Modvat credit under Rule 57Q cannot be claimed on repair charges or duty paid on parts used in repairs.

Rule 57Q Modvat credit is confined to duty paid on capital goods, and does not extend to repair and labour charges incurred for maintaining such goods. Duty paid on spares, parts or materials used by a repairer in repair work also cannot be treated as duty on capital goods received by the assessee. The credit mechanism therefore does not cover reimbursement of repair expenses or duty paid on consumables used in repairs, and the claim for credit on those items was disallowed.

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Issues: Whether Modvat credit under Rule 57Q could be claimed on repair and labour charges incurred for capital goods, or on duty paid on spares and parts used in such repairs.

Analysis: Rule 57Q permits Modvat credit in respect of capital goods and the duty paid thereon. Expenditure incurred for repairing capital goods does not itself become duty paid on capital goods. Likewise, duty paid on spares, parts, or materials used by the repairer in carrying out repairs cannot be equated with duty on capital goods received by the assessee. The credit mechanism does not extend to reimbursement of repair charges or to duty paid on items consumed in repair work.

Conclusion: The claim for Modvat credit on repair and labour charges was not allowable and the denial of credit was upheld.

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