Holding

The Assistant Collector was not functus officio and could rectify his order under Rule 173‑B, but the appellant’s fertilizer did not satisfy the conditions of Notification 25/70, so exemption was denied.

Summary

Madras Fertilizers Ltd. manufactured a mixed fertilizer (Vijay N.P.K.17-17-17) containing urea, potash, phosphoric acid, ammonia and ammonium phosphate formed during mixing, and claimed exemption from excise duty under Notification 25/70 of the Central Excise and Salt Act, 1944. The Assistant Collector denied the exemption, holding that the product was not a mixture of two or more fertilizers and that a chemical transformation created a new fertilizer, ammonium phosphate. The Government of India, on revision, clarified that chemical reaction is not a ground to deny exemption and remitted the matter to the lower authority to grant exemption if all conditions of the Notification were satisfied. The Assistant Collector later revoked the exemption, prompting writ proceedings; the High Court Division Bench upheld the revenue, relying on Coromandel Fertilizers Ltd. v. Union of India. The Supreme Court held that the Assistant Collector was not functus officio and could rectify his order under Rule 173‑B, but found that the appellant’s product did not meet all the conditions of the Notification, particularly because ammonia is not a fertilizer and the mixture involved chemical transformation, so exemption could not be granted. The appeal was dismissed with costs.

Issues considered

The Assistant Collector's authority to revise or withdraw an exemption order after the Government of India's revision order (functus officio question).
Whether the occurrence of chemical reaction or formation of a new fertilizer (ammonium phosphate) disqualifies a product from the exemption under Notification 25/70.
Whether the appellant's product satisfies all conditions of Notification 25/70, including being a mixture of two or more fertilizers, payment of duty on each component, and the status of ammonia as a fertilizer.
The binding effect of the decision in Coromandel Fertilizers Ltd. v. Union of India on the present case.
The applicability of Rule 173‑B of the Central Excise Rules for rectification of the rate of duty.

Legislation cited

Subjects

Excise duty exemptionMixed fertilizersChemical transformationFunctus officioCentral Excise RulesTariff Item 14HHAmmonia as non-fertilizerCoromandel Fertilizers precedentRectification of order

Judgment

.. \.-
/
/

MADRAS FERTILIZERS LTD. A
v.
ASSISTANT COLLECTOR OF CENTRAL EXCISE, MADRAS V
DIVISION, MADRAS AND ORS.

JANUARY 20, 19'J4
B
[B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.]

Central Excises and Salt Tax Act, 1944-Tari/f Item 14HH, First
Schedule-Notification under R.8(1)-Exemption for mixed fertilizers ob-
tnined with the aid of power and made of tWo or more fertilizers on all of C
which excise or additional duty already paid-Held, ammonia not a fe11ilizer,
its use in manufacture of the fertilizer takes it outside the exemption.

Central Excises and Salt Tax Act, 1944-Tariff Item 14HH, First
Schedule-Government order clarifying that chemical reaction in the D
manufacture of mixed ferlilizer not relevant condition to deny exemp-
tion-Matter remitted for allowing exemption if conditions in the notification
fulfilled-Held, doe's not amount to an order granting exemption.

Central Excise Rules-R.173-B(S)-Held, Assistant Collector has power
under, to rectify e"or regarding rate of duty. E
The appellants manufactured and sold mixed fertilizer under the
trade name. They claimed exemption from excise duty under Notification
25/70 which exempted mixed fertiliurs falling under TI 14HH manufac-
tured with the aid of power, from two or more fertilizers on all of which
excise, or additional duty had already been paid. F
The Assistant Collector, on a finding that the fertilizer in question
was not a mixture of two or more fertilizers but of fertilizers and other
ingredients, did not allow the exemption. He also held that ammonium
phosphate, generated during the course of mixing of fertilizers, was a well G
known fertilizer though not subjected to levy for practical reasons. On
appeal, the Appellate Collector affirmed the order, and also observed that
complex fertilizers obtained by chemical reaction could not come within
the exemption.

