1996 (7) TMI 141 - SC - Central Excise

Whether the raw naphtha used to produce the ammonia which is used in the effluent treatment plant is eligible for the said exemption Notification (No. 187/61)? Held that - The ammonia used in the treatment of effluents from the urea plant of the appellants has, therefore, to be held to be used in the manufacture of urea and the raw naphtha used in the manufacture of such ammonia to be entitled to the said exemption. In the result, the appeals are allowed. The orders under appeal are set aside. It is 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.

Summary

Issues:
1. Interpretation of an Exemption Notification regarding excise duty on raw naphtha used in the manufacture of fertilizers.
2. Determination of whether raw naphtha used in off-site plants is eligible for duty exemption under the Exemption Notification.
3. Analysis of whether the treatment of effluents in a plant is an integral part of the manufacturing process for the purpose of excise duty exemption.

Detailed Analysis:
1. The judgment deals with appeals against orders of the Customs, Excise and Gold Control Appellate Tribunal concerning the interpretation of an Exemption Notification exempting raw naphtha used in the manufacture of fertilizers from excise duty exceeding a specified amount. The Exemption Notification applied to raw naphtha used in the production of ammonia for fertilizer manufacturing, following the provisions of the Central Excise Rules.

2. The appellants, who manufacture urea, received show cause notices demanding excise duty on raw naphtha used in off-site plants like the water treatment plant, steam generation plant, inert gas generation plant, and effluent treatment plant. The Collector upheld the duty demand for the effluent treatment plant but allowed exemption for the other off-site plants, considering them integral to the fertilizer manufacturing process.

3. The Tribunal reversed the Collector's decision, stating that raw naphtha used in off-site plants other than the effluent treatment plant was not eligible for duty exemption. However, the Supreme Court emphasized that the off-site plants were essential parts of the urea manufacturing process, making the ammonia used in these plants integral to fertilizer production. The Court relied on previous judgments to support the interpretation that processes directly related to the actual production of goods qualify for duty exemption.

4. The Court concluded that raw naphtha used to produce ammonia in off-site plants, including the water treatment, steam generation, inert gas generation, and effluent treatment plants, was entitled to the duty exemption specified in the Exemption Notification. It held that the treatment of effluents in a manufacturing plant is an essential and integral part of the manufacturing process, making the ammonia used in effluent treatment eligible for the exemption.

5. Ultimately, the Court allowed the appeals, set aside the previous orders, and ruled that raw naphtha used in the specified off-site plants for ammonia production in the urea manufacturing process is eligible for the duty exemption as per the Exemption Notification. No costs were awarded in the judgment.