Judgment:
1. The present case is remanded by the Hon'ble Supreme Court with the following directions See [1986] 10 ECC 106 (SC) para. 17,-- 17. For the reasons aforesaid, we set aside the impugned order of the Appellate Tribunal and send the case back to it with a direction to decide whether or not in. the process of manufacture of complex fertilisers by the mixture of mono-ammonium phosphate, urea and muriate of potash, a new chemical compound comes into existence or, in other words, whether mono-ammonium phosphate, loses its physical and chemical properties in the complex fertiliser which is ultimately produced. The Appellate Tribunal will decide the question after giving the parties an opportunity of producing materials in support of their respective contentions and after giving them an opportunity of being heard.
2. To understand the controversy in hand it would be useful to state the few facts. The appellants are manufacturers of chemical fertilizers. They manufacture, among other things, complex or mixed fertilizers. For the manufacture of such mixed fertilizers, the appellants import mono-amonium phosphate (hereinafter referred as MAP).
MAP falls within heading 31.02/05 of the 1st Schedule to the Customs Tariff Act, 1975. In exercise of the powers conferred by Sub-section (1) of Section 25 of Customs Act, 1962, Central Government issued a notification No. 178/76-C dated 2-8-1976 for exempting phosphate when imported into India for use as manure from the whole of the duty of cusoms leviable thereon which is specified in the aforesaid 1st Schedule. Pursuant to this exemption, rate of auxiliary duty of customs was reduced from 15% ad valorem to 5% ad valorem. It is the case of the appellant that they imported a consignment of about 5050 MT of MAP and filed a bill of entry for clearance of the goods. The Assistant Collector of Customs allowed clearance of the said consignment on payment of auxiliary duty at 5% ad valorem and additional (countervailing) duty at 7.5% ad valorem subject to the execution of a bond undertaking, inter alia, to produce before the proper officer within 3 months a clarification from the Ministry of Finance to the effect that the aforesaid notification No. 178/76 would also be applicable to the consignment imported for use as an intermediate in the production of complex fertilizers which would be used as manure. In the event of failure to comply with the conditions of the bond, the appellants undertook to pay the differential amount of duty. The appellants executed the bond as directed. It appears that the appellants wrote a detailed letter to the Ministry of Finance, Government, of India on 11-8-1979 but they did not get any reply to their said letter and in the meantime the Assistant. Collector of Customs issued a show cause notice to the appellants calling upon them to show cause why duty amounting to Rs. 60,34,419.56, which was short levied, should not be recovered from them and ultimately confirmed the said demand by his order dated 20-2-1980. Being aggrieved, the appellants went in appeal to the Collector of Customs (Appeals) who by his order dated 1-7-1982 rejected the appeal holding that, as the imported MAP had not been used as manure directly, the exemption under notification No. 178/76 was correctly denied. Still aggrieved the appellants filed their Appeal No. CD(SB) A. No. 377/83-C which was rejected by this Tribunal vide its order dated 11-4-1984. Against this order of the Tribunal the appellants preferred their appeal before the Hon'ble Supreme Court. Now the Hon'ble Supreme Court has remanded the case to this Tribunal with the aforesaid directions vide order dated 22-7-1986. Reported in [1986] 10 ECC 106 (SC) : 1986 (25) ELT 861.
3. On remand, in accordance with the directions given by the Hon'ble Supreme Court we gave the opportunity to the parties to produce materials in support of their respective contentions. Instead of filing any material the respondent moved an application stating that in pursuance of the directions of the Hon'ble Supreme Court the department had referred the matter to the Fertilizers Association of India and that it would be essential to direct the appellants to file an affidavit regarding the actual process of manufacture and utilisation of MAP during the relevant time. Consequently the Bench directed the appellants to file the affidavit and also gave a further period of 4 weeks to the respondent for filing the counter-affidavit as also the opinon of the Fertilizers Association of India. Accordingly the appellants filed the affidavit of Dr. V.N. Rao, Manager-Operations of the appellants and the respondent filed the report of the Fertilizers Association of India. In his affidavit Dr. V.N. Rao, Manager-Operations of the appellants had stated his qualifications and experience to show that he is an expert. In his affidavit he had referred 6 Annexures.
Annexure-1 is the process description which sets out the details of the process employed by the appellant-company during the relevant period for the manufacture of complex fertilizers. The said Annexure is duly supported by the "diagram" and process description. Annexure-2 is a copy of the test report of School of Chemistry of Andhra University certifying that there was no chemical reaction between MAP and NH3 vapour, that is to say, that there was no chemical reaction at all in the granulator between the ammonia and the imported MAP within the normal 2 to 3 minutes retention time (process time) in the granulator.