The Government of India allowed a revision petition filed by the H
189
190 SUPREME COURT REP.ORTS (1994) 1 S.C.R.

A appellant and held that the Notification did not lay down any condition
that the mixture should not be complex fertilizer obtained by chemical
reaction. The matter was remitted, with the direction that exemption under
the Notification be allowed if the conditions thereof were fulfilled.

The Assistant Collector, on 5 March 1976 extended the benefit to the
B appellant's product subject to the appellant paying the duty on the com-
ponents. A few months later, realisi~g bis mistakei be issued a show cause
notice on the grounds that urea was not used as a base fertilizer in the
manufacture of the fertilizer in question; duty on urea was paid at the
intermediary stage only to satisfy the condition of the Notification further,
C the Notification did not contemplate formation of a third fertilizer •·
ammonium phosphate; and no duty was paid on it, again, ammonia was
cleared free of duty.

After hearing the appellant, the Assistant Collector concluded that
the fertilizer in question was not a mixture of fertilizer as contemplated by
D the Notif1Cation. He also held that a chemical transformation took place
which caused the original substances to lose their identity and get trans-
formed into a new product.

A Single Judge of the High Court allowed the writ petition filed by
E the.appellant, on the ground that the Assistant Collector had denied the
benefit on a ground specifically negatived by the Government of India. On
appeal, the Division Bench held for the Revenue, that that bad not been
the only ground, and that. Coromandel Fertilisers v. Union of India, con-
cluded the issue against the appellant. ---f
F In the appeal before this court, the appellant Company contended
that the Assistant Collector bad become funcflAs officio after passing ·the
order dated 5 March 1976; that e\;en otherwise he had reit~rated the
ground about chemical transformation which had been expressly negatived
by government; that the order of the GOI being final, the Coromandel case
G could not be invoked to reopen the case, and that the case was distinguish~
able anyway. It also contended that all the points bad been decided by the
GOI iil the revision, and the Government order could not be re-agitated.

Dismissing the appeal, this Court
.....,"""'.'..r· -~ # .... ~ -4." ~

H HELD : 1. The order of the GOI deals with one aspect: 'th~t chemical
MADRAS FERTILISERS v. ASSTI. C.C.E. [B.P.J. REDDY,J.] 191

reaction or transformation, if any, taking place on the mixing of fertilizers A
is no ground to deny the benefit of the exemption. When the GOI remitted
the matter to the lower authorities to grant exemption if the conditions of
the Notification were fulfilled, it necessarily meant the conditions other
than the one specifically dealt with by the GOI in its order. (196-E-H]

2. The Assistant Collector did not become functus officio once he B
passed the order dated 5 March 1976 pursuant to the GOI order. If he
granted an exemption contrary to law it was always open to him to rectify
the error, under Rule 173-8(5) of the Central Excise Rules. [197-B]

Collector of Central Excise v. Pallappa, A.I.R. (1964) Madras 111 and C
Union of India v. Kamalakshi Finance Corporation Ltd., (1991) 55 E.L.T.
433, referred to.

3. The decision of this court in Coromandel Fertilizers, that ammonia
is not a fertilizer but falls within the purview of "gases" under TI 14H, is
binding - more so when the judgment of this court is based on the Tariff D
entries themselves. [197-H]

Coromande! Fertilizers Ltd. v. Union of India, [1985) 1 S.C.R. 523,
followed.

4. The mixture manufactured by the appellant does not satisfy all E
the conditions prescribed by the relevant Notification; the benefit of the
Notification does not therefore, flow to the appellant. [198-H]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4531-32
1986.
F
From the Judgment and Order dated 28.2.1986 of the Madras High
Court in W.A.Nos.507 to 508 of 1980.

Uttam Reddy, A.V. Rangam and A. Ranganathan for the Appellant.

Joseph Vellapally, Ashok K. Srivastava, V.K. Verma and P. Parmes- G
--< waran (N.P.) for the Respondents.

