Capital goods treatment for Modvat credit turns on functional use in the manufacturing process, including power transmission and material handling.

Armoured cables, carrying idlers, polymer liners and unprocessed polyester fabric were treated as capital goods for Modvat credit under Rule 57Q because their location and function in the cement manufacturing system showed that they were used to transmit power, convey raw materials, improve the gypsum hopper's operation and capture fine cement particles for reprocessing. On that functional basis, the items were regarded as essential to the production process and within the capital goods test for Modvat purposes.

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Issues: Whether Armoured Cables, Carrying Idlers, Polymer Liners and Unprocessed Polyester fabric qualified as capital goods for Modvat credit under Rule 57Q.

Analysis: The items were found to be used in the cement manufacturing and grinding process, including transmission of power to machinery, conveying raw materials, improving the functioning of the gypsum hopper, and entrapping fine cement particles for reprocessing. On their location and function in the manufacturing system, they were held to be essential for producing cement and to satisfy the test of capital goods for Modvat purposes.

Conclusion: The items qualified as capital goods and the assessee was entitled to Modvat credit.

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