Fuel credit under Modvat rules survives even when electricity generated from naphtha is partly supplied outside the factory.

Naphtha used as fuel to generate steam and electricity qualified as an input for duty credit under Rule 57AA(d) because the definition separately recognises "goods used as fuel" and "goods used for generation of electricity or steam". The fuel category was not displaced merely because the electricity produced was partly consumed outside the factory. The Tribunal treated Rule 57AA(d) as materially pari materia with the earlier Modvat definition and held that the broader Modvat scheme and exemption-notification analogy did not assist the Revenue. Duty credit was therefore allowable on naphtha used as fuel, and the disallowance was unsustainable.

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Issues: Whether naphtha used as fuel for generating steam and electricity, where the electricity was partly consumed within the factory and partly supplied outside, qualified as an 'input' for duty credit under Rule 57AA(d) of the Central Excise Rules, 1944.

Analysis: The definition of 'input' under Rule 57AA(d) was treated as materially pari materia with the earlier Rule 57B(1). The definition separately recognises 'goods used as fuel' and 'goods used for generation of electricity or steam', and the latter expression was read as excluding fuel already covered by the earlier clause. Since naphtha was admittedly used as fuel within the factory, its eligibility for credit was not defeated by the manner in which the electricity generated from it was ultimately used. The broader Modvat scheme and the analogy with exemption notifications were held to be of no assistance to the Revenue.

Conclusion: Naphtha was eligible for input duty credit as 'goods used as fuel' under Rule 57AA(d), and the disallowance of Modvat credit was unsustainable.

Ratio Decidendi: Where a statute separately recognises 'goods used as fuel' and 'goods used for generation of electricity or steam', fuel falls within the former category and its credit eligibility is not negated merely because the electricity generated from it is not wholly consumed within the factory.

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