The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. 1. Tariff Item 14HH of the First Schedule
the Central Excise and Salt Act, 1944 levied duty on fertilizers at the H
.-

192 SUPREME COURT REPORTS (1994) 1 S.C.R.

A rate of 15 per cent ad valorem. The Tariff item read as follows :

ITEM No. 14 HH-FERTILISERS

·item. Description Rate of Duty
No.
B
14 HH. Fertilisers, all sorts, but excluding 15% ad valorem.
natural, animal or vegetable fertilisers
when not chemically treated ·

2. On March 1, 1970, the Government of India issued a Notification
C Bearing No.25/70 under Rule 8(1) of the Central Excise Rules exempting
"mixed fertilizers, falling under Item No.14HH of the Fust Schedule to the
Central Excise and Salt Act, 1944 manufactured with the aid of power,
from two or more fertilizers on all of which the appropriate amount of the
duty of excise or, as the case may be, the additional duty under Section 2A
D of the Indian Tariff Act, 1943 has already been paid, from the whole of the
duty of excise leviable thereon". There was an Explanation appended to
the said Notification but since it is not relevant for the present purposes,
it need not be quoted or referred to. A reading of the Notification shows
that excise duty was waived in full in respect of "mixed fertilisers falling
under item 14HH" which is manufactured "from two or more fertilisers on
E all of which the appropriate amount of duty of excise or as the case may
be additional duty" had already been paid. The question in these appeals
is whether the mixed fertilisers manufactured and sold by the appellant
under the trade-name, Vijay (N.P.K.17- 17-17) is entitled to the benefit of
the said Notification.
F
The Assistant Collector refused the benefit of the said Notification
to the appellant on the ground that the mixed fertilisers (N.P.K.)manufac-
tured by the appellant is not a ~e of two or more fertilizers as required
by the Notification but a mixture of fertilizers and other ingredients. He
found that (N .P .K.) is a combination of urea, muriate of potash, phosphoric
G acid, ammonia fillers and coating agents .. Moreover, he held, the am-
mmiium phosphate which goes into the composition of N.P.K. is also a well
known ferilizer, though it is not subjected to levy for practical reasons. On
appeal, the Appellate Collector affirmed the Assistant Cqllector's order
observing, "according to the Notification it was only such mixed fertilisers
H are exempted which are produced by blending, mixing or granulating
MADRAS FERTILISERS v. ASSIT. C.C.E. [B.P.J. REDDY,J.) 193

duty-paid fertilisers (two or more) with any substance wherein such nm- A
tores are produced by physical actions and without chemical reactions. The
fertilisers manufactured by the appellants are definitely complex fertiLisers
which are obtained by chemical reaction. Such complex fertilizers cannot
therefore be considered as simple mixtures for exemption provided in the
notification". The appellant challenged the correctness of the Appellate
order by way of revision before the Government of India which allowed
B
the same and remitted the matter for further verification under the follow-
ing order (dated February 18, 1976) : "The order in appeal is based on the
contention that the mixture of two or more fertilisers envisaged in the
relevant Notification should be by physical action and without chemical
reaction and the fertilisers, manufactured by the petitioners are definitely C
complex fertilizers obtained by chemical r~action and hence they cannot
be considered as simple mixtures to attract the exemption in the Notifica-
tion. The said Notification does not lay down any such conditions and only
requires that the mixture can be obtained with the aid of power and the
mixed fertilizers should contain not more than one nutrient. Thus the order D
in appeal is not a proper speaking order on the issue involved and is set
aside. The exemption under the said notification is allowed if the condition
thereof are fulfilled".

