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of <h1>Raw naphtha for off-site ammonia and effluent treatment falls under Exemption Notification No. 187/61, appeal allowed</h1> <h3>INDIAN FARMERS FERTILISER COOP. LTD. Versus CCE., AHMEDABAD</h3> SC allowed the appeals and set aside the orders under appeal, holding that raw naphtha used to produce ammonia for use in off-site units (water treatment, ... Exemption Notification - 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)? 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 used, 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 manufacture of urea. Held that:- There is no good reason why the exemption should be limited to the raw naphtha 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 requires only that the ammonia should be used 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 duty 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 plants 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 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. 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.
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