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  • Anil Choudhary
  • Anil G. Shakkarwar
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  • Anil Choudhary
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Smart Summary

Concise Analytical Summary of the Tribunal Order

Factual and Procedural Background

M/s. Chakradhar Chemicals Pvt. Ltd. (the assessees) manufacture Ferrous Sulphate, Zinc Sulphate, Magnesium Sulphate and mixtures of micronutrients (solid and liquid). From September 1990 to August 2007 they procured sulphuric acid without payment of duty on the strength of CT-2 certificates issued by the jurisdictional Assistant Commissioner, initially following Chapter X procedure and later in terms of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.

The procurement without payment of duty was governed by a series of notifications including Notification Nos. 5/99-C.E. dated 28-02-1999; 3/2001-C.E. dated 01-03-2001; 6/2002-C.E. dated 01-03-2002; and 4/2006-C.E. dated 01-03-2006, which granted exemption for sulphuric acid where used in the manufacture of fertilizer.

Revenue issued seven show cause notices to the assessee (dated 23-09-2004; 03-08-2005; 05-01-2006; another dated 05-01-2006; 17-04-2006; 05-02-2007; and 06-09-2007) proposing demand of duty on the sulphuric acid procured under those notifications. The first five notices were adjudicated by an Order-in-Original dated 11-10-2006, in which the Original Authority held that the goods manufactured were not fertilizers for the purposes of Chapter 31 of the Central Excise Tariff Act, 1985. That Order-in-Original rejected the assessee’s contention that the term “fertilizer” should be understood in the sense of the Fertilizer (Control) Order, 1985.

The Order-in-Original dated 11-10-2006 was appealed to the Commissioner (Appeals). By Order-in-Appeal No. 44-CE/MRT-I/2008 dated 25-02-2008 the Commissioner (Appeals) applied this Tribunal's decision in Punjab Micro Nutrients Ltd. v. Collector of Central Excise and held that Zinc Sulphate and mixtures of micronutrients manufactured by the assessee were fertilizers; the Commissioner remanded aspects relating to other products for reconsideration by the Original Authority. That Commissioner’s order was challenged by the assessee (Appeal No. 1143/2008) and by Revenue (Appeal No. 1186/2008).

The last two of the seven show cause notices were decided by an Order-in-Original dated 30-05-2008 denying the exemption; those orders were appealed to the Commissioner (Appeals), which were decided by Order-in-Appeal Nos. 195 to 196 CE/APPL/MRT-I/2008 dated 31-10-2008 in favor of the assessee. Revenue then preferred an appeal before this Tribunal (appeal numbered 179/2009). The three appeals before the Tribunal were connected and taken together for decision.

Legal Issues Presented

  1. Whether the goods manufactured by M/s. Chakradhar Chemicals—specifically Zinc Sulphate, Ferrous Sulphate, Magnesium Sulphate and mixtures of micronutrients—constitute “fertilizer” for the purposes of the notifications granting exemption of duty on sulphuric acid used in their manufacture.
  2. If the goods are fertilizers as defined, whether the assessee was entitled to procure sulphuric acid without payment of duty under the cited notifications and thus whether the show cause notices proposing duty are unsustainable.

Arguments of the Parties

M/s. Chakradhar Chemicals (Assessee) — Arguments

  • The Fertilizer (Control) Order, 1985 (issued under Section 3 of the Essential Commodities Act, 1955) defines “fertiliser” at Clause (h) to include substances specified in Part A of Schedule I and includes mixtures of fertilizers; that definition governs what constitutes a fertilizer for the purpose of exemption notifications.
  • Part A of Schedule I to the Fertilizer (Control) Order lists micronutrients; Zinc Sulphate (both Heptahydrate and Monohydrate), Ferrous Sulphate and Magnesium Sulphate are specifically listed at serial numbers cited in the Order.
  • None of the impugned notifications condition the exemption on the final product being classifiable under Chapter 31 of the Central Excise Tariff Act; therefore the Original Authority erred in restricting eligibility to Chapter 31 classification.
  • Reliance was placed on this Tribunal’s decision in Punjab Micro Nutrients Ltd. v. Collector of Central Excise (and the dismissal of the subsequent Civil Appeal to the Supreme Court) which held that Zinc Sulphate could be considered fertilizer by virtue of its inclusion in the Fertilizer (Control) Order and that the notification did not restrict exemption to Chapter 31 classifications.
  • Reliance was also placed on the Tribunal’s decision in Himgiri Metals Pvt. Ltd. v. Commissioner of Central Excise, which held that fertilizers should be understood in accordance with the Fertilizer (Control) Order and that procurement of sulphuric acid without payment of duty under the relevant notification was regular where the final products were covered by that Order.

