By TIOL News Service

MUMBAI, SEPT 08, 2015: THE appellant manufactures bulk products like Niacin falling under CH 29.36 of the CETA, 1985. They also manufacture Niacin (Feed Grade) which is used in animal feed, classify it under TI 23099090 and clear the same at nil rate of duty. Whereas Niacin is 99% pure and used in pharmaceutical formulations as vitamin the purity of Niacin (Feed Grade) is 95% and it is further mixed with wheat powder for use as animal feed.

Under the impugned order, the CCE, Thane-II classified the Niacin Feed Grade under TI 29362920 and confirmed the duty demand of Rs.65,43,700/- invoking the extended period of limitation. He also imposed equivalent penalty and since the goods valued at Rs.6,54,57,800/- & cleared without payment of duty were not available for confiscation, he imposed a fine of Rs.33,00,000/-.

After considering the submissions made by both sides, the CESTAT observed -

On merits:

+ The process of manufacture of Niacin follows a synthetic route and it is manufactured from chemicals.

+ The process involved and the raw materials used are the same for Niacin I.P. Grade as well as Niacin (Feed Grade). Niacin Feed Grade is crude Niacin with 95% purity. Therefore, Niacin I.P. Grade is formed by increasing the purity to 99%. Thus, the only difference is in purity and further steps required for making 99% Pure Niacin. Even the Niacin meant for feed grade is labeled on the container as "Niacin / Feed Grade Supplement. Not for human used only for Poultry Feed purpose". This label itself indicates that the feed grade Niacin is sold as Niacin only. The certificate of analysis issued by Quality Control Department of the appellant also refers to the product as Niacin only.

+ Chapter Note 1 to Chapter 23 states that "Heading 2309 includes products of a kind used in animal feeding............... obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material........" On reading this note itself, we would disagree with the appellant that their product is covered under heading 2309. Their product is not obtained by processing vegetable of animal material. Their product is obtained from chemicals i.e. Beta Picoline, Sulphuric Acid, Nitric Acid. Therefore Heading 2309 which covers products of a kind used in animal feeding, can by no means include Niacin.

+ Tariff Item 29362920 specifically covers Nicotinic acid (nicotinamide). Following cannons of interpretation of the Central Excise Tariff, a more specific heading is to be preferred in terms of Rule 3(a) of the Rules for Interpretation of the Tariff Act. Even according to the HSN Notes of Chapter 23 (our tariff being based on HSN System of Nomenclature) under heading 23.09 it is specifically mention in exclusion clause (e) that vitamins are excluded from heading 23.09.

+ In the present case the goods are not a preparation for animal feed. The goods are Niacin itself. It is not used as animal feed directly. As held in the case of Sonam International (supra) a vitamin is added in a miniscule proportion in animal feed. That the appellant mixed Niacin with Atta before clearance makes no difference because we are concerned with the classification of the product manufactured by them i.e. Niacin. Therefore we hold that the product Niacin Feed Grade has been correctly classified under Tariff Item 29362920 and duty is payable accordingly.

+ The assessee had sold the goods that is Niacin Feed Grade at price assuming that no duty is payable. When the appellant had itself proceeded on the basis that no duty was payable there was no question of its having recovered any "cum-duty" price from the customers.

Limitation:

The show cause notice was issued on 23.8.2011 for the period December 2008 to May 2011 by invoking the extended time period under proviso to Section 11A(1). We see no justification to invoke the extended time period. The case is a matter of interpretation. We have seen the ER.1 returns for the said period. The appellant had clearly declared the description of the product as "Niacin Feed Grade" in all their E.R. 1s. Therefore there being no misstatement, duty is payable only for the normal period of time limitation. For the same reason that extended time period is not applicable, confiscation, fine and penalty are also not sustainable. However, interest would be payable under Section 11AB corresponding to the amount of duty upheld.

The appeal was partly allowed.

In passing: Chapter heading ";prepared animal fodder", an inclusive chapter note and the form and manner in which goods are cleared is all that may make a difference in the days to come!

(See 2015-TIOL-1888-CESTAT-MUM)