CBEC’s 2016 Circular Clarifying Classification of Micronutrients and PGRs is Prospective: CESTAT Sets Aside Excise Duty Demands [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the CBEC Circular issued in 2016 clarifying the classification of micronutrients and plant growth regulators (PGRs) can only be applied prospectively and not retrospectively for earlier periods.

Total Agri Care Concern Pvt. Ltd., the appellant, is engaged in manufacturing agricultural inputs such as bio-fertilizers, micronutrients, multi-micronutrients, and plant growth promoters.

The department conducted investigations and issued show cause notices alleging that the products were misclassified as fertilizers under Chapter 31 of the Central Excise Tariff instead of being classified as PGRs or micronutrient mixtures under Chapters 28, 29, or 38.

Based on this, demands for central excise duty exceeding Rs. 6 crore were confirmed along with penalties.

The appellant’s counsel argued that the products were rightly classified as fertilizers and that the department relied on CBEC Circular No. 1022/10/2016-CX dated 06.04.2016, which was issued to resolve long-standing classification disputes.

The counsel submitted that the circular could not be applied retrospectively to raise demands for the period 2012-2016. The counsel also relied on the Supreme Court judgment in Karnataka Agro Chemicals which held that such clarifications cannot have retrospective effect.

The revenue counsel argued that the circular provided clear guidelines on classification and was binding on the department, and that the products contained active substances that made them PGRs. They submitted that the duty demands were valid and the appellant had suppressed facts to evade tax.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the 2016 circular expressly rescinded earlier circulars and introduced new directions after recognizing that classification of micronutrients and PGRs had remained a disputed issue for years. The tribunal explained that since the circular itself acknowledged ongoing uncertainty before 2016, it could not be applied to past clearances.

The tribunal pointed out that applying the circular retrospectively would be contrary to law and judicial precedents. Relying on rulings such as Karnataka Agro Chemicals and Suchitra Components, the bench held that the circular must operate prospectively.

The tribunal held that the duty demands raised by applying the 2016 circular to earlier years were not sustainable. The impugned orders confirming excise duty and penalties were set aside.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates