Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
CASE NO.:
Appeal (civil) 3876 of 1999
PETITIONER:
UNION OF INDIA AND ORS.
RESPONDENT:
PESTICIDES MANUFACTURING & FORMULATORS ASSON OF INDIA
DATE OF JUDGMENT: 23/10/2002
BENCH:
SYED SHAH MOHAMMED QUADRI & RUMA PAL
JUDGMENT:
JUDGMENT
2002 Supp(3) SCR 231
The Judgment of the Court was delivered by
RUMA PAL, J. This appeal has been preferred from the decision of the Delhi
High Court striking down a Circular dated 28th October, 1997 issued by the
Central Board of Excise and Customs (briefly CBEC). The circular directed
the classification of technical grade of pesticides, insecticides etc.
under Chapters 28 and 29 of the Schedule to the Central Excise Tariff Act,
1985 (referred to as the ’1985 Act’) and not under the Heading No. 38.08 of
the Schedule. Technical grade pesticides are chemical compounds in a
concentrated form. The respondent before us is an association of the
manufacturers of Technical grade pesticides (TGP) and insecticides and
formulations thereof. It claimed before the Delhi High Court that TGP,
Insecticides etc. are classifiable under Tariff Heading 38.08 and not under
Chapter 28 and 29 and prayed inter-alia for cancellation of the circular
and for a direction on the appellants before us, to classify TGP etc. and
bulk formulations under sub-heading 3808.10 and for a refund of the
enhanced duty paid for the past under protest or any excess amount received
by the Department. The Delhi High Court accepted the respondent’s
contention and allowed the writ petition. On the application of the
appellants, leave was granted by this Court to appeal against the High
Court’s judgment.
While impugning the decisions of the High Court, the appellants have
conceded that prior to 1996 TGP and insecticides etc. in bulk were
classified under the Tariff Heading No. 38.08 of the Act. According to the
appellants, because this tariff heading was amended in July 1996, after
1996 TGP etc. in bulk concentrated forms were excluded from Heading No.
38.08 and were covered under Chapter 28 or 29 of the Act depending upon the
composition. This position, according to the appellants, was further
clarified when Chapter 38 Note l(a) (2) was amended in 1997.
According to the respondent the amendments in 1996 and 1997 have made no
difference to the classification of bulk pesticides and insecticides etc.
It is submitted that the amendments were intended to and in fact serve the
purpose of extending the liability to excise to insecticides, pesticides
etc. in retailable forms. The issue, therefore, is - did the 1996 and 1997
amendments to Chapter 38 serve to remove bulk TGP, insecticides etc. from
that Chapter and place them in Chapter 28 or 29?
In approaching the problem, the first stamp is to look at the background in
which the amendments were effected to the relevant portions of the 1985 Act
and its Schedule. There was no relevant amendment to the Act between 1987
and 1996. In 1987, Chapter 28 of the Schedule to the Act related to
inorganic chemicals, organic or inorganic compounds of precious metals of
rare earth metals of radioactive elements or isotopes. Note l(a) of that
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
Chapter provided that except where the context otherwise required, the
headings of the Chapter applied only to: "Separate chemical elements and
separate chemically defined compounds, whether or not containing
impurities". Chapter 29 related to organic chemicals and also provided in
Note l(a) thereof that the headings of the Chapter would apply only to:
"Separate chemically defined organic compounds, whether or not containing
impurities". The Chapter headings, the Notes and the Tariff Headings within
Chapter 28 and 29 have not been changed or amended in their application to
separate chemically defined compounds by the 1996 or 1997 amendments for
the period in question. Therefore, generally speaking all separate
chemically defined compounds are classifiable under Chapter 28 and 29
depending on their composition.
