Bisheshwar Prasad Singh, J.
1. The common question which arises for consideration in this batch of writ petitions is whether the substances known as Low Sulphur Heavy Stock (for short, L.S.H.S.) and Furnace Oil (for short, F.O.) use in the petitioner's fertilizer plant at Sindri qualifies for total exemption from payment of excise duty, as 'Feed stock' used in the manufacture of fertilizer in the petitioner's plant in terms of exemption notification No. 147 of 1974 dated 30.10.1974.
2. In CWJC Nos. 4888 and 4901 of 1987, it has been additionally con-tended that the Tribunal had no jurisdiction to entertain the appeals which were instituted in the purported exercise of power of review under Section 36(2) of the Central Excises and Salt Act, 1944 (as amended), since under the amended Section 36, amended by Finance (No. 2) Act, 1980, which came into force on 21.08.1980, the provision vesting power in the Central Government to review the decision of the Board, stood repealed.
3. The petitioner M/s. Fertilizer Corporation of India Ltd. is an existing Company within the meaning of Companies Act, 1956 and is a Government Company wholly owned by the Government of India Undertaking. It manufactures and produces inter alia, fertilizer for being sold in the market, and is one of the biggest Oil based plants in India working on partial oxidation process. Since the use of L.S.H.S. and F.O. is essential for the purpose of manufacture of fertilizer by the partial oxidation process, the petitioner ap-plied for permission to procure L.S.H.S. and F.O. under Rule 192 of Chapter X of the Rules and the same was granted by the Collector. Consequently the petitioner obtained requisite licence for receiving L.S.H.S. and F.O. free of duty in terms of Notification No. 147 of 1974. The petitioner was granted this concession from the very beginning till the present dispute arose.
4. The subject notification No. 147/74, dated 30.10.1974 is reproduced below for the sake of convenience.
'Exemption to Furnace Oil and Heavy petroleum stock if used as feed stock in the manufacture of fertilizer. - In exercise of the power conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts furnace oil and heavy petroleum stock falling respectively under Item Nos. 10 and 11A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and intended for use as feed stock in the manufacture of fertilizer, from the whole of the duty of excise leviable thereon :
Provided that :-
(1) It is proved to the satisfaction of the Asstt. Collector of Central Excise that such furnace Oil or heavy petroleum stock is so used, and
(2) The procedure set out in Chapter X of the Central Excise Rules, 1944 is followed.'
5. Succinctly stated the case of the petitioner is that the partial oxidation process by which the fertilizer is manufactured by the petitioner basically involves the production of ammonia and carbon dioxide from Gas, and the reaction of the two results in the production of Urea. L.S.H.S. and F.O. generate steam and the steam, in turn is sent to the gasification unit for the production of gas. The gas produces ammonia and Carbon dioxide resulting in the manufacture of end-product, namely, Urea. Counsel for the respondents contend that since L.S.H.S./F.O. is used only for generation of steam, it does not qualify for exemption as 'feed stock' within the meaning of the notification, since it does not form a component of the end-product, namely, Urea. The entire quantity of L.S.H.S./F.O. gets burnt up at the stage of generation itself, and therefore cannot be described as 'feed stock', thus disentitling the petitioner to the benefit of the exemption notification. The Department relies upon the definition of 'feed stock' as contained in the 'Glossary of Petroleum Terms' (Indian Standard) which defines the 'feed stock' to mean primary material introduced into a plant for processing. The same Glossary defines 'processing' to mean any process at any stage that would lead to the production of the end-product.
6. The petitioner relies upon several decisions of the Supreme Court and submits that it is not necessary that the raw material used for processing should constitute a component of the end-product.
This, in short, is the nature of controversy in this batch of writ petitions. Before dealing with the submissions urged on behalf of the parties, I may first notice the relevant facts of each case.
