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Judgment
Shah, J.—The petitioner, The Gujarat Agro Industries Corporation Ltd., Ahmedabad, has filed this petition praying that direction given by
the Superintendent of the Central Excise, Ahmedabad, by Annexure ''E'' dated 14th April, 1980 be quashed and set aside. As per the said
direction, the petitioner was directed to apply for Central Excise licence and to clear the goods after payment of Central Excise on the basis that
the petitioner was producing compost manure which was excisable and chargeable to Central Excise duty under Tariff Item 68.
It is the say of the petitioner that the petitioner is a Corporation registered under the Companies Act and 51% of its shares are owned by
Central Government and 49% of its shares are owned by the State Government. To solve the problem of disposal of garbage in the city of
Ahmedabad, it was decided that the garbage received from the city and nearby places can be used as compost manure after subjecting the said
garbage to natural process. This was on the basis of the Government of India''s order to promote production of compost manure all throughout the
country and to solve the problem of disposal of garbage in big cities.
It is the say of the petitioner that the petitioner is not producing or manufacturing any new product. The only process which the petitioner does is
to collect the garbage. Thereafter iron particles are magnetically separated from the refuse and objectionable articles are manually picked up. The
remaining garbage is reduced to small particle size by totaling it in a drum. From that garbage, large size of particles, the small pebbles and stones
are removed. Subsequently, the powdered like material which has appearance similar to used tea-dust will be placed in open-to-sky condition for
8 to 10 weeks for natural fermentation. During this period the material is turned upside down 4/5 times depending upon the temperature and at the
end of this period, the fermentation and decaying process due to natural factors is over and that refuse is sold as ''compost manure''.
It is the further say of the petitioner that the petitioner has installed the compost manure plant in December, 1975. It was incurring cost of Rs.
130/- to Rs. 150/- per ton and was selling the compost manure at the price of Rs. 25/- to Rs. 30/- per ton. Every year there was heavy loss. The
learned Advocate for the petitioner has submitted that because of heavy losses the petitioner has decided in the year 1983 to discontinue the said
plant to avoid further losses and then the plant is closed.
At the time of hearing of the matter, Mr. Thakkar, learned Advocate appearing on behalf of the petitioner raised the following contentions :
(1) The process involved in using garbage as compost manure cannot be said to be ''manufacturing process'' as defined u/s 2(f) of the Central
Excise Act and, therefore, the compost manure produced by the petitioner would not be excisable goods.
(2) In any set of circumstances even if it is considered to be manufacturing process, yet it is exempt from excise duty because of Notification No.
179/77 dated 18th June, 1977 issued by the Central Government in exercise of its powers conferred by sub-rule (1) of rule by which it has
granted exemption to all goods falling under Item 68 of the First Schedule to Central Excises & Salt Act, 1944 in relation to manufacture of
product in which no process is ordinarily carried on with the aid of power from the whole of the duty of excise leviable thereon.
(3) Assuming for the time-being that it was excisable goods, yet under Tariff Item 14 there was specific exclusion for natural, animal or vegetable
fertilizers when not chemically treated. Therefore, it cannot be covered by Tariff Item 68.
It should be noted that no Affidavit-in-reply is filed denying the facts averred by the petitioner in this petition. Hence the contention of the
petitioner that the process carried out by the petitioner is without the aid of power is required to be accepted.
It is not denied that compost manure is produced because of fermentation and decaying process due to natural factors as it is kept in open-to-sky
condition 8 to 10 weeks for natural fermentation. Therefore, on the basis of the facts on record as on today, it can be said that the process which is
carried on by the petitioner for the production of compost manure is without the aid of power and it is due to natural process which turns garbage
into compost manure. Hence the petitioner''s product would be covered by Notification No. 179/77 dated 18th June, 1977. It reads as under :-
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all
goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), in or in relation to the manufacture of
which no process is ordinarily carried on with the aid of power, from the whole of the duty of excise leviable thereon.
Further, by Exemption Notification No. 181/80-C.E., dated 12th November, 1980 ''compost manure'' is exempted from payment of excise duty.
The said notification reads as under :
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby makes the
following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance), No.
55/75-Central Excise, dated the 1st of March, 1975, namely :-
In the Schedule annexed to the said notification, after Item No. 27, the following item shall be inserted, namely :-
''28. Compost manure''.