Chapter 38 of the Schedule relates to ’Miscellaneous Chemical Products’ and
carves out an exception to this general classification of separate chemical
compounds under Chapter 28 and 29. Between 1987 to 1996, the Notes to this
Chapter in so far as they are relevant read as follow:
"1. This Chapter does not cover,
(a) Separate chemically defined element or compounds with the exception
of the following:
(1)
(2) Insecticides, rodenticides, fungicides, herbicides, anti-sprouting
products and plant-growth regulators, disinfectants and similar products."
The Two negatives in the Chapter Note make it clear that the Chapter
covered the items mentioned in Note l(a)(2). This was also reflected in the
Tariff Heading 38.08 which then read as:
"38.08 Insecticides rodenticides, fungicides, herbicides, anti-sprouting
products and plant-growth regulators, disinfectants and similar products."
Therefore the respondent’s products were expressly classifiable under this
tariff heading and this position is not now disputed by the appellants.
Incidentally the concession was also made before the High Court in the
appellants’ affidavit. Besides the circular dated 27th July 1995 issued by
CBEC under S.37B of the Central Excise Act, 1944 stated that "The Pesticide
Chemicals and formulations will both be classified under heading 38.08 of
the CETA, 1985". Similarly the Department of Revenues’s circular dated 28th
October 1997 records, "Prior to the 1996 Finance Bill (2), there was no
distinction between bulk packings and retail packings, and all pesticides
were falling under heading no. 38.08". However, earlier a question had
arisen as to whether the processing of concentrated basic pesticidal
chemicals through addition of inert carriers/solvent and dispersing and
stabilising agents which rendered them suitable for use either directly or
after addition of water amounted to manufacture of a separate excisable
product. In other words, if the bulk forms of insecticides etc. were made
fit for retail sale would such retailable products be separately subjected
to excise duty under the Tariff Heading 38.08? The Collector (Appeals),
Central Excise, New Delhi decided the question against the Revenue. The
matter was taken by the Department before the Central Excise and Gold
(Appellate) Tribunal (CEGAT). By its decision in Collector of Central
Excise v. Markfed Agro Chemicals,’ the Tribunal held that the process
described did not amount to ’manufacture’ of a new excisable item within
the meaning of Section 2(f) of what was then the Central Excise and Salt
Act, 1944 (which is now known as the Central Excise
1. 1993 (68) ELT 848 (Tribunal) Act, 1944 and is hereinafter referred
to as the "1944 Act’) as the process did not result in a new product having
a distinctive name, character and use. Thus the Revenue’s attempt to rope
in insecticides and pesticides in a retail form as a separate excisable
item under Chapter 38.08 was thwarted.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
Despite the decision of the Tribunal in Markfed Agro Chemicals, the CBEC
issued a circular on 27th July 1995 in exercise of powers under Section 37
B of the 1944 Act and ordered that:
"The addition of chemicals and other ingredients like inert carriers or
solvents and also surface active dispersing and stabilising agents to
pesticidal chemicals in highly concentrated form would amount to
’manufacture’ within the meaning of Section 2(f) of the Act since it
results in the emergence of a new and distinct product having different
properties viz., pesticide/insecticide fit for direct use. The Pesticide
Chemicals and the formulations will both be classified under Heading 38.08
of CETA, 1985."
The circular was challenged before the High Court of Delhi by way of
several writ petitions. The High Court by its decision in Kissan Chemicals
v. Union of India, (1996) 88 ELT 648 (Del.) held that it was not open to
the CBEC to reverse the decision of the Tribunal by issuing a directive
under Section 37B of the 1944 Act.
It was to overcome the effect of the Tribunal’s decision in Markfed Agro
Chemicals that amendments were effected by the Finance Act, 1996 to Chapter
38 to incorporate statutorily the substance of the circular which had been
struck down by the Tribunal. As far as the Chapter Notes were concerned.