CWJC No. 4888 of 1987:
7. In response to show cause notices issued to the petitioner, the petitioner showed cause and appeared before the Collector of Central Excise, Patna and denied the charge that they had contravened any provision of law, and consequently denied their liability to pay the duty as mentioned in the show cause notice as well as penalty. It is not necessary to refer to the other questions which arose for consideration, because the dispute in this batch of writ petitions is confined to the issue whether the petitioner had contravened the terms of licence issued in their favour for procurement of L.S.H.S./F.O. intended for use as 'feed stock' in the manufacture of fertilizer, which were exempted from the whole of the excise duty leviable thereon. It was contended on behalf of the petitioner that the L.S.H.S./F.O. obtained by them and used in the manufacture of fertilizer as 'feed stock' was totally exempted from duty under the subject notification, while L.S.H.S./F.O. used in the manufacture of fertilizer or other industrial product, otherwise than as 'feed stock', was entitled to partial exemption under notification Nos. 195 of 1976 and 350 of 1977.
8. The contention of the petitioner that it had utilised the L.S.H.S./F.O. as 'feed stock' in the manufacture of fertilizer was negatived by the Collector. The Collector observed :
'The assessee has a steam generation plant in which steam is generated in boilers by burning pulverised coal. To sustain the heat uniformally, some quantity of FO/LSHS is also added as flame support. The steam generated in boilers is about 176.5 tonnes/HR at 91 Ata. The FO/LSHS added at this stage is fully burnt, no component of this FO/LSHS goes into the steam itself. This steam is subsequently used for various purposes such as 'turbine drive of major machines like Air, Oxygen, Nitrogen, Syntheses Gas, Carbon Dioxide compressors, as also for boiler feed pump'. Some portion of this steam is used for heating FO/LSHS at various stages. For details, the flow charts enclosed refer. The important point to be noted here is that the FO/LSHS which is burnt at the time of steam generation cannot be any stretch of imagination be said to have gone as a feed stock in the manufacture of fertilizers because it is fully burnt at the initial stage itself in the generation of steam. If it is claimed that some steam goes in the gasification plant, it is apparent that the same does not contain any component of F.O. as feed stock because steam at this stage is generated by heating water which is heated by burning pulverized coal and F.O., and not by using F.O. as process fuel or anything of the sort. Though the assessee has claimed that they are using steam subsequently in the reactor, they have nowhere specified as to what quantity of steam generated in the boilers is used in the reactor. As will be seen from the following paras, steam is not generated in boilers alone, there are other stages in the manufacturing process where substantial steam is also generated. It is, therefore, absolutely clear that no portion of the F.O. used at the time of burning in the steam generation plant can be said to have been used as feed stock.'
9. Consequently the Assistant Collector was directed to issue/revise the demands. The Collector also imposed a personal penalty of Rs. five lacs on the petitioner under the Central Excise Rules, 1944.
10. The petitioner preferred an appeal before the Central Board of Excise and Customs, New Delhi, and by order dated 22.02.1982 [1982 (10) E.L.T. 421 (CBE and C)], the Board allowed the appeal upholding the contention of the petitioner. It held that the quantity used during the trial run for stabilization, as well as the quantity used for the generation of steam, qualified for exemption under the subject notification, but the quantity used in the manufacture of ammonia which was sold for use as chemical, did not qualify for exemption. In this batch of writ petitions, the petitioner has not claimed the benefit of exemption for the quantity of L.S.H.S./F.O. used in the manufacture of ammonia which was sold as chemical, but in one of the writ petitions (CWJC No. 4902/87), it has claimed that benefit to the extent such ammonia produced was again utilized in the manufacturing process for the manufacture/production of fertilizer. The Board has recorded its finding as follows:-
'The Board has considered the different contentions of the appellants. The Board finds that both on the point of use of feed stock during the trial run and in the generation of steam, it was not correct to hold that the requirements of the relevant Notifications about use of the feed stock in the manufacture of fertilizers have not been fulfilled. The trial run is an essential part of the manufacturing process and no new plant can be commissioned without such trial run during which the manufacturing process is actually duplicated but the manufactured products cannot be secured at commercial scale till the plant is established. Similarly, in the case of the appellants factory steam is an essential process material and the entire quantity of steam generated in the plant is used as an input in production. The technical write-up submitted by the appellants clearly indicated the position and the Board is satisfied that in the case of appellants the benefits of the notification would be available even in regard to the feed stock used in the generation of steam.'
