G. Sankaran, Member (T)
1. This is an appeal filed by M/s. Radhika Vitamalt Pvt. Ltd., New Delhi (hereafter referred to as "the appellants") against Order-in-Original No. 14-COLLR/1984 dated 25-7-1984 passed by the Collector of Central Excise, Meerut by which the Collector held that zinc sulphate, manufactured by the appellants, was not a fertilizer falling under Item No. 14-HH of the First Schedule to the Central Excises & Salt Act (CET, for short) but a micronutrient falling under Item No. 68, CET. The Collector directed the Assistant Collector to work out the actual duty payable by the appellants under Central Excise Rule 9(2) after taking into account all their factories and the exemptions under Item 68. However, he did not impose any penalty under Rule 173-Q on the appellants.
2. The charge against the appellants was that they were engaged in the manufacture of zinc sulphate without applying for and obtaining a central excise licence and had manufactured and removed the product valued at Rs. 57,51,675.00 during the period from 1-10-1978 to 31-12-1979 without payment of excise duty, without cover of proper documents and without following the procedure prescribed under the Central Excise Rules (hereafter referred to as "the Rules"). The case, thereafter took a chequered turn. The matter was adjudicated by the Collector. However, the Order was set aside by the appellate authority, the Central Board of Excise & Customs, who remanded the matter to the Collector for de novo adjudication after affording the party an opportunity to present their case. In its Order of remand, the Board observed that "the important considerations to determine the classifiability of a product should be the commercial meaning assigned to the goods, the technical definition and categorisation of the product as available in various technical books of references or statutory Acts and Orders and the fact of actual marketing or marketability."
3. The impugned order is the result of the de novo adjudication of the case by the Collector. In his Order, the Collector has observed that zinc sulphate helps in the overall growth of plants but does not affect the fertility of the soil. According to the "Wealth of India", the term "fertilizer" is ordinarily applied to materials which are added to soils to increase the supply of plant nutrients and thereby enhance the fertility of the soil. Materials which improve soil texture are distinguishable from fertilizers as soil improvers. The Collector also refers to the definition of "fertilizer", "nutrient" and "micronutrient" in various authorities and concludes that a fertilizer should contain one or more of the elements most essential for plants, viz. nitrogen, potassium and phosphorous. On the other hand, micronutrients are required in very small quantities and are comparatively less essential. They assist in dispersion and assimilation of food material (fertilizer). Though micronutrient is covered under the Fertilizer Control Order and there is an ISI specification for the same, in composition and usage, it is different from the usual fertilizers containing nitrogen, phosphorous and potassium. It has got many other uses such as pesticide, weedicide and as industrial chemical. The Collector says that the product cannot be treated as a fertilizer merely on the ground that it is sold as fertilizer or used by the buyers in farming.
4. In arriving at the decision that Item 14-HH ("fertilizers, all sorts") would not cover micronutrients, the Collector derived support from the Gujarat High Court decision in Shri Vallabh Glass Works Ltd. v. Union of India-1979 ELT J-608, and the Madras High Court decision in Parry Confectionery Ltd. v. Government of India-1980 ELT 468, in which the Courts had held that "merely because the heading of the tariff entry was wide, it would not mean that it would cover all types of commodities which would be covered by the general heading unless specific provision was made for those different parts in the body of entry or in an item itself" (the quotation is from the Collector's Order). Since micronutrients did not find mention in the body of the tariff item, the Collector concluded that it was not covered by the item. He dismissed as irrelevant the contention that micronutrients were taxed as fertilizers by the Sales Tax Department and Octroi authorities and that it was recognised as fertilizer by the Indian Standards Institution. The Collector added that since Central Excise Notification No. 71/70, dated 4-4-1970 exempting micronutrients was rescinded by Notification No. 170/78, dated 30-9-1978 and the instant dispute pertained to a period subsequent to 30-9-1978, the question of exemption under that notification did not arise. As regards the plea of limitation, the Collector rejected it because the goods were manufactured without obtaining Central Excise licence, and removed without observance of Central Excise Rules and without payment of duty. In the instant case, said the Collector, duty was not levied by the authorities due to the assessee's contravention of the provisions of the excise rules with intent to evade payment of duty and, therefore, the extended period of 5 years provided for in Section 11-A. would apply. The demand notice issued on 14-4-1980 for the period 1-10-1978 to 31-12-1979 was, therefore, in order. The Collector, however, after classifying the goods under Item 68, CET made due allowance for the exemption admissible to the assessee in terms of Notification No. 176/77, dated 18-6-1977 and its successor notification and computed the duty liability at Rs. 1,83,767.20. However, taking the circumstances of the case into account, the Collector did not impose any penalty on the assessee.
