Modvat credit on furnace oil was limited by the notification, while penalty was set aside on the facts.

Modvat credit on furnace oil used as fuel under Rule 57B was held subject to the 10% ad valorem restriction in the notification governing the scheme, with the rules and notification read harmoniously with Rule 57A. The later amendment was treated as not changing the substantive position for the period in dispute, so the credit limitation continued to apply. Although the interpretation of the Modvat provisions resolved the credit issue against the assessee, penalty was not justified on the facts and was set aside.

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Issues: Whether Modvat credit on furnace oil used as fuel under Rule 57B was restricted to 10% ad valorem under the notification governing the credit scheme, and whether penalty was warranted.

Analysis: The credit scheme under Rule 57B was read in harmony with Rule 57A, and the restriction on credit of specified duty paid was treated as applicable to the input in question. The subsequent amendment was followed as not altering the substantive position for this case. At the same time, the dispute turned on interpretation of the rules and notifications governing Modvat credit.

Conclusion: Modvat credit on furnace oil was restricted to 10% ad valorem. Penalty was not justified and was set aside.

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