11. Consequently the order of the Collector was set aside and the Board directed that the question of recovery of duty be reconsidered with reference to the quantity of 'feed stock' in the manufacture of ammonia which is sold as chemical. The orders demanding duty in regard to the 'feed stock' used during the trial run and that used in the generation of steam were set aside as legally untenable. The Board also did not find any justification for penalty.
12. It appears that a review notice under Section 36(2) of the Act was issued calling upon the petitioner to show cause why the order of the Board dated 22.02.1982 be not modified and complete exemption in respect of L.S.H.S/F.O. in terms of subject notification be not denied to them. On constitution of the Customs Excise and Gold Control Appellate Tribunal, the review show cause notice was transferred to the Tribunal to be disposed of as an appeal and supplementary appeals presented before it. It appears from the order of the Tribunal that the Central Government in exercise of the powers vested in them under Section 36(2) of the Act as it stood at the material time, called for an examined the records and were tentatively of the view that under the subject notification, as amended, only that quantity of L.S.H.S/F.O. would be eligible for exemption as was intended for use for the purpose of being processed into fertilizer. On this reasoning, quantity of L.S.H.S/F.O. used for generation of steam in the plant could not be considered to have been used as 'feed stock' in the manufacture of fertilizers. The notice, therefore, called upon the petitioner to show cause why the order of the Board holding quantity of L.S.H.S/F.O. used for generation of steam in the plant as entitled to compelete exemption as 'feed stock' under the subject notification be not set aside and the order to that extent modified. The relevant part of the final order of the Tribunal allowing the appeals dated 17-12-1986 reads as follows :-
'From the notification produced above, it would be seen that the decision of this appeal depends on meaning of the expression 'feed stock' in the manufacture of fertilizers used in the notification. While Shri Banerjee has no doubt contended that the review notice drawing upon the meaning of expression 'feed stock' in glossary of petroleum terms IS-406978 to mean 'Primary material introduced into a plant for processing' would mean setting up a new case and cause prejudice to the respondents, we are not impressed with this argument. At all material times, the question was whether FO/LSHS obtained by the respondents at nil rate of duty was used as feed stock in the manufacture of fertilizers. The precise meaning of the word 'feed stock' not have been in the show cause notice; if they have been put in the show cause notice, this does not mean that the respondents has to meet new case. The expression has to be interpreted according to law in the mode permissible. Glossary of Petroleum terms products reflects commercial understanding of the expression because undoubtedly FO/LSHS are in a larger sense petroleum products. The same cannot be shut out or ignored on the ground that earlier this meaning was not set out in the show cause notice or figure at an early stage of the proceedings because meaning of an expression is often a subject for interpretation at different stages before the judicial and quasi-judicial authorities and this interpretation has to be done in accordance with law having recourse to well accepted principles.
Shri Banerjee did not contend that if the meaning under glossary of terms of petroleum products be assigned to the expression feed stock used in the notification, then also it will merit exemption under the notification. This apart, the Tribunal in Neiveli Lignite Corporation's case (Supra) on which Shri Tripa-thi has placed reliance after referring to technical and other dictionary with reference to the very same notification, held that the expression refers to raw material delivered to a machine for process. Following the principle enunciated this case, FO/LSHS used for generation of steam cannot be held to be used as feed stock in the manufacture of fertilizers. In view of this decision of the Tribunal, the view of the Board holding huge of FO/LSHS for generation of steam as used as feed stock in the manufacture of fertilizers cannot be said to be proper, legal or correct. This part of the impugned order would have, therefore, to be set aside and the order to that extent modified.'
It is this order of the Tribunal which has been impugned in this writ petition.
