Cenvat credit on fuel used for manufacture and steam generation was not reversible when only surplus steam was cleared.

Rule 6(2) of the Cenvat Credit Rules, read with Rule 57CC of the Central Excise Rules, did not require reversal of credit or payment of 8%/10% where furnace oil was used as fuel in manufacturing carbon black and generating steam. The credit restriction provisions were held inapplicable to fuel used as an input, and steam was not treated as the assessee's final product. Only surplus steam was cleared to adjoining units, so the demand to reverse credit or pay the prescribed percentage was unsustainable.

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Issues: Whether Rule 6(2) of the Cenvat Credit Rules, 2001, 2002 and 2004, read with Rule 57CC of the Central Excise Rules, 1944, required reversal of credit or payment of 8%/10% on furnace oil used as fuel in the manufacture of carbon black and in the generation of steam, where only surplus steam was cleared to adjoining units.

Analysis: The applicable credit restriction provisions were held not to cover fuel used as an input. Furnace oil was used as fuel for manufacture of the dutiable final product and for generation of steam through the cogeneration plant. Steam was found not to be the assessee's final product, and only surplus steam was sold out. On that basis, the demand to reverse credit or pay the prescribed percentage on clearance of steam was held to be unsustainable, and the Commissioner (Appeals) was found to have correctly applied the statutory scheme.

Conclusion: The requirement to reverse credit under Rule 6(2) did not arise, and the appeal of the Revenue was rejected.

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