Modvat credit on captive mine explosives allowed where limestone formed part of the integrated cement manufacturing process.

Duty-paid explosives used in captive mines to obtain limestone were treated as eligible inputs for Modvat credit because the credit scheme does not require consumption strictly within factory premises. Where the limestone produced is an intermediate product used in the manufacture of cement, the process is regarded as continuous and integrated, so the explosives used in mining form part of the input chain for credit entitlement. The Tribunal's view that credit was unavailable merely because the explosives were used away from the factory was rejected.

---

---

Issues: Whether explosives used in captive mines for obtaining limestone, which is then used in the manufacture of cement, are eligible inputs for Modvat credit and whether the Tribunal was right in denying such credit on the ground that the explosives were used away from the factory.

Analysis: The reference was decided on the basis that the facts were not in dispute and the controversy stood concluded by the Supreme Court. The applicable Modvat provisions do not require that the inputs must be consumed strictly within the factory premises. Where duty-paid explosives are used to produce limestone, an intermediate product, and that limestone is thereafter used in the manufacture of cement, the credit mechanism applies to the input used in that process. The manufacture of cement was treated as a continuous and integrated process, and the mining of limestone in captive mines was regarded as part of that process for the purpose of credit entitlement.

Conclusion: The explosives used in captive mines for obtaining limestone were eligible inputs for Modvat credit, and the Tribunal's contrary view could not stand.

---