CWJC No. 4900 of 1987:
13. In this case, before the Collector the petitioner placed reliance upon the order of the Member, Central Board of Excise and Customs dated 23-02-1982 and submitted that the petitioner should be entitled to total exemption under the subject notification. However, the Collector taking notice of the fact that the order of the Board was under review did not follow that decision. He held that the finding of the Board that steam is an essential process material, was factually incorrect. He went on to observe;
'The special aspect of the case under consideration is that the show cause notice by the department has not been issued for steam which may be the process material or not depending on the evidence which has not been produced by the assessee before the adjudicating authority, but for the LSHS which has been burnt in the furnace for heating water which results in the generation of steam. Besides, the steam itself is generated in the SMP Plant and SMP is not by itself a fertilizer; it is assessable under item 60 of the tariff. It is, therefore, so obvious that FO/LSHS which gets burnt in the furnace for the purpose of heating water can by no stretch of imagination be the process material or feed stock for manufacture of fertilizer. It needs no further argument that it cannot be termed by any logic or reasoning as a feed stock used in the manufacture of fertilizer and hence is not entitled to any exemption under Notification No. 147/74. The expression 'feed stock' means 'primary material introduced into a plant for processing' as defined in Glossary of Petroleum terms IS 4639/68. Feed stock, therefore, means the raw material which is processed into a finished product itself. There is absolutely no doubt that FO/LSHS which gets burnt in the furnace while heating water to generate steam loses its existence by virtue of such burning and question of its becoming the process material or feed stock for the ultimate fertilizer does not arise at all. Therefore, the assessee's contention that the steam generated by them in this case is used totally as a process material in the manufacture of fertilizer is factually incorrect and motivated.'
It would thus appear that the Collector was of the view that in order to qualify as 'feed stock', the raw material which is processed into a finished product must form a component of the finished product itself. Since the L.S.H.S./F.O. got burnt in the furnace while generating steam and lost its existence, they could not be said to be 'feed stock' for the ultimate product, namely, the fertilizer.
An appeal was preferred before the Tribunal, but following its earlier order dated 17.12.1986, the Tribunal dismissed the appeal.
CWJC No. 4901 of 1987:
14. In this case, the Collector by his order Annexure-1 dated 21.06.1983 negatived the contention of the petitioner and following his earlier decision dated 23.07.1981 held that the petitioner was liable to pay duty on L.S.H.S./F.O. as demanded by the department. He also imposed personal penalty in the different cases before him.
An appeal was preferred by the petitioner before the Central Board of Excise and Customs and by order dated 05.06.1986 [1982 (10) E.L.T. 812 (CBE & C)], following its earlier decision dated 22.02.1982, the Board partly allowed the appeal. As in CWJC No. 4888 of 1987, a review notice was issued to the petitioner and after hearing the parties, the Custom Excise and Gold Control Appellate Tribunal allowed the appeals by order dated 17.12.1986 which is in identical terms as the order impugned in CWJC No. 4888 of 1987.
CWJC No. 4902 of 1987:
15. In this case, the Collector after noticing the subject notification held;
'It is obvious that in order to satisfy this condition, the L.S.H.S. will have to form a component of the fertilizers which are ultimately produced. While this is the condition precedent for claiming duty exemption on L.S.H.S. under notification No. 147/74. In the case of the assessee not only that the L.S.H.S. is used in the manufacture of ammonia (which is not a fertilizer at all), but also the ammonia itself is used for purposes such as purification of gases in synthesis and maintaining the pressure in the refrigeration plant for manufacturing ammonia itself, and not fertilizers. In the process, the ammonia (2%) gets consumed in the manufacture of ammonia itself; the stage of fertilizer is never reached at all. And yet the assessee has propounded an absurd theory that the L.S.H.S. used in the above 2% ammonia should be deemed to have been used as feed stock in the manufacture of fertilizers and claimed exemption of duty upon such L.S.H.S. under Notification No. 147/74. I reject the arguments and the contentions of the assessee as being totally absurd and illogical.'
