Farmers Fertiliser Cooperative Ltd. Vs. Collector of Central Excise Ahmedabad
 INSC 876 (31
S.P. (J) Bharucha S.P. (J) Thomas K.T. (J) Bharucha, J:
JT 1996 (7) 44 1996 SCALE (5)501
31ST DAY OF JULY, 1996 Present:
Mr. Justice S.P. Bharucha Hon'ble Mr. Justice K.T. Thomas H.N. Salve, Sr. Adv.
and K.J. Johan, Adv. with him for the appellant. Joseph Vellappally. Sr. Adv.
A.D.N. Rao and P.Parmeswaram, Advs. with him for the respondent.
following judgment of the Court was delivered;
Farmer Fertiliser Cooperative Limited. V. Collector Central Excise, Ahmedabad
are appeals against orders of the Customs, Excise and Gold Control Appellate
Tribunal New Delhi.
Periods involved in the appeals are : 1st April, 1974 to 31st December, 1982 in Civil Appeal No. 5437 of 1990 and January 1983 to
April, 1984 in Civil Appeal Nos. 5941-43 of 1990.
Exemption Notification (No. 187/61) issued under the provisions of Rule 8 of
the Central Excise Rules, the Central Government expected raw naphtha falling
under Item No. 6 of the First Schedule to the Central Excise and Salt Act,
1944, from the payment of excise duty in excess of Rs.4.36 per kilolitre at 15
degrees Centigrade. The exemption Notification applied "in respect of such
Raw Naphtha as is used in the Manufacture of Ammonia Provided such Ammonia is
use elsewhere in the manufacture of fertilisers" and the Procedure set out
in Chapter - x of the said Rules was followed.
appellants manufacture urea, which is a fertiliser, at a plant at Kalol in the
State of Gujarat and utilise for the purpose raw
naphtha. The raw naphtha was obtained at the concessional rate of duty and was
used for producing ammonia which, in turn, was use, partly, directly in the
urea plant and, partly, indirectly, in the submission of the appellants, in the
production of urea by being employed in off-site plants, namely, the water
treatment plant, steam generation plant, inert gas generation plant and
effluent treatment plant, all of which were part of the integral process of the
Manufacturer of urea.
appellants, however, received show cause notices for the periods aforementioned
demanding excise duty at full rate on the raw naphtha used for making ammonia
which had been use in the water treatment plant, steam generation plant, inert
gas generation plant, and effluent treatment plant on the ground that such raw
naphtha was not used in the manufacturer of fertilisers. The demand was
appeal by the appellants, the Collector of Central Excise and Customs upheld
the contention of the appellants insofar as the ammonia was used in the
appellants insofar as the ammonia was used in water treatment plant, steam
generation plant and inert gas generation plant. This was no the basis that the
inert gas generated in the inert gas generation plant was required for purging
the pipelines and other process equipment of the ammonia plan every time it had
to be started or shut and, therefore, the process of inert gas generation had
to be treated as an integral part of the process of the manufacture of ammonia,
which, in turn, was used for the manufacture of fertilisers. The appellants
required water of a high degree of purity in the High pressure boilers and heat
exchangers in the ammonia and urea plants. Ammonia was used therein for
purifying the water.
use of ammonia in the water treatment and steam generation plant was,
therefore, also and integral part of the process of manufacture of fertilisers.
Insofar as the effluent treatment plant was concerned, however, the Collector
took the view that effluents were waste produced after the fertilizer had been
manufactured. The effluents were treated for reasons hygiene and pollution.
Their treatment could not be said to be directly linked to the process of
manufacture of fertilizers and the effluent treatment plant could not be said
to be an integral part of the process of manufacture of fertilizers. The demand
upon the appellants, insofar as it related to the effluent treatment plant, was
excise authorities and the appellants filed appeals before the Tribunal. The
Tribunal reversed the decision of the Collector in so far as it held that the
off-site plants, other than the effluent treatment plant, were a part of the
process of manufacture of fertilizers. The Tribunal held that ammonia was used
for the maintenance of the plant and equipment for testing and commissioning
the plant and could not be said to be utilised in manufacture. Similarly, the
purpose of the water treatment being essential for the protection of the boiler
and other process equipment from corrosion, formation of scales, etc., the
ammonia used for the purpose could not be said to be used in the manufacture of
fertilizers. The view of the Collector, in so far as the effluent treatment
plant was concerned, was upheld.
