Modvat credit rules for cement manufacture: explosives and diesel oil denied, grinding media allowed.

Modvat credit was held inadmissible on explosives used in mines adjacent to a cement factory, following Larger Bench authority that such inputs do not qualify for credit. High speed diesel oil was also found ineligible for Modvat credit on the basis of the same Larger Bench ratio. By contrast, grinding media used in steel ball mills in the manufacture of cement was recognised as eligible for Modvat credit. The appeals were therefore allowed only to the extent of credit on grinding media, and the penalty was set aside, while credit on explosives and high speed diesel oil was denied.

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Issues: (i) Whether Modvat credit was admissible on explosives used in mines adjacent to the cement factory; (ii) whether Modvat credit was admissible on high speed diesel oil; and (iii) whether Modvat credit was admissible on grinding media used in steel ball mills in the manufacture of cement.

Issue (i): Whether Modvat credit was admissible on explosives used in mines adjacent to the cement factory.

Analysis: The item was covered by the Larger Bench view that explosives used in mines adjacent to a cement factory do not qualify for Modvat credit. The Tribunal applied that ratio to the present appeals.

Conclusion: Modvat credit on explosives was not admissible, against the assessee.

Issue (ii): Whether Modvat credit was admissible on high speed diesel oil.

Analysis: The Tribunal followed the Larger Bench ratio which held that high speed diesel oil is not eligible for Modvat credit.

Conclusion: Modvat credit on high speed diesel oil was not admissible, against the assessee.

Issue (iii): Whether Modvat credit was admissible on grinding media used in steel ball mills in the manufacture of cement.

Analysis: The Tribunal applied the Larger Bench decision recognizing admissibility of Modvat credit on grinding media used in the manufacture of cement.

Conclusion: Modvat credit on grinding media was admissible, in favour of the assessee.

Final Conclusion: The appeals were allowed only to the extent of granting Modvat credit on grinding media and setting aside the penalty, while credit on explosives and high speed diesel oil was denied.

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