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Judgment
Ruma Pal, J.—This appeal has been preferred from the decision of theDelhi High Court striking down a Circular dated 28th October,1997 issued by the Central Board of Excise andCustoms (briefly CBEC). The circular directed theclassification of technical grade of pesticides, insecticides etc.under Chapters 28 and 29 of the Schedule to the CentralExcise Tariff Act, 1985 (referred to as the '1985 Act') andnot under the Heading No. 38.08 of the Schedule. Technicalgrade pesticides are chemical compounds in a concentratedfrom. The respondent before us is an association ofmanufactures of Technical grade pesticides (TGP) andinsecticides and formulations thereof. It claimed before theDelhi High Court that TGP, insecticides etc. are classifiableunder Tariff Heading 38.08 and not under Chapter 28 and29 and prayed inter-alia for cancellation of the circular andfor a direction on the appellants before us, to classify TGPetc. and bulk formulations under sub-heading 3808.10 and fora refund of the enhanced duty paid for the past under protestor any excess amount received by the Department. The DelhiHigh Court accepted the respondent's contention and allowedthe writ petition. On the application of the appellants, leavewas granted by this Court to appeal against the High Court'sjudgment.
While impugning the decision of the High Court, theappellants have conceded that prior to 1996 TGP andinsecticides etc. in bulk were classified under the TariffHeading No. 38.08 of the Act. According to the appellants,because this tariff heading was amended in July 1996, after1996 TGP etc. in bulk concentrated forms were excludedfrom Heading No. 38.08 and were covered under Chapter 28or 29 of the Act depending upon the composition. Thisposition, according to the appellants, was further clarifiedwhen Chapter 38 Note 1(a)(2) was amended in 1997.
According to the respondent the amendments in 1996and 1997 have made no difference to the classification ofbulk pesticides and insecticides etc. It is submitted that theamendments were intended to and in fact serve the purposeof extending the liability to excise to insecticides, pesticidesetc. in retainable forms. The issue, therefore, is - did the1996 and 1997 amendments to Chapter 38 serve to removebulk TGP, insecticides etc. from the Chapter and place themin Chapter 28 or 29?
In approaching the problem, the first step is to look atthe background in which the amendments were effected tothe relevant portions of the 1985 Act and its Schedule. Therewas no relevant amendment to the Act between 1987 and1996. In 1987, Chapter 28 of the Schedule to the Act relatedto inorganic chemicals, organic or inorganic compounds ofprecious metals of rare earth metals of radioactive elementsor isotopes. Note 1(a) of that Chapter provided that exceptwhere the context otherwise required, the headings of theChapter applied only to: "Separate chemical elements andseparate chemically defined compounds, whether or notcontaining impurities". Chapter 29 related to organicchemicals and also provided in Note 1(a) thereof that theheadings of the Chapter would apply only to: "Separatechemically defined organic compounds, whether or notcontaining impurities". The Chapter headings, the Notes andthe Tariff Headings within Chapter 28 and 29 have not beenchanged or amended in their application to separatechemically defined compounds by the 1996 or 1997amendments for the period in question. Therefore, generallyspeaking all separate chemically defined compounds areclassifiable under Chapter 28 and 29 depending on theircomposition.
Chapter 38 of the Schedule relates to 'MiscellaneousChemical Products' and carves out an exception to thisgeneral classification of separate chemical compounds underChapter 28 and 29. Between 1987 to 1996, the Notes to thisChapter in so far as they are relevant read as follows:
"1. This Chapter does not cover,
(a) Separate chemically defined element orcompounds with the exception of thefollowing:
(1) .....
(2) Insecticides, redenticides, fungicides,herbicides, anti-sprouting products andplant-growth regulators, disinfectants andsimilar products;"
The two negatives in the Chapter Note made it clearthat the Chapter covered the items mentioned in Note 1(a)(2).This was also reflected in the Tariff Heading 38.08 whichthen read as:
"38.08 Insecticides rodenticides, fungicides,herbicides, anti-sprouting products andplant-growth regulators, disinfectants andsimilar products"
Therefore the respondent's products were expresslyclassifiable under this tariff heading and this position is notnow dispute by the appellants. Incidentally the concessionwas also made before the High Court in the appellants'affidavit. Besides the circular dated 27th July 1995 issued byCBEC u/s 37B of the Central Excise Act, 1944 statedthat "The Pesticide Chemicals and formulations will both beclassified under heading 38.08 of the CETA, 1985". Similarlythe Department of Revenue's circular dated 28th October1997 records, "Prior to the 1996 Finance Bill (2), there wasno distinction between bulk packings and retail packings, andall pesticides were falling under heading No. 38.08".However, earlier a question had arisen as to whether theprocessing of concentrated basic pesticidal chemicalsthrough addition of inert carriers/solvent and dispersing andstabilising agents which rendered them suitable for use eitherdirectly or after addition of water amounted to manufacture ofa separate excisable product. In other words, if the bulkforms of insecticides etc. were made fit for retail sale wouldsuch retainable products be separately subjected to exciseduty under the Tariff Heading 38.08? The Collector(Appeals), Central Excise, New Delhi decided the questionagainst the Revenue. The matter was taken by theDepartment before the Central Excise and Gold (Appellate)Tribunal (CEGAT). By its decision in 1994 (50) ECR 417 , the Tribunal held thatthe process described did not amount to 'manufacture' of anew excisable item within the meaning of Section 2(f) of whatwas then the Central Excise and Salt Act, 1944 (which is nowknown as the Central Excise Act, 1944 and is hereinafterreferred to as the '1944 Act') as the process did not result ina new product having a distinctive name, character and use.Thus the Revenue's attempt to rope in insecticides andpesticides in a retail form as a separate excisable item underChapter 38.08 was thwarted.
