Modvat credit on diesel used to generate in-factory electricity was allowed under Rule 57A input rules.

High speed diesel oil used within the factory as fuel for generating electricity qualified as an input under Rule 57A of the Central Excise Rules, 1944 because the explanation expressly covered inputs used as fuel and inputs used for generation of electricity within the factory of production. The exclusion clause did not extend to diesel used for this purpose. Since the electricity generated was used in the manufacture of final products, the statutory condition for Modvat credit was satisfied, and credit could not be denied merely because the fuel was not directly consumed in the final manufacturing process.

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Issues: Whether high speed diesel oil used as fuel for generation of electricity within the factory could be treated as an input under Rule 57A of the Central Excise Rules, 1944 so as to qualify for Modvat credit.

Analysis: The explanation to Rule 57A expressly included inputs used as fuel and inputs used for generation of electricity within the factory of production for manufacture of final products or for any other purpose. The exclusion clause did not cover high speed diesel oil used for generating electricity. Since the diesel was used within the factory to generate electricity which was then used in manufacture, the statutory condition for input credit was satisfied.

Conclusion: The assessee was entitled to Modvat credit on high speed diesel oil used for generation of electricity, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Where a statutory rule includes fuel and electricity-generation inputs within the definition of input, credit cannot be denied merely because the fuel is not itself directly consumed in the final manufacturing process.

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