Holding

Circulars issued by the Central Board of Excise and Customs under Section 37B are binding statutory instructions, and the later circular re‑classifying micronutrients as "other fertilisers" under heading 31.05 applies retrospectively, setting aside the earlier classification.

Summary

The appellants, manufacturers of micronutrients, challenged the classification of their products for excise duty. An earlier Board circular (June 1990) classified micronutrients as "plant growth regulators" under heading 38.08, while a later circular (November 1994) re‑classified them as "other fertilisers" under heading 31.05, citing the Fertiliser Control Order, 1985. The issue before the Supreme Court was whether these circulars, issued by the Central Board of Excise and Customs, were binding orders under Section 37B of the Central Excise & Salt Act and whether the later circular could be applied retrospectively to set aside the Tribunal’s earlier decision. The Court held that both circulars were issued under Section 37B, thus having statutory effect and being binding on excise officers; the later circular superseded the earlier one and must be followed. Consequently, the Tribunal’s order was set aside, the appellants were exempted from excise duty, and the revenue was ordered to pay costs.

Issues considered

Whether the Board's circulars on classification of micronutrients are orders/instructions under Section 37B of the Central Excise & Salt Act and therefore binding on excise officers.
Whether a later circular issued under Section 37B can have retrospective effect and overturn a prior classification and assessment made under an earlier circular.
Whether micronutrients qualify as "other fertilisers" under heading 31.05 in view of the Fertiliser Control Order, 1985.

Legislation cited

Central Boards of Revenue Act, 1963
Central Excise Tariff Act, 1944s. Chapter 31 Note 6, s. Interpretative Rules Rule 4

Subjects

Excise dutyClassification of goodsCircularsSection 37BMicronutrientsFertiliserPlant growth regulatorRetrospective effectStatutory authority

Judgment

MIS. RANADEY MICRONUTRIENTS ETC. A
v.
COLLECTOR OF CENTRAL EXCISE

""-' SEPTEMBER 10, 1996
'"' (S.P. BHARUCHA AND K. VENKATASWAMI, JJ.] B

Central Excise Ac~ 1944-Central Excise Tariff-Heading 31.05 ''fer-
tilisers"-38.08 "plant growth regulators" 38.2:T-"residual products of chemical
or allied industlies, not elsewhere specified"-Circulars issued by the Central
Board of Excise and customs-Micronutrients-Classified under 38.08--0n c
appeal held duty could be levied u11der 31. 05 after the later circula,-.../f later
circular contrary to statute it must be withdrawn-Wlzile it remains in operation
Revenue is bound by it-lt does not lie in the mouth of Revenue to repudiate
a circular issued by the Board on the basis that it is inconsistelll with a
statutory provision.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5404 of
1993 Etc.

From the Judgment and Order dated 13.5.93 of the Customs
Excise and Gold (Central) Appellate Tribunal, New Delhi in Appeal
No. E/25/91-C, Order No. 179 of 1993-C.
E

A. Hidayatullah Joseph Vellapalli, C.A. Sundram, A. Sheerazi and
Mukul Mudgal for the Appellants.

M. Gaurishanker Murthy, V.K. Verma and A.K. Srivastava for the
F
Respondent.

The following Order of the Court was delivered :

These appeals concern the classification of micronutrients for the
purposes of Excise duty. Micronutrients are mixtures of soluble salts of
G
... elements like calcium, magnesium, manganese, zinc iron, copper, boron
and molybdenum. They are mixed in stated percentages to get a formulated
product which assists the growth of plants. The appellants manufacture
micronutrients.