Note 1 was left untouched but Note 2 was inserted which reads:
2. In relation to products of heading No. 38.08, addition of chemicals and
other ingredients like inert carriers or solvents, surface active,
dispersing and stabilising agents, emulsifiers, wetting and dispersing
agents, deodorant, masking agent, attractants and feeding stimulants to
pesticidal chemicals in concentrated form, labelling or relabelling of
containers intended for consumers and repacking from bulk pack to retail
packs or the adoption of any other treatment to render the product
marketable to the consumer shall amount to ’manufacture’."
Patently, Chapter Note 2 of Chapter 38 proceeds on the basis that TGP is
covered by Chapter 38. Were it not so it was not necessary to provide that
the addition of chemical pesticides and re-packing and labelling etc. of
the product would amount to manufacture. The language in Chapter Note (2)
that "addition of chemicals and other ingredients" to "products of heading
No. 38.08" and adoption of any other treatment to render the product
marketable would amount to manufacture, plainly understood means that (i)
the product (without additives, or any treatment) as well as (ii) the
product after administration of additives and (iii) the product after
treatment for the purposes of retail sale were all but separately exigible
to duty under the Chapter. The importance of the Chapter Notes in the
matter of interpretation is manifest from Section 2(f)(ii) which defines
’manufacture’ to mean:
"which is specified in relation to any goods in the section or Chapter
notes of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as
amounting to manufacture."
Then again the Schedule to the 1985 Act before providing for rates of duty
leviable thereunder sets out Rules for the interpretation of the Schedule.
Rule 1 states:
"The titles of sections and chapters are provided for case of reference
only: for legal purposes, classification shall be determined according to
the terms of the headings and any relative section or Chapter Notes and,
provided such headings or Notes do not otherwise require, according to the
provisions hereinafter contained."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
As far as Tariff Heading 38.08 was concerned after the phrase Insecticides,
rodenticides etc. the phrase: "put up in forms or packings for retail sale
or as preparations or articles (for example, sulphur-treated bands, wicks
and candles, and fly papers)", was added by the amendment.
In other words, the Tariff Heading covers -
(1) Insecticides, pesticides etc. put up in forms or packing for retail
sale;
(2) Insecticides, pesticides etc. as preparatons,
(3) Insecticides, pesticides etc. as articles (for example sulphur-
treated bands, wicks and candles, and fly papers)
What is manufactured by the respondent’s members is Technical grade
pesticides (TGP) and insecticides. No doubt they are separate chemically
defined compounds as contended by the appellants. But the word ’compound’
itself denotes a mixture of components. The word "preparation" denotes not
only the action or process of preparing the components to produce the
compound, but also that which is prepared, in this case insecticides,
pesticides etc.
We see no ambiguity in the heading. Even if there were, the doubt must be
resolved with reference to the Chapter Note which clearly covered
insecticides, pesticides etc. before further formulation by way of
additives or treatment. This would include the respondent’s product.
There is also substance in the submission of learned counsel for the
respondent that classification of TGP, inserticides etc. in bulk form under
Tariff Heading 38.08 would be in keeping with the Rules for interpretation
of the schedule to the 1985 Act.
The Rules in so far as they are relevant provide:
"2(b) Any reference in a heading to a material or substance shall be taken
to include a reference to mixtures or combinations of that material or
substance with other materials or substances. Any reference to goods of a
given material or substance shall be taken to include a reference to goods
consisting wholly or partly of such material or substances."
(3) When by application of sub-rule (b) of rule 2 or for any other reason,
goods are prima facie, classifiable under two or more headings,
classification shall be effected as follows:
(a) The heading which provides the most specific description shall be
preferred to headings providing a more general description. However when
two of more headings each refer to part only of the materials or substances
contained in mixed or composite goods or to part only of the items in a
set, these headings are to be regarded as equally specific in relation to
those goods, even if one of them gives a more complete or precise
description of the goods.
(b) .........