An appeal was preferred before the Tribunal which following its decision in an earlier appeal, which has been annexed as Annexure-5 dated 09.01.1987 dismissed the appeal by its order Annexure-4 dated 30.04.1987. From a perusal of Annexure-5, it appears that the question that fell for consideration of the Tribunal was whether L.S.H.S/F.O. used in the manufacture of ammonia sold by the assessee to the outside parties, could not be treated as use in the manufacture of fertilizers, since ammonia so produced is not used as fertilizer or in the manufacture of fertilizer. Counsel for the petitioner submitted that in the instant case, the petitioner did not claim any benefit under the subject notification for the L.S.H.S./F.O. consumed in the manufacture of ammonia as such, but only claimed benefit under the said notification for the L.S.H.S./F.O. used for the production of that quantity of ammonia which was actually used in its plant for the manufacture of fertilizer.
CWJC No. 860 of 1991:
16. In this writ petition the petitioner has prayed for quashing of the order of the Collector, Central Excise Patna, dated 28.11.1990 whereunder he has demanded a sum of Rs. 40,20,000/- which purports to be the excise duty in respect of L.S.H.S./F.O. payable for different periods mentioned in the two orders of Superintendent of Central Excise, Sindri dated 25.09.1990 and 04.10.1990. The petitioner has submitted that following its earlier decision in the connected matters such a demand has been made. Since the writ petitions earlier filed by the petitioner were pending before this Court, it was inexpedient for the petitioner to pursue the statutory remedy by way of appeals etc. and therefore, having regard to the fact that identical issues were involved in the four earlier applications pending before this Court, the petitioner has preferred this writ petition for quashing of the demand.
17. Counsel for the petitioner submitted that L.S.H.S/F.O. is a raw material which is used in one continuous and integrated process in the manufacture of fertilizer. It is not only intimately connected with, but is also an indispensable part of the process involved in the manufacture of fertilizer in the petitioner's plant. Processing implies any process at any stage that would lead to the production of the end-product and, it is, therefore, not necessary that the raw material used for processing should constitute a component of the end-product. Even if the inputs are used for the maintenance/running of 'off-site' plants, meaning thereby plants other than those used directly in the process of manufacture, which are necessary for production of fertilizer, such inputs will be regarded as raw material used in the manufacture of fertilizer and as such will qualify for exemption from payment of duty. It was submitted that 'feed stock' as defined in the Glossary meant primary material introduced into a plant for processing, and therefore has more or less the same meaning as raw material used in the production of the end-product. He, therefore, submitted that for the process of manufacture in the plant of the petitioner L.S.H.S./F.O. was indispensable for the production of gas, from which ammonia and carbon dioxide are produced, and the reaction of the two results in the production of Urea. Thus L.S.H.S./F.O. constituted a primary material used for processing in a continuous and integrated process of manufacture. It was submitted that without the use of L.S.H.S./F.O. it would not be possible to manufacture fertilizer under the process used in the petitioner's plant.
18. It was further submitted that the term processing implies processing in any form which leads to the production of the end-product. There was no warrant for interpreting the term in the manner interpreted by the department, namely, that unless the inputs constitute a component of the end-product, they cannot be termed as raw materials introduced into a plant for processing. Where the process is so integrally connected with the ultimate production of goods that but for that process, manufacture of processing of goods would not be possible, or would be commercially inexpedient, raw material or goods required in that process would qualify for exemption from duty under the subject notification as 'feed stock'.
In support of the above proposition, reliance has been placed on several decisions of the Supreme Court. I shall now proceed to consider the authorities cited at the bar.
19. Reliance has been placed upon the decision of the Supreme Court in the case reported in AIR 1965 Supreme Court 1310 (J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur and Anr.) and it is submitted that the said decision supports the submission of the petitioner that it is not necessary for an input or ingredient in order to qualify as raw material that it must necessarily go into and be found in the end-product. Emphasis was placed upon the observation of the Supreme Court in the said decision where the court observed;
'A bare survey of the diverse uses to which the goods may be intended to be put in the manufacture or processing of goods, clearly shows that the restricted interpretation placed by the High Court is not warranted. The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment fall within the expression 'in the manufacture of goods'. For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included 'in the manufacture' of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior process as goods used in the manufacture of cloth....
