Cenvat credit on furnace oil as fuel remained admissible before the 16-5-2005 amendment, defeating the demand.

Cenvat credit on furnace oil used as fuel in manufacturing exempted goods was recognised as admissible for the period before 16-5-2005, because the amendment introduced by Notification No. 27/2005-C.E. (N.T.) and the exclusion in Notification No. 26/2005-C.E. (N.T.) were treated as operative only from that date. The legal position applied under Rule 6 of the Cenvat Credit Rules, 2002/2004 supported credit for the pre-amendment period, and the demand was therefore unsustainable. Penalty also could not be sustained on that basis.

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Issues: Whether Cenvat credit on furnace oil used as fuel in the manufacture of exempted goods was admissible for the period prior to 16-5-2005 and whether the demand and penalty could be sustained.

Analysis: The dispute turned on the scope of Rule 6 of the Cenvat Credit Rules, 2002/2004 and the effect of the subsequent amendment brought by Notification No. 27/2005-C.E. (N.T.) dated 16-5-2005, together with the specific exclusion inserted by Notification No. 26/2005-C.E. (N.T.). The credit related to furnace oil used in the manufacturing process as fuel, and the reasoning adopted was that the legal position recognised credit on inputs used as fuel prior to the amendment. In view of the binding precedent relied upon, the demand for the pre-amendment period was held to be unsustainable.

Conclusion: Cenvat credit was admissible for the relevant period prior to 16-5-2005, and the Revenue's demand was not sustainable. The order rejecting the Revenue's challenge was upheld.

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