1 M/s. Leeds Kem (hereinafter referred to as 'the assessees') were engaged in the manufacture of products including "plantozyme" which was classified by them as bio-fertilizer under Central Excise Tariff Heading No. 31.01 attracting NIL rate of duty. Their classification lists, filed from time to time, claiming classification of the product under the said Tariff Heading were approved by the Department and, accordingly, the assessees were manufacturing and clearing the goods.
While so, the Department wanted to change classification of "plantozyme" from TH 31.01 to TH. 38.08 and demand duty at the rate applicable to the latter heading. Accordingly, five show cause notices (SCNs) were issued to the assessees as below :-__________________________________________________________Sl. Date of SCN Period for which Amount of dutyNo. duty was demanded (Rs.)__________________________________________________________3. 18-9-1992 4/92 to 8/92 79,020.00 (Corrigendum In adjudication of the SCN at Sl. No. 4 above, the Collector of Central Excise passed Order-in-Original No. 406 dated 20-12-1993 confirming the Department's classification of the product under TH. 38.08 but dropping the demand of duty on the ground of limitation. Appeal No. E/805/94-C, filed by the assessees, challenges this order of the adjudicating authority classifying the product under TH. 38.08. The SCNs at Sl. Nos.
1 to 3 and 5 above were adjudicated by the Collector as per Order-in-Original No. 205 dated 31-12-1994. While on the issue of classification ld. Collector followed his own earlier decision (vide Order dated 20-12-1993), on the question of limitation he held that the revised classification could take effect only prospectively i.e. from 5-12-1991 and, therefore, the demand of duty for periods prior to 5-12-1991 was hit by limitation. Consequently, the entire demand of duty raised in the SCN at Sl. No. 1 above and a part of the demand raised in the SCN at Sl. No. 2 were dropped and the rest of the demand covered by the SCNs at Sl. Nos. 2, 3 and 5 was confirmed as these SCNs were found to have been issued within the normal period of six months prescribed under Section 11A(1) of the Central Excises and Salt Act (CESA). The assessees filed appeal No. E/836/94-C against the Collector's decision as per the above order dated 31-12-1994 on the classification issue and the Department preferred appeal No. E/136/96-C against the dropping of demand of duty for the period up to 5-12-1991.
In the latter appeal of the Revenue, the assessees have filed cross-objection contending that the revised classification of the product in question ought to have been given effect prospectively from 18-3-1993 (date of the SCN which was adjudicated as per the Collector's order dated 20-12-1993) only instead of 5-12-1991 and consequently the entire demand of duty covered by all the SCNs was liable to be vacated.
2. We have carefully examined the impugned orders, grounds of the appeals and cross-objections and connected records of the case. We have also heard both the sides.
3. The principal issue involved in these appeals is whether the product viz. "plantozyme" is classifiable under TH 31.01 as bio-fertiliser as claimed by the assessees or under TH 38.08 as plant growth regulator as claimed by the Revenue. Chapter 31 covers "fertilizers" while Chapter 38 is for "miscellaneous chemical products". The rival Tariff entries arising for our consideration are the following :Heading No.Description of Goods31.01 Animal or vegetable fertilisers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of38.08 Insecticides, rodenticides, fungicides, herbicides, anti sprouting products and plant growth regulators, disinfectants and similar products.
