Modvat credit for mining explosives upheld where inputs support manufacture through an intermediate product.

Explosives used in blasting for mining operations connected with cement manufacture were treated as eligible inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944, because credit is not confined to inputs used only within the factory premises. Where an input is used in relation to manufacture through an intermediate product that ultimately contributes to the final product, eligibility is not defeated by the input's use outside the factory. On that basis, the credit claim was accepted and the show-cause notice and consequential demand were held unsustainable.

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Issues: Whether explosives used in blasting mines for cement manufacture could be treated as inputs eligible for Modvat credit, and whether the demand and show-cause notice based on alleged wrongful availment of credit were sustainable.

Analysis: The dispute was governed by the principle that Rule 57A of the Central Excise Rules, 1944 does not confine eligible inputs to those used within the factory premises. Credit is also admissible where the input is used in relation to manufacture through an intermediate product that ultimately contributes to the final product. Applying the settled law, explosives used for blasting in the mining operation connected with cement manufacture were treated as inputs for the purpose of credit.

Conclusion: The claim for Modvat credit was accepted, and the show-cause notice and consequential demand action were unsustainable.

Ratio Decidendi: Inputs used in the manufacture of an intermediate product that is employed in producing the final product remain eligible for Modvat credit, and such eligibility is not defeated merely because the inputs are used outside the factory premises.

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