Revenue — Arguments

The opinion records that the learned Additional/Assistant Representative (AR) for Revenue “has taken us through the grounds of appeal in two appeals filed by Revenue,” but the text does not provide a detailed account of the specific legal arguments advanced by Revenue in those grounds. Therefore a detailed summary of Revenue's pleading is not available in the provided opinion.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Punjab Micro Nutrients Ltd. v. Collector of Central Excise (Tribunal decision; subsequently a Civil Appeal was mentioned as dismissed by the Supreme Court) Held that it was not a condition under the relevant notification that the fertilizer must be classifiable under Chapter 31; Zinc Sulphate can be considered a fertilizer by reason of its inclusion in the Fertilizer (Control) Order, 1985. The Tribunal applied this decision to hold that Zinc Sulphate and mixtures of micronutrients manufactured by the assessee fall within the Fertilizer (Control) Order and are therefore fertilizers for purposes of the exemption notifications.
Himgiri Metals Pvt. Ltd. v. Commissioner of Central Excise, Meerut-I (Tribunal, Delhi) Affirmed that fertilizers take their meaning from the Fertilizer (Control) Order and that procurement of sulphuric acid without payment of duty under the relevant notification is permissible where the final products are covered by that Order. The Tribunal found this decision squarely applicable and relied upon it to support the conclusion that the assessee’s goods are fertilizers and that the exemption for procurement of sulphuric acid was properly available.

Court's Reasoning and Analysis

The Tribunal addressed the central factual-legal overlap: the impugned notifications grant exemption for sulphuric acid used in the manufacture of “fertilizer.” The Tribunal examined whether the assessee’s finished products fell within the meaning of “fertilizer.”

The Tribunal proceeded by reference to the Fertilizer (Control) Order, 1985. It noted that Clause (h) of that Order defines “Fertiliser” to mean any substance used or intended to be used as a fertilizer of the soil and/or crop and specified in Part A of Schedule I, and that the definition explicitly includes mixtures of fertilizers.

The Tribunal then reviewed Part A of Schedule I and observed that the products manufactured by the assessee—micronutrients including Zinc Sulphate (Heptahydrate and Monohydrate), Ferrous Sulphate and Magnesium Sulphate—are specifically listed in that Schedule. On that basis the Tribunal concluded that those products are fertilizers as defined under the Fertilizer (Control) Order, 1985.

The Tribunal also considered precedents relied upon by the assessee (Punjab Micro Nutrients and Himgiri Metals), noting that those decisions supported reading the exemption notifications in conjunction with the Fertilizer (Control) Order rather than restricting the exemption to products strictly classifiable under Chapter 31 of the Central Excise Tariff Act. Applying those authorities and the textual definition in the Fertilizer (Control) Order, the Tribunal found that the exemption provided in the cited notifications was admissible to the assessee.

On that legal and evidentiary foundation the Tribunal concluded that the show cause notices proposing duty were unsustainable because the underlying predicate—that the final products were not fertilizers—was incorrect.

Holding and Implications

Final Disposition: The Tribunal allowed the appeal filed by M/s. Chakradhar Chemicals Pvt. Ltd. and dismissed both appeals filed by Revenue.

Immediate Consequences: As a result of this ruling, M/s. Chakradhar Chemicals is held to have been entitled to procure sulphuric acid without payment of duty under the relevant notifications for the manufacture of the listed products; the seven show cause notices that sought to demand duty on that procurement were rendered unsustainable. The assessee is entitled to consequential relief, if any.

The opinion does not purport to lay down a novel legal principle beyond applying the Fertilizer (Control) Order and existing Tribunal precedents; it confines itself to concluding that the facts and extant authority entitled the assessee to the exemption.

(Pronounced and dictated in the open Court)

Show full summary ...

    Chakradhar Chemicals Pvt. Ltd. v. Commissioner of C. Ex., Meerut-I

    [Order per : Anil G. Shakkarwar, Member (T)]. - The above three appeals are connected to each other through either joint proceedings or show cause notices issued to the same assessee on the same subject for different periods. Therefore, they are taken together for decision.