4. Ld. Cost Accountant, Shri A.B. Nawal appearing for the assessees submitted that 'plantozyme' had both animal origin and vegetable origin inasmuch as it was manufactured from milk protein and seaweed. Reading out from the assessees' own "Technical Note On Plantozyme", the CA gave an outline of the process of manufacture of the product thus: Milk protein (casein) is hydrolysed with a special culture of bacteria, which process (also termed 'fermentation') yields a mixture of various aminoacids. When the fermentation is over, the bacteria are killed by suitable chemical method and the protein hydrolysate (fermentation extract) is mixed with seaweed extract obtained by extracting seaweed with water under high pressure. This combination of the two extracts is 'plantozyme'. The CA further submitted that, while the amino acids contained in the protein hydrolysate served as building units for synthesis of enzymes (which are proteins) which were necessary for the growth of plants, the proteins and carbohydrates present in the seaweed extract in soluble form worked as readily available food which would help plants overcome any deficiencies of proteins and carbohydrates. He relied on the Chemical Examiner's report to establish that the product contained proteins. 'Plantozyme' provided nutritional support to plants and worked as a plant growth promoter, which required to be classified as bio-fertilizer under TH 31.01. Ld. CA relied on the relevant explanatory notes under HSN heading 31.01. He further submitted that the product was not a plant growth regulator to be classified under TH 38.08 as held by the adjudicating authority inasmuch as it did not fall within the purview of the Insecticides Act, 1968. The cytokinin present in the seaweed extract used in the product was a growth promoter for plants and not a growth regulator as found by the Collector. The CA drew support to this plea from a publication (1995) of the National Institute of Oceanography on 'seaweed biofertilizer'. It was also argued, with reference to the Collector's reasonings on the classification issue, that the manufacturer's advertisement of the product alone was not decisive for its classification under the Tariff.
In this connection, ld. CA placed reliance on the Tribunal's decisions in the cases of Jeetstex Engineering Pvt. Ltd. [1999 (109) E.L.T. 976], Classic Rugs Pvt. Ltd. [1998 (103) E.L.T. 322] and Shree Laminating Ltd. [1998 (98) E.L.T. 402]. Ld. CA also invited our attention to how certain other manufacturers described their products (which were similar to the one in question) as also what opinion was given on the nature of such products by the competent authority in the Directorate of Plant Protection, Quarantine & Storage, Ministry of Agriculture, Govt. of India. He, further, drew our attention to the Supreme Court's view on the scope of the term "fertilizer" as expressed in Gujarat State Fertilizers Co. v. C.C.E. [1997 (91) E.L.T. 3 (S.C.)]. He urged for classifying the assessees' product under TH 31.01 and prayed for allowing their appeals and cross-objections. He also pointed out that similar products of other manufacturers were not classified by the Department as plant growth regulators under TH 38.08. In this connection, he referred to 'Biozyme' manufactured by Wock-hardt Ltd., Mumbai.
5. Ld. SDR, Dr. D.K. Verma, for the Revenue, argued for confirming classification of the product under TH 38.08 by holding it to be a plant growth regulator on the reasoning of the adjudicating authority.
He submitted that, by the mere reason of the product not being covered under the Insecticides Act, it could not be held that the product was not classifiable as plant growth regulator. It was not the Revenue's case that plantozyme of the assessees was an insecticide. Ld. SDR placed reliance on the Tribunal's decision in the case of Unique Parmaid Pvt. Ltd. [1999 (33) RLT 365]. Ld. DR also referred to the manufacturing process as explained to the Department by the assessees in their letters dated 28-6-1990 and 22-7-1991 addressed to the Central Excise Range Superintendent, and submitted that, going by such process as well as by the literature printed on the product labels, one would find that micronutrients like copper, iron and zinc were also used along with hydrolysed casein and seaweeds for manufacturing 'plantozyme' and, therefore, the product would merit classification as plant growth regulator by virtue of the presence of the micronutrients.
Support to this argument was drawn from Board's Circular No. 26/90-CX.3 which had clarified that the appropriate classification of plant growth regulator would be under TH 38.08 where the product was a heterogeneous mixture of inorganic salts of iron, copper, zinc etc. as trace elements or micronutrients.
6. Ld. CA, in his rejoinder, submitted that the case law cited by ld.DR was not applicable to the facts of the assessees' case. He added that the circular was withdrawn by the Board as per new Circular dated 21-11-1994 which clarified that micronutrients would be appropriately classifiable under TH 31.05 as "Other Fertilizers". The CA contended that the Circular dated 21-11-1994 had retrospective operation as per the Apex Court's decision in the case of Ranadey Micronutrients v.C.C.E. [1996 (87) E.L.T. 19 (S.C.)]. Even if it was assumed that the assessees' product contained micronutrients, the Revenue could not classify the same outside Chapter 31 of the Tariff Schedule in view of the Board's clarification dated 21-11-1994.
