Assistant Collector of Central Excise, Madras and Others vs Madras Fertilizers Ltd., Madras

Natarajan, J.—These two appeals have been preferred against the common order of Varadarajan, J. as he then was, in two writ petitions,

W.P. Nos. 152 and 455 of 1977 filed by the Madras Fertilizers Limited, the respondent herein, for the issue of a Writ of Certiorari and another

writ of Mandamus. Aggrieved by the issue of a rule by the learned Judge in the two Writ petitions, the respondents therein have preferred these

two writ appeals.

The appeals lie within a narrow compass. What the respondent would contend is that an order passed by the Government of India in its order

No. 276/76 dated 18.2.1976 has clinched the controversy in favour of the respondent and consequently, the appellants are not entitled to reopen

the file and demand payment of excise duty or refuse to refund the excise duty already collected.

The facts relating to the matter in debate between the parties are as follows :-

The respondent-company is a Government Company within the meaning of Section 617 of the Companies Act, 1956. The Company has erected

a plant at Manali for the manufacture of fertilizers. The plant consists of three units, which are respectively designed to produce Ammonia, UREA

AND COMPLEX fertilizers. Central Excise Duty is levied on fertilizers at 15% ad valorem under item 14 HH of the First Schedule to the Central

Excises and Salt Act. By means of Notification No. 25/70-C.X dated 1.3.1970, by the Government of India, Ministry of Finance (Department of

Revenue and Insurance), the Central Government exempted the whole of duty of excise leviable on mixed fertilizers falling under this item, which

are manufactured with the aid of power from two or more fertilizers, on all of which appropriate amount of duty of excise, or, as the case may be,

countervailing duty, u/s 2-A of the Indian Tariff Act, 1934, has already been paid. The reasons for the grant of this exemption, as has been pointed

out in Coromandal Fertilizers Ltd. v. Union of India (W.P. 1400 to 1403/76 order dated 24.9.1976 by Andhra Pradesh High Court) - 1979 ELT

501 is that if excise duty is to be imposed on mixed fertilizers manufactured from two or more fertilizers, on all which duty has already been paid,

then it would amount to double taxation.

In order to avail the benefit of exemption granted under the notification, the respondent applied to the Central Excise authorities for the grant of

exemption from payment of excise duty to the complex fertilizers manufactured by it viz. NPK 14-28-14 and NPK-17-17-17. These complex

fertilizers are manufactured from out of urea manufactured by the respondent and subject to excise duty at 15% and muriate of potash imported

from abroad on payment of countervailing duty.

The Assistant Collector refused to grant exemption under the notification on the ground that in the process of manufacture of the two varieties of

NPK, Ammonium Phosphate, which is an independent fertilizer and an excisable item, also becomes a component of the mixed fertilizer and as

such, the respondent cannot claim exemption from payment of excise duty on the complex fertilizers.

The respondent filed an appeal to the Appellate Collector u/s 35 of the Central Excises and Salt Act. The Appellate Collector dismissed the

appeal holding that only such mixed fertilizers are exempt, which are produced by blending, mixing or granulating duty paid fertilizers (2 or more)

with any substance wherein such mixture are produced by physical actions and without chemical reactions. But, as in this case, the mixed fertilizer

was produced by chemical reaction involving in the process, the presence of another duty payable fertilizer for which excise duty has not been

paid, the benefit of exemption cannot be claimed.

The respondent then filed a revision to the Central Government u/s 36 of the Act. The Central Government passed an order in Order No. 276

of 1976 dated 18.2.1976 in the following terms :-

The Order in appeal is based on the contention that the mixture of two or more fertilizers, envisaged in the relevant notification should be by

physical action and without chemical reaction and the fertilizers, manufactured by the petitioners are definitely complex fertilizers obtained by

chemical reaction and hence they cannot be considered as simply mixtures to attract the exemption in the notification. The said notification does not

lay down any such condition and only requires that mixture can be obtained with the aid of power and the mixed fertilizers should contain not more

than one nutrient. Thus, the order 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 conditions thereof are fulfilled.

