an intermediate product in a continuous process of manufacture brought out by the appellants, it has to be held that the benefit is not available for such intermediate products which may arise in a continuous process.
21. The Tribunal has already considered the appellants case for grant of exemption under Notification No. 145/71-C.E., dated 26-7-1971 in their own case reported in [1991 (50) ELT 542], The Tribunal has rejected the appellants claim for exemption from whole of duty of excise on ammonia if it is used in the manufacture of fertilizer falling under Tariff Item 14-HH. In this ruling, the Tribunal noted its earlier ruling rendered in the appellants own case as reported in [1990 (47) ELT 76]. The findings of the Tribunal in para 6-A and 7 of the citation as reported in [1990 (50) ELT 542] is noted below -
"We have considered the rival submissions and perused the records. The Notification No. 145/71-C.E., dated 26-7-1971 exempts whole of duty of excise on ammonia if it is used in the manufacture of fertilizers falling under Tariff Item 14-HH. We are fully convinced that the issue is covered by the earlier decision of the Tribunal in the appellants' case cited supra. The relevant finding portion in the said decision is reproduced as under -
We are unable to accept the argument of the learned counsel for the appellant that the ammonia used in the manufacture of molten urea is again generated at a subsequent stage. The ammonia that is used in the manufacture of molten urea is consumed entirely in its manufacture and by virtue of splitting up of residual urea into its original constituents namely, ammonia and carbon dioxide, a re-generated product emerges albeit with the same name and chemical composition. The ammonia so obtained is not the original ammonia that was used in the manufacture of molten urea. The ammonia re-generated after decomposition of molten urea is a new product, attracting fresh excise duty.
Following the ratio of that decision we hold that ammonia which was removed to melamine plant for use in the manufacture of molten urea for the production of melamine was not eligible for exemption under Notification No. 145/71-C.E. As regards observation made by the Tribunal in the said decision about the regenerated ammonia sent back to Horten's sphere, used for manufacture of fertilizers falling under Tariff Item 14-HH being eligible for exemption under Notification No. 145/71-C.E., dated 26-7-1971, it is not relevant to the issue and we are of the opinion that, with or without such observation, the ammonia used in the manufacture of molten urea for the production of melamine was not eligible for exemption under Notification No. 145/71-C.E. With the above observations we uphold the impugned order and accordingly the appeal is dismissed."
22. The ratio of the citation is also application to the facts of the present case. Therefore, in view of our findings that the benefit of the notification has to be extended to the final product which is a fertilizer. There is no merit in the appeals and the same are rejected.