Fuel used to generate steam in-factory fell outside Rule 57CC and remained eligible for Modvat credit.

Inputs used as fuel for generating steam within the factory fell outside Rule 57CC, because that provision excluded fuel inputs from the requirement to maintain separate accounts and from the consequential 8% payment on exempted goods. On the undisputed facts, RFO was used only as fuel for steam generation, so the Revenue's demand under Rule 57CC could not stand. Separately, duty-paid RFO used in boilers for generating steam was eligible for Modvat credit under Rule 57B(1)(iv), which specifically permitted credit on goods used for generation of steam within the factory, regardless of whether the steam supported dutiable or exempted production. The assessee succeeded on both issues.

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Issues: (i) Whether inputs used as fuel for generation of steam within the factory were excluded from the operation of Rule 57CC of the Central Excise Rules, 1944 so as to negate the demand for reversal or payment of 8% of the price of exempted goods; (ii) Whether Modvat credit was admissible on duty-paid RFO used for generation of steam under Rule 57B(1)(iv) of the Central Excise Rules, 1944.

Issue (i): Whether inputs used as fuel for generation of steam within the factory were excluded from the operation of Rule 57CC of the Central Excise Rules, 1944 so as to negate the demand for reversal or payment of 8% of the price of exempted goods.

Analysis: Rule 57CC applied to inputs used in or in relation to manufacture of dutiable and exempted final products, but it expressly excluded inputs used as fuel. The Court read Rule 57CC together with the related provisions and held that where the input is established to be used as fuel, the requirement of maintaining separate accounts and the consequential 8% payment under Rule 57CC did not apply. The factual position that RFO was used only as fuel for generating steam was undisputed.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether Modvat credit was admissible on duty-paid RFO used for generation of steam under Rule 57B(1)(iv) of the Central Excise Rules, 1944.

Analysis: Rule 57B(1)(iv) specifically allowed credit on goods used for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production. Applying that rule, and following the settled position referred to in earlier decisions, the Court held that duty-paid RFO used in boilers for generation of steam remained an eligible input for Modvat credit, irrespective of whether the steam ultimately supported manufacture of dutiable or exempted goods.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The revenue appeals failed because the disputed RFO was a fuel input used for generating steam within the factory and was covered by the fuel exclusion as well as the specific credit entitlement for steam-generation inputs.

Ratio Decidendi: Inputs used as fuel for generating steam within the factory are outside the mischief of Rule 57CC, and duty-paid inputs used for generation of steam remain creditable under the specific credit-allowing provision for steam-generation inputs.

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