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MADRAS FERTILIZERS LTD. v.

ASSISTANT COLLECTOR OF CENTRAL EXCISE, MADRAS V

DIVISION, MADRAS AND ORS.

JANUARY 20, 19'J4

[B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.]

Central Excises and Salt Tax Act, 1944-Tari/f Item 14HH, First Schedule-Notification under R.8(1)-Exemption for mixed fertilizers obtnined with the aid of power and made of tWo or more fertilizers on all of C which excise or additional duty already paid-Held, ammonia not a fe11ilizer, its use in manufacture of the fertilizer takes it outside the exemption.

Central Excises and Salt Tax Act, 1944-Tariff Item 14HH, First Schedule-Government order clarifying that chemical reaction in the D manufacture of mixed ferlilizer not relevant condition to deny exemption-Matter remitted for allowing exemption if conditions in the notification fulfilled-Held, doe's not amount to an order granting exemption.

Central Excise Rules-R.173-B(S)-Held, Assistant Collector has power under, to rectify e"or regarding rate of duty.

The appellants manufactured and sold mixed fertilizer under the trade name. They claimed exemption from excise duty under Notification 25/70 which exempted mixed fertiliurs falling under TI 14HH manufactured with the aid of power, from two or more fertilizers on all of which excise, or additional duty had already been paid.

The Assistant Collector, on a finding that the fertilizer in question was not a mixture of two or more fertilizers but of fertilizers and other ingredients, did not allow the exemption. He also held that ammonium phosphate, generated during the course of mixing of fertilizers, was a well G known fertilizer though not subjected to levy for practical reasons. On appeal, the Appellate Collector affirmed the order, and also observed that complex fertilizers obtained by chemical reaction could not come within the exemption.

The Government of India allowed a revision petition filed by the H 189

A appellant and held that the Notification did not lay down any condition that the mixture should not be complex fertilizer obtained by chemical reaction. The matter was remitted, with the direction that exemption under the Notification be allowed if the conditions thereof were fulfilled.

B The Assistant Collector, on 5 March 1976 extended the benefit to the appellant's product subject to the appellant paying the duty on the components. A few months later, realisig bis mistakei be issued a show cause notice on the grounds that urea was not used as a base fertilizer in the manufacture of the fertilizer in question; duty on urea was paid at the intermediary stage only to satisfy the condition of the Notification further, C the Notification did not contemplate formation of a third fertilizer •·

ammonium phosphate; and no duty was paid on it, again, ammonia was cleared free of duty.

After hearing the appellant, the Assistant Collector concluded that the fertilizer in question was not a mixture of fertilizer as contemplated by D the Notif1Cation. He also held that a chemical transformation took place which caused the original substances to lose their identity and get transformed into a new product.

A Single Judge of the High Court allowed the writ petition filed by E the.appellant, on the ground that the Assistant Collector had denied the benefit on a ground specifically negatived by the Government of India. On appeal, the Division Bench held for the Revenue, that that bad not been the only ground, and that. Coromandel Fertilisers v. Union of India, concluded the issue against the appellant.

F In the appeal before this court, the appellant Company contended that the Assistant Collector bad become funcflAs officio after passing the order dated 5 March 1976; that e\; en otherwise he had reitrated the ground about chemical transformation which had been expressly negatived by government; that the order of the GOI being final, the Coromandel case G could not be invoked to reopen the case, and that the case was distinguish~

able anyway. It also contended that all the points bad been decided by the GOI iil the revision, and the Government order could not be re-agitated.

Dismissing the appeal, this Court

... ..,"""'.'..r -~ # .... -4." HELD : 1. The order of the GOI deals with one aspect: 'tht chemical

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reaction or transformation, if any, taking place on the mixing of fertilizers A is no ground to deny the benefit of the exemption. When the GOI remitted the matter to the lower authorities to grant exemption if the conditions of the Notification were fulfilled, it necessarily meant the conditions other than the one specifically dealt with by the GOI in its order. (196-E-H]

2. The Assistant Collector did not become functus officio once he B passed the order dated 5 March 1976 pursuant to the GOI order. If he granted an exemption contrary to law it was always open to him to rectify the error, under Rule 173-8(5) of the Central Excise Rules. [197-B]

Collector of Central Excise v. Pallappa, A.I.R. (1964) Madras 111 and C Union of India v. Kamalakshi Finance Corporation Ltd., (1991) 55 E.L.T. 433, referred to.

