1. These are two matters in which the Government of India, Ministry of Finance, Department of Revenue have issued show cause notices under Section 36 (2) of the Central Excises and Salt Act, 1944 for review of the Orders-in-Appeal No. 10/82 (C), dated 18-1-1982 and No. 73/82 (C), dated 11-5-1982 passed by the Appellate Collector of Central Excise, Madras in Appeals filed by M/s. Fertilizer and Chemicals Travancore Ltd., Udyogmandal. On the setting up of this Tribunal, these matters have been transferred here and are now being treated as appeals before us. Since both matters relate to the same issue, these are being disposed of by this common Order.
2. As per the show cause notices issued by the Central Government, the facts are that the respondents are manufacturing ammonium chloride of 99.8% purity. It is stated that this is intended for use as a chemical.
However, from 5th July, 1974, this ammonium chloride had been cleared by the respondents under Item 14HH of the Central Excise Tariff as fertilizer. A classification list filed by the assessee to this effect had also been duly approved by the proper authority. On 4th April, 1981, a notice was issued to the assessee asking him to show cause as to why the impugned product should not be classified under Item 68 of the Central Excise Tariff. As a result of these proceedings, the Assistant Collector ordered that the goods in question were not fertilizers in view of the high purity and were correctly classifiable as industrial chemical under Item 68 of the Central Excise Tariff. The assessee went in appeal before the Appellate Collector of Central Excise, Madras who set aside the order of the Assistant Collector on the ground that the entry 14 HH of Central Excise Tariff did not make distinction between technical or chemical grades of ammonium chloride and fertilizer grade of the product. He noted that ammonium chloride was listed as fertilizer in the Fertilizer Control Order, 1957 and the Amendment Order of 1970. Further, ammonium chloride intended to be used in the manufacture of dry cell batteries, etc. was specifically exempted under Notification No. 164/69 dated 11-6-1969 subject to the following of procedure prescribed under Chapter X of the Central Excise Rules. Central Government, however, felt that Appellate Collector had failed to take into consideration the fact that in commercial parlance, ammonium chloride of 99 8% purity is not known as fertilizer but as industrial chemical used for specified industrial purposes. It also observed that the fact that ammonium chloride figured in Notification No. 164/69 did not mean that all grades of ammonium chloride were covered under Notification. For these reasons it appeared to the Central Government A" that it would be incorrect to classify impugned ammonium chloride as fertilizer.
3. Shri A.S. Sundar Rajan, the learned departmental representative has reiterated the view taken in the show cause notice to the appellants.
He points out that the test report of the FACT Control Laboratory had shown that the ammonium chloride was ot high technical purity. It was being cleared to industrial consumers as chemical and only a small percentage of the product was cleared as fertilizer. Therefore, whether one applies the test of marketing or actual use, the impugned goods cannot be classified as fertilizers covered by the exemption notification. Referring to the Glossary of Terms used in Fertilizer Trade and Industry IS 1304-1980 and the Handbook on Fertilizer Technology, he has pointed out that there is a clear distinction between pure ammonium chloride of technical grade which is used as chemical and ammonium chloride which is not of such high purity and used as fertilizer. The learned JDR has cited the decision of the Karnataka High Court m the case of Mysore Acetate and Chemical Co. Ltd. v. The Assistant Collector of Central Excise and Ors. 84(1) ECC 38 in which it was held that end use would finally determine whether the impugned products were actually classifiable as drug intermediate or not. It is further stated that in the case of HICO Products Ltd. v. the Collector of Central Excise, Bombay (1983, E.L.T. 2483), this Tribunal has held that where there are alternative uses of a product, its classification would depend on actual use. It is pointed out that the predominant use of the manufacturers' product is as a chemical and not as a fertilizer.
4. Shri J. B. Koshy, the learned advocate points out that Notification No. 164/69 clearly exempts ammonium chloride of fertilizer grade used in dry cell batteries. It is pointed out that even ammonium chloride of high purity is treated as a fertilizer under the Fertilizer Control Order and the impugned goods conform to the specification of ammonium chloride which can be sold as a fertilizer as per Schedule I of the Fertilizer Control Order. It is pointed out that there is no warrant for the view that the purity of the product affects its essential character. The product is, in fact, being marked and marketed as a fertilizer. High purity is only on account of lesser moisture content and this does not affect the character of the item nor its price. So far as the claim for benefit under the relevant notification is concerned, it is not restricted in terms of end use of the product. In fact, it exempts ammonium chloride used in the manufacture of dry cell batteries. Therefore, it is pointed out, as per notification itself, ammonium chloride is classifiable as a fertilizer under item 14 HH of the Central Excise Tariff, and there is a specific exemption of duty under this very item when the product is used not as a Fertilizer but as a chemical. It is not, as if when the product is used as a chemical, it goes out of Tariff Item 14HH but a specific exemption has been provided under Tariff Item 14HH for such use. It is further pointed out that appellants have been classifying ammonium chloride under Item 14HH of the Central Excise Tariff as per classification list duly approved.
The Assistant Collector cannot, therefore, proceed to change the classification with retrospective effect. In this connection, the learned advocate has cited the decision in the case of Steel Authority of India Ltd. vs. Collector of Central Excise, Calcutta-1985 (22) E.L.T. 487-, and also the CEGAT decision in the case of Glasfibre Products, Bombay v. Collector of Central Excise, Bombay-1984(17) E.L.T.541. Besides, it is pointed out that the show cause notices issued in these matters contain no allegation of fraud, collusion, suppression of facts, etc.