Shri K. Narasimhan, learned Counsel for the appellants, stated that the question for determination was whether zinc sulphate (agricultural grade) was a fertilizer falling under Item No. 14-HH of the CET or under Item No. 68 as a micronutrient. That the zinc sulphate under consideration was a micro-nutrient was an undisputed position. Central Excise Notification No. 71/70 dated 4-4-1970 recognised micronutrients as fertilizers even before Item No. 68 was inserted in the Tariff Schedule in 1975. Even after the creation of Item 68, the notification was rescinded only in 1978 by Notification No. 170/ 78 dated 30-9-1978. This would show that the Central Government and the Central Excise Department understood and considered micronutrients as fertilizers. The onus of showing that micronutrients no longer fell under Item No. 14-HH, but under Item No. 68, was on the Revenue. The understanding of the Government and the Department, as shown by Notification. No. 71/70, which held sway for a long period of 8 years, would lend support to the appellants' contention that micronutrients were nothing but fertilizers. In support of this plea, the Counsel relied on the doctrine of contemporaneous exposito as accepted by the Tribunal in its decision in the Uma Laminated Products case reported in 1984 ECR 2028.
Continuing, Shri Narasimhan stated that Item No. 14-HH covered all sorts of fertilizers. Thus its scope was very wide. The item, no doubt, excluded certain kinds of fertilizers but zinc sulphate was not among them.
The next contention of Shri Narasimhan was that clause 2(d) of the Fertilizer Control Order, 1957, defined the term "fertilizers". Read with Schedule I of the Order, it was clear that zinc sulphate conforming to the prescribed specifications was a fertilizer. There was no allegation in the present proceedings that the subject zinc sulphate did not conform to the prescribed specifications. Only agricultural grade of zinc sulphate was used as fertilizer and, therefore, its production and distribution were controlled Under the Fertilizer Control Order. Indian Standard Specification 8249 : 1976 recognised agricultural grade zinc sulphate as a fertilizer. Each bag of the appellants' zinc sulphate contained the ISI marking. Shri Narasimhan also referred to the book published by the Fertilizer Association of India showing micronutrients as a kind of fertilizer.
Reliance was placed by Shri Narasimhan also on the affidavits of certain dealers and farmers to the effect that zinc sulphate agricultural grade was known as a fertilizer.
With reference to the show cause notices issued to the appellants, it was submitted that the notice issued on 13-1-1981, though it was termed a corrigendum to an earlier show cause notice, was actually a fresh show cause notice and was hit by limitation because the period for which the demand was made, namely, 1-10-1978 to 31-12-1979, was beyond the prescribed limit of six months. If the first show cause notice dated 14-4-1980 was taken into account, a substantial part of the period of the demand would be time-barred. Shri Narasimhan then referred to the appellants' letter dated 26-9-1978 to the Assistant Collector which was received by the latter on 3-10-1978. Despite reminders, the licence was issued on 14-4-1980 on which date itself the first show cause notice was issued. The Department was aware of the happenings and nothing was suppressed from the Department. The Collector had not imposed any penalty. Though the show cause notice made out a case against the appellants with reference to Item No. 14-HH, the Collector had gone on an entirely different track and classified the goods under Item 68. This would show that the Collector had, in his mind, the second show cause notice which, Shri Narasimhan urged, was in any case hit by limitation.