3. The decision of this court in Coromandel Fertilizers, that ammonia is not a fertilizer but falls within the purview of "gases" under TI 14H, is binding - more so when the judgment of this court is based on the Tariff D entries themselves. [197-H]

Coromande! Fertilizers Ltd. v. Union of India, [1985) 1 S.C.R. 523, followed.

4. The mixture manufactured by the appellant does not satisfy all E the conditions prescribed by the relevant Notification; the benefit of the Notification does not therefore, flow to the appellant. [198-H]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4531-32 1986.

From the Judgment and Order dated 28.2.1986 of the Madras High Court in W.A.Nos.507 to 508 of 1980.

Uttam Reddy, A.V. Rangam and A. Ranganathan for the Appellant.

Joseph Vellapally, Ashok K. Srivastava, V.K. Verma and P. Parmes- G --< waran (N.P.) for the Respondents.

The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. 1. Tariff Item 14HH of the First Schedule the Central Excise and Salt Act, 1944 levied duty on fertilizers at the H

A rate of 15 per cent ad valorem. The Tariff item read as follows :

item.

No.

ITEM No. 14 HH-FERTILISERS

Description Rate of Duty

14 HH.

Fertilisers, all sorts, but excluding 15% ad valorem. natural, animal or vegetable fertilisers when not chemically treated ·

2. On March 1, 1970, the Government of India issued a Notification C Bearing No.25/70 under Rule 8(1) of the Central Excise Rules exempting "mixed fertilizers, falling under Item No.14HH of the Fust Schedule to the Central Excise and Salt Act, 1944 manufactured with the aid of power, from two or more fertilizers on all of which the appropriate amount of the duty of excise or, as the case may be, the additional duty under Section 2A D of the Indian Tariff Act, 1943 has already been paid, from the whole of the duty of excise leviable thereon". There was an Explanation appended to the said Notification but since it is not relevant for the present purposes, it need not be quoted or referred to. A reading of the Notification shows that excise duty was waived in full in respect of "mixed fertilisers falling under item 14HH" which is manufactured "from two or more fertilisers on E all of which the appropriate amount of duty of excise or as the case may be additional duty" had already been paid. The question in these appeals is whether the mixed fertilisers manufactured and sold by the appellant under the trade-name, Vijay (N.P.K.17- 17-17) is entitled to the benefit of the said Notification.

F The Assistant Collector refused the benefit of the said Notification to the appellant on the ground that the mixed fertilisers (N.P.K.)manufactured by the appellant is not a e of two or more fertilizers as required by the Notification but a mixture of fertilizers and other ingredients. He found that (N .P .K.) is a combination of urea, muriate of potash, phosphoric G acid, ammonia fillers and coating agents .. Moreover, he held, the ammmiium phosphate which goes into the composition of N.P.K. is also a well known ferilizer, though it is not subjected to levy for practical reasons. On appeal, the Appellate Collector affirmed the Assistant Cqllector's order observing, "according to the Notification it was only such mixed fertilisers H are exempted which are produced by blending, mixing or granulating

MADRAS FERTILISERS v. ASSIT. C.C.E. [B.P.J. REDDY, J.) 193

duty-paid fertilisers (two or more) with any substance wherein such nm- A tores are produced by physical actions and without chemical reactions. The fertilisers manufactured by the appellants are definitely complex fertiLisers which are obtained by chemical reaction. Such complex fertilizers cannot therefore be considered as simple mixtures for exemption provided in the notification". The appellant challenged the correctness of the Appellate order by way of revision before the Government of India which allowed B

the same and remitted the matter for further verification under the following order (dated February 18, 1976) : "The order in appeal is based on the contention that the mixture of two or more fertilisers envisaged in the relevant Notification should be by physical action and without chemical reaction and the fertilisers, manufactured by the petitioners are definitely C complex fertilizers obtained by chemical raction and hence they cannot be considered as simple mixtures to attract the exemption in the Notification. The said Notification does not lay down any such conditions and only requires that the mixture can be obtained with the aid of power and the mixed fertilizers should contain not more than one nutrient. Thus the order D in appeal is not a proper speaking order on the issue involved and is set aside. The exemption under the said notification is allowed if the condition thereof are fulfilled".