Thefacts being similar, we set out those of one of the two appeals. H
755
756 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A During the period October, 1989, to November, 1989, samples of
micronutrients were drawn and tested by the Deputy Chief Chemist of the

-
Union of India who opined that micronutrients were not "plant growth
regulators". However, on 6th November, 1989, the Collector of Central
Excise issued to the appellants (in Civil Appeal No. 5404 of 1983) a notice .-·
to show cause why the micronutrients made by them should not be clas-
B sified as "plant growth regulators" under heading 38.08.90. The show-cause
notice related to the period 1st April, 1986, to 23rd September, 1989. The
appellants showed cause and led evidence at the personal hearing before
the Collector on 6th December, 1989. On 11th December, 1989, an Adden-
dum was issued to the show-cause notice dated 6th November, 1989, which
c required the appellants to show cause why their micronutrients should not
be classified undc::r heading 38.23 as "residual products of chemical or allied
industries, not elsewhere specified". On 22nd February, 1990, a Corrigen-
dum issued to the show-cause notice aforementioned which sought to
classify the micronutrients under heading 38.23 as "chemical products and
preparations of the chemical or allied industries (including those consisting
D
of mixture of natural products) not elsewhere specified". On 14th April,
1990, the appellants showed cause. ...

On 20th June, 1990, a circular (now called "the earlier circular") was
iss!led by the Central Board of Excise and Customs (now called "the
E Board"), addressed to all Collectors of Central Excise, on the subject of
the classification of micronutrients for the purposes of Central Excise. The
circular stated that a doubt had been expressed regarding the classification
of micronutrients, namely, whether they should be classified under heading
31.05 as "fertilisers" or under heading 38.08 as "plant growth regulators".
F The matter had been examined in consultation with the Deputy Chief
Chemist who had opined that hearding 31.05 covered only those com-
pounds in which one of the elements was nitrogen or phosphorous or
potassium. Since micronutrients did not contain these, micronutrients did
not merit classification as fertilisers under heading 31.05. The opinion of
the Deputy Chief Chemist was that micronutrients contained other ele-
G ments which made them classifiable as "plant growth regulators". "In view ...
of the above", the earlier circular stated, "it is clarified that the appropriate
classification of the product 'plant growth regulator' would be under
heading 38.08 of CET". The earlier circular required the Collectors of
Central Excise to bring the clarification it contained to the notice of the
H lower field formations and suitably advise trade interests. The earlier
RANADEY MJCRONUTIUENTS v. COLLECTOR OF CENTRAL EXCISE 757

circular also stated, "All pending assessments may be finalized on the above A
basis".

On 23rd July, 1990, the Collector ofCentral Excise wrote. to the
appellants a further letter in connection with the show-cause. notice dated .
6th November, 1989. It cancelled the Addendum dated 11th December,
1989, and the Corrigendum dated 22nd February, 1990, and reverted to the B
stand taken in the show-cause notice itself, namely, that the micronutrients
·were classifiable as "plant growth regulators" under heading 30.08. After
hearing the appellants, the Collector confirmed the demand made in the
show-cause notice on 6th November, 1990. The appellants appealed to the
Central Excise and Gold (Control) Appellate Tribunal which, by the order C
under appeal, upheld the classificaticn but limited the demand to the
period of six months immediately preceding the date of the show-cause
notice.·

Subsequent to the filing of the appeals in t1'is Court, a circular (now D
called "the later circular") was issued by the Board which is crucial to
these appeals. The later circular is dated 21st November, 1994. It was
addressed to all_ Collectors of Central Excise on the subject of the clas-
sification of micronutrients for the purposes of Central Excise. The later
circular invited attention to the earlier circular and "and the instructions
contained" therein. It noted that the earlier circular had stated that E
micronutrients were appropriately classifiable under heading 38.08 as
"plant growth regulators". The Indian Micro Fertilisers Manufaccurers'
Association had represented that micronutrients should be classified.
under heading 31.05 as 'other fertilisers' and had produced certificates
issued by various Agricultural Universities as evidence i~ support of their F
claim. The Board had carefully re-examined the entire issue in consult-
ation with the Ministry of Agriculture and the Chief Chemist. The Minis-
try of Agricultural had clarified that micronutrients were recognised as
fertilisers under the Fertiliser Control Order, 1985. The Chief Chemist
had opined that in technology and trade micronutrients were classifiable
along with fertilisers. In terms of Rule 4 of the Interpretative Rules of the G
Central Excise Tariff, niicronutrients merited classification as fertilisers.
The later circular added':

"4. Therefore, it is clarified that Micronutrients listed under Sr.
No. l(F) of Schedule 1 Part (A) of the Fertilizer Control Order, H
758 SUPREME COURT REPORTS (1996) SUPP. 5 S.C.R.

