- 1 - CEA No. 5 of 2024 Reserved on : 12.03.2026 Pronounced on : 17.04.2026 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 17TH DAY OF APRIL, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND CENTRAL EXCISE APPEAL No. 5 OF 2024 (EXCISE) BETWEEN: 1. M/S. KARNATAKA AGRO CHEMICALS, No.180, 1ST MAIN ROAD, MAHALAKSHMI LAYOUT, BANGALORE - 560086. (REPRESENTED BY SRI MAHESH SHETTY, PARTNER) …APPELLANT (BY SRI G. SHIVADASS, SENIOR ADVOCATE FOR SRI NAGARAJA M. S., ADVOCATE) AND: 1. THE COMMISSIONER OF CENTRAL EXCISE, BANGALORE -III, PB No.5400, QUEENS ROAD, C. R. BUILDING, BANGALORE, KARNATAKA 560001. …RESPONDENT (BY SRI JEEVAN J NEERALGI, SENIOR STANDING COUNSEL) Digitally signed by VINUTHA B S Location: High Court of Karnataka - 2 - CEA No. 5 of 2024 THIS CEA / CENTRAL EXCISE APPEAL IS FILED UNDER SECTION 35G OF THE CENTRAL EXCISE ACT, SET ASIDE THE FINAL ORDER No.21456/2023 (IN COMMON ORDER PASSED IN 21456 TO 21479 OF 2023) DATED 22.12.2023 PASSED BY CESTAT BANGALORE IN APPEAL No.1370/2010 (ANNEXURE-A). THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY, K.V. ARAVIND J., DELIVERED THE FOLLOWING:- CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND C.A.V. JUDGMENT (PER: HON'BLE MR. JUSTICE K.V. ARAVIND) Heard Sri G. Shivadass, learned Senior Counsel appearing for Sri M.S. Nagaraja, learned counsel for the appellant- Assessee and Sri Jeevan J. Neeralgi, learned Senior Standing Counsel for the respondent-Revenue. 2. This appeal by the Assessee impugning the Final Order Nos.21456 to 21479 dated 22.12.2023, passed in Excise Appeal No. 1371/2010 by the Customs, Excise and Service Tax Appellate Tribunal, Bangalore (‘CESTAT’ for short), raises the following substantial questions of law: "(1) Whether the Hon’ble Tribunal has committed a patent error in not considering the observations and directions of the Hon’ble Supreme Court in - 3 - CEA No. 5 of 2024 the proper perspective and in not following the direction of the Hon’ble Supreme Court? (2) Whether the decisions of the Hon’ble Tribunal and the Ld. Commissioner are perverse in as much as the report of the Committee appointed by the Ld. Commissioner has been disregarded without any basis? (3) Whether the Hon’ble Tribunal has committed an error in not considering that the Ld. Commissioner is bound by the Circulars issued by the Central Board of Excise & Customs (“CBEC”) on the issue of classification of Micronutrients and which was also referred to by the Supreme Court in its remand order, enclosed as ANNEXURE-F? (4) Whether the Hon’ble Tribunal was right in not considering the ingredients required for classification of the subject mixtures of micronutrients as Plant Growth Regulators under CSH 3808.20 as specified by the CBEC Circular dated 19.05.1998 and 06.04.2016? (5) Whether the Hon’ble Tribunal ought to have referred the matter to the President of the Tribunal to constitute a Larger Bench for the determination of the classification of the micronutrients if it is not agreeable with the decisions of the coordinate Benches of the Tribunal on similar facts and issue as per the settled law? - 4 - CEA No. 5 of 2024 (6) Whether the Hon’ble Tribunal has completely overlooked the fact that the declarations made by the Appellant to the Department of Agriculture are not relevant for determination of the classification of the goods under the Central Excise Tariff Act, 1985 as clarified by the CBEC itself in the Circulars?" 3. The brief facts are that the Assessee M/s. Karnataka Agro Chemicals is engaged in the manufacture of ‘fertilizers’ containing Nitrogen and Potassium as essential elements. The products are manufactured as certified by the Directorate of Agriculture, Government of Karnataka, under the provisions of the Fertilizer (Control) Order, 1985 [for short, “1985 Order”]. The Assessee classified the micronutrient mixture as “other fertilizers” under Heading 3105 of the Central Excise Tariff Act, 1985, attracting a ‘NIL’ rate of excise duty. 3.1 A show cause notice dated 01.07.1994 was issued proposing classification of the micronutrients as ‘Plant Growth Regulator’ [PGR]. A reply was filed, culminating in an order of adjudication dated 26.06.1994 for the period from 01.03.1994 to 30.04.1994. By the said order, it was concluded that the micronutrients manufactured by the Assessee contained Nitrogen and were liable to be classified as “fertilizers”. - 5 - CEA No. 5 of 2024 3.2 Subsequently, the Assessee’s premises were inspected by officers of the Directorate General of Central Excise Intelligence, BZU [DGCEI], on 20.10.2000. Certain documents were seized, samples were collected, and the statement of the Assessee’s representative was recorded. A show cause notice dated 26.08.2002 was thereafter issued proposing re- classification of the micronutrient mixture as PGR. Similar show cause notices followed for subsequent periods. 