Modvat credit exclusion for high speed diesel used in captive power generation upheld under notified input restrictions.

Rule 57A permitted the Government to specify eligible inputs for Modvat credit and to exclude particular items by notification. Rule 57B, although it referred to fuel and electricity generation and contained a non obstante clause, remained confined to inputs covered by a Rule 57A notification. Because the relevant notification expressly excluded high speed diesel, the input was not eligible for credit even when used to generate electricity for captive consumption in the factory. The note distinguishes the earlier Supreme Court ruling on the basis that it did not consider an express exclusion in a notification and arose under the unamended rule structure.

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Issues: Whether High Speed Diesel used for generating electricity for captive consumption in the factory was an eligible input for Modvat credit despite its exclusion by notification under Rule 57A and the clarification in Rule 57B.

Analysis: Rule 57A empowered the Central Government to specify, by notification, both the final products and the inputs on which credit could be claimed, and also to restrict or exclude inputs from such benefit. Rule 57B, though containing a non obstante clause and referring to inputs used as fuel and for generation of electricity, expressly confined the meaning of inputs to those specified in a notification issued under Rule 57A. The cited notification specifically excluded HSD from the eligible inputs. The Court distinguished the earlier Supreme Court decision on the ground that it did not consider the effect of a notification excluding an input and was rendered under the unamended rule regime.

Conclusion: HSD was not entitled to Modvat credit because the notification under Rule 57A validly excluded it and Rule 57B did not override that exclusion.

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