Can we use mustard oil instead of canola oil in making homemade nutell?

No. Do not use mustard oil for anything other than it's intended purpose. You don't need any oil to make nutella unless you want your product to be thin, even when cold. Hazelnuts and chocolate have more than enough natural fat/oil already. Use a high quality brand chocolate like Valrhona, if possible, because their chocolates have more cocoa butter in them than "baking" chocolates.

Other oils that would stand in for canola: grapeseed, sunflower, vegetable, light olive oil (not extra virgin/not green), almond, and hazelnut.

Peanut or sesame oil might be nice. I am only familiar with mustard oil with a very strong flavor, one that I cannot imagine in nutella.

What a fun project! Canola oil is a neutral oil with no flavor. I would think any flavorless oil would work. I'm not familiar with mustard oil, but it sounds like it would add an unfortunate flavor.