Modvat credit on fuel cannot be reversed merely because some final goods are cleared without duty.

Modvat rules expressly excluded fuel from the provisions governing common inputs used for both dutiable and exempted goods, so credit on furnace oil used as fuel remained admissible. The assessee was therefore not required to reverse the credit or pay an equivalent amount merely because part of the final product was cleared without payment of duty.

---

---

Issues: Whether Modvat credit taken on furnace oil used as fuel was liable to reversal, or whether the assessee was required to pay an amount with reference to the clearances of wire rods made without payment of duty.

Analysis: The rules governing Modvat credit created a specific exception for inputs used as fuel. Rule 57C(2) and Rule 57CC(1), which deal with common inputs used for both dutiable and exempted products, were expressly carved out by Rule 57C(3) in relation to fuel. On a harmonious reading of the scheme, the exception for fuel meant that credit taken on furnace oil could not be denied merely because part of the final product was cleared without payment of duty, and the assessee was not required to reverse credit or pay eight per cent of the price of such clearances.

Conclusion: The Modvat credit on furnace oil was admissible and no reversal or equivalent amount was payable in respect of the clearances made without payment of duty.

Ratio Decidendi: Where the Modvat rules expressly exclude fuel from the operation of the provisions governing common inputs for exempted and dutiable goods, credit on such fuel cannot be reversed merely because part of the final product is cleared without duty.

---