IMPORTANT POINTS
1. Raw Naptha used to produce ammonia which is used in the water treatment, steam generation, inert gas generation and effluent treatment plants of the urea plant is entitled to the exemption provided by the Exemption Notification No. 187/61, issued under the provisions of Rule 8 of the Central Excise Rules.
2. The apparatus used for treatment of effluents in a plant manufacturing a particular end product is part and parcel of the manufacturing process of that end product.

JUDGMENT

Bharucha, J.-These are appeals against orders of the Customs, Excise and Gold Control Appellate Tribunal, New Delhi.

2. These 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.

3. By an Exemption Notification (No. 187/61) issued under the provisions of Rule 8 of the Central Excise Rules, the Central Government exempted raw naptha 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 degree Centigrade. The Exemption Notification applied "in respect of such Raw Naptha as is used in the manufacture of Ammonia provided such Ammonia is used elsewhere in the manufacture of fertilisers" and the procedure set out in Chapter-X of the said Rules was followed.

4. The appellants manufacture urea, which is a fertiliser, at a plant at Kalol in the State of Gujarat and utilise for the purpose raw naptha. The raw naptha 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.

5. The appellants, however, received show cause notices for the periods aforementioned demanding excise duty at full rate on the raw naptha used for making ammonia had been used in the water treatment plant, steam generation plant, inert gas generation plant, and effluent treatment plant on the ground that such raw naptha was not used in the manufacture of fertilisers. The demand was confirmed. In 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 water treatment plant, steam generation plant and inert gas generation plant. This was on 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 plant 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. The use of ammonia in the water treatment and steam generation plants was, therefore, also an 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 fertilisers had been manufactured. The effluents were treated for reasons of hygiene and pollution. Their treatment could not be said to be directly linked to the process of manufacture of fertilisers and the effluent treatment plant could not be said to be an integral part of the process of manufacture of fertilisers. The demand upon the appellants, insofar as it related to the effluent treatment plant, was, therefore, upheld.

6. The 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 fertilisers. The Tribunal held that ammonia was used for the maintenance of the plant and equipment meant 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 p