Modvat credit on furnace oil used in manufacture of exempt tyres was upheld under the Central Excise Rules.

Rule 57A was construed to allow Modvat credit on inputs used in or in relation to manufacture, whether directly or indirectly and whether or not contained in the final product. Applying the scheme of Rules 57A, 57B, 57C and 57CC, the Court found no perversity in the Tribunal's view that furnace oil used as fuel in manufacturing tyres for animal-drawn vehicles qualified for credit, even though the final product was exempt. The Revenue's challenge failed and the Tribunal's order allowing the assessee's claim was upheld.

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Issues: Whether modvat credit was admissible on furnace oil used as fuel in the manufacture of tyres for animal-drawn vehicles, an exempt final product, and whether Rule 57CC altered the prohibition under Rule 57C.

Analysis: The Court read Rule 57A of the Central Excise Rules, 1944 as governing credit on inputs used in the manufacture of final products and also on inputs used in or in relation to manufacture, whether directly, indirectly, and whether or not contained in the final product. After considering the scheme of Rules 57A, 57B, 57C and 57CC, the Court found no perversity in the Tribunal's view that furnace oil used in the manufacturing process qualified for credit. The Court also declined to interfere with the Tribunal's conclusion on the facts and noted that the lower authorities had taken a contrary view without displacing the legal basis accepted by the Tribunal.

Conclusion: Modvat credit on furnace oil was held admissible, and the Revenue's challenge failed.

Final Conclusion: The Tribunal's order allowing the assessee's appeal was upheld, and the Revenue's appeal was dismissed.

Ratio Decidendi: Credit is allowable on inputs used in or in relation to manufacture of final products, even where the final product is exempt, if the governing rules so provide and the Tribunal's view discloses no perversity.

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