In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment'....
The High Court has rightly pointed out that unless designs are prepared it would be 'impossible for the workmen' to turn out goods for sale. If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regard the process of designing as not being a part of the process of manufacture within the meaning of Rule 13 read with S. 8(3)(b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression 'in the manufacture of goods' to the process of production of goods only. The expression 'in the manufacture' takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use 'equipment' in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use 'in the manufacture of goods'.
20. In A.I.R 1990 Supreme Court 196 (Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd.), the point which arose for consideration was whether the respondent-manufacturer was entitled to the benefit of the notification dated 28.02.1982, which in turn depended on whether Sodium Sulphate could be said to have been used as 'Raw Material' in the manufacture of 'paper' and 'paper Board'. In that case, Sodium Sulphate was used in the chemical recovery cycle of Sodium Sulphate which formed an essential constituent of Sulphate cooking liquor in the digestion operation. The respondent-manufacturer claimed benefit of exemption on duty payable on Sodium Sulphate, but the same was turned down on the ground that the Sodium Sulphate was burnt up in the process of manufacture and was not retained in the paper and therefore, could not be considered 'Raw material' in the manufacture of paper. The order of the Collector was challenged before the Tribunal which upheld the contention of the respondent-manufacturer holding that the chemicals used for the bleaching of pulp should be considered as raw materials in the manufacture of paper as they serve distinct and definitive purpose in the normal and recognised process of manufacture of paper and were essential for the process of manufacture. The Collector appealed against the order of the Tribunal and it was submitted on his behalf that the import of the word 'Raw Material' judicially accepted, connotes something more than what is used in the manufacture, and requires that goods to become 'raw material', must, either in their original or altered form, endure as a composite element of the end-product. It was submitted that Sodium Sulphate did not go directly into and find place in the finished product and did not, therefore, qualify for be-ing 'Raw material' in the manufacture of paper. The contention was negatived by the Supreme Court and it was held:
'The question, in the ultimate analysis, is whether the input of Sodium Sulphate in the manufacture of paper would cease to be ' Raw Material' by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt up. The expression 'Raw Material' is not a defined term. The meaning to be given to it is the ordinary and well accepted connotation in the common parlance of those who deal with the matter.
The ingredients used in the chemical technology of manufacture of any end-product might comprise, amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end-product; those which, as a result of interaction with other chemicals or ingredients, might themselves, undergo chemical or qualitative changes and in such altered form find themselves in the end-product; those which, like catalytic agents, while influencing and accelerating the chemical reactions; however, may themselves remain uninfluenced and unaffected and remain independent of and outside the end-products and those, as here, which might be burnt-up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called 'Raw Material' for the end-product. One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical process culminating in the emergence of the desired end-product, that having regard to its importance in and indis-pensability for the process, it could be said that its very consumption on burning-up is its quality and value as raw materials. In such a case, the relevant test is not its absence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process is distinct from the manufacturing apparatus.'
21. Counsel for the petitioner has placed strong reliance upon two recent decisions of the Supreme Court reported in (1996) 5 Supreme Court Cases 484 and (1996) 5 Supreme Court Cases 488. In the first case (Steel Authority of India Ltd. v. Collector of Central Excise), the exemption notification required proof that the raw naphtha was 'intended for use in the manufacture of fertilizer'. In that case it was found that a substantial quantity of raw naphtha used by the appellant in its plant had not resulted in the manufacture of fertilizer, but it was not disputed that the raw naphtha when it was procured by the appellant was intended for use in the manufacture of fertilizer. However on account of abnormal operating conditions such as low load operation, interruption in the plant operations due to low, uncertain, and fluctuating availability of power, it became necessary for the appellant to vent out the reformed gas produced out of the raw naphtha concerned before it could be fed into the ammonia plant in the stream of production of fertilizer. The question, therefore, which arose for consideration was whether the quantity of raw naphtha which had not resulted in the manufacture of fertilizer satisfied the conditions prescribed in the exemption notification. Answering the question in the affirmative the Court held that the exemption notification required proof that the raw naphtha was intended for use in the manufacture of fertilizer and not that the raw naphtha was used in the manufacture of fertilizer. All that was required to be shown was that the raw naphtha was used for the purpose and with the intention of manufacturing fertilizer. The raw naphtha that was fed by the appellant into its plant was used for the purpose and with the intention of manufacturing fertilizer, and it was only because of the supervening circumstances, that the reformed gas produced during the interim stage of manufacture had to be vented out. In such a case, the benefit of the exemption notification was available to the appellant.
