Modvat credit on fuel oil for steam generation was available despite use of steam for exempted products and other factory purposes.

Amended Modvat rules treated fuel oil as an input and allowed credit for fuel used to generate steam within the factory, including where the steam was used for exempted goods or other purposes. The expression "for any other purposes" was read broadly, so Rule 57C did not defeat the credit entitlement on these facts. Steam was also treated as an intermediate product because it was used in the manufacture of other products within the factory. The effect was that credit on fuel oil used for steam generation was available notwithstanding mixed or non-dutiable use of the steam.

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Issues: (i) Whether fuel oil used for generation of steam was eligible for Modvat credit when the steam was used within the factory for manufacture of exempted final products or for other purposes; (ii) whether steam generated in the factory was an intermediate product for the purpose of the Modvat rules.

Issue (i): Whether fuel oil used for generation of steam was eligible for Modvat credit when the steam was used within the factory for manufacture of exempted final products or for other purposes.

Analysis: The amended Rule 57A brought fuel within the definition of input, and the third proviso to Rule 57D(2) permitted credit in respect of inputs used for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production. The expression "for any other purposes" was read as extending beyond manufacture of dutiable finished products, and Rule 57C was held not to defeat the amended credit entitlement in the circumstances considered.

Conclusion: The fuel oil was eligible for credit even when the steam generated from it was used for exempted goods or other purposes within the factory.

Issue (ii): Whether steam generated in the factory was an intermediate product for the purpose of the Modvat rules.

Analysis: Steam was treated as an intermediate product because it was used in the manufacture of other products within the factory, and the fact that some portion of the steam-related activity may also relate to final products did not alter its character for the relevant portion used in manufacture. The reasoning was supported by the accepted treatment of such products under the Modvat framework.

Conclusion: Steam was an intermediate product for the purpose of the appeal.

Final Conclusion: The amendment to the Modvat provisions entitled the appellant to credit on fuel oil used to generate steam even where the steam was used for exempted products or other purposes within the factory, and the impugned orders were set aside.

Ratio Decidendi: Where the amended Modvat rules expressly treat fuel as an input and permit credit for inputs used to generate steam used within the factory for any purpose, credit cannot be denied merely because the steam is used partly for exempted products or non-dutiable purposes.

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