By Notification No. 55 of 1975, Central Excise, dated 1st March, 1975, the Central Government has exempted goods of the description
specified in the Schedule annexed with it and falling under Item No. 68 of the First Schedule to the Central Excise and Salt Act, 1944, from the
whole of the duty of excise leviable thereon. Compost manure is included by the notification dated 12-11-1980. Hence, after 12-11-1980, there is
no question of taking any excise duty from the petitioner on compost manure produced by it under Tariff Item 68. Further, at the relevant time,
fertilizers were covered by Tariff Item 14HH. It specifically provided for fertilizers, all sorts, but excluding natural, animal or vegetable fertilizers
when not chemically treated. The said Tariff Item reads as under :-
14HH. Fertilizers, all sorts, but excluding natural, animal or vegetable fertilizers when not chemically treated.
There is nothing on record to show that garbage used by the petitioner for producing compost manure is any way chemically treated. It is the say
of the petitioner that it is natural, animal and vegetable fertilizers because of decaying process of garbage, therefore, the petitioner''s product is
specifically excluded by the said Item. In spite of this specific exclusion from the payment of excise duty, the superintendent of Excise has issued
direction to the petitioner to obtain Central Excise licence and to clear the goods after the payment of Central Excise duty at appropriate rate under
Tariff Item 68 by its letter dated 14th April, 1980. In our view, once the product is specifically excluded from the main item, then there is no
question of applying residuary Item. The residuary Item 68 specifically provides the items which are not elsewhere specified. If elsewhere it is
provided and there is specific exclusion of the Item, then it cannot be covered by the residuary Item. The residuary Item 68 prior to its amendment
in 1980 was as under :-
Item No. 68 - ALL OTHER GOODS N.E.S.
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Item No. Tariff Description Rate of duty
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All other goods, not Eight per cent.
elsewhere specified, but ad valorem.
excluding -
(a) xx xx xx
(b) xx xx xx
(c) xx xx xx
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By amendment dated 18-6-1980 Explanation is added which reads as under :-
Explanation. - For the purpose of this Item, goods which are referred to in any preceding Item in this Schedule for the purpose of excluding such
goods from the description of goods in that Item (whether such exclusion is by means of an Explanation to such Item or by words of exclusion in
the description itself or in any other manner) shall be deemed to be goods not specified in that Item.
The effect of this residuary item was considered by the Supreme Court in the case of Dunlop India Ltd. v. Union of India AIR 1977 SC 597,
wherein it has been observed as under :-
When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the
very principle of classification to deny it the percentage and consign it to an orphanage of the residuary clause. The question of competition
between two rival classifications will, however, stand on a different footing.
Further, in the case of Darshan Hosiery Works v. Union of India 22 GLR 533, the Division Bench of this court has specifically held that the Item
68 would not be applicable when there is specific exclusion in the main Items. The Court dealt with Item 22D as it was, wherein articles of hosiery
in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power, were excluded. The Court held that the
expression ""not elsewhere specified"" in Item 68 means ""not elsewhere specified"" either for the purpose of taxability of for the purpose of
exemption. In order to attract Item 68, there must be a total omission of specification of goods in any of the items preceding Item 68. Hence, as
there was specific exclusion of natural, animal or vegetable fertilizers when not chemically treated in Item 14HH, it cannot be covered by residuary
Item 68.
However, it is required to be clarified that in view of the Explanation, added to Tariff Item 68 by Finance Act, No. 2 even the goods which are
referred to in any tariff item for the purpose of excluding it from that item, would be covered by the residuary Item 68. By Explanation deeming
provision is made and the expression ""All other goods, not elsewhere specified"" is given a specific meaning. The phrase ""All other goods not
elsewhere specified"" would include or would also be applicable to the goods which are referred to in any item in the First Schedule for the purpose
of excluding such goods from the description of goods in that item. It would also cover the goods which are excluded by an Explanation to such
Item or by words of exclusion in the description itself or in any other manner. Therefore, from the date of addition of Explanation in Item 68 even
natural, animal or vegetable fertilizers when not chemically treated, would be covered by Item 68 even though there is specific exclusion in Item
14HH. At present we are not required to deal with that question further because by Exemption Notification dated 12th November, 1980
''compost manure'' is exempted from payment of excise duty.
In the result, this petition is allowed. The direction given by the Superintendent of Central Excise, AR XIII, Dn. III, Ahmedabad, by his letter
dated 14-4-1980 to take Central Excise Licence and to clear the goods after payment of Central Excise duty at appropriate rate on the basis of
Tariff Item 68 for petitioner''s product ''compost manure'' is quashed and set aside. Rule made absolute to the aforesaid extent with no order as to
costs.