Interpreting the Central Government''s Order to be in favour of the respondent, the Assistant Collector, Central Excise, wrote to the respondent

on 5.3.1976 giving it the benefit of exemption, subject to certain procedural conditions. On the basis of this order, the respondent claimed refund

of duty paid under protest before 5th March, 1976 after making the necessary adjustments for duty payable on the urea consumed in the

manufacture of complex fertilizers and the credit taken for countervailing duty on imported muriate of potash used in the manufacture of complex

fertilizers. From 5.3.1976 onwards, the respondent started paying duty on the urea consumed in the manufacture of the complex fertilizers and did

not avail the credit for the countervailing duty paid on the imported muriate of potash used in the manufacture of complex fertilizers.

8A. On 7.6.1976, the Assistant Collector of Central Excise, issued another notice and asked the respondent to show cause why the exemption

granted should not be withdrawn. The respondent sent a reply and also made oral representations to the effect that its right to claim exemption has

already been conceded by the Central Government and as such, it is not open to the Assistant Collector to reopen the matter. The Assistant

Collector over-ruled the objections of the respondent and passed an order on 7.1.1977 holding that the NPK complex fertilizers manufactured by

the respondent are not eligible for exemption, once again holding that Ammonium Phosphate which is formed with the chemical reaction of

Ammonium phospheric acid, has not suffered duty and that only urea and nutriate of potash alone had so suffered.

It is the correctness of this order, which was challenged before the learned single Judge in W.P. No. 152 of 1977, wherein the respondent

sought the issue of a Writ of Certiorari to quash the order of the Assistant Collector. Concurrently, another Petition W.P. No. 455 of 1977 was

also filed for the issue of a Writ of Mandamus to the Central Excise authorities to refund the duty paid on complex fertilizers by it on NPK mixtures

upto 5.3.1977 after making the necessary adjustments in the duty payable on the urea used in the manufacture and the credit taken for the

countervailing duty paid on the imported muriate of potash used in the mixtures.

The learned single Judge allowed both the petitions and issued appropriate rules in favour of the respondent. In W.P. No. 152 of 1977 the

learned Judge conceded the stand of the appellants that the respondents will not be entitled to claim the benefit of exemption from excise duty for

the complex fertilizers manufactured by it; but nevertheless held that the order passed by the Central Government on 18.2.1976 in the revision

preferred before it had become final and the said order had been acted upon by the Assistant Collector of Central Excise when he issued the order

of exemption dated 5.3.1976 and as such, it was not open to the Assistant Collector to subsequently go back on the order and deny the benefit of

exemption of the notification to the respondent. In the other petition, W.P. No. 455 of 1977, the learned Judge held that since the order of the

Assistant Collector had been passed without jurisdiction, the respondent is entitled to the refund of the excise duty collected from it and that the

availability of an alternate remedy by filing an appeal and a revision to the Appellate Authority and the Central Government, respectively, would not

preclude the respondent from invoking the extra-ordinary jurisdiction of the High Court under Article 226 of the Constitution.

Arguing the appeals before us, Mr. Somasundaram Additional Central Government Counsel appearing for the appellants urged that the scope

and effect of the notification has been considered by the Supreme Court in Coromandel Fertilizers Ltd. Vs. Union of India (UOI) and Others, and

that the very question involved in this case arose for determination before the Supreme Court and the Supreme Court has categorically held that

the exemption granted under the notification will be attracted only where mixed fertilizers are produced by mixture of two or more fertilizers which

have suffered excise duty and the exemption cannot be claimed where a mixed fertilizer is produced by mixture of not only duty paid items of

fertilizers, but also other products viz., sulphuric acid and ammonia. The learned counsel therefore argued that the respondent is clearly in the

wrong, when it says that the notification of the Central Government granting exemption to mixed fertilizers would cover the complex fertilizers

manufactured by it. The further argument was that the order of the Central Government dated 18.2.1976 did not clinch the issue in favour of the

respondent, but on the other hand, the order only sets out the terms of the notification and left the question of the availability of exemption of excise

duty to be gone into by the excise authorities in the light of the clarification contained in its order.

