Exemption for raw naphtha used to make ammonia upheld where the ammonia served integral urea plant operations and pollution control.

Raw naphtha used to produce ammonia qualified for the exemption where the ammonia was consumed in water treatment, steam generation, inert gas generation and effluent treatment plants forming part of the composite urea manufacturing process. The Supreme Court held that the notification did not require the ammonia to be used only in the main urea plant; use in off-site but integral plants still amounted to use in the manufacture of fertilisers. It also recognised effluent treatment as an essential and integral part of modern manufacturing with pollution control requirements, so ammonia used for that purpose remained within the exemption.

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Issues: Whether raw naphtha used to produce ammonia, when that ammonia is consumed in the water treatment, steam generation, inert gas generation and effluent treatment plants of a urea plant, is entitled to the exemption under the relevant exemption notification.

Analysis: The exemption applied to raw naphtha used in the manufacture of ammonia, provided the ammonia was used elsewhere in the manufacture of fertilisers. The deciding question was whether ammonia used in off-site plants forming part of the composite process of producing urea could still be treated as ammonia used in the manufacture of fertilisers. The Court held that the notification did not require direct use in the urea plant alone and that the off-site plants were integral to the manufacturing process. It further held that treatment of effluents is an essential and integral part of modern manufacturing activity where pollution control is involved, and therefore ammonia used in effluent treatment also satisfied the notification.

Conclusion: The raw naphtha used to produce ammonia employed in the water treatment, steam generation, inert gas generation and effluent treatment plants qualified for the exemption.

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