    2. M/s. Chakradhar Chemicals Pvt. Ltd. are manufacturers of Ferrous Sulphate, Zinc Sulphate, Magnesium Sulphate and mixture of Micro Nutrients (solid as well as liquid). They were using Sulphuric Acid for the manufacture of said goods. They were procuring Sulphuric Acid without payment of duty on the strength of CT-2 certificate issued by jurisdictional Assistant Commissioner, Initially following Chapter X procedure and subsequently following procedure laid down in Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. During the period from September, 1990 to August, 2007, they procured Sulphuric Acid in the said manner and utilized the same for manufacture of abovestated goods. The procurement of Sulphuric Acid without payment of duty was governed by various notifications from time to time such as Notification Nos. 5/99-C.E., dated 28-2-1999, 3/2001-C.E., dated 1-3-2001, 6/2002-C.E., dated 1-3-2002 and 4/2006-C.E., dated 1-3-2006. All the said notifications allowed clearance of Sulphuric Acid without payment of duty if the same is used in the manufacture of fertilizer. By the use of said Sulphuric Acid, M/s. Chakradhar Chemicals was manufacturing Ferrous Sulphate, Zinc Sulphate, Magnesium Sulphate and mixture of Micro Nutrient. It appeared to Revenue that said goods manufactured were not fertilizer, so far as definition of fertilizer under Chapter 31 of Central Excise Tariff Act, 1985 was concerned. Therefore, M/s. Chakradhar Chemicals were issued with 7 show cause notices dated 23-9-2004, 3-8-2005, 5-1-2006, another show cause notice dated 5-1-2006, 17-4-2006, 5-2-2007 and 6-9-2007. The said show cause notices had proposal for demand of duty on Sulphuric Acid which was procured by M/s. Chakradhar Chemicals without payment of duty following the procedure laid down in the abovestated notifications. First five show cause notices were adjudicated through Order-in-Original dated 11-10-2006 wherein Original Authority has held that the goods manufactured by M/s. Chakradhar Chemicals were not having Nitrogen, Phosphorous and Potassium and therefore as provided in Chapter 31 of Central Excise Tariff Act, 1985 the said goods were not fertilizer. Original Authority totally ignored the pleading made by the noticee before it that term fertilizer had been defined under the Fertilizer (Control) Order, 1985. As per Clause (h) of said Order “any substance used or intended to be used as a fertilizer of the soil and/or crop and includes a mixture of fertilizer and special mixture of fertilizer and that mixture of fertilizer has been further defined as mixture of fertilizer made by physical mixing of two or more fertilizers. He further contended that the product in question is admittedly a mixture of micro nutrient namely Iron, Zinc, Magnesium, Copper, Aluminium and Bromide, etc. and they are covered in the Schedule I of the said Fertilizer (Control) Order, 1985 and specifying the definition of fertilizer as provided in the Fertilizer (Control) Order, 1985. The said Order-in-Original dated 11-10-2006 was carried to Commissioner (Appeals). The Commissioner (Appeals) through Order-in-Appeal No. 44-CE/MRT-I/2008, dated 25-2-2008 decided the said appeal. M/s. Chakradhar Chemicals relied on this Tribunal’s final order in the case of Punjab Micro Nutrients Ltd. v. Collector of Central Excise reported at . The learned Commissioner (Appeals) has found this Tribunal’s decision in the case of Punjab Micro Nutrients Ltd. applicable in respect of Zinc Sulphate and mixture Micro Nutrients and held that Zinc Sulphate and Micro Nutrients manufactured by M/s. Chakradhar Chemicals were fertilizer and in respect of remaining two goods manufactured remanded the matter back to Original Authority and the aspect of eligibility for exemption on Sulphuric Acid used for the manufacture of other final products in the light of case laws. The above referred Order-in-Appeal dated 25-2-2008 was challenged by M/s. Chakradhar Chemicals which is Appeal No. 1143/2008 and the same Order-in-Appeal is challenged by Revenue which is Appeal No. 1186/2008. Out of 7 show cause notices stated above the last two show cause notices were decided through Order-in-Original dated 30-5-2008 where the exemption to Sulphuric Acid was denied by Original Authority. M/s. Chakradhar Chemicals preferred appeals before Commissioner (Appeals). Learned Commissioner (Appeals) decided the said appeals through Order-in-Appeal Nos. 195 to 196 CE/APPL/MRT-I/2008, dated 31-10-2008. The Commissioner (Appeals) allowed the appeals and held that issue stands already decided in favour of M/s. Chakradhar Chemicals. Aggrieved by the said Order-in-Appeal Revenue preferred appeal before this Tribunal which is Appeal No. 179/2009.