Therefore, the extended time-limit is not applicable and the demands are essentially barred. It is also pointed out that the Department's case is based on end use of the product in question, which is not at all relevant. In this connection, the following case laws have been cited.
1. Deputy Commissioner (Sales Tax) v. Western India Plywoods (Private) Ltd.-1980 KLT 592.Prakash Match and Plywood Works and Ors. v. Assistant Collector of Central Excise, Cochin and Ors.-1979 E.L.T. (J.Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of India and Ors. (SC).-1983 E.L.T. 4. Glaxco Laboratories (India) Ltd. v. Union of India and Ors.-1985 (21) E.L.T. 72 (CEGAT, Bombay).
It is further argued that when there is a specific entry which covers the goods in question i.e., Tariff Item 14 HH, there is no warrant to remove the classification to the orphanage of the general entry, i.e., Item 68 of the Central Excise Tariff. In this connection, the appellants have cited the decision in the case of Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of India and Ors.-1983 E.L.T. 1566.
Even if two alternative views are possible as regards classification, it is contended that the Supreme Court has held that the view favourable to the assessee should be adopted-J.K. Steel Ltd. v. Union of India and Ors.-1978 E.L.T. (355). It is added that the Department has unnecessarily brought in the question of purity and IS I specifications. These may affect the quality but not essential character of the product which alone would determine classification. To support this point, the appellants have cited the decision of the Supreme Court in the case of Indian Aluminium Cables Ltd. v. Union of India and Ors.-1985 (21) E.L.T. 3. Summing up his arguments, the learned advocate has pointed out that the Department has not discharged the burden of proof on it to show that the impugned product is not a fertilizer as claimed by the appellants.
5. Responding to some of the points made by the learned advocate, the learned JDR states that the product was classified by the appellants as fertilizers and it was not declared to be of a technical grade. This amounted to suppression of facts. It is stated that the proceeding have been undertaken in pursuance of Section 11-A of the Central Excises and Salt Act, 1944 which provided for review and they are in order. The learned JDR has cited in this connection the decision of the Karnataka High Court in the case of Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, Bengalore-1985 (22) E.L.T. 751. Two other points reiterated by the learned JDR are that the impugned product is a concentrate without the other essential nutrient content as specified in the Fertilizer Control Order. Secondly, it is stated that Item 14 HH is a functional entry where it is relevant whether the product is or is not a fertilizer and, therefore, it is pertinent to go into the question as to what end use is and whether the product is used as a fertilizer or not.
6. We have carefully considered the facts of the case and the submissions made by both sides. We find that Notification No.164/69-C.E. dated 11th June, 1969 exempts fertilizers of specified description under Item No. 14HH of the First Schedule to the Central Excises and Salt Act, 1944 subject to conditions already specified. The fertilizers so exempted include ammonium chloride. There is no qualification or restriction in this description with reference to grade or purity of ammonium chloride. In fact, as provided, it is reasonable to conclude that all ammonium chloride is held to fall under the description of fertilizers entitled to exemption subject to the specified conditions. The pertinent specified condition in this case covers ammonium chloride which is intended to be used in the manufacture of dry cell batteries. That is to say, ammonium chloride which is used as a chemical in the manufacture of dry cell batteries is not only clearly held to be classifiable as fertilizer falling under Item No. 14HH of the Central Excise Tariff but it is also exempted under the Notification. The Department's case is that it is only ammonium chloride of lower purity, which is stated to be of fertilizer grade, as distinct from ammonium chloride of higher purity which is stated to be of chemical grade, which is covered by the exemption provided under Notification 164/69, when such ammonium chloride of lower purity is diverted for use in dry cell batteries. We find that there is no support at all for this inter-pretation of the Notification. As already stated, ammonium chloride figures in the Notification without reference to purity or grade and any ammonium chloride which is used in the manufacture of dry cell batteries has been specifically exempted. In fact, it can be implied that ammonium chloride whether of fertilizer grade or technical grade, if used as a chemical in dry cell batteries is specifically covered for the exemption.
7. The Department has referred to the Fertilizer Control Order as well as the Glossary of Terms used in Fertilizer Trade and Industry (IS 1304-1980). But this has been an exercise in futility as reference to both these authorities only establishes that ammonium chloride of high technical purity as well as lower purity is fully covered in the broad specifications applicable to fertilizers. In this situation, the burden of proof that the product in question, is not a fertilizer is on the Department and they have failed to discharge this burden. In view of the definitions contained in the Fertilizer Control Order, Glossary of Terms used in the Fertilizer Trade and Industry as well as the specific wording of Notification No. 164/69, there is hardly any justification for going into the end use of the product in question. We cannot also lightly brush aside the argument that if at all there was any doubt as regards the alternative classification, then as per accepted principles, a specific tariff entry is to be preferred to the general entry and also the view favourable to the assessee will have to be accepted. We are also quite clear that the allegation of suppression of facts that is now being made in the course of arguments, is wholly untenable. This allegation is not contained in the show cause notices and in view of regular submission of classification lists, we find that there is no substance in the allegation that there has been suppression of facts by the assessee. In this view of the matter, we agree that the demands of duty would also be essentially barred by limitation.
However, this issue is largely academic, in view of the fact that the goods in question are being held to be fully covered by the exemption Notification No. 164/69.