Cenvat credit on inputs used outside the factory remains available where they produce an intermediate product for final manufacture.

The Court held that the Cenvat Rules substantially continued the Modvat scheme, so the Jaypee Rewa Cement principle remained applicable despite changes in drafting. Rule 57AA was treated as a broadening re-arrangement of the earlier inputs definition, Rule 57J was substantially replaced by Rule 57AB, and Rule 57AC(1) did not exclude credit otherwise allowed under Rule 57AB. On that basis, explosives used in quarrying limestone, an intermediate product for cement manufacture, remained eligible inputs for credit even though they were used outside the factory premises.

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Issues: Whether the Jaypee Rewa Cement decision applies under the Cenvat Rules, 2000, and whether credit could be denied on explosives used in quarrying limestone for manufacture of cement.

Analysis: The Modvat provisions under the Central Excise Rules, 1944 and the Cenvat provisions were held to be substantially the same in effect. The definition of inputs in Rule 57AA was treated as a re-arrangement and broadening of the earlier Modvat scheme, Rule 57J was found to have been substantially replaced by Rule 57AB, and Rule 57AC(1) was held not to displace the allowance of credit under Rule 57AB. The Court therefore rejected the view that the absence of an exact counterpart to Rule 57J made the earlier precedent inapplicable. On that footing, explosives used to produce limestone, an intermediate product used for cement manufacture, remained eligible inputs for credit.

Conclusion: The decision in Jaypee Rewa Cement continues to apply under the Cenvat Rules, and credit could not be denied merely because the explosives were used in the mines and not within the factory premises. The contrary view in J.K. Udaipur Udyog was not accepted.

Ratio Decidendi: Where the Cenvat provisions substantially continue the Modvat scheme, credit is allowable on inputs used in the manufacture of an intermediate product that is in turn used in manufacture of the final product, even if the inputs are used outside the factory premises.

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