1. The appellants are engaged in the business of growing and manufacturing tea in its tea gardens situated in Assam. The appellants imported 100 Metric Tones of Potassium Nitrate of Chilean origin in 4 consignments for the purpose of utilization of the same as fertilizers in the Tea Estate. In respect of the first two bills of entry filed in December, 1994, they claimed in respect of the above goods as natural fertilizers falling under sub-heading 3105.59, attracting nil rate of duty. However, the Department assessed the said bills of entry under tariff heading 2834.21 at the rate of 65% Customs Duty and 20% Counter-veiling Duty. The said classification was not accepted by the appellants who filed an appeal against the Assistant Commissioner. The said appeals were rejected by the Commissioner (Appeals) as time-barred and thereafter, the Tribunal also rejected the appeals on the issue of time-bar without going into the merits of assessment.
2. Thereafter, in respect of the second lot of 400 M. T. of Potassium Nitrate, which is the subject matter of the present appeals, the appellants filed bills of entry showing classification as determined by the Assistant Commissioner earlier, but paid the duty under protest and thereafter, filed applications claiming refund of duty. The said refund claims filed by the appellants based upon the their own claim of classification of the goods in question under Chapter 31 were rejected by the Assistant Commissioner by holding that the goods were properly classifiable under sub-heading 2834.21. The appeal against the above Order of the Assistant Commissioner did not succeed before the Assistant Commissioner (Appeals). Hence the present appeal.
3. The main question required to be decided in the present appeal is as to whether Potassium Nitrate Grade 13-0-45 Prilled imported by the appellants is classifiable as fertilizers falling under sub-heading 3105.90 attracting nil duty, as claimed by the appellants or the same is classifiable under sub-heading 2834.21 as held by the authorities below.
4. Shri J. P. Khaitan, learned Advocate appearing for the appellants has advanced the following arguments in support of his submission:- (A) The first aspect is as to whether the goods in question are a fertilizer. It is submitted that the fact Potassium Nitrate is a well-known fertilizer would be evident from, inter alia, the following:- (i) The Book entitled "Soil Fertility and Fertilisers" published by Macmillon Publishing Co., New York, describes Potassium Nitrate as a fertilizer material containing two essential nutrients commercially available in the United States and certain other countries. It has been state that Potassium Nitrate finds its greatest use in fertilizers for intensively grown crops such as tomatoes, potatoes, leafy vegetables, citrus, peaches and other crops. Properties of Potassium Nitrate, which make it attractive for the said crops have been stated to be Salt, index, Nitrogen present as Nitrate, favourable nitrogen and Potassium Oxide ratio, negligible chlorine content and alkaline residual reaction is soil. The said textbook also mentions about the use of Potassium Nitrate for fertilizing plants in ancient times. Farm Chemicals Handbook '93, which contains inter alia, a fertilizer Farm Chemicals Handbook '93 which contains inter alia, a fertilizer dictionary. Potassium Nitrate finds mention in the Fertilizer Dictionary and is described as the Potassium salt of nitric acid.
(ii) Letter dated August 22, 1994 of Tea Research Association, Tocklai Experimental Station, Jorhat, Assam, stating that Potassium Nitrate is a Fertilizer (Control) Order, 1985 as a fertilizer with effect from October 12, 1995.
(iii) Endorsement of the Deputy Controller of Explosives on a copy of the appellants' letter dated December 19, 1994, stating, inter alia that the fertilizer grade Potassium Nitrate does not come under the purview of Explosive Rules, 1983.
