Modvat credit on fuel used for steam generation was admissible where steam served as an intermediate product in manufacture.

Modvat credit on fuel oil and light diesel oil used to generate steam for pigment manufacture was admissible because the steam formed an intermediate product used in or in relation to manufacture. Exemption of the steam from duty did not invoke Rule 57C to deny credit on inputs used in its generation. The later amendment to Rule 57D(2) did not imply that credit was unavailable earlier, as the rule was treated as sufficiently plain to cover the situation. Denial of credit was therefore unsustainable.

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Issues: Whether Modvat credit was admissible on fuel oil and light diesel oil used to generate steam which was used in or in relation to the manufacture of pigments, and whether Rule 57C barred such credit.

Analysis: Steam generated from the fuel oils was used in the manufacturing process of pigments and was treated as an intermediate product rather than the final product intended for clearance. The exemption of steam from duty did not attract Rule 57C so as to deny credit on the inputs used in its generation. The later amendment to Rule 57D(2) did not justify an inference that credit was unavailable before the amendment, since the language of the rule was held to be plain and sufficient to cover the situation.

Conclusion: Modvat credit on the fuel oils was admissible, and the denial of credit was unsustainable.

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