Modvat credit on furnace oil used for dutiable and job-work goods could not be denied where Rule 57C did not apply.

Modvat credit on furnace oil used for both dutiable manufacture and job-work clearances could not be denied under Rule 57C because goods cleared under Notification No. 217/86 were treated as not exempted goods for that purpose, so the credit was admissible. The demand also lacked sustainability because the show cause notice did not disclose the basis on which the credit reversal had been computed, defeating a proper challenge to the demand. The Revenue's appeal therefore failed.

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Issues: Whether Modvat credit on furnace oil used both in the manufacture of the assessee's own dutiable goods and in job-work goods could be denied under Rule 57C of the Central Excise Rules, 1944, and whether the demand was sustainable when the show cause notice did not state the basis of computation.

Analysis: Furnace oil was used for the manufacture of dutiable goods as well as goods cleared on job work basis. Goods manufactured under Notification No. 217/86 were treated as not being exempted goods for the purpose of Rule 57C, and therefore the rule could not be invoked to deny credit. The notice also failed to disclose the basis on which the credit sought to be reversed had been worked out, which affected the sustainability of the demand.

Conclusion: Denial of Modvat credit was not justified and the Revenue appeal failed.

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