CENVAT credit on furnace oil used to make exempt goods remains barred despite separate treatment of fuel inputs.

Modvat/CENVAT credit was held inadmissible on furnace oil used as fuel in the manufacture of exempt goods cleared without payment of duty under Rule 57F(3). The court applied the Supreme Court's interpretation of the CENVAT scheme and held that the statutory bar on credit for inputs used in producing exempt final products extends to fuel inputs as well. The separate-accounting treatment of fuel under the scheme did not create an independent entitlement to credit. Accordingly, credit on furnace oil used in exempt manufacture was denied, and the issue was decided against the assessee and in favour of the Revenue.

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Issues: Whether Modvat or CENVAT credit was admissible on furnace oil used as fuel in the manufacture of exempt goods cleared without payment of duty under Rule 57F(3) of the Central Excise Rules.

Analysis: The sole question was treated as covered by the Supreme Court's interpretation of the CENVAT scheme. It was held that the bar on credit for inputs used in manufacturing exempt final products applies to fuel inputs as well, and that the exclusion of fuel from the separate-accounting regime does not make credit automatically available. The legal effect of the rule denying credit on inputs used for exempt goods continues to apply to fuel used in such manufacture.

Conclusion: Credit on furnace oil used as fuel in manufacturing exempt goods was not permissible, and the issue was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: CENVAT or Modvat credit is not allowable on fuel inputs used in the manufacture of exempt final products, because the statutory bar on credit for inputs used in exempt production applies notwithstanding the separate treatment of fuel under the scheme.

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