Capital goods credit allowed for refractory materials; wrong-rule declaration did not by itself justify denial of Modvat relief.

Refractory materials used for lining and the proper functioning of machinery were treated as parts of the machinery rather than inputs used in relation to manufacture, so Modvat credit under Rule 57A was not available. The materials were, however, covered by the capital goods scheme under Rule 57Q, and credit was directed to be allowed on that basis. Denial of credit was held unwarranted merely because the declaration had been filed under the wrong rule, as strict insistence on the declaration requirement alone could not defeat otherwise admissible capital goods credit.

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Issues: Whether refractory materials used in the machinery were eligible for Modvat credit as inputs under Rule 57A of the Central Excise Rules, 1944, or were only eligible as capital goods under Rule 57Q of the Central Excise Rules, 1944, and whether credit could be denied for want of strict compliance with the declaration requirement.

Analysis: The goods in question were refractory materials used for lining and proper functioning of the machinery. On that basis, they were not treated as inputs used in relation to manufacture but as parts of machinery falling within the capital goods scheme. The earlier Tribunal view relied upon by the assessee was not followed in view of the contrary High Court ruling. The credit was, however, directed to be allowed as capital goods credit, and denial was held unwarranted merely because the declaration had been filed under the wrong rule, since such credit should not be refused on that ground alone.

Conclusion: The goods were not eligible as inputs under Rule 57A but were eligible as capital goods under Rule 57Q, and the assessee was entitled to the credit without strict insistence on the declaration requirement.

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