Modvat credit on fuel inputs remains admissible despite partly exempt clearances under the Central Excise Rules.

Modvat credit on LDO and furnace oil used as fuel in manufacture remained admissible even though some final products were cleared at nil rate of duty. The text applies Rule 57C and Rule 57CC of the Central Excise Rules, 1944, and notes that the statutory scheme specifically excludes inputs used as fuel from denial or proportionate reversal of credit. Earlier Tribunal rulings were treated as supporting this view, while the contrary Revenue authority was distinguished because it did not involve fuel inputs covered by the special exclusion. The result stated is that denial of credit was unsustainable and the appeals succeeded.

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Issues: Whether Modvat credit on LDO and furnace oil used as fuel in manufacture of final products cleared partly at nil rate of duty was admissible.

Analysis: The issue was governed by the Modvat framework under Rule 57C and Rule 57CC of the Central Excise Rules, 1944. The decision turned on the specific exclusion for inputs used as fuel. Earlier Tribunal rulings had held that where fuel is used in the manufacture of both dutiable and exempted goods, the credit is not to be denied or reversed merely because some final products are cleared without payment of duty. The contrary authority relied upon by Revenue was held distinguishable on facts because it did not concern fuel inputs covered by the special exclusion.

Conclusion: Modvat credit on the fuel inputs was admissible and the denial of credit was unsustainable.

Final Conclusion: The appeals succeeded and the order of the lower authority was set aside with consequential relief.

Ratio Decidendi: Where the statutory Modvat scheme specifically excludes inputs used as fuel, credit cannot be denied or proportionately reversed merely because the final products are partly exempt or cleared at nil duty.

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