Annexure-3 is the "technical note" of the use of "MAP" in the manufacture of GROMOR 28 : 28 : 0 fertilizer certifying that no chemical reaction takes place while the particles of MAP get the coating of slurry in the granulator. Annexure-4 is the test report on artificially mixed MAP, urea, muriate of potash mixture given by the Head of the Department of Physical and Nuclear Chemistry and Chemical Oceanography, Andhra University certifying that the results mentioned in the test report do not suggest any chemical reaction. Annexure-5 is the copy of the analysis report of 6 samples (X-ray diffractograms) issued by the Regional Research Laboratory, Hyderabad and Annexure-6 is the report of the School of Chemistry of Andhra University certifying that on conducting X-ray diffraction test on GROMOR 28-28-0 and GROMOR 14-35-14 alongwith the standards given by the appellants, X-ray diffraction analyses clearly showed that the samples contain distinctly separate crystals of DAP, MAP and urea in GROMOR 28-28-0 and DAP, MAP and KC1 in the case of GROMOR 14-35-14. Dr. V.N. Rao has referred these Annexures in his affidavit to substantiate his opinion that the MAP imported by the appellant-company and used in the manufacture of complex fertilizers remain as MAP in the finished complex fertilizers and did not undergo any chemical reaction and retain its physical and chemical properties in the said finished chemical fertilizers. To the same effect is the report of Fertilizers Association of India , dated 10-6-1987 certifying that We are, therefore, convinced that no chemical reaction has occurred in the process of manufacture with mono-ammonium phosphate used in the CFL plant and the MAP so added has retained its physical and chemical characteristics in the complex fertilizers produced. The mono-ammonium phosphate should have retained its identity and entered the soil as MAP even when converted into complex fertilizer by the process of manufacture adopted by M/s. CFL.
4. When the case was called for hearing Shri A.S. Sunder Rajan, learned JDR with his usual fairness stated that in view of the said affidavit of Dr. V.N. Rao, Manager-Operations and the report of the Fertilizers Association of India he does not dispute the fact that in the process of manufacture of complex fertilizers by the mixture of mono-ammonium phosphate, urea and muriate of potash, no new chemical compound comes into existence or, in other words, mono-ammonium phosphate does not lose its chemical properties in the complex fertilizer which is ultimately produced, but hastened to add that mono-ammonium phosphate in mixture acquires a different physical form. He further pleaded that the mono-ammonium phosphate was not used by the appellant directly as a manure, but the same was used for the production of complex fertilizers, the notification No. 178/76 is not applicable and to substantiate his contention he drew our attention to another notification No. 177/76-Cus which was issued on the same day the notification No. 178/76--under reference--was issued, i.e., on 2-8-1976 and cited the following case law: In reply Shri S. Ganesh, learned Counsel for the appellants contended that after admitting that in the process of manufacture of complex fertilizers by the mixture of mono-ammonium phosphate, urea and muriate of potash no new chemical compound comes into existence, that is, mono-ammonium phosphate does not lose its physical and chemical properties in the complex fertilizers which is ultimately produced it does not lie in the mouth of the learned JDR to go beyond the directions given by the Hon'ble Supreme Court and to contend that as the MAP is not used by the appellant directly as a manure, notification No.178/76 is not applicable. Shri Ganesh further drew our attention to paras. 9, 10, 11 and 12 of the remand order passed by the Hon'ble Supreme Court to show that all these contentions were raised during the course of hearing before the Hon'ble Supreme Court by the learned Attorney General but did not find favour with the Supreme Court.
5. We have considered the contentions raised by the parties. From the remand order we find that on behalf of the Collector of Customs, Madras it was contended by the Attorney General that since the mono-ammonium phosphate was not used by the appellant directly as a manure, (but the same was used for the production of complex fertilizers) the notification No. 178/76 is not applicable but the Hon'ble Supreme Court did not agree with the said contentions and held as follows: 12 ...In our opinion, if mono-ammonium phosphate retains its physical and chemical properties in the mixture, it will be difficult to say that it was not used by the appellant as a manure within the meaning of the notification No. 178/76-Cus.
On a conjoint reading of these findings and the remand order it is clear that since at the item of hearing before the Supreme Court no material was available on the record to conclude as to whether MAP loses its physical and chemical properties in the complex fertilizers which is ultimately produced the case was remanded to this Tribunal to decide the said question after giving the parties the opportunity of producing materials in support of their respective contentions. Under these circumstances the respondent cannot be allowed to raise the same contention which was advanced and rejected by the Hon'ble Supreme Court. Even otherwise it is settled law that a subordiate Court is bound by the direction of the superior Court or, in other words, the Court to which the case is remanded cannot go behind the order of remand, though the superior Court is not bound what the subordinate Court might have held in its remand order. See Jasraj v. Hemraj AIR 1977 SC 1011 and Balaswaraswamy v. M. Dorayya AIR 1972 Andh Pra 250.
Thus the contentions raised by the learned JDR that Tribunal can go beyond the scope of remand order cannot be entertained.
6. As observed above the learned J.D.R. has not disputed the fact that in the process of manufacture of complex fertilizers by the mixture of MAP, urea and muriate of potash, no new chemical compound comes into existence but has disputed that there is a change in the physical form of the imported materials going into the complex fertilizers. We find from the evidence placed before us and referred to in the preceding paragraph that mono-ammonium phosphate continues to be present as such and it gets only agglomerated. In the agglome rated materials it has not been shown that in any way physical property of the constituent materials has been lost. The department has not led any evidence to show that in any way any physical property of the material has been modified to the extent where it can be said that the physical properties have been lost. It has also not been shown to us that by the agglomeration of the material mono-ammonium phosphate on account of the form in which it has been put has lost any of its attribute as a fertilizer. What has in fact happened is that by mixing of various materials, in an agglomerated form a more comprehensive fertilizer mixure came into existence. In sum we hold that mono-ammonium phosphate does not lose its physical and chemical properties in the complex fertilizers. Consequently, we set aside the impugned order passed by the Collector of Customs (Appeals), Madras dated 1-7-1962 and allow the appeal with consequential relief.