    3. Heard learned counsel for M/s. Chakradhar Chemicals who has taken us through all the abovestated notifications wherein the exemption is granted to Sulphuric Acid used in manufacture of fertilizer and in all the said notifications the condition is that the manufacturer has to follow Chapter X procedure. Subsequently, the condition is changed that the manufacturer was required to follow Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. The learned counsel for M/s. Chakradhar Chemicals has submitted that the Fertilizer (Control) Order, 1985 is published by the Fertilizers Association of India. He has taken us through the Fertilizer (Control) Order, 1985 (No. 11-3/1983-STU, dated 25-9-1985). The said order was issued in exercise of powers conferred by Section 3 of Essential Commodities Act, 1955 by the Central Government. The definition given in the said order at Clause (h) is reproduced below :-

    “Fertiliser” means any substance used or intended to be used as a fertilizer of the soil and/or crop and specified in Part A of Schedule I and includes a mixture of fertilizer and special mixture of fertilizers, provisional fertilizer, customized fertilizer, bio-fertilisers specified in Schedule III and Organic fertilizers specified in Schedule IV and non-edible de-oiled cake fertilizers specified in Schedule V.”

    He has further taken us through Part A of Schedule I. Under Part A of Schedule I Micro Nutrient are specified. Zinc Sulphate Hepta Hydrate is specified at serial No. 1 of 1(f) Micronutrients. Ferrous Sulphate is specified at serial No. 6, Zinc Sulphate Monohydrate is specified at serial No. 10 and Magnesium Sulphate is specified at serial No. 11 of the same schedule. He has further contended that none of the said notifications have limited exemption to Sulphuric Acid for goods i.e. fertilizer specified under Chapter 31 of Central Excise Tariff Act, 1985. He has further contended that this Tribunal in the case of Punjab Micro Nutrients Ltd. v. Collector of Central Excise reported at has held that it was not condition under Notification No. 81/75, dated 22-3-1975 that the fertilizer should be classifiable under Chapter 31 to be eligible for availment of said notification. It was also held by the said Bench in the said case that Zinc Sulphate can be considered as fertilizer because of its inclusion in the Fertilizer (Control) Order. He has further submitted that the said final order of this Tribunal was challenged before the Hon’ble Supreme Court and the said Civil Appeal was dismissed as reported at (S.C.). He has further relied on this Tribunal’s final order in the case of Himgiri Metals Pvt. Ltd. v. Commissioner of Central Excise, Meerut-I reported at (Tri.-Del.). He submitted that all fertilizers shall have the meaning assigned to it under the Fertilizer (Control) Order and that Zinc Sulphate is included in the Fertilizer (Control) Order, 1985, therefore, procurement of Sulphuric Acid without payment of duty as provided in Notification No. 4/2006-C.E. was held to be regular in the said Order and further submitted that both the case laws were squarely applicable in the present case.

    4. The learned AR has represented the case on behalf of Revenue. He has taken us through the grounds of appeal in two appeals filed by Revenue.

    5. We have taken into consideration the rival contentions. The issue is whether goods such as Zinc Sulphate, Ferrous Sulphate and Magnesium Sulphate and Micro Nutrients manufactured by M/s. Chakradhar Chemicals are fertilizer or not. If they are fertilizers then as provided in abovestated notifications, they are eligible to procure Sulphuric Acid without payment of duty. In that event abovestated 7 show cause notices become unsustainable. Now we have already gone through the Fertilizer (Control) Order and we also noticed that the goods manufactured by M/s. Chakradhar Chemicals are included as Micro Nutrients in Part A of Schedule I to the Fertilizer (Control) Order dated 25-9-1985 issued by Government of India. The said Order at Clause (h) has defined fertilizer means substance used as a fertilizer of the soil and specified in Part A of Schedule I. Since the goods manufactured by M/s. Chakradhar Chemicals are specified in Part A of Schedule I they are fertilizer. In view of above the exemption provided in abovestated notifications was admissible to M/s. Chakradhar Chemicals. In view of this finding, we allow the appeal filed by the M/s. Chakradhar Chemicals Pvt. Ltd. and we dismiss both the appeals filed by the Revenue. M/s. Chakradhar Chemicals Pvt. Ltd. shall be entitled for consequential relief, if any.

    (Pronounced and dictated in the open Court)

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    Chakradhar Chemicals Pvt. Ltd. v. Commissioner of C. Ex., Meerut-I
    (Jan 5, 2017)