5. Smt. Vijay Zutshi, Senior Departmental Representative, replied to the above submissions on behalf of the Respondent. She started by saying that the definition of fertilizer in the Fertilizer Control Order was an artificial one for the specific purpose of controlling the production and distribution of fertilizers. It could not be the basis for interpretation of the Central Excise Tariff Item No. 14-HH. While the subject goods might be fertilizer for the purpose of the Control Order, it would not be a fertilizer under Item No. 14-HH which covered only straight or mixed fertilizers, i.e., goods which were known technically and commercially as fertilizers. Referring to certain technical authorities ("Commercial Fertilizers by G.H. Collings, "Manures and Fertilizers" by A.M. Smith and "Chemistry and Technology of Fertilizers" by Vincent Sauchelli), Smt. Zutshi submitted that a substance to be recognised as fertilizer must contain one or more of the three primary nutrient substances, namely, nitrogen, potassium or phosphorpus. The subject zinc sulphate was not used in the same manner as ordinary fertilizers, but was mixed with fertilizers in small quantities. The aforesaid authorities do not talk of trace elements or micronutrients as fertilizers. Turning to notification No. 71/70, the SDR stated that it was not applicable to the subject product because micronutrient was not a fertilizer falling under Item No. 14-HH.
As regards the allegation of suppression of facts on the part of the appellants, Smt. Zutshi fairly stated that in view of the correspondence from the Appellants to the Department, it could not be justifiably alleged that material facts were suppressed from the Department.
6. In his reply, Shri Narasimhan stated that for the purpose of classification under the Central Excise Tariff Schedule, the Indian Standard Specifications and not foreign literature should be relied upon. For this purpose, he relied on the decisions reported as 1983 ECR 798 and 1983 ELT 1192.
7. We have given careful consideration to the arguments of both sides. Item No. 14-HH of the Central Excise Tariff Schedule reads as follows :-
"14-HH. Fertilizers, all sorts, but excluding natural animal or vegetable fertilizers when not chemically treated".
The question for determination is whether agricultural grade zinc sulphate manufactured by the appellants is a sort of fertilizer falling under item No. 14-HH as contended by the appellants or it falls under the residual heading item No. 68 of the Schedule.
8. Central Excise Notification No. 71/70, dated 4-4-1970 is reproduced below :
"In exercise of the powers conferred by Rule 8(1) of the Central Excise Rules, 1944, the Central Government hereby exempts fertilizers of the kind known as agricultural fritted trace elements or micronutrients or soils stabilizers falling under item 14-HH, from the whole of the duty of excise leviable thereon."
It is thus clear from the notification that micronutrients were understood and recognised as a sort of fertilizer by the Central Government and the Central Excise Department. If agricultural grade zinc sulphate of the kind produced by the appellants is a micronutrient-and there is no dispute on this- it would follow that it should fall under item No. 14-HH as a sort of fertilizer. And yet, the understanding of the Department appears to have undergone a sudden change when notification No. 71/70 was rescinded by notification No. 170/78 dated 30-9-1978. As Shri Narasimhan has pointed out, if micronutrient was a kind of fertilizer for the purpose of the Tariff before the creation of item No. 68 on 1-3-1975 and even thereafter upto 30-9-1978 when notification No. 71/70 was rescinded, it passes our comprehension as to how there could be a rational basis for the sudden change in the understanding as to the classification of micronutrients. Be that it may, we are now called upon to pronounce on the correct classification of agricultural grade zinc sulphate, a micronutrient and we shall attempt to do in the following paragraphs.
9. Now, the expression "Fertilizer" has not been defined in item No. 14-HH CET. It should, therefore, be understood as it is understood in commerce and industry, particularly because it is more of a common place expression rather than a scientific or technical one. In the instant case, there are several pieces of evidence which lead to the irresistible conclusion that micronutrients are a sort of fertilizer.
