Modvat credit on LPG fuel remained admissible despite duty-free clearances because the fuel exclusion protected the credit

Modvat credit on LPG used as fuel in manufacture was treated as admissible even where some final products were cleared without payment of duty. The statutory scheme under Rule 57C and Rule 57CC was read with their express fuel exclusion, so credit on fuel-based inputs did not have to be reversed merely because part of the output was exempt or cleared duty-free. The Tribunal followed its earlier view that no amount equal to a percentage of the exempted goods' price was recoverable in respect of such fuel use, and the assessee was entitled to retain the credit.

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Issues: Whether Modvat credit on LPG used as fuel in the manufacture of goods cleared without payment of duty under Rule 57F(4) of the Central Excise Rules, 1944 was admissible and recoverable.

Analysis: The dispute turned on the interaction of Rule 57C, Rule 57CC and their express exclusion for fuel. The LPG was used as fuel in the manufacturing process for both duty-paid and non-duty-paid clearances. The Tribunal followed its earlier view that the statutory scheme creates a specific exception for fuel, so that credit need not be reversed merely because part of the final products are cleared without duty and no amount equal to a percentage of the exempted goods' price is payable in respect of such fuel-based inputs.

Conclusion: Modvat credit on LPG was admissible and no recovery could be made from the assessee for its use in the goods cleared without payment of duty. The assessee succeeds.

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