3.3 The Assessee submitted replies, and the Commissioner adjudicated the matter, confirming the proposal made in the show cause notices by treating the product as PGR. The order of the Commissioner was carried in appeal before the CESTAT. The CESTAT, by Final Order Nos.341 to 347/2007 dated 26.02.2007, while setting aside the order of the Commissioner, held that the product is classifiable as “other fertilizers”. The said order of the CESTAT was challenged by the Revenue before the Hon’ble Supreme Court. The Hon’ble Supreme Court, by order dated 15.05.2008, after examining the contentions urged and recording findings on various aspects, while remanding, issued directions to the Commissioner for further consideration. - 6 - CEA No. 5 of 2024 3.4 Pursuant thereto, the Commissioner of Central Excise, in order to give effect to the directions of the Hon’ble Supreme Court, constituted a Committee of Officers to examine the process of manufacture. The Committee submitted its report. Thereafter, the Commissioner decided to conduct an inspection personally and accordingly visited the factory premises and prepared a report. Further, the Commissioner addressed a letter to the Director of Agriculture seeking an expert opinion on the samples. 3.5 The Commissioner, by order dated 31.03.2010, concluded that the Nitrogen contained in the impugned product is a pretence. Aggrieved by the said order, the Assessee preferred an appeal before the Tribunal. The Tribunal, under the impugned order dated 22.12.2023, confirmed the findings of the Commissioner. 3.6 Contending that the conclusion reached by the Commissioner is contrary to the directions issued by the Hon’ble Supreme Court, the Assessee preferred W.P. No.3838/2024. In the said writ petition, the Revenue contended that the writ petition was not maintainable in view of the alternate remedy of appeal available under Section 35G of - 7 - CEA No. 5 of 2024 the Central Excise Act, 1944. The writ petition came to be disposed of on 22.02.2024, converting the writ petition into an appropriate appeal. However, an observation was made keeping open the question of maintainability of the appeal before the Division Bench of this Court. 4. Sri G. Shivadass, learned Senior Counsel appearing for Sri M.S. Nagaraja, learned counsel for the appellant–Assessee, submits that, as per the report of the Committee constituted by the Commissioner, the conclusions drawn by the Commissioner upon personal inspection of the manufacturing process, as well as the communication from the Director of Agriculture, indicate the presence of Potassium Nitrate and Calcium Nitrate, as approved by the competent authorities, thereby constituting a ‘fertilizer’. It is further submitted that whether the necessary ingredients are mixed at the initial stage or at the final stage is immaterial, so long as the product contains the requisite ingredients. 4.1 Learned Senior Counsel submits that a similar exercise was undertaken for the earlier period, and by order dated 26.06.1994, the classification of the product as ‘fertilizer’ was concluded and accepted. It is further submitted that there is no - 8 - CEA No. 5 of 2024 change either in the product, the process of manufacture, or its ingredients for the period under consideration. 4.2 Learned Senior Counsel further submits that the Hon’ble Supreme Court had directed a specific and limited enquiry only to ascertain whether the addition of Nitrogen is a pretence or an essential constituent. It is contended that the conclusion reached by the Commissioner—that the Nitrogen contained in the impugned product does not undergo any chemical reaction and is artificially introduced, and therefore a pretence—is without any basis. 