10. In the first place, we would like to deal with the Indian Standards Glossary of Terms used in fertilizer trade and industry (IS : 1304-1980). We consider this as a safe and reliable guide to a proper understanding of how micronutrients are accepted in trade and industry, particularly in view of the observations of the Supreme Court in Union of India and Ors. v. Delhi Cloth & General Mills Co. Ltd. and Ors.-1977 ELT J 199. "Fertilizer" is defined as follows : "A material, organic or inorganic, natural or synthetic, which supplies one or more of the chemical elements required for the plant growth".
When we look up the term "micronutrient", we find a remark "see 'Trace Elements' " which implies that the two terms are synonymous. "Trace Elements" are defined as follows :-
"Trace Elements (Micronutrients)-Products which contain nutrient elements essential for living plants in relatively small quantities, such as B, Mn, Fe, Zn, Cu, Mo, Co ...".
The Fertilizer Control Order, 1957 defines "Fertilizer" as follows :-
Clause 2(d)-"Fertilizer" means any substance used or intended to be used as a fertilizer of the soil and specified in column 1 of Schedule I and includes a mixture of fertilizers and special mixture of fertilizers".
The Fertilizer Control Order, though it is ostensibly for the purpose of controlling the production and distribution of fertilizers, has a vital bearing and, therefore, is considerably relevant to the understanding of how the Governmental authorities, the industry and trade understand the term "Fertilizer". One could broadly say that a product which is a fertilizer for the purpose of the Control Order ought to be accepted prima facie as a fertilizer for the purpose of item No. 14-HH CET unless, of course, the wiording of the item implicitly or explicitly excludes the product from its purvew or if the product is classifiable under a more appropriate tariff description. The converse may not necessarily be true because the Central Excise Tariif Item covers all kinds of fertilizers with specific exceptions whereas a product to be accepted as a fertilizer for the purpose of the Control Order must be one which is specified in column 1 of the 1st Schedule to the Order. Turning to Schedule I to the Order, we find at Serial No. 37 Zinc Sulphate with certain specifications laid down. It is thus clear that for the purpose of the Control Order, zinc sulphate conforming to the proscribed specification (there is no dispute about this aspect) is recognised as a fertilizer.
11. Smt. Zutshi urged that micronutrients, unlike the ordinary and well known fertilizers, are required only in very small quantities and are mixed with such fertilizers before application. It is her contention that micronutrients cannot, therefore, be classed along with fertilizers. We are not impressed with this argument. Micronutrients are a group of nutrients which are essential for plant growth and development but are required by plants in small quantities. Iron, zinc, manganese, copper, boron, molybdenum and chlorine fall in this category. It is seen from the "Handbook on Fertilizer Usage", brought out by the Fertilizer Association of India, New Delhi, that the distinction between nitrogen, phosphorous and potassium, which are to be found in the major fertilizers and micronutrients, lies in the fact that nitrogen, phosphorous and potassium are used in large quantities by plants. These are, therefore, called major or primary nutrients. Calcium, magnesium and sulphur are required relatively in small but in appreciable quantities and are called secondary nutrients. Iron, zinc, manganese, copper, Boron, molybdenum and chlorine are required by plants in small quantities for their growth and development. Hence these are referred to as micro-nutrients or trace elements. If nitrogen, phosphorous, potassium bearing products which are used for growth and development of plants are fertilizers, it stands to reason that micronutrient bearing products are also fertilizers. Both supply essential nutrients to plants, the former to a larger extent and the latter to a smaller extent, the difference being, however, dictated by the requirements of plants for their growth and development. Smt. Zutshi said that the appellants' agricultural grade zinc contained only a small proportion of zinc sulphate-21%. The argument perhaps is that in view of the small proportion of zinc in the product it should not be classed as a fertilizer. But this argument has no force since the minimum percentage content in zinc sulphate is laid down in Schedule I to the Fertilizer Control Order as 21%.
12. During the course of the hearing we were shown samples of the markings on the bags in which the appellants market their zinc sulphate. These are marked as "Zinc sulphate-agricultural grade khad (fertilizer)" and bear ISI marking. It is clear that the product is marketed as "fertilizer".
