Modvat credit on explosives used in limestone mining held admissible as eligible inputs under the excise credit scheme.

Modvat credit was held admissible on explosives used in limestone mining because the mining activity was treated as part of a factory under Section 2(f) of the Central Excise Act read with Rule 57A of the Central Excise Rules. Rule 57A allows credit for inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether or not they are contained in the final product. Rule 57B excludes machinery and capital goods, but not such inputs. On that basis, the explosives qualified as eligible inputs, and credit was allowed in favour of the assessee.

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Issues: Whether Modvat credit was available on explosives used in mining of limestone, where the mining activity was treated as falling within the definition of factory under Section 2(f) of the Central Excise Act, 1944 read with Rule 57A of the Central Excise Rules, 1944.

Analysis: The credit scheme under Rule 57A permits Modvat credit on specified inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether or not contained in the final product. Rule 57B excludes certain items such as machinery and capital goods, but does not exclude inputs used for manufacture in the manner contemplated by the rule. The reasoning was supported by the view that materials used in manufacture, including parts of machinery in appropriate cases, can qualify as eligible inputs, and by the earlier determination that inputs used in the manufacture of intermediate products, which are in turn used in the manufacture of the final product, are also creditable.

Conclusion: Modvat credit on the explosives was admissible, and the question was answered in favour of the assessee and against the Revenue.

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