4.3 It is further submitted that the Tribunal, without adverting to the scope of enquiry as directed by the Hon’ble Supreme Court, has erroneously confirmed the order of the Commissioner. Learned Senior Counsel also submits that the grievance of the Assessee pertains to the procedure adopted by the Commissioner in classifying the impugned product, and not to the classification of the product per se. 5. Per contra, Sri Jeevan J. Neeralgi, learned Senior Standing Counsel appearing for the respondent–Revenue, submits that the issue pertains to classification of the product - 9 - CEA No. 5 of 2024 and, therefore, the appeal is not maintainable. In support of his submission, he places reliance on the following judgments: (i) (2019) 9 SCC 563: Commissioner of Customs vs. Motorola India Ltd. (ii) (1993) 4 SCC 320: Naveen Chemicals MFG. and Trading Co. Ltd. vs. Collector of Customs. (iii) (2017) 13 SCC 1: Steel Authority of India Ltd vs. Designated Authority, Directorate General of Anti-Dumping and Allied Duties and others. (iv) (2012) 13 GTR 240: Commissioner of Central Excise vs. Mangalore Refineries and Petrochemicals Ltd. (v) 2011 SCC OnLine Kar 4245: Commissioner of Service Tax, Bengaluru vs. Bridgestone financial Services. (vi) (2019) SCC OnLine Bom. 5162: Commissioner of Central Excise vs. Reliance Media Works Ltd. and others. (vii) 2012 SCC OnLine All 1309: Commissioner of Customs and Central Excise vs. Eco Products (India) Pvt. Ltd. 5.1 Learned Senior Standing Counsel submits that unless the contents of Nitrogen, Phosphorus, or Potassium are demonstrated to be essential constituents, the mere presence of such components would not suffice to classify the impugned product as “other fertilizers.” It is further submitted that the Commissioner, based on his personal inspection of the - 10 - CEA No. 5 of 2024 manufacturing process and the ingredients used in the production of the product, formed the opinion that Nitrogen is artificially introduced without any chemical reaction, solely for the purpose of classification. 6. We have considered the submissions made by learned Senior Counsel for the appellant-Assessee and learned Senior Standing Counsel for the respondent-Revenue. 7. The primary contention urged before this Court is that the order of the Commissioner is not in compliance with the directions of the Hon’ble Supreme Court. The earlier round of adjudication proceedings was carried in appeal before the Hon’ble Supreme Court in Commissioner of Central Excise, Bangalore vs. Karnataka Agro Chemicals, [(2008) 7 SCC 343]. The Hon’ble Supreme Court, in the said appeal, considered the following issue: "Whether the impugned product(s) is a PGR or a Fertilizer?" 7.1 The Hon’ble Supreme Court in Karnataka Agro Chemicals (supra), after a threadbare analysis of the rival contentions, held as under: - 11 - CEA No. 5 of 2024 "25. In the show-cause notice, no allegation was made by the Department that the impugned product(s) is a distinct chemical compound. Therefore, the only question is whether the impugned product(s) contains nitrogen as an “essential constituent”. According to the assessee, the impugned product(s) is a mixture of various inorganic substances whose essential constituent is nitrogen which makes it a fertiliser. It is this point which arises for consideration viz. whether 0.31% of nitrogen found to exist in the impugned product(s) would make it a fertiliser. In this connection, the aforestated scientific study indicates that PGRs are organic compounds, other than nutrients. As compared to nutrients which play a major role in the plant growth as a whole, PGRs play a restrictive role. PGRs do not contain N, P or K. In the impugned product(s) manufactured by the assessee, PGR exists. Therefore, the question to be asked is whether presence of mere 0.31% of nitrogen would make the PGR in the impugned product classifiable as “other fertilisers” in CSH 3105.00. In our view, essentially the impugned product is PGR. However, the assessee contends that the impugned product(s) is a mixture of various inorganic substances and, therefore, it is for the adjudicating authority to go into composition and find out whether 0.31% of nitrogen would convert PGR into a nutrient falling under CH 31.05. Whether with addition of 0.31% of nitrogen, the PGR becomes “other fertilisers” in CSH 3105.00 is the question which needs to be examined by the adjudicating authority as it is the case of the Department that the assessee has added nitrogen only as a pretence so that the impugned product(s) could be classified as “other fertiliser” under CSH 3105.00." 7.2 It is observed that the only question is whether the impugned product contains Nitrogen as an essential constituent. It is further observed that nutrients play a major role in plant growth, whereas Plant Growth Regulators (PGRs) play a restrictive role, and that PGRs do not contain Nitrogen, Phosphorous, or Potassium. - 12 - CEA No. 5 of 2024 7.3 The Hon’ble Supreme Court found it necessary to ascertain whether the presence of more than 0.31% of Nitrogen in the impugned product would render it classifiable as “other fertilizers.” While observing that, in essence, the impugned product is a PGR, the Hon’ble Supreme Court, having regard to the contention of the Assessee that the product is a micronutrient comprising various inorganic substances, directed an enquiry to determine whether the presence of 0.31% Nitrogen would convert the PGR into a nutrient classifiable under CSH 3105.00 as “other fertilizers.” For the said purpose, the adjudicating authority was directed to examine whether the Assessee had added Nitrogen merely as a pretence so as to bring the impugned product within the classification of “other fertilizers.” 