(B) It is submitted that in view of the aforesaid authoritative literature and documents there can be no doubt that the goods in question are a fertilizer known and dealt with in the trade and used as such throughout the world. (C) In fact, the appellant had negotiated with the Belgian supplier for purchase of Potassium Nitrate Grade 13-0-45 Prilled for use as fertilizer. In the import documents, it is clearly stated that the goods in question are for use as fertilizer. The Belgian Ministry of Agriculture has certified that the use of goods purchased by the appellant is as fertilizer. The process flow and production method of the Chilean company would show that the natural ore "Caliche" obtained from the mines is processed to get Potassium Nitrate for use as fertilizer containing, inter alia, Nitrogen and Nitrate, Potassium Oxide and Sodium. In this connection, attention is invited to the following documents:- (i) The appellant's enquiry dated October 3, 1994 for Potassium Nitrate Agricultural Grade Fertilizer; (ii) Proforma invoice of the Belgian Supplier for Potassium Nitrate Prilled Grade 13-0-45; (iii) Process flow chart and production method statement of the Chilean Company; (iv) Certificate of the Belgian Ministry of Agriculture in respect of the goods in question of Grade 13-0-45 Prilled; (v) Invoices of the Belgian supplier stating that the goods are for use in the appellant's tea estates as fertilizer; (vi) Certificates of Analysis in respect of the goods in question describing them as Potassium Nitrate Fertilizer, Grade 13-0-45 Prilled; (vii) Letters of Credit opened by the appellant containing the same specifications as in the said Certificates of Analysis.
(D). It is submitted that Sub-heading No. 3105.90 covers, inter alia, "other fertilizers". Note 6 of Chapter 31 provides that for the purposes of heading No. 31.05 the term "other fertilizers" applies only to products of a kind used as fertilizers and containing as an essential constituent, at least one of the fertilising elements Nitrogen, Phosphorus or Potassium. It would be apparent from the said note that for determining the classification, the end use of the product has to be considered. In fact, Chapter 31 itself is entitled "Fertilizers". Thus for deciding whether a particular item is a fertilizer falling under Chapter 31, its end use has necessarily to be taken into consideration. The finding of the Authorities below that for the purpose of classification the end use is irrelevant is wholly erroneous and contrary to the express terms of the statute. In fact, by a letter dated May 25, 1999, the Commissioner (Appeals) himself required the appellant to submit end use certificate within 15 days from the receipt of the said letter.
The said letter was received by the appellant on May 31, 1999. By its letter dated June 16, 1999 the appellant duly confirmed and certified that the goods in question were entirely used in the appellant's tea gardens as fertilizer. A certificate of the Chartered Accountants was also submitted in support. The Commissioner (Appeals) passed the impugned Order on June 2, 1999 itself, without taking into consideration the said confirmation and certificate, even before the expiry of 15 days from the date of receipt of his said letter dated May 25, 1999. It is submitted that the Commissioner (Appeals) himself considered the end use as relevant but sought to hold to the contrary in the appellate order.
It is further submitted that by saying that the end use is irrelevant, the Authorities below have accepted the actual use of the goods in question as fertilizer.
(E). It is submitted that in the present case there is no dispute that the goods in question contained as essential constituents, two of the fertilizing elements namely, Nitrogen and Potassium. In the circumstances, the Potassium Nitrate imported by the appellant for use as fertilizer on the face of its classifiable under sub-heading No. 3105.90 which attracts 'nil' duty.
(F). The Authorities below sought to unduly restrict the scope of heading no. 31.05 by seeking to rely upon the HSN Explanatory Notes.
It is submitted that the HSN Explanatory Notes referred to by the Authorities below merely specify three examples and are not exhaustive as to the coverage of "other fertilizers". The Authorities below completely misconstrued the said Explanatory Notes.
(G). The Commissioner (Appeals) accepted that Potassium Nitrate for use as fertilizer is classifiable under Chapter 31. But he sought to hold that the appellant's goods were not of fertilizer grade since according to him there was no authentic chemical test report. It is submitted that the goods were duly accompanied by certificates of analysis of the foreign supplier. There cannot by any dispute that the goods are as mentioned in the certificates of analysis of the supplier. The same chemical analysis was specified in the Letters of Credit opened by the appellant. If the goods were not as per the Letters of Credit, no payment would have been made by the Bank. The import documents clearly mentioned that the goods in question are for use as fertilizer. The proforma invoice of the supplier, certificate of belgian Ministry of Agriculture and the certificates of analysis in respect of the goods in question described them as Potassium Nitrate of grade 13-0-45 Prilled which is the same as that mentioned in the Fertilizer (Control) order. The appellant's claim all along has been that the goods are a fertilizer. If the certificates of analysis of the foreign supplier were not acceptable, it was for the Customs Authorities to carry out further tests in view of the claim made by the appellant. Not having done so, it is too late in the day to ignore the said certificates of analysis as not authentic. That apart, the fact that the actual use of the goods in question is as fertilizer has not been disputed by the Authorities below who sought to give the same a go-by by holding that the end use in irrelevant for deciding the classification.