7.0 We have examined the rival submissions. We think that the method of manufacture of the product has a strong bearing on the question whether it requires to be classified under TH 31.01 or not. The method of manufacture stated by the assessees in their "Technical Note On Plantozyme" is found to be materially at variance with the manufacturing process explained to the Department in their letters dated 28-6-1990 and 22-7-1991 inasmuch as the former version, unlike the latter, makes no mention of any minerals having been used as raw materials. We would, of course, accept only the latter version of the process of manufacture which the assessees represented to the Department. According to that process, the raw materials used for the manufacture were (i) casein (milk protein), (ii) minerals such as copper, iron, zinc etc., and (iii) seaweeds. The actual process, as we have understood it, was thus: casein was hydrolysed with bacteria specially cultivated for the purpose. The hydrolysed protein in solution was then chelated with copper, ferrous and zinc ions in traces, after the bacteria were killed by treatment with a mineral acid. The chelate solution so obtained was, finally, mixed with a seaweed extract containing cytokinin to obtain what was called "plantozyme crop treat" in liquid form, from which the product could also be obtained in powder form by blending the liquid with dry soil powder, as it appears from the assessees' letter dated 31-5-1988 submitted to the Central Excise Range Superintendent at the time of filing the first classification list for the product.
7.1 It appears that it was the product in powder form mentioned above that was sampled for chemical analysis by the Central Excise laboratory. The Chemical Examiner reported that the product was composed of sand and proteinous matter.
7.2 We have also noted the literature printed on the label for the assessees' Plantozyme Crop Treat (liquid), the relevant particulars of which read as under :-Used for growth Biologycally derived source inclusing Miand development Plant Growth Pro robes & Ocean plants.of field crops like smoter containing Minimum GuaranteedCotton, G. nut, Auxin precursors, Analysis :-Sesaman etc. Fruits Cytokinins AminoKern, D.50 MIDC 0.1; Manganese ProteinJalgaon 425 003 ate-% Mn-0.2; Zinc Pro teinate-% Zn-0.4; Iron The above literature appears to be consistent with the method of manufacture as explained by the assessees to the Department. We note that the amino acids are products of hydrolysis of the milk protein (casein); The protein complexes have resulted from the chelation of free protein molecules with the minerals i.e., the metal ions used viz.
Cu++, Fe++ etc. These complexes have also been specifically named as Copper proteinate, Iron protein-ate etc. The minimum guaranteed percentages of different metals have also been shown, the total metal (Copper, Iron, Zinc, Manganese) content (minimum guaranteed) being only 1.1%. Two other ingredients named on the product label are auxin precursors and cytokinins. Auxins and cytokinins are growth-promoting hormones contained in seaweeds, according to National Institute of Oceanography. It is pertinent to recollect in this context that seaweed extract was one of the raw materials used by the assessees. Milk protein and seaweeds were the main raw materials used for the manufacture of 'Plantozyme' by the assessees. A culture of bacteria was also employed for the purpose. Therefore, the assessees' claim of having derived the product from natural sources including microbes (bacteria) and ocean plants (seaweeds) cannot be rejected. In other words, the animal and vegetable origin of the product is well-established. The Revenue has not attempted to rebut this fact.
7.3 It is not disputed that milk protein (casein) is an animal product and seaweed extract is a vegetable product. It is also not controverted that, in the production of 'Plantozyme', there is a mixing of the chemically treated (i.e. hydrolysed and chelated/complexed) proteins with seaweed extract. The only remaining requirement for appropriately classifying 'Plantozyme' as a fertilizer produced by the mixing or chemical treatment of animal or vegetable products is that it must be shown to be a fertilizer. In taking this view, we are also guided by the HSN, according to which heading No. 31.01 covers animal or vegetable products converted into fertilizers by mixing together or chemical treatment (other than bone superphosphates of heading 31.03).
