Modvat credit on fuel oil for captive power generation inside the factory applies retrospectively under a clarificatory amendment.

Fuel oil used for captive generation of electricity within the factory was treated as an eligible input for Modvat credit under Rule 57A because the electricity was consumed inside the factory premises and formed part of the manufacturing process. The Tribunal also held that clause (d) inserted into Rule 57A in 1995 was clarificatory and therefore applied retrospectively to the period in dispute. On that basis, the earlier view that credit could be denied unless direct use in or in relation to manufacture of the notified final product was shown was considered incorrect.

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Issues: Whether fuel oil used for generation of electricity within the factory was eligible for Modvat credit under Rule 57A, and whether the clarificatory amendment inserting clause (d) to Rule 57A applied to the earlier period.

Analysis: The Tribunal noted that the later decisions had settled that fuel oil used for captive generation of electricity within the factory qualifies as an eligible input for Modvat credit. It further held that clause (d) inserted in Rule 57A in 1995 was clarificatory in nature and therefore operated retrospectively to cover the period in dispute. Since the electricity generated was used within the factory premises, the earlier reasoning that credit could be denied unless the fuel oil was shown to have been used directly in or in relation to manufacture of the notified final product was held to be erroneous.

Conclusion: Fuel oil used for captive generation of electricity within the factory was eligible for Modvat credit, and the clarificatory amendment to Rule 57A applied to the prior period.

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