13. Turning to the scientific or technical understanding of the expression "fertilizer", we see from page 459 of the Condensed Chemical Dictionary by Gestner H. Hawley that fertilizer is a substance or mixture that contains one or more of the primary plant nutrients and sometimes also secondary and/or trace nutrients. Smt. Zutshi has cited certain technical books in support of her contention that micronutrients cannot be classed along with fertilizers. The book "Chemistry and Technology of Fertilizers" by Vincent Sauchelli, referred to by the SDR, says that it is not always feasible to introduce all the microcelement-bearing materials into the primary basing operation because the soil and crop requirements may vary from farm to farm. For example, recommended use of zinc sulphate may vary from 10 to 80 Lbs. and even more per ton of fertilizer. Since it is necessary to prepare and store the fertilizers having varying quantities of microelements in advance of demand the manufacturer is forced to limit the number of mixtures he may be willing or able to make at the primary basing machines. The simplest method found for adding the minor elements is by means of a formulation machine at the time of shipment. Elsewhere the book says that three major processes may be used successfully to mix trace element salts with nitrogen, phosphate and potash fertilizers; addition before ammoniation; addition at the time of shipment while bringing the fertilizer to the guaranteed analysis; addition to the blunger prior to granulation.
14. What we would understand from the above is that unlike the ordinary run of fertilizers, micronutrients cannot be used as such. They have to be mixed with the main fertilizers like nitrogenous phosphatic and potassic fertilizers. Since the requirement of micronutrients varies from soil to soil, there cannot always be mixing of micronutrients with the main fertilizers in the fertilizer factory. The mixing has often to be done according to requirements before the actual application of the mixed fertilizer to the soil. This, however, does not, in our view, amount to saying that micro-nutrients are not fertilizers.
15. Similarly, the book "Manures and Fertilizers" by A.M. Smith also does not help the case of the Respondent. The fact that trace elements are dealt with in a chapter separate from nitrogenous, phosphatic and potassic fertilizers, cannot be an argument to say the trace elements are not fertilizers.
16. Similarly, we do not find anything in the extracts furnished to us from the book "Commercial Fertilizers" by G.H. Collings which would support the contention that micronutrients are not fertilizers.
17. In arriving at the conclusion that item No. 14-HH (Fertilizers, all sorts) would not cover micronutrients, the Collector relied upon the Gujarat High Court decision in the Shri Valabh Glass Works case-1979 ELT J-608. The Court was interpreting item No. 23 A of the CET. It said that the word "glass" as mentioned therein gave all the details of the items which were liable to excise duty but did not cover all types of glasses. Sub-item (1) mentioned only glass sheets and plate glass, the remaining sub-items covered glassware. Even the residuary sub-item (4) did not mention other glasses. Consequently, the Court held that the mere mention of the word "glass" in the title of item 23A would not mean that sheet glass and plate glass would cover other glasses as well. The ratio of the decision is that merely because the heading of the entry is wide it would not mean that it would cover all types of commodities which would be covered by the general heading unless specific provision is made for those different types of commodities in the body of the entry or in the item itself. We do not think that this decision is relevant to the instant case. Here, we have already found that micronutrients are understood and accepted as fertilizers by the Indian Standards Institution, the Fertilizer Control Order and by the Central Government as well as the Department (by the latter, at any rate, till notification No. 71/70 was rescinded in 1978).
18. The Collector also relied upon the Madras High Court decision in the case of Mls Parry Confectionery--1980 ELT 468. We have carefully perused this judgment but we do not see how it helps the Department's case. From the material available before it, the Court said that lozenges would not fall within the description of candy. On the contrary, this decision goes against the Department. In coming to its conclusion, the Court relied upon the decision of the Supreme Court in Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791, wherein the Supreme Court observed that in technical matters, the views expressed by the Indian Standards Institution must be preferred. We see from IS : 1304-1980, the Fertilizers Sectional Committee which drew up the glossary of terms used in fertilizer trade and industry comprised of eminent persons drawn from the fertilizer industry, Agricultural Universities, representatives of chemical manufacturers, the Ministries of Chemicals and Fertilizers and Agriculture, the Indian Agricultural Research Institute, etc. What such an eminent Committee says which also finds support in the Fertilizer Control Order should surely receive the highest consideration and respect, particularly when, as in this case, we do not find anything in even the technical authorities cited by the Departmental Representative which is inconsistent with or contrary to the view that micronutrients are fertilizers.