Taking up the first question for consideration, the scope and effect of the notification of the Government of India, which is relied on by the

respondent, came up for consideration in Coromandel Fertilizers Ltd. Vs. Union of India (UOI) and Others, . In that case also, a mixed fertilizer

known as Gromor N.P.K. 14-35-14, for which exemption was claimed was made out of Rock Phosphate and Muriate Potash. The manufacturing

process of the fertilizer consisted in treating rock phosphate with sulphuric acid, which produced phosphoric acid. When phosphoric acid was

treated with ammonia, Mono and Di-ammonium phosphate in slurry form would come into existence. To the slurry, muriate potash is added and

thereafter, the mixed fertilizer comes into existence. During the process, a small quantity of ammonium phosphate is formed. Dealing with the

matter, the Supreme Court quoted with approval the judgment of the Andhra Pradeshe High Court rendered earlier between the parties. The

relevant passage in the judgment of the High Court occurs thus :-

Undoubtedly Sulphuric Acid is an acid that can be seen not only from the very name it has, but also from the list of acids given in item 14-G of the

First Schedule under the head ''acids'' Ammonia, as can be seen from item 14-H, which is under the heading ''gases'', is a gas. Sulphuric Acid and

Ammonia are independent commodities which are by themselves eligible to excise duty. In contrast, when we come to Item 14-HH in the first

schedule, it deals only with ''fertilizers'', it purports to deal with ''fertilizers'', of all sorts excluding natural animals or vegetable fertilizers, when not

chemically treated. It gives a number of commodities which are treated, under law, as fertilizers. Entry 3 of item 14 HH contains the words which

the notification used. It deals with mixed fertilizers manufactured with the aid of power from two or more fertilizers. When in the Act itself this

distinction between fertilizers, including mixed fertilizers, on one hand and acids like Sulphuric Acid and gases like Ammonia is pointed out and

maintained, it is futile to argue that notification No. 25/70 grants exemption to mixed fertilizers which are manufactured from two or more fertilisers

and acids and gases. To say that is only to introduce something which is not in the notification. We are therefore, of the view that Gromor NPK 14

: 35 : 14 is not within the exemption given under the notification.

We entirely agree with the views expressed by the High Court. We may also note that the High Court has further aptly pointed out :-

The process of manufacture of NPK 14 : 35 : 14 bringing into existence several other substances, and once again utilising them in the process,

treating one substance with the other cannot be ""said it will have to be held that NPK 14 : 35 : 14 is not entitled to exemption under Notification

No. 25/70.

In view of this authoritative pronouncement of the Supreme Court, there is no scope whatever for the respondent to contend that the complex

fertilisers manufactured by the respondent are manufactured only from out or urea and muriate of potash and that other ingredients, which are also

subject to excise duty, are not involved and they do not constitute components.

Mr. Uthama Reddy, learned counsel for the respondent however contended that the sole question for consideration in these appeals is not,

whether the respondent is entitled to claim exemption from excise duty on the basis of the notification No. 25/75-CX dated 1.3.1970; but whether

the appellants are entitled to call upon the respondents to pay excise duty in spite of the order passed by the Central Government in the revision

proceedings. The learned counsel argued that the order of the Central Government was passed before the Andhra Pradesh High Court rendered

its judgment in W.P. Nos 1400 to 1403 of 1976 dated 24.9.1976. [Reported in 1979 ELT 501 He would, therefore, say that on the materials

before it, the Central Government was satisfied that the complex fertilisers manufactured by the respondent are exempt under the notification. In

fact, he went to the extent of saying that the order of the Central Government had been implemented by the Assistant Collector when he passed an

order on 5.3.1976 granting exemption to the respondent and thereafter, the Central Excise authorities had become functus officio and had no

power under law to reopen the matter and countermand the exemption granted earlier to the respondent. In support of such a contention, Mr.