3. According to the Government of India's order, the fact that chemical reaction takes place during the mixing of fertilizers fo no ground E for denying the benefit of the said Notification. It was of the opinion that the benefit of the Notification cannot be confined to somple mixtures alone, inasmuch as the Notification did not contain any such condition. Having so held, it remitted the matter to the lower authorities to grant the exemption if the conditions of the Notification are fulfilled. Be it noted that F the Government of India did not deal with other objections contained in the Assistant Collector's order - presumably because, the appellate order (which was the subject matter of challenge before the Government of India) dealt only with one ground viz., occurring of chemical reaction/transformation during the course of mixing of fertilizers by the appellant, yielding a new product ammonium phosphate.

4. Pursuant to the orders of the Government of India, the Assistant Collector, by his order dated March 5, 1976, extended the benefit of the Notification to the appellant's product - Vijay N.P.K.17-17-17 - Subject to the condition that the appellant pays the duty on the components. Within H

A a few months, however, the Assistant Collector appears to have realised that he committed a mistake in e:Xtending the benefit of the Notification to the 'appellant's fertilizer' mixture and accordingly issued a show-cause notice on June 7, 1976 calling upon the appellant to show-cause why the benefit of the Notification be not denied to him for the reasons stated B therein. The show-cause notice set out these grounds for the action proposed therein : urea is not used as an independent base fertiliser in the manufacture of the fertiliser mixture (Vijay N.P.K.17-17-17) by the petitioner. Duty on urea is paid at the intermediary stage only to satisfy the condition of the Notification. Further a mixed fertiliser contemplated by the Notification is a mixture of two or more fertilizers. It does not con- C template formation of a third fertilizer. viz., ammonia phosphate in the process of mixing or ad-mixture of such raw materials as ammonia phosphate. Further, ammonia-is cleared free of duty under Notification 145 of 1971 - CE dated January 26, 1971.

5. In response to the notice the appellant showed cause, whereafter D the Assistant Collector, by his order dated 7.1.1977 denied the benefit of

the Notification to the said product of the appellant on the ground that a review of the process of manufacture establishes that it does not satisfy the conditions prescribed in this Notification. He found specifically that the

said mixture is not a mixture of two or more fertilisers alone and that more than one non-fertiliser agent goes into the manufacture of the said mixture.

He also found that the ammonium phosphate which is obtained by mixing of certain fertilisers and certain non-fertiliser agents is itself a fertiliser on which no duty is paid. Accordingly he concluded that the said product is not a mixture of fertilizers as contemplated by the Notification. He further held that the Notification contemplates a mixture of two or more fertilizers wherein chemical transformation does not take place whereas in the case of the appellants product, such a chemical transformation does take place as a result of which the original substapces lose their identity and get transformed into a new product. ,

6. The appellant approached the Madras High Court by way of writ petition against the aforesaid order of the Assistant Collector dated January 7, 1977. The main contention urged by the petitioner was that inasmuch as the impugned order of the Assistant Collector denies the benefit of the Notification on a ground which has been specifically nega- H tived by the Government of India in its revisional order dated February 18,

MADRAS FERTILISERS v. ASSIT. C.C.E. [B.P.J. REDDY, J.] 195

1976, it is unsustainable in law. A learned Single Judge agreed with the A appellant's contention and allowed the writ petition against which the State preferred a writ appeal. The Division Bench allowed.the writ appeal and dismissed the writ petition. The Division Bench held that the appellant was

nt right in contending that the Assistant Collector's order dated January 7, 1977 is based on the only ground which had been negatived by the B Government of India in its order dated 18.2.1976. So far as merits are concerned, the Division Bench held that the decision of this Court in Coromandal Fertilizers Ltd. v. Union of India and Ors., [1985) 1 S.C.R. 523, concludes the issue against the appellant. The Division Bench further observed that it was open to the Assistant Collector to rectify the mistake C committed by him in his order dated 5.3.1976 and that the contention that he has no jurisdiction to do so is unacceptable. The correctness of tµe order of the Division Bench is assailed in these appeals.