(H). Chapter Note 1 of Chapter 28 makes it clear that the headings of Chapter 28 apply only to the items listed in the said Note. One of the items listed is separate chemically defined compounds, whether or not containing impurities. The Customs Tariff Act, 1975 does not define what is a separate chemically defined compounds. As such, reference has to be made to the HSN. It would appear from the HSN explanatory notes that a separate chemically defined compound is a single chemical compound of known structure which does not contain other substances deliberately added during or after its manufacture (including purification). Such separate chemically defined compounds may contain impurities such as un-converted starting materials, impurities present in the starting materials, re-agents used in the manufacturing process (including purification) and by-products.
However, if a particular substance is deliberately left in the product which a view to rendering it particularly suitable for specific use rather than for general use, it is not regarded as a permissible impurity.
(I). In the Merck Index, an Encyclopaedia of chemicals, Drugs and Biologicals (11th Edition) published by Merck & Co. Inc. USA, the constituents and features of pure Potassium Nitrate have been sated.
The appellant sets out here-in-below the requirements of pure potassium Nitrate according to the said Encyclopaedia and the corresponding specifications of the goods imported by the appellant:-Item Merck Index Requirement Actual specifications of the imported goodsKno3 99.5% Not specified but less than 99.5%O 47.47% Not specifiedSodium Nil 0.5%Acidity (pH) 7 Not specified but 9-11 as per Israeli In the said Encyclopaedia, the different dues of Potassium Nitrate are stated which include its use in fire works, pickling meat, manufacturing glass, freezing mixtures, treating tobacco to make it burn evenly, tempering steel, etc. The said Encyclopaedia does not list the use of such Potassium Nitrate as fertilizer. As would be apparent from the above chart, the product imported by the appellant does not conform to the specifications laid down in the saiddd Encyclopaedia.
(J). The imported product contains sodium and chlorine which are not specified as constituents of potassium nitrate in the said Encyclopaedia. The presence of sodium as Sodium Nitrate in fact renders the imported product particularly suitable for specific use as fertilizer. It is submitted that Brine (Sodium Chloride) is deliberately added (Process Flow Chart) and Sodium nitrate and Chlorine are deliberately left in the manufacture of the imported product. The Assistant Commissioner has accepted that the goods in question also contain sodium nitrate. The presence of Sodium Nitrate makes the product hygroscopic. Because of this hygroscopic property the imported product cannot be used as a constituent of fire work or gun powder. The Fertilizer (Control) Order, 1985 specifically mentions that Potassium Nitrate for use as fertilizer contains sodium and chlorine. The process flow chart and production method statement of the Chilean manufacturer certificate of the Belgian Ministry of Agriculture and invoices of the Belgian supplier and its Certificates of Analysis clearly establish that the imported product has been manufactured for specific use as fertilizer by deliberately adding brine and by deliberately leaving behind sodium and chlorine.
In the circumstances, the goods in question cannot be considered as a separate chemically defined compound. It is submitted that the purported finding of the Authorities below to the contrary is not based on any material whatsoever. It is well-settled that the burden to show that a particular product is classifiable under a heading different from that claimed by an assessee is on the Revenue. In the present case, the Revenue has completely failed to discharge the onus upon it. The Commissioner (Appeals) has simply ignored the materials on record and his observation that the appellant had failed to provide any evidence or conclusive proof that Sodium Chloride had been added deliberately to make the goods in question fertilizer grade is contrary to the record. Further, his finding that the import documents simply described the goods in question as Potassium Nitrate is not borne out from the said documents and is contrary to the same.