Despite the decision of the Tribunal in Marked AgroChemicals, the CBEC issued a circular on 27th July 1995 inexercise of powers u/s 37B of the 1944 Act andordered that:
"The edition of chemicals and otheringredients like inert carriers or solvents andalso surface active dispersing and stabilisingagents to pesticidal chemicals in highlyconcentrated form would amount to'manufacture' within the meaning of Section2(f) of the Act since it results in theemergence of a new and distinct producthaving different properties viz.,pesticide/insecticide fit for direct use. ThePesticide Chemicals and the formulations willboth the classified under Heading 38.08 ofCETA, 1985."
The circular was challenged before the High Court ofDelhi by way of several writ petitions. The High Court by itsdecision in Kissan Chemicals Vs. Union of India, , held that it was not open to the CBEC toreverse the decision of the Tribunal by issuing a directiveunder Section 37B of the 1944 Act.
It was to overcome the effect of the Tribunal's decisionin Marked Agro Chemicals that amendments were effectedby the Finance Act. 1996 to Chapter 38 to incorporatestatutorily the substance of the circular which had been struckdown by the Tribunal. As far as the Chapter Notes wereconcerned. Note 1 was left untouched but note 2 wasinserted which reads:
"(SIC) In relation to products of heading No.38.08, addition of chemicals and otheringredients like inert carriers or solvents,surface active, dispersing and stabilisingagents, emulsifiers, wetting and dispersingagents, deodorant, masking agent,attractants and feeding stimulants topesticidal chemicals in concentrated form,labelling or relabelling of containers intendedfor consumers and repacking from bulk packto retail packs or the adoption of any othertreatment to render the product marketable tothe consumer shall amount to 'manufacture'."
Patently, Chapter Note 2 of Chapter 38 proceeds onthe basis that TGP is covered by Chapter 38. Were it not soit was not necessary to provide that the addition of chemicalpesticides and re-packing and labelling etc. of the productwould amount to manufacture. The language in ChapterNote (2) that "addition of chemicals and other ingredients" to"products of heading No. 38.08" and adoption of any othertreatment to render the product marketable would amount tomanufacture, plainly understood means that (i) the product(without additives, or any treatment) as well as (ii) the productafter administration of additives and (iii) the product aftertreatment for the purposes of retail sale were all butseparately exigible to duty under the Chapter. Theimportance of the Chapter Notes in the matter ofinterpretation is manifest from Section 2(f)(ii) which defines'manufacture' to mean:
"which is specified in relation to anygoods in the section or Chapter notes ofthe Schedule to the Central ExciseTariff Act, 1985 (5 of 1986) asamounting to manufacture."
Then again the Schedule to the 1985 Act beforeproviding for rates of duty leviable thereunder sets out Rulesfor the interpretation of the Schedule. Rule 1 states:
"The titles of sections and chapters areprovided for case of reference only: forlegal purposes, classification shall bedetermined according to the terms ofthe headings and any relative sectionor Chapter Notes and, provided suchheadings or Notes do not otherwiserequire, according to the provisionshereinafter contained."
As far as Tariff Heading 38.08 was concerned after thephrase insecticides, rodenticides etc. the phrase: "put up informs or packings for retail sale or as preparations or articles(for example, sulphur-treated bands, wicks and candles, andfly papers)", was added by the amendment.
In other words, the Tariff Heading covers-
(1) Insecticides, pesticides etc. put up in forms orpacking for retail sale;
(2) Insecticides, pesticides etc. as preparations,
(3) Insecticides, pesticides etc. as articles (forexample sulphur-treated bands, wicks andcandles, and fly papers)
What is manufactured by the respondent's members isTechnical grade pesticides (TGP) and insecticides. No doubtthey are separate chemically defined compounds ascontended by the appellants. But the word 'compound' itselfdenotes a mixture of components. The word "preparation"denotes not only the action or process of preparing thecomponents to produce the compound, but also that which isprepared, in this case insecticides, pesticides etc.