Counsel for the petitioner emphasised that in the subject notification as well, the words used are 'intended for use as feed stock in the manufacture of fertilizer'. He further drew my attention to the observations of the Tribunal in that case, which were quoted with approval by the Supreme Court, wherein it was observed that the subject notification should be interpreted in a liberal spirit looking to the object of the notification viz; reducing the cost of inputs for fertilizers.
22. In the second case (Indian Farmers Fertilizer Corporation Limited v. Collector of Central Excise, Ahmedabad) a question arose whether the off-site plants are part of the process of manufacture of urea. The exemption notification in that case applied in respect of such raw naphtha as was used in the manufacture of ammonia, provided such ammonia was used elsewhere in the manufacture of fertilizer. The Collector took the view that the use of ammonia in the water treatment and steam generation plants was an integral part of the process of manufacture of fertilizer, but in so far as the effluent treatment plant was concerned, the effluents were waste produced after the fertilizers had been manufactured. Their treatment could not be said to be directly linked to the process of manufacture of fertilizers, and the effluent treatment plant could not be said to be an integral part of the process of manufacture of fertilizers. To this extent, the claim of the appellant was negatived. Allowing the appeal, and relying upon earlier decisions of the Court including J.K. Cotton Spg. and Wvg. Mills and Ballarpur Industries Ltd. (Supra), the Court observed that for something to qualify itself as a raw material it did not necessarily and in all cases have to go into and be found in the end-product. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, articles required in that process would fall within the expression `in the manufacture of goods'. Applying these principles, the Court while allowing the appeal held ;
'That leaves us to consider whether the raw naphtha used to produce the ammonia which is used in the effluent treatment plant is eligible for the said 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.'
23. On consideration of the authorities cited at the bar, the following conclusions emerge;
(I) The words used in the subject notification, namely, 'intended for use as feed stock in the manufacture of fertilizer' should not be read in a restricted manner. The exemption notification must be so construed as to give due weight to the liberal language it uses. If a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture, may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in the notification will qualify for total exemption. Consequently L.S.H.S./F.O. used for the purpose of steam generation, which is a necessary part of the process of manufacturing of fertilizer has to be held to be used in the manufacture of fertilizer.
(II) In the chemical technology of manufacture of any end-product, even those ingredients which might be burnt up or consumed in the chemical reaction, qualify themselves and are eligible to be called 'feed stock' if its utilisation in the manufacturing process is essential, and the ingredient goes into the making of the end-product, and should be essential for the chemical process culminating in the emergence of the desired end-product. Having regard to its importance in, and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as a raw material. In such a case, it is immaterial that such ingredient is not present nor forms a component of the end-product.
24. Such being the position in law, I have no doubt that the respondents have erred in law in holding that since the L.S.H.S./F.O. gets burnt up in the process of generating the steam, it does not qualify as 'feed stock' in the manufacture of fertilizers. If the generation of steam itself is an essential part of the process and is followed by other processes culminating in the manufacture of fertilizer, it does not matter that the L.S.H.S./F.O. gets burnt up in the process, provided the burning up of L.S.H.S/F.O. to generate steam is an essential part of the process of manufacture.
25. Unfortunately, the impugned orders passed in this batch of writ petitions were passed at a time when the Tribunal did not have the benefit of the recent decisions of the Supreme Court upon which reliance has been placed by the petitioner.