(K). As already submitted, the goods in question are not a separate chemically defined compound and as such are outside the purview of Chapter 28 by virtue of Chapter Note:1 thereof. It is necessary to mention here that HSN Explanatory Notes under heading 28.34 stated that the said heading covers nitrates "subject to the exclusions mentioned in the introduction to this sub-chapter". The relevant Sub-Chapter "V" covers headings Nos. 28.26 to 28.42 i.e. it includes heading No. 28.34 under which the goods in question are sought to be classified by the Revenue. One of the exclusions mentioned in the said sub-chapter notes is salts of Chapter 31. The Fertilizer Dictionary describes Potassium Nitrate as a potassium salt of nitric acid. Submissions have already been made here-in-before to show that the said salt falls under Chapter 31. It is submitted that the goods in question which are a salt of Chapter 31 are specifically excluded from Chapter 28. The HSN Explanatory Notes below heading No. 31.05 state that the said heading does not include other "chemically defined compounds" even if they could be used as fertilizer and by way of example Potassium Nitrate falling under heading No. 28.34 has been mentioned. Potassium Nitrate falling under heading 28.34 and excluded from heading No. 31.05 must be a chemically defined compound within the meaning of HSN. As submitted here-in-before, the goods in question do not answer the description of a chemically defined compound within the meaning of HSN. (L). Furthermore, the fact the Potassium Nitrate for use as fertilizer will fall for classification under Chapter 31 has been accepted by the Government itself. In this connection, attention is invited to Serial No. 58 of Notification No. 23/98-Cus dated June 2, 1998, Serial No. 61 of Notification No. 20/99-Cus. dated February 28, 1999 and Serial No. 89 of Notification No. 16/2000-Cus dated March 1, 2000. According to the said Notifications, Potassium Nitrate in a form indicative of its use for manurial purpose falls under Chapter 31. Potassium Nitrate in Prilled form of grate 13-0-45, which are the goods imported by the appellant, are specified as a fertilizer in the Fertilizer (Control) Order. In view of the import documents and the certificates of analysis already on record there can be no dispute that the goods are in a form indicative of their use for manurial propose and no further test was required to establish the said fact as wrongly observed by the Commissioner (Appeals). Further, the Authorities below have not disputed the actual use of the imported product as fertilizer. It is true that the aforesaid notifications were issued subsequent to the imports in question but the same can definitely be relied upon as an aid to show that not all types of Potassium Nitrate irrespective of use are classifiable under heading 28.34 and that Potassium Nitrate for use as fertilizer is not a separate chemically defined compound within the meaning of Chapter 28, but falls under Chapter 31. In view of the aforesaid position, the finding of the Commissioner (Appeals) that sub-heading 2834.21 is the specific heading for Potassium Nitrate for use as fertilizer is entirely erroneous inasmuch as the said sub-heading does not at all cover the said goods which are only covered by Chapter 31, sub-heading 3105.90.
(M). Further and in any event and without prejudice to the aforesaid, the Commissioner (Appeals) erroneously considered the sub-heading No. 2834.21 as the specific entry for Potassium Nitrate and sub-heading 3105.90 as providing a general description. It is submitted that the position is just the other way round. Heading No. 28.34 is the general heading for Potassium Nitrate and heading No. 31.05 is the specific heading for Potassium Nitrate fertilizer and is to be preferred over heading No. 28.34 in accordance with rule 3(a) of the Rules of Interpretation. It is further submitted that Potassium Nitrate has multi-farious uses which have been referred to here-in-before. Potassium Nitrate made for specific use as fertilizer by deliberately adding Sodium Chloride (brine) and deliberately leaving Sodium Nitrate and Chlorine in the manufactured product answers the specification description in heading No. 3105.
(N). Further and in any event and without prejudice to the aforesaid, it is submitted that the goods in question have to be classified under Sub-heading No. 3105.90 in view of Rule 3(c) of the Rules of Interpretation. Assuming though denying that the goods in question equally merit consideration under Sub-heading No. 2834.21 and Sub-heading No. 3105.90, the same have to be classified under Sub-heading No. 3105.90 which occurs last in numerical order.