Uthama Reddy cited Collector of Central Excise v. Palappa Nadar AIR 1963 332. It has been held in that case that case that after the appellate

Tribunal had passed an order, the original Tribunal stood deprived of its jurisdiction to pass further orders and that without an order of remand, the

original Tribunal will have no power to initiate de novo proceedings. The proposition of law enunciated by Mr. Uthama Reddy is undoubtedly a

sound one; but what needs consideration is whether the order of the Central Government is a final one and whether the said order has clinchingly

held that the respondent is entitled to exemption from payment of excise duty on the complex fertilizers manufactured by it. To determine this

question, it is necessary that the order of Government is subjected to scrutiny, as found extracted above. On a close study of the order, it is seen

that what the Central Government had done is to lay down that the views of the Appellate Collector on certain matters are not correct and further

more, the order ''is not a proper speaking order on the issue involved.'' The Appellate Collector had held that only mixed fertilizers, which are

produced by physical action and without chemical reaction would be entitled to claim the benefit of exemption. It is this portion of the order, that

has been set aside by the Central Government by pointing out that the notifications does not lay down any such conditions and that the notification

only required the mixture to be obtained with the aid of power and the mixed fertiliser contained not more than one nutrient. The order does not

say that by reason of the setting aside of the Appellate Collector''s order, the exemption under the notification is readily available to the respondent

and as such, it is entitled to the benefit of the notifications. On the other hand, the Government''s order states that the exemption under the

notification would be available to the respondent, if the conditions attached thereto are fulfilled. The last line of the order has to be read

harmoniously. The first part of the sentence ""the exemption under the said notification is allowed"" cannot be read disjunctively without the latter

portion of the sentence viz., if the conditions thereof are fulfilled''. We are therefore unable to sustain the contention of Mr. Uthama Reddy in this

behalf. For the same reasons, we are clearly of the view that the learned single Judge was not right in taking the view that the question has been

finally decided by the Central Government in their order dated 18.2.1976 and it is not open to fresh consideration by the Assistant Collector at any

subsequent stage.

Once such a position is reached, then it follows that the initial order of exemption granted by the Assistant Collector under his order dated

5.2.1976 was a wrong one. The Assistant Collector had not carried out the order of the Central Government, but, on the other hand, he had

proceeded on the wrong assumption that the Government''s order conferred the benefit of exemption on the respondent''s product and that no

further examination of the matter was necessary. The mistake committed by the Assistant Collector was soon noticed and hence, a fresh show

cause notice was issued on 7.6.1976 and in pursuance of that notice, the impugned order has been passed. We are, therefore, of the view that the

impugned order, apart from being in conformity with the decision of the Supreme Court in Coromandel Fertilizers Ltd. Vs. Union of India (UOI)

and Others, is not in contravention of the order of the Government of India in No. 25/70 C.X. dated 1.3.1970 in any manner. Consequently, writ

appeal No. 508 of 1980 has to succeed.

Talking up writ app. No. 507 of 1980 for consideration Mr. Somasundaram argued that the decision in the earlier appeal, will govern the rights

of parties in this appeal also. Independent of this argument he also submitted that in any event, the respondent cannot claim the benefit of refund

because it would lead to unjust enrichment of the respondent. In support of this argument Mr. Somasundaram cited the following authorities : Shiv

Shankar Dal Mills and Others Vs. State of Haryana and Others, In all these cases, it has been held that an assessee should not be allowed to

derive unjust enrichment by having the benefit of collection of excise duty from the consumers and also the benefit of refund from the Government.

Mr Utham Reddy cited two decisions, viz. Patel India (Private) Ltd. Vs. Union of India (UOI) and Others, and Maharashtra Vegetable

Products P. Ltd. v. Union of India, 1981 ELT 468 (Bombay) taking a contrary view. But though these two decisions take the view that if excise is

not collectible then the duty collected should be refunded to the assessee notwithstanding the principle of unjust enrichment being offended, we find

the preponderance of judicial opinion to be against the contention of the respondent. The learned single Judge has not considered this aspect of the

matter at all; but, on the other hand, the major portion of his discussion is devoted to the right of the respondent to seek remedy under Art. 226 of

the Constitution, instead of availing the alternative remedy available to it under the Act. We are therefore, of the view that this appeal too has to be

allowed, both on the ground that the respondent is not entitled to claim the benefits under the notification as well as on the ground that unjust

enrichment would ensue if refund of excise is ordered.

In the result, both writ appeals are allowed and W.Ps. Nos. 152 and 455 of 1977 will stand dismissed. There will however be no order as to

costs.