3. According to the Government of India's order, the fact that
chemical reaction takes place during the mixing of fertilizers fo no ground E
for denying the benefit of the said Notification. It was of the opinion that
the benefit of the Notification cannot be confined to somple mixtures alone,
inasmuch as the Notification did not contain any such condition. Having
so held, it remitted the matter to the lower authorities to grant the
exemption if the conditions of the Notification are fulfilled. Be it noted that F
the Government of India did not deal with other objections contained in
the Assistant Collector's order - presumably because, the appellate order
(which was the subject matter of challenge before the Government of
India) dealt only with one ground viz., occurring of chemical reaction/trans-
formation during the course of mixing of fertilizers by the appellant,
yielding a new product ammonium phosphate. G

4. Pursuant to the orders of the Government of India, the Assistant
Collector, by his order dated March 5, 1976, extended the benefit of the
Notification to the appellant's product - Vijay N.P.K.17-17-17 - Subject to
the condition that the appellant pays the duty on the components. Within H
194 SUPREME COURT REPORTS [1994) 1 S.C.R.

A a few months, however, the Assistant Collector appears to have realised
that he committed a mistake in e:Xtending the benefit of the Notification to
the 'appellant's fertilizer' mixture and accordingly issued a show-cause
notice on June 7, 1976 calling upon the appellant to show-cause why the
benefit of the Notification be not denied to him for the reasons stated
B therein. The show-cause notice set out these grounds for the action
proposed therein : urea is not used as an independent base fertiliser in the
manufacture of the fertiliser mixture (Vijay N.P.K.17-17-17) by the
petitioner. Duty on urea is paid at the intermediary stage only to satisfy the
condition of the Notification. Further a mixed fertiliser contemplated by
the Notification is a mixture of two or more fertilizers. It does not con-
C template formation of a third fertilizer. viz., ammonia phosphate in the
process of mixing or ad-mixture of such raw materials as ammonia phos-
phate. Further, ammonia-is cleared free of duty under Notification 145 of
1971 - CE dated January 26, 1971.

5. In response to the notice the appellant showed cause, whereafter
D the Assistant Collector, by his order dated 7.1.1977 denied the benefit of
the Notification to the said product of the appellant on the ground that a
review of the process of manufacture establishes that it does not satisfy the
conditions prescribed in this Notification. He found specifically that the
said mixture is not a mixture of two or more fertilisers alone and that more
E than one non-fertiliser agent goes into the manufacture of the said mixture.
He also found that the ammonium phosphate which is obtained by mixing
of certain fertilisers and certain non-fertiliser agents is itself a fertiliser on
which no duty is paid. Accordingly he concluded that the said product is
not a mixture of fertilizers as contemplated by the Notification. He further
held that the Notification contemplates a mixture of two or more fertilizers
F
wherein chemical transformation does not take place whereas in the case
of the appellants product, such a chemical transformation does take place
as a result of which the original substapces lose their identity and get
transformed into a new product. ,

G 6. The appellant approached the Madras High Court by way of writ
petition against the aforesaid order of the Assistant Collector dated
January 7, 1977. The main contention urged by the petitioner was that
inasmuch as the impugned order of the Assistant Collector denies the
benefit of the Notification on a ground which has been specifically nega-
H tived by the Government of India in its revisional order dated February 18,
MADRAS FERTILISERS v. ASSIT. C.C.E. [B.P.J. REDDY, J.] 195

-· 1976, it is unsustainable in law. A learned Single Judge agreed with the A
appellant's contention and allowed the writ petition against which the State
preferred a writ appeal. The Division Bench allowed.the writ appeal and
dismissed the writ petition. The Division Bench held that the appellant was
n~t right in contending that the Assistant Collector's order dated January
7, 1977 ·is based on the only ground which had been negatived by the B
Government of India in its order dated 18.2.1976. So far as merits are
concerned, the Division Bench held that the decision of this Court in
Coromandal Fertilizers Ltd. v. Union of India and Ors., [1985) 1 S.C.R. 523,
concludes the issue against the appellant. The Division Bench further
observed that it was open to the Assistant Collector to rectify the mistake C
committed by him in his order dated 5.3.1976 and that the contention that
he has no jurisdiction to do so is unacceptable. The correctness of tµe
order of the Division Bench is assailed in these appeals.