A 1985 and their mixture (with or without N.P.K.) as notified by the
Central Government or a State Government would be appropriate,
ly classifiable under heading No. 31.05 as "Other Fertilizers."

B
. 5. The above clarification may be brought to the notice of lower
field formations and the trade interests may also be suitably
advised. '
-
6. Board's earlier Circular No. 26/90-Cx. 3 dated 26.6.90 accord-
ingly stands withdrawn.

c 7. All pending assessments may be finalised on the above basis."

The appellants have placed the later circular on the record, annexed
to an affidavit, and have relied upon it in argument and contended that, in
view thereof, their micronutrients cannot be classified except as therein
stated. It has also been pointed out that for periods subsequent to those
D with which we are concerned in these appeals, their micronutrients have
been classified in terms of the later circular.

To the affidavit annexing the later circular, an affidavit in reply has
been filed by M.K. Gupta, working as Director in the Department of
Revenue, Ministry of Finance, New Delhi. He states that Section 37B of
E the Central Excise & Salt Act empowers the Board to issue instructions in
order to ensure uniform practice of assessment of excisable goods
throughout the country. Instructions thus issued by invoking Section 37B
get "statutory status and significance". Any instructions issued otherwise by
the Board through a circular, but without invoking Section 37B, are ad-
F visory in nature and do not possess statutory significance. In this sense, the
earlier circular, not having been issued under Section 37B, had to be
regarded as advice. The Section Notes and Chapter Notes in the Tariff Act
were enacted provisions. Thus, Note 6 of Chapter 31 governed the issue.
(It states that for the purposes of heading 31.05 the term "other fertilisers"
applies only to products of a kind used as fertilisers which contain as an
G essential constituent at least one of the fertilising elements, nitrogen,
phosphorous or potassium). Such products as did not contain these ele-
ments could not be brought under the statutory definition of fertilisers by
the invocation of the Interpretative Rules. The earlier and later circulars,
not having been issue under the provisions of Section 37B, were merely
H advisory in nature and could not have any statutory effect. The scope of
RANADEY MICRO NUTRIENTS v. COLLECTOR OF CENfRAL EXCISE 759

Chapter 31 to include micronutrient mixtures as fertilisers had to be by A
enactment and not by advisory circulars. In the absence of any amendment
by enactment of Chapter 31, the appellants could not take shelter under
the later circular in the matter of the classification of their product, which
classification had already been judicially decided by the Tribunal to be
under heading 30.08.90. The later circular could not be given retrospective
effect once the classification dispute for the relevant period had been
B.
settled by the earlier circular.

Learned counsel for the appellants relied upon the later circular and
proceeded further, but we intervened for we wanted to hear learned
counsel for the Revenue upon the earlier and later circulars. C

Learned counsel for the Revenue submitted that the later circular
"flies in the face" of Note 6 of Chapter 31. Micronutrients did not contain
any of the fertilising elements, nitrogen, phosphorous and potassium and,
therefore, the later circular had no effect on their classification. Both the D
earlier and the later circulars were only advisory in nature because it was
clear on the face thereof that they had not been issued by invocation of the
provisions of Section 37B. In any event, and assuming that the later circular
had been issued under the provisions of Section 37B, it could only have
prospective effect and would not alter the decision of the Tribunal in the E
present appeals.

We may add that learned counsel for the Revenue stated that there
was no provision in the Excise Act other than Section 37B by which the
Board could issue circulars such as the earlier and later circulars, but he
submitted that the. Board had been issuing circulars even before Section F
37B was introduced into the Excise Act.

Section 37B reads thus :

"S. 37-B.- Instructions to Central Excise Officers. - The Central G
Board of Excise and Customs constituted under the Central
0
Boards of Revenue Act, 1963 (54 of 1963) may, if it considers it
necessary of expedient so to do for the purpose of uniformity in
the classification of excisable goods or with respect to levy of duties
of excise on such goods, issue such orders, instructions and direc-
tions to the Central Excise Officers as it may deem fit, and such H
760 SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A officers and all other persons employed in the execution of this
Act shall observe and follow such C?rders, instructions and direc-
tions of the said Board :

Provided that no such orders, instructions or directions shall be
-issued -
.B
(a) so as to require any Central Excise Officer tci make a par-
ticular assessment or to dispose of a particular case in a
particular manner; or

(b) so as to interfere with the discretion of the Collector of the
c Central Excise (Appeals) in the exercise of his appellate
functions."