(c) When goods cannot be classified by reference to (a) or (b) they shall
be classified under the heading which occurs last in the numerical order
among those which equally merit consideration." Paraphrased and simply put,
the quoted extracts of the rules direct that the goods would include its
formulations and that the more specific heading should be preferred and if
there are two such specific headings to which a product can be referred,
the one occurring subsequently would prevail.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
Chapter 28 and Chapter 29 are, as already noted, general provisions
relating inter alia to separate chemical compounds. Chapter 38 is the
specific chapter dealing with particular chemical compounds viz.,
insecticides, pesticides etc. In keeping with the Rules quoted, the TGP
manufactured by the respondent are classifiable under the particular
subsequent provision and not under the residuary headings occurring
earlier.
This is also how the appellants understood the effect of the 1996
amendment. Trade Notice No. 40/96 dated 23.7.96 enclosed Notes explaining
important changes made in excisable duty by the Finance Bill, 1996.
Paragraph 19.1 and 19.3 of the Explanatory Notes make the position of the
appellants abundantly clear:
19.1. Concessional rate of excise duty of 10% on Incesticides fungicides
etc. (sub-heading No. 3808.10) and Plant growth regulators is being
continued. Tariff rate for these products is also being prescribed at 10%.
A new sub-heading No. 3808.20 is created for plant growth regulators
(relevant bill entries refer).
19.2
19.3. A new Chapter is being added so as to make the process of making
formulations out of pesticide concentrates as "manufacutre". With the
introduction of this chapter note, the process of making formulations out
of duty paid pesticides, insecticides concentrates is also liable to excise
duty. The chapter note is introduced to avoid any disputes on
classification."
The use of the words "continued" and "also" as emphasized above, indicate
that what was originally classified under Tariff Heading 3808 viz.
concentrates would continue to be so classified and in addition
formulations of such concentrates would be liable to excise duty. It was
therefore not the intention of the 1996 amendment to exclude concentrates
of insecticides etc. in bulk form from Chapter 38 but to extend the
incidence of excise duty to formulations from and retail packages of the
concentrates.
It is not open to the Revenue not to take a stand contrary to what had been
expressed in the Trade Notice. As stated by this Court in Collector of
Central Excise, Bombay v. Kores (India) Ltd 2
"A Tariff Advice or a Trade Notice issued by the Board certainly does not
bind the Tribunal or the Courts and an assessee may argue that it is
erroneous; but it is not open to the Revenue to advance arguments that are
contrary to the terms thereof."
(See also Steel authority of India v. Collector of Customs, Bombay 2000
(15) ELT 42 SC.)
In 1997, there was a further amendment to the Chapter Note of Chapter 38.
By this amendment. Chapter Note 2 which had been introduced by the 1996
amendment was left untouched as also the Tariff Heading but Chapter Note 1
(a)(2) was altered by the addition of the phrase "put up as described in
Heading No. 38.08".
The final position as it now stands is that Chapter Note l(a)(2) and 2 of
Chapter 38 read:
" 1. This Chapter does not cover:
(a) Separate Chemically defined elements or compounds with the exception
of the following:
(1)
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
(2) Insecticides, rodenticides, fungicides, herbicides, anti-sprouting
products and plant-growth regulators, disinfectants and similar products,
put up as described in Heading No. 38.08;
2. In relation to products of heading No. 38.08, addition of chemicals and
other ingredients like inert carriers or solvents. Surface active
dispersing and stabilising agents, emulsifiers, wetting and dispersing
agents, deodorant masking agent, attractants and feeding stimulants to
pesticidal chemicals in concentrated form, labelling or relabelling of
containers intended for consumers and repacking from bulk pack to retail
packs or the adoption or any other treatment to render the product
marketable to the consumer shall amount to manufacture."