7. Sri Uttam Reddy, the learned counsel for the appellant urged the following contentions : D

1. The order of the Assistant Collector dated March 5, 1976 is in implementation of the order of the Government of India dated February 18, 1976. Once the Assistant Collector passed the said order he became E functus officio. He had no jurisdiction to revise or revoke the said order thereafter. Even otherwise, it is clear that the order of the Assistant Collector dated January 7, 1977 reiterates the very ground negatived by the Government of India, viz., chemical transformation in the process of mixing of fertilisers. The said ground, having been expressly negatived by the Government of India in its revisional order dated February 18, 1976 is not available to the authorities. The order of the Government of India having become final, and also being inter partes, is binding upon the department

and they can not question its correctness relying upon the decision of this Court in Coromandal Fertilizers assuming that it applies to the facts of this case. Even otherwise, the fact that this Court may have taken a different G view on merits in Coromandal Fertilizers is of no relevance so far as the

appllant is concerned. As a matter of fact, the decision of this Court in Ceromandal deals with a different product which was a mixture of components different than the components concerned in the appellant's product.

2. The Division Bench of the High Court was in error in holding that the order of the Government of India in revision did not foreclose the controversy. All the grounds oow urged by the Assistant Collector were before the Government. It allowed the ppellant's claim. The last sentence in its order "The exemption UJ.)der the said Notification is allowed if the B condition thereof are fulfilled", meant only that the authorities ensure that duty is paid on the components. The said sentence did not mean that authorities could raise the very sam~ objections again which were raised by them on the earlier occasion. All those objections must be deemed to have been rejected by the order of the Government of India. The said order C in revision has to be read as a whole and understood reasonably. If so read and understood, it must be held to have left no room to reagitate the very same objections over again. All that the authorities were required to be satisfied was regarding the payment of duty on components and nothing more.

8. We may first deal with the submission oi the learned counsel for the appellant with respect to the meaning and effect of the order of the Government of India dated February 18, 1976. The order deals only with one aspect viz., that chemical reaction or transformation, if any, taking place on the mixing of fertilisers is no ground to deny the benefit of the aforementioned Notification to mixture of fertilizers. The order does ot deal with any other condition specified in the exemption Notification. It would, therefore, not be reasonable to read the said order as holding finally that the fertilizer mixture manufactured by the petitioner satisfies all the conditions of the said Notification. Nor are we prepared to accede to the learned counsel's contention that the remitting of the matter to the lower authorities was confined only to verification of payment of duty on fertilizer going into the manufacture of said mixture. The contention of the learned counsel does not even stand to logic. The payment of duty on components is also a condition of the Notification just as the other condition that the G mixture to become entitled to benefit of exemption should be a mixture of fertilizers alone. There is nothing in the order of the Government of India to indicate that it contemplated verification only one condition or one condition or one condition of a particular nature. On the contrary, it spoke of "conditions" of the Notification being satisfied. When the Government H of India remitted the matter to the lower authorities to grant exemption if

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the conditions of the Notification are satisfied, it necessarily meant the A conditions other than the one specifically dealt with by the Government of India in its order. We are, therefore, of the opinion that after the remand it was open to, indeed it was the duty of, the excise authorities to satisfy themselves that all the other condition of Notificaiton are satisfied.

