Modvat credit on capital goods raised a referable question of law on exclusive use for exempted final products.

Entitlement to Modvat credit on capital goods used for manufacturing both dutiable and exempted final products was treated as giving rise to a referable question of law. The High Court held that the proposed issue, namely whether the capital goods were used exclusively for exempted final products so as to attract Rule 57R of the Central Excise Rules, 1944, was fit for reference on the record before it. The reference application under Section 35H(1) of the Central Excise Act, 1944 was allowed and the Tribunal was directed to refer the framed question.

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Issues: Whether the application under Section 35H(1) of the Central Excise Act, 1944 deserved to be allowed for reference of the proposed question of law.

Analysis: The application concerned a dispute over entitlement to Modvat credit on capital goods used in the manufacture of dutiable and exempted final products. On a perusal of the record and the Tribunal's order, the Court found that the proposed question whether the capital goods were exclusively used in the manufacture of exempted final products, so as to attract Rule 57R of the Central Excise Rules, 1944, gave rise to a question of law fit for reference.

Conclusion: The reference application was allowed and the Tribunal was directed to refer the framed question to the Court.

Ratio Decidendi: Where the record discloses a live question of law arising from the Tribunal's order, the reference application under Section 35H(1) is to be allowed and the question referred for decision.

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