7. Sri Uttam Reddy, the learned counsel for the appellant urged the
following contentions : D

1. The order of the Assistant Collector dated March 5, 1976 is in
implementation of the order of the Government of India dated February
18, 1976. Once ·the Assistant Collector passed the said order he became E
functus officio. He had no jurisdiction to revise or revoke the said order
thereafter. Even otherwise, it is clear that the order of the Assistant
Collector dated January 7, 1977 reiterates the very ground negatived by the
Government of India, viz., chemical transformation in the process of mixing
of fertilisers. The said ground, having been expressly negatived by the
Government of India in its revisional order dated February 18, 1976 is not F
available to the authorities. The order of the Government of India having
become final, and also being inter partes, is binding upon the department
and they can not question its correctness relying upon the decision of this
Court in Coromandal Fertilizers assuming that it applies to the facts of this
case. Even otherwise, the fact that this Court may have taken a different G
view on merits in Coromandal Fertilizers is of no relevance so far as the
app~llant is concerned. As a matter of fact, the decision of this Court in
Ceromandal deals with a different product which was a mixture of com-
ponents different than the components concerned in the appellant's
product. H
196 SUPREME COURT REPORTS [1994] 1 S.C.R.

A 2. The Division Bench of the High Court was in error in holding that
the order of the Government of India in revision did not foreclose the *·
\~/
controversy. All the grounds oow urged by the Assistant Collector were
. .- I
before the Government. It allowed the ~ppellant's claim. The last sentence
in its order "The exemption UJ.)der the said Notification is allowed if the
B condition thereof are fulfilled", meant only that the authorities ensure that
duty is paid on the components. The said sentence did not mean that
authorities could raise the very sam~ objections again which were raised
by them on the earlier occasion. All those objections must be deemed to
have been rejected by the order of the Government of India. The said order
C in revision has to be read as a whole and understood reasonably. If so read
and understood, it must be held to have left no room to reagitate the very
same objections over again. All that the authorities were required to be
satisfied was regarding the payment of duty on components and nothing
more.

D
8. We may first deal with the submission oi the learned counsel for
the appellant with respect to the meaning and effect of the order of the
Government of India dated February 18, 1976. The order deals only with
one aspect viz., that chemical reaction or transformation, if any, taking
E place on the mixing of fertilisers is no ground to deny the benefit of the
aforementioned Notification to mixture of fertilizers. The order does ~ot
deal with any other condition specified in the exemption Notification. It
would, therefore, not be reasonable to read the said order as holding finally
that the fertilizer mixture manufactured by the petitioner satisfies all the
conditions of the said Notification. Nor are we prepared to accede to the
F learned counsel's contention that the remitting of the matter to the lower
authorities was confined only to verification of payment of duty on fertilizer
going into the manufacture of said mixture. The contention of the learned
counsel does not even stand to logic. The payment of duty on components
is also a condition of the Notification just as the other condition that the
G · mixture to become entitled to benefit of exemption should be a mixture of
fertilizers alone. There is nothing in the order of the Government of India
to indicate that it contemplated verification only one condition or one
condition or one condition of a particular nature. On the contrary, it spoke
of "conditions" of the Notification being satisfied. When the Government
H of India remitted the matter to the lower authorities to grant exemption if
MADRAS FERTILISERS v. ASSTI. C.C.E. [B.P.J. REDDY,J.] 197

