Modvat credit on excluded High Speed Diesel Oil raised a referable question of law under Rule 57D(2).

Modvat credit on High Speed Diesel Oil was examined in light of Rule 57A, where the relevant notification specifically excluded that input from eligible credit. The issue was whether such an excluded input could nevertheless qualify under the second proviso to Rule 57D(2). The Tribunal treated this as a referable question of law, since the relationship between the exclusion in the Modvat notification and the extended operation of Rule 57D(2) was not settled on the material before it. The reference was allowed and the question was referred to the High Court in favour of the Revenue.

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Issues: Whether Modvat credit could be allowed on High Speed Diesel Oil, which was excluded from the notification issued under Rule 57A of the Central Excise Rules, by invoking the second proviso to Rule 57D(2) of the Central Excise Rules.

Analysis: Rule 57A empowered the Central Government to specify the final products and inputs eligible for Modvat credit, and the relevant notification excluded High Speed Diesel Oil from the notified inputs. The Tribunal had earlier allowed credit by relying on the second proviso to Rule 57D(2), but the application raised the legal issue whether an excluded input could still be treated as eligible under that proviso. On that basis, the matter was held to involve a referable question of law.

Conclusion: The reference was allowed and the question was referred to the High Court in favour of the Revenue.

Final Conclusion: The order recognises that the eligibility of High Speed Diesel Oil for Modvat credit under the extended operation of Rule 57D(2) remained a debatable legal issue requiring adjudication by the High Court.

Ratio Decidendi: Where an input is specifically excluded from the Modvat notification under Rule 57A, its eligibility under the second proviso to Rule 57D(2) raises a referable question of law rather than a settled entitlement to credit.

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