Section 37B contemplates the issuance by the Board of orders,
instructions and directions to Central Excise officers. Such orders, instruc-
D tions and directions are to be issued when the Board considers it necessary
or expedient to do so to achieve uniformity in classification of excisable
goods and the levy of excise duty thereon. Central Excise officers are
obliged to observe and follow these orders, instructions and directions. The
orders, instructions and directions may not relate to a particular assessment
E or case or interfere with the appellate functions of a Collector.

The first question, now, is whether the earlier and later circulars are
orders, instructions or directions to Central Excise officers within the
meaning of Section 37B which the Central Excise officers are bound to
observe and follow. Bo_th circulars are addressed to all Principal Collectors
F of Central Excise and Customs, all Collectors of Central Excise and
Customs, all Collectors of Central Excise, all Collectors of Customs and all
Collectors of Central Excise and Customs (Appeals). Both circulars re-
quire that their contents "be brought to the notice of the lower field
formations and the trade interests may also be suitably advised". Both
G circulars require, "All pending assessments may be finalised on the above
basis". The later circular refers to the contents of the earlier circular as
0
"instructions".. Both circulars have been issued in the context of doubts
having arisen and representations having been received by the Board. Both
circulars have been issued by the Board in consultation with the Chief and
H Deputy Chief Chemist and, in the later case, the Ministry of Agriculture.
RANADEY MICRONUTRIENTS v. COLLECTOR OF CENTRAL EXCISE 761

~
There can be no doubt whatsoiever, in the circumstances, that the A
' .
earlier and later circulars were issued by the Board under the provisions
of Section 37B, and the fact that they do not so recite does not mean that

.. · they do not bind Central Excise officers or become advisory in character .

-
:'1
There can be no doubt whatsoever that after 21st November, 1994, Excise
duty could be levied .upon micronutrients only under the provisions of
heading 31.05 as "other fertilisers". If the later circular is contrary to the
terms of the statute, it must be withdrawn. While the later circular remains
B

in operation the Revenue is bound by it and cannot be allowed to plead
that it is not valid.

We reject the submission to the contrary made by learned counsel
c
for the Revenue and in the affidavit by M.K. Gupta, working as Director
in the Department of Revenue, Ministry of Finance. One should have
thought that an officer of the Ministry of Finance would have greater
respect for circulars such as these issued by the Board, which also
"\ operates under the aegis of the Ministry of Finance, for it is the Board D
: which is, by statute, entrusted with the task of classifying excisable goods
uniformly. The whole objective of such circulars is to adopt a uniform
practice and to inform the trade as to how a particular product will be
treated for the purposes of Excise duty. It does not lie in the mouth of
the Revenue to repudiate a circular issued by the Board on the basis that E
it is inconsistent with a statutory provision. Consistency and discipline are
of far greater importance than the winning or losing of court proceedings.

The argument that the later circular has only prospective operation
and that it cannot apply to these appeals because the Tribunal had already
F
decided them m.ust also be rejected. It is not open to the Revenue to raise
a contention that is contrary to a binding circular issued by the Board. It
cannot but urge the point of view made binding by the later circular.

The appeals are allowed. The judgment and order of the Tribunal
under appeal is set aside. The micronutrients manufactured by the appel- G
-<
;,
!ants being exempt from the payment of excise duty, no order in this regard
is required.

The deposits made by the appellants, pursuant to the interim orders
of the Tribunal and continued by the interim orders of this Court, may now H
762 SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A be withdrawn by them. The bank guarantees given by the appellants,
pursuant to the interim orders of the Triounal and continued by the interim
orders of this Court, shall now stand discharged.

The Revenue shall pay to the appellants the sum of Rs. 25,000
(Rupees twenty five thousand) as the aggregate costs of these appeals.
B j;

G.N. Appeal allowed.