8. In light of the above observations made by the Hon’ble Supreme Court, the entire exercise to be undertaken by the adjudicating authority is to ascertain whether, upon the addition of 0.31% of Nitrogen, the PGR becomes classifiable as “other fertilizers,” or whether such addition of Nitrogen is merely a pretence and not an essential constituent. - 13 - CEA No. 5 of 2024 8.1 The direction to undertake the above exercise is given to the adjudicating authority. Such a direction cannot necessarily be construed to mean that the adjudicating authority is precluded from seeking expert assistance. However, the expertise of the Committee constituted by the Commissioner, comprising officers of the Department, possessing the requisite expertise, is not established. A reference was made to the Director of Agriculture, and the report obtained therefrom is stated to be conclusive. 8.2 We find that the reference made by the Commissioner to the Director of Agriculture does not, in itself, satisfy the requirements as directed by the Hon’ble Supreme Court. When the very reference to the Director of Agriculture is not in conformity with the said directions, the report or response obtained pursuant thereto becomes insignificant. 8.3 Learned Senior Counsel for the appellant–Assessee strenuously contends that the product in question is certified as a “fertilizer” by the competent authority under the 1985 Order. Learned Senior Counsel further invites the attention of this Court to the definition of “fertilizer” under Rule 2(h) and Rule 2(n), which defines “mixture of fertilizers,” as under: - 14 - CEA No. 5 of 2024 "2(h) "fertilizer" means any substance used or intended to be used as a fertilizer of the soil and/or crop and specified in Part A of Schedule I and includes a mixture of fertilizer and special mixture of fertilizers provisional fertilizer, customized fertilizer, Bio-fertilizers specified in Schedule III and Organic fertilizers specified in Schedule IV." "2(n) "mixture of fertilizers" means a mixture of fertilizers made by physical mixing two or more fertilizers with or without inert material in physical or granular from and includes a mixture of NPK fertilizers, a mixture of micronutrient fertilizers and a mixture of NPK with micronutrient fertilizers" 8.4 On a bare reading of the definitions of “fertilizer” and “mixture of fertilizers,” it appears that compliance with the directions of the Hon’ble Supreme Court would require expert opinion. Further reference is made to Rules 12 and 15 and Chapter VII—Enforcement Authorities. It is stated that the State Government is the competent authority to implement the 1985 Order. 8.5 The Commissioner, in paragraph 45, has concluded as under: "45. At the time of the visit as observed by me and as explained by the production manager of the factory, it is - 15 - CEA No. 5 of 2024 seen that, various raw materials, including urea, are mixed manually, grinded, sieved, again mixed and packed. As already mentioned the entire process is devoid of any chemical reaction and no chemically defined compound is coming in to existence. As per the argument of the assessee the main and only reason why the impugned products merit classification is because of the presence of the nitrogen in the impugned goods. It is also accepted by the assessee that, the source of nitrogen in their product (micro nutrient fertilizer) is urea which is introduced at the time of mixing various raw materials. Thus, the nitrogen content found in the impugned products are not due to any chemical reaction taking place during the course of manufacture, but for the artificial introduction of the chemical urea at the time of mixing. What is very important to understand here is the fact that, adding urea to these micronutrients at any point of time is not going to change the nature of these products. In other words if adding urea at different stages was to result in different products (i.e. Adding at initial stages resulting in 'X' product and adding at some other stage resulting in 'Y' product) then it would have been correct to hold that the method of manufacturing has bearing on classification. For the aforesaid reasons I hold that, the method of manufacture in this instant case has no bearing whatsoever on the issue of classification." 