Fuel gas is not a "tool" under the exemption exclusion, so denial of Modvat credit cannot stand.

Fuel gas used in manufacturing steam was not a "tool" within the exclusion in Notification No. 217/86, because the term denotes an instrument or device used to perform an operation and, in context, one used repeatedly. Mere use of fuel gas for heating or boiling to produce steam did not bring it within the exclusion covering machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods or effecting a change in substance. On that basis, denial of Modvat credit was unsustainable both on facts and in law.

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Issues: Whether fuel gas used in the manufacture of steam could be treated as a 'tool' so as to fall within the exclusion in Notification No. 217/86 and deny Modvat credit.

Analysis: The exclusion in the notification covered machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods or for bringing about any change in a substance. The ordinary meaning of 'tool' contemplated an instrument or device used to perform an operation and, in the present context, something used repeatedly. Fuel gas was not of that character. Mere use of fuel gas for heating/boiling, resulting in steam, did not make it a tool within the exclusion. The adjudicating authority's reasoning was therefore held to be untenable both on facts and in law.

Conclusion: Fuel gas could not be treated as a tool under the notification, and denial of Modvat credit on that basis was unsustainable.

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