Modvat credit for mining explosives allowed where they were used to extract limestone for cement manufacture.

Duty-paid explosives used in mines outside the cement factory were treated as eligible Modvat inputs because Rule 57A extends to goods used in or in relation to manufacture, whether directly or indirectly. The rule did not require the input to be used within the factory premises or to be brought into the factory. Since the explosives were used to extract limestone, which was then used as raw material in cement manufacture, they had the necessary nexus with manufacture. The reference was answered in favour of the assessee and credit was allowed.

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Issues: Whether duty paid explosives used in mines situated outside the cement factory, for extracting limestone used as raw material, qualify as inputs for Modvat credit under Rule 57A.

Analysis: The question was governed by the Supreme Court's interpretation of Rule 57A, which held that the rule covers goods used in or in relation to the manufacture of the final product, whether directly or indirectly. The rule does not require the input to be used within the factory premises, nor does it require that the input be brought into the factory at any stage. As the explosives were used to extract limestone, which was then used in cement manufacture, they were used in relation to manufacture.

Conclusion: The explosives used for excavating limestone from the mines were inputs eligible for Modvat credit, and the reference was answered in the affirmative, in favour of the assessee.

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