CENVAT input credit for mining explosives upheld where goods were used in relation to manufacture, not only inside the factory.

Explosives used in off-factory limestone mines were treated as eligible inputs for CENVAT credit because the statutory definition covered goods used in or in relation to manufacture, and the phrase "within the factory of production" applied only to the later, narrower category of inputs. The Tribunal held that the Board circular could not override the statutory wording and followed earlier decisions supporting admissibility. Credit was therefore admissible on explosives used for mining limestone for cement manufacture.

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Issues: Whether explosives used in off-factory limestone mines by a cement manufacturer qualify as "inputs" for credit under Rule 2(f) of the CENVAT Credit Rules, 2001, notwithstanding that they were not used within the factory of production.

Analysis: The definition of "input" in Rule 57AA(d) of the Central Excise Rules, 1944 and Rule 2(f) of the CENVAT Credit Rules, 2001 was examined and found to be materially similar. Each definition contained two parts. The words "within the factory of production" occurred only in the latter part and not in the first part, which covered goods used in or in relation to the manufacture of final products. Explosives fell within the first part of the definition. The Board circular could not override the statutory language, and the earlier Tribunal decisions supporting admissibility were followed.

Conclusion: Explosives used in the appellants' off-factory mines were eligible inputs and credit was admissible to the assessee.

Final Conclusion: The denial of Modvat credit was set aside and the assessee succeeded on the eligibility of credit for explosives used in mining limestone for cement manufacture.

Ratio Decidendi: Where the statutory definition of "input" covers goods used in or in relation to manufacture, the requirement that the goods be used "within the factory of production" applies only to the specific later category in the definition and not to the broader first category.

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