INDIAN FARMERS FERTILISER COOPERATIVE LTD. versus COLLECTOR OF CENTRAL EXCISE, AHMEDABAD

Citation: [1996] SUPP. 4 S.C.R. 183 · Decided: 31-07-1996 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

INDIAN FARMERS FERTILISER COOPERATIVE LTD. 
A 
v. 
COLLECTOR OF CENTRAL EXCISE, AHMEDABAD 
JULY 31, 1996 
[S.P. BHARUCHA AND K.T. THOMAS, JJ.] 
B 
Central Excises & Salt Act, 1944 : 
First Schedule, Item 6-Raw naphtha-Exemptio11 Notification No. 
187/61 presC1ibing concessional rate of duty on raw naphtha used to produce 
C 
ammo11ia, which was used ill ma11ufacture of fC!tilisers---Appellant allowed 
concessional rate of duty on raw naphtha used to produce anunonia which 
was directly utilised in urea plant but required to pay duty at full rate 011 
naphtha used to produce ammonia which was used in off-site plants, namely, 
water treatnient, steanl generation, inert gas generation and effluent treallnent 
plants-Held, these off-site plants are a necessary pmt of the process of D 
manufacture of urea, a11d raw naphtha used in mam1facture thereof is entitled 
to duty exemption. 
The Central Government, by Exemption Notification No. 187/61, 
prescribed concessional rate of duty on raw naphtha falling under Item E 
No. 6 of the First Schedule to the Central Excises and Salt Act, 1944 and 
being utilised in the manufacture of ammonia provided such ammonia was 
"used elsewhere in the manufacture of fertilisers". 
The appellant, a manufacturer of urea, obtained raw naphtha at 
concessional rate of duty and used the same for producing ammonia, 
which, in turn, was used, partly in the urea plant, and partly in the off-site 
plants, namely, the water treatment plant, steam generation plant, inert 
gas generation plant and effiuent treatment plant, all of which, as claimed 
by the appellant, were part of the integral process of the manufacture of 
urea. 
The appellant was required to pay excise duty at full rate on the raw 
naphtha used for making ammonia, which had been used in the said 
off-site plants, on the ground that such raw naphtha was not used in the 
manufacture of fertiliser. In the appeal filed by the appellant, the Collector 
F 
G 
of Central Excise and Customs accepted the case of the appellant in H 
183 
184 
SUPREME COURT REPORTS (1996J SUPP. 4 S.C.R. 
A respect of the off-side plant except for the effiuent treatment plant. The 
Cnstoms, Excise and Gold (Control) Appellate Tribunal maintained the 
decision of the Collector as regards the effiuent treatment plant, but 
reversed his decision as regards off-site plants, and, thus, upheld the 
demand, Aggrieved, the appellants filed the present appeals. 
B 
c 
Allowing the appeals, this Court 
HELD: 1.1. The raw naphtha use to produce ammonia which is used 
in the water treatment, steam generation, inert gas generation and effiuent 
treatment plants of the urea plant of the appellant is entitled to the 
exemption provided by the Exemption Notification No. 187/61 as amended 
from time to time. [188-H; 189-A] .• 
1.2. The water 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 fertiliser. These off-site plants are a necessary 
D part of the process of the manufacture of urea. The treatment of effiuents 
from a plant is also an essential and integral part of the process, of 
manufacture in the plant. The emphasis that has rightly been laid in recent 
year upon the environment and pollution control requires that all plants 
which emit effiuents should be so equipped as to rid the effiuents of 
E 
F 
dangerous properties. The apparatus used for such treatment of effiuents 
in a plant manufacturing a particular end product is part and parcel of 
the manufacturing process of that end product. The ammonia used in 
these plants must, therefore, be held to be used in the manufacture of urea 
and the raw naphtha used for the manufacture thereof is entitled to 1the 
duty exemption. [187-D; 188-E-G] 
Collector of Central Excise, Calcutta II v. M/s. Eastend Paper Industries 
Ltd., [1989] 4 SCC 244; Mis. J.K Cotton Spinning & Weaving Mills Co. Ltd. 
v. Sales Tax Officer, Kanpur and Anr., [1965] 1 SCR 900; Collector of Central 
Excise, New Delhi v. M/s. Balla1p1tr Industries Ltd., [1989] 4 SCC 566 and 
G Dy. CST v. Thomas Stephen & Co. Ltd., [1988] 2 SCC 264, relied on. 
1.3. 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 !lite 
ammonia should be used directly in the manufacture of fertilisers. It 
H requires only that th

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