8.6. The conclusion that the Nitrogen content in the product does not undergo any chemical reaction, is artificially - 16 - CEA No. 5 of 2024 introduced, and does not alter the nature of the product, is without any basis. Unless such conclusions are founded on acceptable expert opinion, they cannot be sustained. Similarly, the Tribunal, without examining whether the directions issued by the Hon’ble Supreme Court were duly complied with, has confirmed the order of the Commissioner, thereby denying classification of the impugned product as “other fertilizers.” 8.7 The dispute, as framed by the admitted questions, does not pertain to the classification of the product per se, but rather to the manner in which such classification has been undertaken, particularly in the context of non-compliance with the directions of the Hon’ble Supreme Court. As we are not called upon to decide the classification of the product, and have not undertaken such an exercise in the present appeal, the contention of the learned Senior Standing Counsel for the Revenue that the appeal before this Court is not maintainable is liable to be rejected. 8.8 For the aforesaid reasons, we are of the view that the judgments cited in support of the said submission do not require detailed consideration. - 17 - CEA No. 5 of 2024 9. As we have held that the conclusion of the Commissioner is not in conformity with the directions of the Hon’ble Supreme Court, the case of the Assessee insofar as classification cannot be accepted at this stage. The grievance urged pertains to non- compliance with the directions of the Hon’ble Supreme Court and adjudication in violation thereof. 9.1 In view of our conclusion that the order of the Commissioner is not in conformity with the said directions, we deem it appropriate to direct the Commissioner to re-adjudicate the matter in accordance with the directions issued by the Hon’ble Supreme Court. It appears that the direction to the adjudicating authority to undertake the exercise has been understood to mean that the adjudicating authority itself should carry out the entire fact-finding exercise, even in areas requiring expert knowledge. Having regard to the scientific and complex issues involved, which necessitate expert assistance, we clarify that the Commissioner/adjudicating authority would be at liberty to seek expert opinion. 9.2 It is not in dispute that the impugned product is certified by the competent authority under the 1985 Order. It is also stated that the competent authority has certified the product as - 18 - CEA No. 5 of 2024 a “fertilizer,” which includes the presence of Nitrogen as a necessary constituent. We find that the competent authority under the 1985 Order is the most appropriate expert to assist the Commissioner/adjudicating authority on the issue in question. The Commissioner, while undertaking re-adjudication as directed herein, shall be at liberty to seek expert opinion, either by obtaining analysis of the samples or by causing inspection of the manufacturing process, so as to effectively carry out the exercise directed by the Hon’ble Supreme Court. 10. The observations made hereinabove by this Court are only for the purpose of addressing the grievance of the appellant–Assessee that the order of the Commissioner is not in conformity with the directions of the Hon’ble Supreme Court, and shall not be construed as expressing any opinion on the classification of the product. 11. In light of the remand to the Commissioner/adjudicating authority for fresh consideration, we deem it appropriate that answering the admitted questions at this stage is unnecessary. Accordingly, the admitted questions are kept open. 12. For the reasons and observations made hereinabove, the following order is passed: - 19 - CEA No. 5 of 2024 Order (i) The appeal is allowed-in-part. (ii) The Final Order Nos.21456 to 21479, dated 22.12.2023 in Excise Appeal No.1371/2010 passed by the Customs, Excise and Service Tax Appellate Tribunal, Bangalore, is set aside. (iii) The original order dated 30.03.2010 passed by the Commissioner of Central Excise, is set aside. (iv) The matter is remitted to the Commissioner of Central Excise/adjudicating authority for fresh consideration in light of the observations/ directions issued by the Hon'ble Supreme Court in Commissioner of Central Excise, Bangalore vs. Karnataka Agro Chemicals, [(2008) 7 SCC 343] and observations made hereinabove. (v) No order as to costs. SD/- (S.G.PANDIT) JUDGE SD/- (K. V. ARAVIND) JUDGE MV