Fuel input Cenvat credit remains allowable despite mixed use of steam in dutiable and exempted manufacture.

Cenvat credit was held admissible on residual furnace oil used as fuel for generating steam within the factory, even though the steam supported manufacture of both dutiable and exempted goods. Rule 6 of the Cenvat Credit Rules, 2001 was read to bar credit only on inputs used in exempted goods, while the express exclusion for inputs intended as fuel prevented denial of credit or insistence on separate accounts. The provision was treated as pari materia with the earlier excise regime, under which fuel credit remained allowable despite mixed use of the resulting utility. The demand based on 8% of exempted goods value was therefore not sustainable.

---

---

Issues: Whether Cenvat credit on residual furnace oil used as fuel for generating steam, which was in turn used in the manufacture of both dutiable and exempted goods, could be denied for want of separate accounts and whether the demand of 8% of the value of exempted goods was sustainable.

Analysis: Rule 6 of the Cenvat Credit Rules, 2001 barred credit only on inputs used in exempted goods, but sub-rule (2) expressly carved out inputs intended to be used as fuel. The disputed input was residual furnace oil used only as fuel for steam generation within the factory, and the factual position that the steam was wholly used in manufacture was undisputed. The provision was treated as pari materia with Rule 57CC of the earlier Central Excise Rules, under which credit on fuel inputs was held admissible even if part of the resulting utility was used for exempted final products. The requirement of separate accounts did not apply to fuel inputs covered by the statutory exclusion.

Conclusion: The assessee was entitled to the credit, and the demand based on non-maintenance of separate accounts and the 8% liability was not sustainable.

Ratio Decidendi: Where an input is intended to be used as fuel, the statutory exclusion in the Cenvat credit scheme permits credit even if the fuel-generated utility is used for both dutiable and exempted goods, and the separate-account requirement does not apply.

---