We see no ambiguity in the heading. Even if therewere, the doubt must be resolved with reference to theChapter Note which clearly covered insecticides, pesticidesetc. before further formulation by way of additives ortreatment. This would include the respondent's product.
There is also substance in the submission of learnedcounsel for the respondent that classification of TGP,insecticides etc. in bulk form under Tariff Heading 38.08would be in keeping with the Rule for interpretation of theschedule to the 1985 Act.
The Rules in so far as they are relevant provide:
"2(b) Any reference in a heading to amaterial or substance shall be taken toinclude a reference to mixtures orcombinations of that material orsubstance with other materials orsubstances. Any reference to goods of agiven material or substance shall betaken to include a reference to goodsconsisting wholly or partly of suchmaterial or substance."
When by application of Sub-rule (b) ofRule 2 or for any other reason, goods areprima facie, classifiable under two ormore headings, classification shall beeffected as follows:
(a) The heading which provides themost specific description shall bepreferred to headings providing amore general description. Howeverwhen two or more headings eachrefer to part only of the materials orsubstances contained in mixed orcomposite goods or to part only ofthe items in a set, those headingsare to be regarded as equallyspecific in relation to those goods,even if one of them gives a morecomplete or precise description ofthe goods.
(b) .....
(c) When goods cannot be classifiedby reference to (a) or (b) they shallbe classified under the headingwhich occurs last in the numericalorder among those which equallymerit consideration."
Paraphrased and simply put, the quoted extracts of therules direct that the goods would include its formulations andthat the more specific heading should be preferred and ifthere are two such specific headings to which a product canbe referred to one occurring subsequently would prevail.
Chapter 28 and Chapter 29 are, as already noted,general provisions relating inter alia to separate chemicalcompounds. Chapter 38 is the specific chapter dealing withparticular chemical compounds viz., insecticides, pesticidesetc. In keeping with the Rules quoted, the TGPmanufactured by the respondent are classifiable under theparticular subsequent provision and not under the residuaryheadings occurring earlier.
This is also how the appellants understood the effect ofthe 1996 amendment. Trade Notice No. 40/96 dated 23.7.96enclosed Notes explaining important changes made inexcisable duty by the Finance Bill, 1996. Paragraph 19.1.and 19.3. of the Explanatory Notes make the position of theappellants abundantly clear:
19.1. Concessional rate of excise duty of10% on Insecticides, fungicides etc.(sub-heading No. 3808.10) and Plantgrowth regulators is being continued.Tariff rate for these products is alsobeing prescribed at 10%. A new sub-headingNo. 3808.20 is created forplant growth regulators (relevant billentries refer).
19.2 .....
19.3 A new Chapter is being added so as tomake the process of makingformulations out of pesticideconcentrates as "manufacture". Withthe introduction of this chapter note,the process of making formulations outof duty paid pesticides, insecticidesconcentrates is also liable to exciseduty. The chapter note is introduced toavoid any disputes on classification."
The use of the words "continued" and "also" asemphasized above, indicate that what was originallyclassified under Tariff Heading 3808 viz. concentrates wouldcontinue to be so classified and in addition formulations ofsuch concentrates would be liable to excise duty. It wastherefore not the intention of the 1996 amendment to excludeconcentrates of insecticides etc. in bulk form from Chapter 38but to extend the incidence of excise duty to formulationsfrom and retail packages of the concentrates.
It is not open to the Revenue now to take a standcontrary to what had been expressed in the Trade Notice. Asstated by this Court in Collector of Central Excise, Bombay Vs. Kores (India) Limited, Thane, :
"A Tariff Advice or a Trade Noticeissued by the Board certainly does notbind the Tribunal or the Courts and anassessee may argue that it iserroneous; but it is not open to theRevenue to advance arguments that arecontrary to the terms thereof."
(See also Steel authority of India v. Collector ofCustoms, Bombay 2000 (15) ELT 42(SC)).
In 1997, there was a further amendment to the ChapterNote of Chapter 38. By this amendment, Chapter Note 2which had been introduced by the 1996 amendment was leftuntouched as also the Tariff Heading but Chapter Note1(a)(2) was altered by the addition of the phrase "put up asdescribed in Heading No. 38.08".
The final position as it now stands is that Chapter Note1(a)(2) and 2 of Chapter 38 read:
"1. This Chapter does not cover:
(a) Separate chemically defined elementsor compounds with the exception of thefollowing:
(1) .....