7.4 "Fertilizer" has not been defined in the Central Excise Tariff Act or in the Schedule thereto. It is understood by the common man as any substance when added to the soil increases its productivity. Ld. CA has quoted the Association of American Plant Food Control Officials (AAPFCO) as having defined 'fertilizer' as under :- "Any substance containing one or more recognized plant nutrient(s) which is used for its plant nutrient content and which is designed for use or claimed to have value in promoting plant growth, except unmanipulated animal and vegetable manures, marl, lime, limestone, wood ashes and other products exempted by regulation".
The definition of fertilizer as per Farm Chemical Handbook '98 - Electronic Pesticide Dictionary was also referred to by ld. CA, and the same reads as follows: "Any natural or manufactured material added to the soil in order to supply one or more plant nutrients. The term is generally applied to manufactured material other than lime or gypsum".
We have also consulted the Condensed Chemical Dictionary (Tenth Edition, Revised by Gessner G. Hawley) which explains the term fertilizer as follows: "A substance or mixture that contains one or more of the primary plant nutrients and sometimes also secondary and/or trace nutrients.
The primary nutrients are nitrogen (supplied as anhydrous ammonia, or solutions containing nitrogen derived from ammonia, ammonium nitrate or urea); phosphorus (as superphosphates derived from phosphate rock); and potassium (in the form of KC1 from sylvite ore or natural brines). Secondary nutrients are calcium, magnesium, and sulfur. Trace elements (iron, copper, boron, manganese, zinc and molybdenum) are also among the twelve elements considered essential for plant growth".
Regarding "nutrient", Condensed Chemical Dictionary gives the following explanation: "Any element or compound that is essential to the life and growth of plants or animals, either as such or as transformed by chemical or enzymatic reactions. In plants, nutrients include numerous mineral elements as well as nitrogen, carbon dioxide and water".
The assessees' submission (which has not been rebutted) on the composition of Plantozyme is that it contains amino acids, proteins and carbohydrates in soluble form, which are readily available as food for plants. We have no difficulty in accepting amino acids, proteins and carbohydrates as essential to the life and growth of plants. Even according to ld DR, the product contains iron, copper and zinc as trace elements. The assessees have themselves represented through the product-label that iron, copper, manganese and zinc are present in the product as trace elements to the minimal extent of 1.1%. These trace elements are also considered essential for plant growth and, therefore, they are micronutrients, in view of the aforecited textual authorities.
The product also contains amino acids and proteinates of trace metals in solution and the nitrogen contained therein is a primary nutrient for plants. The product in question, therefore, appears to be a mixture containing primary and micro-nutrients, which are essential for plant growth. Therefore, it would merit acceptance as a fertilizer, in view of the aforesaid definitions of this term.
7.5 As already noted, one of the main raw materials used in the manufacture of Plantozyme is seaweeds. The National Institute of Oceanography, in its literature referred to by ld. CA, considers seaweed as a bio-fertilizer. The following is the NIO literature : Seaweed bio-fertilizer when used in lower concentrations can increase : 1. Seaweed bio-fertilizer contains growth promoting hormones like Gibberllins, auxins and cytokinine.
According to the assessees' 'Technical Note On Plantozyme', it was a seaweed species of the genus "Sargassum" that was used by them and its extract contained proteins and carbohydrates of calorific values of 20.20 and 20.00 cal/g. respectively as per NIO data. The NIO results also showed that such seaweed extract contained various amino acids and trace elements (Iron, Manganese, Copper, Zinc etc). The NIO literature has not been contested before us. We would accept this evidence and hold that the product in question, containing seaweed extract, is a bio-fertilizer.
7.6 Our attention was taken to letter dated 28-5-1996 issued from the Directorate of Plant Protection, Quarantine and Storage, Ministry of Agriculture, Government of India to M/s. Pralshar Bio Products Pvt.
Ltd. (Goa), another manufacturer of a similar product of the same name, 'Plantozyme'. This letter, inter alia, states that the product Plantozyme is a bio-extract organic fertilizer. A certificate dated 28-5-1996 issued by the National Institute of Oceanography to the same manufacturer (Pralshar Bio Products) was also brought to our notice. It has certified 'plantozyme' of M/s. Pralshar Bio Products to be an eco-friendly organic bio-fertilizer. Both the aforesaid letter and certificate are available on record. The CA claimed that their product namely 'plantozyme' and the aforesaid product of M/s. Pralshar Bio Products were similar products. This evidence too has gone unrebutted and the same supports our finding that the product of the assessees is a bio-fertilizer.