was laid, and rightly, by learned counsel for the appellant on the phraseology
used in the Exemption Notification. The exemption is made available to such raw
napha as is used in the manufacture of ammonia provide such ammonia is used
elsewhere in the manufacture of fertilizers.
the raw naphtha is used to make ammonia is unquestioned. The ammonia is
directly in the manufacture of fertilizers; the raw naphtha so used is, it is
not disputed, eligible to the exemption. The question is whether the ammonia
used in the Off-site plants is also ammonia which is "used elsewhere in
the manufacture of fertilizers". The treatment, steam generation and inert
gas generation plants are part and parcel of the composite process that
produces as its end product urea, which is a fertilizer. These off- site plants
are part of process of the manufacture of urea.
is no good reason why the exemption should be limited to the raw naptha used
for producing ammonia that is utilised directly in the urea plant. The
Exemption Notification does not require that the ammonia should be used
directly in the manufacture of fertilisers. It the requires only that the
ammonia should be use in the manufacture of fertilisers. The Exemption
Notification must be so construed as to give due weight to the liberal language
it uses. The ammonia used in the water treatment, steam generation and inert
gas generation plants, which are a necessary part of the process of
manufacturing urea, must, therefore, be held to be used in the manufacture of
ammonia and the raw naphtha used for the manufacture thereof is entitled to the
our conclusion we drew support from the judgment of this Court in Collector of
Central Excise, Calcutta-II vs, M/s Eastend Paper Industries Ltd., (1989) 4 SCC
244, Where it was held, "where any particular process ..... is so
integrally connected with the ultimate production of goods that, but for the
process, manufacture or processing of goods would be commercially inexpedient,
articles required in that process, would fall with the expression 'in the
manufacture of goods' ". This was a reiteration of the view expressed in
M/s J.K. Cotton Spinning & Weaving Mills Co. Ltd., vs Sales Tax Officer, Kanpur
and Another, (1965) 1 SCR 900. It was there held, "The expression "in
the manufacture" takes in within its compass, all processes which are
directly related to the actual production ". In Collector of Central
Excise, New Delhi, vs. M/s Ballarpur Industries Ltd. (1984) 4 SCC 566, the
respondent manufactured paper and paperboard, "in the process relating to
which "sodium sulphate" is used in the chemical recovery cycle of
sodium sulphate which form an essential constituent of sulphate which forms and
essential constituent of sulphate cooking liquor used in the digestion
operation ". The Exemption Notification concerned provided exemption to
goods which had used as raw material or component parts any goods (inputs)
falling under Item 68 of First Schedule to the Act From so much of the excise
duty leviable thereon as was equivalent to the excise duty paid on the inputs.
The Court quoted what had been said in Dy, CST vs. Thomas Stephen & Co.
Ltd. namely, "Consumption must be in the manufacture as raw material or of
other components which go into making of the end product ................"
and observed that, correctly apprehended, that statement did not lend itself to
the understanding that for something to qualify itself as a raw material it had
necessarily and in all cases to go into and be found in the end product. The
Court also quoted with approval the case of Eastend Paper Industries Limited
leaves us to consider whether the raw naphtha used to produce the ammonia which
is used in the effluent treatment plant is eligible for the said exemption, It
is too Late in the day to take the view that the treatment of effluents from a
plant is not an essential and integral part of the process of manufacture in
the plant. The emphasis that has rightly been laid in recent years upon the
environment and pollution control requires that all plats which emit effluents
should be so equipped as to rid the effluents of dangerous properties. The
apparatus used for such treatment of effluents in a plant manufacturing a
particular end product is part and parcel of the manufacturing process of that
end product, The ammonia used in the treatment of effluents from the urea plant
of the appellants has, therefore to be held to be use in the manufacture of
urea and the raw naphtha used in the manufacture of such ammonia to be entitled
to the said exemption.
result, the appeals are allowed. The order under appeal are set aside. It held
that the raw naphtha used to produce ammonia which is used in the water
treatment, steam generation, inert gas generation and effluent treatment plants
of the urea plant of the appellants is entitled to the exemption provided by
the Exemption Notification NO.187/61 as amended from time to time.
shall be no order as to cost.
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