(2) Insecticides, rodenticides, fungicides,herbicides, anti-sprouting products andplant-growth regulators, disinfectants andsimilar products, put up as described inHeading No. 38.08;
In relation to products of heading No. 38.08,addition of chemicals and other ingredients likeinert carriers or solvents, surface activedispersing and stabilising agents, emulsifiers,wetting and dispersing agents, deodorant,masking agent, attractants and feeding stimulantsto pesticidal chemicals in concentrated form,labelling or relabelling of containers intended forconsumers and repacking from bulk pack to retailpacks or the adoption or any other treatment torender the product marketable to the consumershall amount to manufacture".
Tariff Heading 38.08 now reads as:
"Insecticides. rodenticides. fungicides.herbicides, anti-sprouting products and plantgrowthregulators, disinfectants and similarproducts, put up in forms or packings forretail sale or as preparations or articles (forexample, sulphur-treated bands, wicks andcandles, and fly-papers)"
What is notable is that the 1997 amendment did notchange Chapter Note (2) which has been construed by usearlier as including TGP etc. All it did was to extend theexception to the general classification under Chapter 28 and29 to treated and retainable forms of the already exceptedchemical compounds. It brought about a parity of languagebetween Tariff Heading as amended in 1996 and ChapterNote 1(a)(2) and we have already seen that the TariffHeading as amended in 1996 continues to coverinsecticides, pesticides etc.
The Harmonized System of nomenclature (HSN)provides for an identical classification of insecticides etc. inheading 38.08. Indeed, it is the appellants' case that the1996 and 1997 amendments to Chapter 38 were effected tobring it on par with the HSN. Sub-headings 3808.10,3808.20, 3808.30, 3808.40 and 3808.90 respectively of theHSN refer to "Insecticides", "Fungicides", "Herbicides","Disinfectants" and "others". The explanatory note clarifiesthat the classification covered products (1) when they are putup in packings or in such forms that there can be no doubtthat they will normally be sold by retail and (2) when theyhave the character of preparations. It also says:
"Intermediate preparations, requiringfurther compounding to produce theready for use insecticides, fungicides,disinfectants, etc. are also classifiedhere, provided they already possessinsecticidal, fungicidal etc. properties."
Hence preparations with insecticidal, fungicidal propertiesare classifiable under Heading 38.08
The HS of Commodity Classification which wasdeveloped by the World Customs Organisation, Brussels wasadopted by India also in the ITC (HS) Classification of Exportand Import Items, 2002-2007 which was issued by theGovernment u/s 5 of the Foreign Trade(Development and Regulation) Act, 1992 read withparagraph 2.1 of the Export and Import Policy. 2002-2007.The ITC (HS) like the Schedule to the 1985 Act, alsocontains several chapters which correspond exactly with theSchedule to the 1985 Act at least as far as the relevant partsof Chapter 38 are concerned. Chapter Note 1(a)(2) and theHeading 38.08 of the ITC (HS) are identical with theSchedule to the 1985 Act. In the ITC (HS), under theseveral sub-headings to Heading 38.08, the different formsof insecticides, pesticides etc. have been provided for fromwhich it is clear that insecticides etc. in their concentratedbulk forms are covered by the Heading 38.08 at least for thepurposes of the Import/Export Policy. For example, sub-heading3808.10.11 mentions 'Aldrin' as a form of insecticide.Against that sub-heading. It is provided that it is freelyimportable/exportable "if registered and not prohibited forimport under Insecticides Act, 1968 and formulations thereof".Similarly, 3808.90.10 provides for 'pesticides, not elsewherespecified'. It is treated as a free item under the policy "ifregistered and not prohibited for import under the insecticidesAct, 1968 and formulations thereof". Undeniably insecticides,pesticides et. in whatever form are covered by theInsecticides Act. The description demonstrates that bulkconcentrates and formulations are covered by the sub-heading'Aldrin'. The use of the same words in the TariffHeading in the Schedule to the 1985 Act as has been usedfor the purposes of the Import Trade Control Policy is anadditional reason for holding that insecticides, pesticidesconcentrates in bulk forms are includible within the TariffHeading (See Dunlop India Ltd. and Madras Rubber Factory Ltd. Vs. Union of India (UOI) and Others, ).
For all these reasons, we are unable to accept theappellants' submission that the amendments to Chapter 38 in1996 and 1997 served to exclude TGP or insecticides etc. inbulk forms from Chapter 38.
We, accordingly, dismiss the appeal without any orderas to costs.
ORDER
In view of our judgment and for the reasons stated in CivilAppeal 3876 of 1999 titled Union of India & Ors. v. Pesticides Manufacturing & Formulators Association of India delivered today,these appeals are also dismissed without any order as to costs.