For the reasons aforesaid and those stated in the petition of appeal, it is respectfully submitted that the same should be allowed with consequential relief to the appellant.
5. Shri A.K. Chattopadhyay, learned J.D.R. for the Revenue has argued that the Order passed by the Assistant Commissioner is a speaking order giving reasons as to why the goods in question should be classified under heading No. 2834.21. He also places reliance upon the Commissioner (Appeals') Order for holding the goods to be classifiable under Chapter 28. Shri Chattopadhyay, further, argues that it is a well-settled matter in law that specific entry will prevail over a residual or general entry. The description of the item, Potassium Nitrate is categorically and specifically shown against sub-heading 2834.21 and this cannot be assessed under any other heading as claimed by the appellant. He also submits that the Honourable Supreme Court in the case of Dunlop India Ltd. vs. Union of India reported in 1983:ELT:1566 (SC) has clearly observed that once an article is classified and put under a distinct entry, the basis of classification is not open to question.
5.1. Shri Chattopadhyay has further argues that in alphabetical index of HSN also the item, Potassium Nitrate is shown against the sub-heading 2834.21. In the Chapter Note of HSN also the same article has been shown under sub-heading 2834.21. In similar manner in the Customs Tariff also, Potassium Nitrate has been shown against the sub-heading 2834.21. It means that the item in question should be assessed under sub-heading 2834.21 only as nothing is mentioned in the said sub-heading that the item, Potassium Nitrate can be classified under other heading for any other reasons.
5.2. Shri Chattopadhyay, learned Advocate also submits that it is a well-settled matter of law that the use of the material is not the criterian for the classification of the goods unless the same is mentioned in the description of the heading. In this connection, the kind attention of the Hon'ble Bench is drawn to the case of M/s.
Tata Yodogawa Ltd. vs. Assistant Collector of Central Excise, Jamshedpur & Others reported in 1983:ELT:17 (Pat.). In this case, the Hon'ble High Court has clearly observed that if the goods are classified under a particular Tariff item, then it must be classified under that Tariff item and the ultimate use of the goods cannot be taken not for the purpose of classification. In the case of M/s. Lalitha Imports & Exports, Madras vs. Collector of Customs, Madras, the Hon'ble C.E.G.A.T., Special Bench, New Delhi reported in 1987(30)ELT-955(T) had clearly observed the classification as classification to be in terms of heading and heading providing specific description to be preferred to hading of general description.
5.3. He also submits that the Honourable Supreme Court in the case of M/s. Dunlop India Ltd. vs. Union of India & Others supra, has clearly observed that in the case of classification basis of end use is not relevant. When there is no reference to the use or adaptation of the articles, the basis of end use for classification under a Tariff entry is absolutely irrelevant.
5.4. He also submits that use of the item in question, Potassium Nitrate is various. Kind attention of the Hon'ble Bench is drawn to the Chemical Dictionary meaning of the Item, Potassium Nitrate (The condensed Chemical Dictionary by Hawley - Page:851). In the said Dictionary, the use of the Item, Potassium Nitrate is shown as below:- "USE: Pyrotechnics; explosives; matches; speciality fertilizers; reagent; to modify burning properties of tobacco; glass manufacture; tempering steel; curing goods; oxidizer in solid rocket propellants." 5.5. He also submits that it is important to mention that even in the EXIM Policy wherein the HSN system of classification is shown to indicate the Policy, there also the Item, Potassium Nitrate has been shown under sub-heading:2834.21 clearly.
In view of the foregoing, submits the learned J.D.R. that the appeal may be rejected.
6. We have considered the submissions made from both sides and have gone through the impugned Order. The dispute involved in the present appeal is as to whether the Potassium Nitrate imported by the appellant should be treated as fertilizer assessable under Chapter heading 3105.59 or 3105.90 of the Customs Tariff Act of the same would be classifiable under heading 28.34. Before dealing with the pleas raised by both the sides, it would be appropriate to reproduce the relevant portion of the entries for ready reference:-"28.34 Nitrites; Nitrates 2834.10 -Nitries31.05 Minernal or Chemical fertilizer...