Tariff Heading 38.08 now reads as:
______"Insecticides, rodenticides, fungicides, herbicides, anti-sprouting
2. (1997) 89 ELT 441 (SC) products and plant-growth regulators,
disinfectants and similar products put up in forms or packings for retail
sale or as preparations or articles (for example, sulphur-treated bands,
wicks and candles, and fly-papers)"
What is notable is that the 1997 amendment did not change Chapter Note (2)
which has been construed by us earlier as including TGP etc. All it did was
to extend the exception to the general classification under Chapter 28 and
29 to treated and retailable forms of the already excepted chemical
compounds. It brought about a parity of language between Tariff Heading as
amended in 1996 and Chapter Note l(a)(2) and we have already seen that the
Tariff Heading as amended in 1996 continues to cover insecticides,
pesticides etc.
The Harmonized System of Nomenclature (HSN) provides for an identical
classification of insecticides etc. in heading 38.08. Indeed, it is the
appellants’ case that the 1996 and 1997 amendments to Chapter 38 were
effected to bring it on par with the HSN. Sub-headings 3808.10, 3808.20,
3808.30, 3808.40 and 3808.90 respectively of the HSN refer to
"Insecticides", "Fungicides", "Herbicides "Disinfectants" and "others." The
explanatory note clarifies that the classification covered products (1)
when they are put up in packings or in such forms that there can be no
doubt that they will normally be sold by retail and (2) when they have the
character of preparations. It also says:
"Intermediate preparations, requiring further compounding to produce the
ready for use insecticides, fungicides, disinfectants, etc. are also
classified here, provided they already possess insecticidal. fungicidal
etc. properties."
Hence preparations with insecticidal, fungicial properties are classifiable
under Heading 38.08.
The HS of Commodity Classification which was developed by the World Customs
Organisation, Brussels was adopted by India also in the 1TC (HS)
Classification of Export and Import Items. 2002-2007 which was issued by
the Government under Section 5 of the Foreign Trade (Development and
Regulation) Act. 1992 read with paragraph 2.1 of the Export and Import
Policy, 2002-2007. The 1TC (HS) like the Schedule to the 1985 Act, also
contains several chapters which correspond exactly with the Schedule to the
1985 Act at least as far as the relevant parts of Chapter 38 are concerned.
Chapter Note l(a)(2) and the Heading 38.08 of the ITC (HS) are identical
with the Schedule to the 1985 Act. In the ITC (HS), under the several sub-
headings to Heading 38.08, the different forms of insecticides, pesticides
etc. have been provided for from which it is clear that insecticides etc.
in their concentrated bulk forms are covered by the Heading 38.08 at least
for the purposes of the Import/Export Policy. For example sub-heading
3808.10.11 mentions ’Aldrin’ as a form of insecticide. Against that sub-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
heading, it is provided that it is freely importable/exportable "if
registered and not prohibited for import under Insecticides Act, 1968 and
formulations thereof. Similarly, 3808.90.10 provides for ’presticides, not
elsewhere specified.’ It is treated as a free item under the policy "if
registered and not prohibited for import under the insecticides Act, 1968
and formulations thereof. Undeniably insecticides, pesticides etc. in
whatever form are covered by the Insecticides Act. The description
demonstrates that bulk concentrates and formulations are covered by the
sub-heading ’Aldrin’. The use of the same words in the Tariff Heading in
the Schedule to the 1985 Act as has been used for the purposes of the
Import Trade Control Policy is an additional reason for holding that
insecticides, pesticides concentrates in bulk forms are includible within
the Tariff Heading. See Dunlop India Ltd. v. Union of India and Ors.,
[1976] 2 SCC 241.
For all these reasons, we are unable to accept the appellants’ submission
that the amendments Chapter 38 in 1996 and 1997 served to exclude TGP or
insecticides etc. in bulk forms from Chapter 38.
We, accordingly dismiss the appeal without any order as to costs. Civil
Appeal No. 6009-6011/1999 etc. etc.
ORDER
In view of our judgment and for the reasons stated in Civil Appeal 3876 of
1999 titled Union of India and Ors. v. Pesticides Manufacturing &
Formulators Association of India delivered today, these appeals are also
dismissed without any order as to costs.