19. In the light of the above discussions, we hold that the agricultural grade zinc sulphate manufactured by the appellants is a micronutrient classifiable under item No. 14 HH of the Central Excise Tariff Schedule.
20. Next, we turn to the actual duty liability of the appellants. It is seen from the record that the appellants had applied to the Assistant Collector on 26-9-1978 for issue of Central Excise licence, "if required". In the letter, they contended that their product was exempted from excise duty. It, however, appears that the licence to manufacture zinc sulphate under item No. 14HH CET was issued only on 14-4-1980. The record also shows that in July, 1980 the Department informed the appellants that all fertilizers except amonium sulphate and calcium ammonium nitrate had been exempted from duty with effect from 7-6-1980. The appellants were told that Central Excise Control was, however, to be continued for two months and that, they should continue to maintain central excise records, gate passes, monthly returns, etc. The appellants' contention before us that their bonafides are clear throughout the proceedings is amply established by the above circumstances. Though they applied for a licence on 26-9-1978, in reality, they would appear to have been exempted from the requirement of taking out a licence by virtue of notification No. 111/78, dated 9-5-1978. Consequently, there was no duty cast on them to maintain records in accordance with Central Excise Rules and procedures. Still, the appellants, after claiming that their product was exempt from duty, chose to apply for a licence "if required". In these circumstances, the duty liability, if any, of the appellants can be only for a period of six months prior to the date of the show cause notice. The extended period of 5 years would not apply as erroneously decided by the Collector. We must here take notice of the fact that the Senior Departmental Representative has fairly stated that there was no suppression of material facts in the present case.
21. There were two show cause notices. The period covered by both is the same, namely, from 1-10-1978 to 31-12-1979. The first notice dated 14-4-1980 demands duty at 71/2% ad valorem amounting to Rs. 4,26,638.38 under tariff item No. 14-HH. The rule under which the duty is demanded is 9(1). The second show cause notice dated 13-1-1981 puts the duty amount at Rs. 4,52,944.40. Again, the rule quoted is 9. This notice which is styled as a corrigendum is nothing but an independent show cause notice looking at the language used. The reason for issuing the so called corrigendum is stated to be that the correct and complete information regarding value of the goods cleared was not furnished by the appellants. At the commencement of t he show cause notice there is the following sentence : "Notice to show cause No. 7MP/RVM/80/260 dated 14-4-1980 may please be read as under".
What follows thereafter is a show cause notice, true and proper, with all its usual trappings from A to Z. There is, therefore, no doubt whatsoever that this notice supersedes the earlier notice dated 14-4-1980 without, however, actually saying so. The time-limit specified in Section 11-A of the Central Excises & Salt Act is applicable also to demands made in terms of rule 9(2). The period of the demand being 1-10-1978 to 31-12-1979, the notice dated 13-1-1981 was clearly beyond the period of limitation. As such, the notice dated 13-1-1981 is hit by limitation. We are, therefore, of the view that no duty liability can be fastened on the appellants.
22. We must note that whereas the first show cause notice demanded duty under item No. 14-HH, the second show cause notice does not even spell out under which item of the tariff the goods fell. However, the Collector has arrived at the classification of the goods under item No. 68 CET. This, to our mind, was clearly improper as he had gone out of the scope of the show cause notice. It is, however, interesting to note that even the second notice says that "inasmuch as they manufacture Fertilizers (Zinc Sulphate ... ). It is clear that even this notice proceeds on the basis that the subject product was a fertilizer. It did not say that the goods fell under item 68.
23. In the result, the impugned order is set aside and the appeal is allowed with consequential relief to the appellants.