3105.59 -other 3105.60 -Minernal or chemical fertilizer containing the two fertilising 6.1. The appellant has strongly contended that as per Chapter Notes to Chapter 28, the Headings of that Chapter apply only to separate chemical elements and separate chemically defined compounds. As such, they have contended that Potassium Nitrate will merit classification under Chapter 28 only if the item in question is separate chemically defined compound. It has seen that the Customs Tariff Act, 1975 does not define a separate chemically defined compound. As per Chapter Note 1 to Sub-Chapter A to Chapter 28 of HSN Explanatory Notes, a separate chemically defined compound is a single chemical compound of known structure, which does not contain other substances deliberately added during or after its manufacture (including purification). Such separate chemically defined compounds may contain impurities such as unconverted starting materials, impurities present in the starting materials, re-agents used in the manufacturing process (including purification ) and by-products. The appellant has, in their submission, referred to the constituents and features of Pure Potassium Nitrate, as reflected in the Merck Index, an Encyclopaedia of Chemicals, Drugs and Biologicals. A comparative reading of the Merck Index replacement and specification of the appellant's goods, shows that the product imported by them does not conform to the specification as laid down by the said Encyclopaedia. The appellant's product contains Sodium and Chlorin, which are not the specified constitents of Potassium Nitrate. As per the appellant, Sodium makes the product suitable for specific use as fertilizer which the Potassium Nitrate is otherwise note. The process flow chart in the paper-book shown the addition of Sodium Nitrate and Chlorin. According to the appellant, this is a deliberate addition in order to render the Potassium Nitrate to be used as fertilizer. The Assistant Commissioner has also accepted that the goods in question contains Sodium Nitrate.
6.2. We have also seen the flow chart of manufacture as produced by the appellant indicating the presence of Sodium and Chlorine in the goods in question. The fact whether Sodium and Chlorine are added subsequently or are left in the solution deliberately so as to render the goods fit for use as fertilizer, does not make a difference, but their presence will take it away from the purview of Chapter 28.
6.3. We also note that the appellant's enquiry with their foreign supplier was for Potassium Nitrate Agricultural Grade Fertilizer. The proforma invoice describes the goods as Potassium Nitrate Prilled Grade 13-0-45. Certificates produced by Belgian Ministry of Agriculture in respect of the goods in question also show the same to be of Grade 13-0-45 Prilled and to be used as fertilizer. We find that Potassium Nitrate of Grade 13-0-45 Prilled has been mentioned in the Fertilizer (Control) Order. This fact establishes that the goods imported by the appellant are essential fertilizer and not Potassium Nitrate simpliciter, as a separately defined chemical compound. We may here observe that the prime factor required to be decided is as to whether the goods imported by the appellants are Potassium Nitrate in the shape of separate chemically defined compounds or the same, by presence of Sodium and Chlorine, has been converted into a fertilizer. We agree with the submission of the learned J.D.R. that if the Potassium Nitrate, as a separate chemically defined compound, has been imported by the appellant, then the fact that the same has been used has fertilizer will not take it away from Chapter 28 and put the same under Chapter 28 inasmuch as Chapter 28 specifically mentions Potassium Nitrate. But as already discussed, the goods imported by the appellants are not potassium Nitrate as a separate chemically defined compound, but are fertilizer, as evident from the various evidences produced and discussed. Accordingly, we hold that the Potassium Nitrate Grade 13-0-45 Prilled imported by the appellant, is properly classifiable under Chapter 31.
6.4. In arriving at the above conclusion, we have also taken note of various Notification issued by the Government of India laying down the effective rate of duty in respect of Potassium Nitrate in a form indicative of its use for manurial purpose. In the said Notifications, the classification of the Potassium Nitrate to be used for manurial purpose, has been shown as under Chapter 31. Inasmuch as the goods imported by the appellant are specified as fertilizer in the Fertilizer (Control) Order, the same would properly fall under Chapter 31, as is also recognised by the Ministry of Finance, Government of India in the various Notifications referred to by the learned Advocate for the appellant.
7. In view of foregoing, we set aside the impugned order and allow the appeal with consequential reliefs to the appellant.