Modvat credit on furnace oil used as fuel remains admissible; reversal rules do not apply to fuel inputs.

Modvat credit on furnace oil used as fuel in manufacturing dutiable and exempted final products was not required to be reversed. A conjoint reading of Rule 57C(2) and (3) with Rule 57CC(1) and (9) shows that the separate inventory, account-maintenance, and reversal requirements do not apply to inputs used as fuel. The factual position noted was that furnace oil was used only as fuel, bringing it within the exclusion from Rule 57CC. Accordingly, credit on such furnace oil remained admissible.

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Issues: Whether Modvat credit taken on furnace oil used as fuel in the manufacture of both dutiable and exempted final products was required to be reversed.

Analysis: The relevant provisions excluded inputs intended to be used as fuel from the operation of Rule 57CC. A conjoint reading of Rule 57C(2) and (3) with Rule 57CC(1) and (9) shows that the obligation to maintain separate inventory and accounts, or to reverse credit, does not apply where the input is used as fuel. The factual finding was that furnace oil was used only as fuel.

Conclusion: The credit on furnace oil used as fuel was not required to be reversed and the assessee was entitled to Modvat credit.

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