26. In this context, I may observe that in CWJC No. 4902 of 1987 it is not disputed that L.S.H.S./F.O. is utilised for the purpose of generating steam for the manufacture of ammonia. Some part of the ammonia is sold as such, but according to the petitioner, the rest of the ammonia so manufactured is utilised in the process for manufacture of fertilizer. The petitioner does not claim any benefit under the subject notification for the consumption of so much of L.S.H.S./F.O. as is utilised for the purpose of manufacture of ammonia sold as such in the open market. The petitioner only claims that so much of the L.S.H.S./F.O. as is consumed for the manufacture of ammonia, which is further processed, culminating in the manufacture of fertilizer must attract the benefit of exemption under the subject notification. The claim of the petitioner is restricted to this extent. The petitioner has also conceded that the consumption of L.S.H.S./F.O. for generation of steam for purposes other than manufacture of fertilizer, will not qualify for total exemption under the subject notification, but only partial exemption under the relevant notification as submitted by counsel for the respondents.
27. This takes me to the submission advanced only in CWJC No. 4888 of 1987 that the impugned order of the Tribunal is without jurisdiction and no such order could have been passed after 21.08.1980 since Section 36 of the Act was amended and the power of the Central Government to review the decision of the Board stood repealed. I do not consider it necessary to go into the merit of the submissions advanced by the counsel for the petitioner in these writ petitions. In the view that I have taken, the order of the Tribunal must be set aside and the order of the Board has to be restored. It is, therefore, not necessary for the disposal of these writ petitions to go into that question, which may be gone into in an appropriate case. I, therefore, leave the question open to be decided in an appropriate case.
28. I, therefore, hold that the petitioner is right in submitting that under the subject notification, the L.S.H.S/F.O. which is used for the purpose of generation of steam qualify as 'feed stock' in the manufacture of fertilizer and therefore qualify for total exemption. The generation of steam is so integrally related to the ultimate manufacture of fertilizer that it must be held to be a necessary part of the manufacturing process. The mere fact that in the process, L.S.H.S/F.O. gets burnt up, is of no significance, as long as the generation of steam for which it is utilised, is an essential part of the process of manufacture. I also hold that so much of the L.S.H.S./F.O. as is utilised for the purpose of manufacture of ammonia which is further processed, culminating in the manufacture of fertilizers, attract the benefit of exemption under the subject notification. However, so much of the L.S.H.S./F.O. as is utilised for the purpose of manufacture of Ammonia sold as such in the open market, will not qualify for total exemption under the subject notification and must be dealt with under the relevant notification.
29. In the result, CWJC Nos. 4888 and 4901 of 1987 are allowed to the extent that the impugned order of the Tribunal dated 17.12.1986, Annex-ure-A, in both writ petitions, are quashed and the order of the Board dated 22.02.1982 [1982 (10) E.L.T. 421 (CBE and C] (Annexure-2) in CWJC No. 4888 of 1987 and the order of the Board dated 05.06.1982 [1982 (10) E.L.T. 812 (CBE and C] (Annexure-2) in CWJC No. 4901 of 1987 are restored. CWJC No. 4900 of 1987 is also allowed to the extent that the impugned order Annexure-2 dated 06.03.1987 is quashed and an order is passed in the same terms as in Annexure-2 of CWJC No. 4888 of 1987 and CWJC No. 4901 of 1987. CWJC No. 4902 of 1987 is also allowed to the extent that the impugned order Annexure-4 dated 30.04.1987 [1987 (30) E.L.T. 289 (Tribunal)] is quashed and the petitioner is found entitled to the benefit of total exemption from payment of excise duty under the subject notification only in respect of so much of the L.S.H.S./F.O. as has been utilised for the purpose of manufacture of ammonia which is further processed culminating in the manufacture of fertilizer, and not sold in the open market as ammonia. CWJC No. 860 of 1991 is allowed to the extent that the respondents are directed to reconsider the impugned demands made in the light of this judgment and in the light of the decisions of the Supreme Court referred to in this decision. Before making a fresh demand, if any, the respondents shall give an opportunity of hearing to the petitioner. In the facts and circumstances of the case, there shall be no order as to cost.
P.K. Sarkar, J.
30. I agree.