7.7 In view of our finding that the product is a bio-fertilizer, it must be classified under TH 31.01.
7.8 The argument of ld. SDR that the product has to be classified as plant growth regulator on account of the presence of cytokinins cannot be accepted inasmuch as the uncontroverted literature of National Institute of Oceanography is, inter alia, to the effect that cytokinins contained in seaweed bio-fertilizer are growth promoting hormones. Even if it is assumed that cytokinins are plant growth regulators rather than plant growth promoters, the mere presence of small amounts of cytokinins in a bio-fertilizer will not detract from the latter's character of bio-fertilizer. Moreover, going by the Tariff Entry 38.08 read with Note (1) to Chapter 38, we find that any product to be classified as plant growth regulator must be a separate chemically defined element or compound. Chapter Note 1 in Chapter 38 reads as under : (a) Separate chemically defined elements or compounds with the exception of the following: (2) Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant-growth regulators, disinfectants and similar products; The above note indicates that plant growth regulators etc., mentioned under Heading 38.08 are chemically defined elements or compounds. In the instant case, the product is a mixture of plant nutrients. It is not a chemically defined element or compound and hence cannot be considered as plant growth regulator. We note that it is not even the case of the Revenue that the product is a chemically defined compound having the sole or principal function of regulating plant growth. They have only contended that the product contains cytokinins which are plant growth regulators, and, that too, without denying the fact that the product is a mixture of hydrolysed/chelated casein and seaweed extract. The decision of the Tribunal in the case of Unique Far-maid (Supra) cited by ld. SDR does not advance the Revenue's case, either.
In that case, the product considered was 'floramin' which was apparently a chemically defined compound and its main function was found to be growth regulation in plants.
7.9 With regard to the reliance placed by ld. SDR on the Board's circular No. 26/90-CX. 3, we observe that the said circular had dealt with a mixture of inorganic salts of iron, copper, zinc, molybdenum and manganese as micronutrients for plants. In the instant case, the Department has never had a case that the product was composed of inorganic salts of all or any of the said metals. On the other hand, it appears from the manufacturing process as well as the product-label that traces of copper, zinc, iron and manganese were present as their 'proteinates' in plantozyme crop treat. These metal protein-ates, as we have learnt from Chemical Dictionary, were organometallic compounds (formed by chelation of the organic molecules viz. proteins with the metal ions) which were not at all 'salts' as understood in chemical parlance, let alone inorganic salts. The product in question was, therefore, not covered by the circular cited by ld. SDR. Even if it is assumed to the contrary, we note, the said circular of the Board was withdrawn under the Board's later circular dated 21-11-1994, which clarified that micronutrients would be appropriately classifiable as "other fertilizers" under TH 31.05. The Apex Court in the case of Ranadey Micronutrients (supra) held that the later circular was binding on the Department even for a period prior to 21-11-1994. If ld. DR's argument based on the circular of 1990 is accepted, then the above ruling of the Apex Court would lend support to the assessees whose consistent case is that their product has ever been a fertilizer falling under Chapter 31 of the Tariff.
8. For the reasons already recorded, we hold that the assessees' product in question is appropriately classifiable under TH 31.01 as fertiliser produced by the mixing or chemical treatment of animal or vegetable products, and not under TH 38.08 as plant growth regulator.
The decision of ld. Collector to the contrary is not correct.
Consequently, the demand of duty raised on the assessees by the Department is unsustainable. The question whether the entire demand of duty or any part thereof is barred by limitation or not does not survive.
9. Appeal Nos. E/805/94-C and E/836/95-C of the assessees are allowed.
Appeal No. 136/96-C of the Department is rejected. The cross-objections filed by the assessees in this appeal stands disposed of accordingly.
(The operative part of this order has already been pronounced in open Court on 1-9-2000.)