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Issues: (i) whether Modvat credit on furnace oil used for generation of steam supplied to a 100% Export Oriented Unit was admissible; (ii) whether duty was demandable on Demineralised Water and Dealkanised Soft Water cleared to a 100% Export Oriented Unit without following the prescribed procedure.
Issue (i): whether Modvat credit on furnace oil used for generation of steam supplied to a 100% Export Oriented Unit was admissible.
Analysis: The credit dispute was resolved by applying the distinction between "goods used as fuel" and goods used for generation of electricity or steam. Furnace oil was treated as fuel, and the fact that steam generated from it was supplied to another unit did not alter its character for credit purposes. The earlier view on the same legal setting was relied upon, and no contrary appeal against that view was shown.
Conclusion: The credit on furnace oil was admissible and the finding in favour of the assessee was upheld.
Issue (ii): whether duty was demandable on Demineralised Water and Dealkanised Soft Water cleared to a 100% Export Oriented Unit without following the prescribed procedure.
Analysis: The goods were cleared to a 100% Export Oriented Unit, which was otherwise entitled to receive inputs without duty. The dispute was confined to a procedural lapse in the procurement mechanism. As the receiving unit was concededly eligible for duty-free procurement and there was no loss of revenue in the transaction, the procedural irregularity did not justify reversal of the exemption benefit or imposition of duty and penalty.
Conclusion: Duty on Demineralised Water and Dealkanised Soft Water was not payable and the finding in favour of the assessee was upheld.
Final Conclusion: The Revenue's challenge failed in full, and the assessee's relief on both surviving issues stood confirmed.
Ratio Decidendi: Fuel used within the factory for generation of electricity or steam remains eligible for Modvat credit where the statute treats fuel separately from goods used for generation, and a procedural lapse in duty-free clearance to a 100% Export Oriented Unit does not justify duty demand when the unit is otherwise entitled to the benefit and no revenue loss results.
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