9. It is equally difficult to agree with the learned counsel for the appellant that once the Assistant Collector passed his order dated March

5, 1976 pursuant to the Government of India's order dated February 18, 1976, he became functus officio and that he had no power to reopen the matter. The Government of India remitted the matter to the Assistant Collector to grant exemption if the conditions of the Notification are C satisfied. If the Assistant Collector granted an exemption contrary to law it was always open to him to rectify the said error. Sub-rule (5) to rule 173-B Central Excise Rules empowers the excise authorities to do so. Rule 173{B) provides for approval of the list of goods by the proper officer. The approval inter alia includes rate of duty leviable on each such goods. D Sub-rule (5) reads: "(5) When the dispute about the rate of duty has been finalised or for any other reasons affecting rate o~ rates of duty, a modification of the rate or rates of duty is necessitated, the proper officer shall make such modification and inform the assessee accordingly''. It may be noted that before revising his order dated March 5, 1976, the Assistant Collector gave a notice to the appellant stating the grounds on which he E proposed to revise and modify his earlier order. The decision cited by Sri Uttam Reddy in support of this submission viz., Collector of Central Excise

v. Pallappa, [1964) Madras 111, has no relevance whatsoever. That was a case where the appellate authority set aside the order of the original authority levying penalty without saying more. It was held that in such a F situation, the original authority has no power to initiate de novo proceedings for levy of penalty. We are unable to see any analogy whatsoever with that case herein. The learned counsel also cited Union of lndi.a v. Kamalakshi Finance Corporation Ltd., {1991) 55 E.L.T. 433, to stress the judicial discipline required of the Excise Officers to obey the order of the superior tribunals and courts. Again, we see no relevance of the said principle in G the facts of that case.

10. It has been held by this Court in Coromandal Fertilizers that ammonia is not a fertilizer but falls within the purview of "gases" mentioned under Tariff Item 14H, whereas fertilizers fall under Tariff Item 14HH. In H

A view of the said judgment 'it can no longer be contended by the appellant that ammonia (which is one of the chemicals used to manufacture N.P.K) is a fertilizer. Sri Uttam Reddy requested that an opportunity may be given to the appellant to establish that ammonia is also a fertilizer. We do not thipk we can accede. to the. said request. The show-cause notice issued on B January 7, 1977 did expressly put the appellant on notice specifically that some of the raw materials like ammonia and phosphoric acid are not fertilizers. The final orders stated that said fact more clearly. In any event, in view o.f the decision of this Court in Commandal it is not open either to the appellant or to any authority to say that ammonia is a fertilizer - more go when the judgment of this Court is based upon the Tariff entries C themselves.

11. Lastly, the learned c"unsel for the appellant relied upon para 11 of the judgment in Coromandal Fertilizers. It appears that the counsel for Coromandal Fertilizers referred to the fact that a similar manufacturer of D mixed fertilivrs, namely the appellant herein, has been given the benefit of the said exemption. Notification under the orders of the Assistant Collector dated March 5, 1976 and that there was no reason to deny the said benefit to Coronandal "Fertilizers. The said argument was dealt with by this Court in the following words :

"Mr. Setalvad made a grievance that the authorities concerned had allowed the benefit of the Notification under similar circumstances to a rival company. If the grievance of the appellant is true, the appellant may no doubt have reasons to feel sore about it. We have, however, to point out that the grievance of the appellant, even if it is well founded, does not entitle the appellant to claim tlie benefit of the Notification. A wrong decision in favour of any particular party does not entitle any other party to claim the benefit on the basis of the wrong decision".

12. We do not think that the said observations help the appellant in any manner. t is not for us to say whether the mixture of fertilizers concerned in Coromandal Fertilizers is similar to the mixture manufactured by the appellant. It is sufficient to say that the mixture manufactured by the appellant does not satisfy all the co11ditions prescribed by the relevant H Notification and that unless all the conditions are satisfied, the benefit does

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not flow. It was also admitted before us by the learned counsel for the A appellant that the Explanation appended to the exemption Notification is not relevant herein.

13. For the above reasons, the appeals fail and are accordingly dismissed with costs. Advocate's fee assessed at Rs.5,000/- consolidated.

U.R.

Appeals dismissed.