the conditions of the Notification are satisfied, it necessarily meant the A
conditions other than the one specifically dealt with by the Government of
India in its order. We are, therefore, of the opinion that after the remand
it was open to, indeed it was the duty of, the excise authorities to satisfy
themselves that all the other condition of Notificaiton are satisfied.
B
9. It is equally difficult to agree with the learned counsel for the
appellant that once the Assistant Collector passed his order dated March
5, 1976 pursuant to the Government of India's order dated February 18,
1976, he became functus officio and that he had no power to reopen the
matter. The Government of India remitted the matter to the Assistant
Collector to grant exemption if the conditions of the Notification are C
satisfied. If the Assistant Collector granted an exemption contrary to law
it was always open to him to rectify the said error. Sub-rule (5) to rule
173-B Central Excise Rules empowers the excise authorities to do so. Rule
173{B) provides for approval of the list of goods by the proper officer. The
approval inter alia includes rate of duty leviable on each such goods. D
Sub-rule (5) reads: "(5) When the dispute about the rate of duty has been
finalised or for any other reasons affecting rate o~ rates of duty, a modifica-
tion of the rate or rates of duty is necessitated, the proper officer shall
make such modification and inform the assessee accordingly''. It may be
noted that before revising his order dated March 5, 1976, the Assistant
Collector gave a notice to the appellant stating the grounds on which he E
proposed to revise and modify his earlier order. The decision cited by Sri
Uttam Reddy in support of this submission viz., Collector of Central Excise
v. Pallappa, [1964) Madras 111, has no relevance whatsoever. That was a
case where the appellate authority set aside the order of the original
authority levying penalty without saying more. It was held that in such a F
situation, the original authority has no power to initiate de novo proceed-
ings for levy of penalty. We are unable to see any analogy whatsoever with
that case herein. The learned counsel also cited Union of lndi.a v. Kamalak-
shi Finance Corporation Ltd., {1991) 55 E.L.T. 433, to stress the judicial
discipline required of the Excise Officers to obey the order of the superior
tribunals and courts. Again, we see no relevance of the said principle in G
the facts of that case.

10. It has been held by this Court in Coromandal Fertilizers that
ammonia is not a fertilizer but falls within the purview of "gases" mentioned
under Tariff Item 14H, whereas fertilizers fall under Tariff Item 14HH. In H
198 SUPREME COURT REPORTS [1994) 1 S.C.R.

A view of the said judgment 'it can· no longer be contended by the appellant
that ammonia (which is one of the chemicals used to manufacture N.P.K)
is a fertilizer. Sri Uttam Reddy requested that an opportunity may be given
to the appellant to establish that ammonia is also a fertilizer. We do not
thipk we can accede. to the. said request. The show-cause· notice issued on
B January 7, 1977 did expressly put the appellant on notice specifically that
some of the raw materials like ammonia and phosphoric acid are not
fertilizers. The final orders stated that said fact more clearly. In any event,
in view o.f the decision of this Court in Commandal it is not open either to
the appellant or to any authority to say that ammonia is a fertilizer - more
I
go when the judgment of this Court is based upon the Tariff entries
\
C themselves.

11. Lastly, the learned c"unsel for the appellant relied upon para 11
of the judgment in Coromandal Fertilizers. It appears that the counsel for
Coromandal Fertilizers referred to the fact that a similar manufacturer of
D mixed fertiliv~rs, namely the appellant herein, has been given the benefit
of the said exemption. Notification under the orders of the Assistant
Collector dated March 5, 1976 and that there was no reason to deny the
said benefit to Coronandal "Fertilizers. The said argument was dealt with by
this Court in the following words :

E "Mr. Setalvad made a grievance that the authorities con-
cerned had allowed the benefit of the Notification under
similar circumstances to a rival company. If the grievance
of the appellant is true, the appellant may no doubt have
reasons to feel sore about it. We have, however, to point
F out that the grievance of the appellant, even if it is well
founded, does not entitle the appellant to claim tlie benefit
of the Notification. A wrong decision in favour of any
particular party does not entitle any other party to claim
the benefit on the basis of the wrong decision".

G 12. We do not think that the said observations help the appellant in
any manner. ~t is not for us to say whether the mixture of fertilizers
concerned in Coromandal Fertilizers is similar to the mixture manufactured /

by the appellant. It is sufficient to say that the mixture manufactured by
the appellant does not satisfy all the co11ditions prescribed by the relevant
H Notification and that unless all the conditions are satisfied, the benefit does
MADRAS FERTILISERS v. ASSTI. C.C.E. [B.P.J. REDDY,J.) 199

not flow. It was also admitted before us by the learned counsel for the A
appellant that the Explanation appended to the exemption Notification is
not relevant herein.

13. For the above reasons, the appeals fail and are accordingly
dismissed with costs. Advocate's fee assessed at Rs.5,000/- consolidated.

U.R. Appeals dismissed.

.