Rule 57Q capital goods credit extended to packing and electricity supply items; later amendment was not retrospective.

Rule 57Q was interpreted to mean that the amendment introduced by Notification No. 14/96-C.E. (N.T.) on 23-7-96 did not apply retrospectively to the May-June 1996 period, so entitlement for that period had to be tested under the pre-amendment position. Goods used as parts of a strapping machine were treated as capital goods because they were used in packing finished products, and packing was regarded as part of manufacture where it renders goods marketable. Goods used for supplying electricity to the manufacturing plant were also recognised as capital goods. On those grounds, Modvat credit was held admissible.

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Issues: (i) Whether the amendment to Rule 57Q introduced by Notification No. 14/96-C.E. (N.T.) dated 23-7-96 could apply to the relevant period of May-June 1996; (ii) Whether the disputed goods used as parts of a strapping machine and for electricity supply were eligible capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Issue (i): Whether the amendment to Rule 57Q introduced by Notification No. 14/96-C.E. (N.T.) dated 23-7-96 could apply to the relevant period of May-June 1996.

Analysis: The amendment came into force after the relevant period and could not govern entitlement for May-June 1996. The expanded scope of Rule 57Q brought in by the notification was therefore inapplicable to the period in dispute.

Conclusion: The amendment could not be applied to the relevant period and the revenue's objection on that ground failed.

Issue (ii): Whether the disputed goods used as parts of a strapping machine and for electricity supply were eligible capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The items used as parts of the strapping machine were found to be used in packing of finished goods, and packing was treated as part of the process of manufacture because it makes the goods marketable. Goods used for supplying electricity to the manufacturing plant were also within the recognised scope of capital goods. The factual findings on user of the goods were not disputed.

Conclusion: The goods were eligible capital goods and Modvat credit was rightly allowed.

Final Conclusion: The revenue challenge to the grant of Modvat credit failed, and the order allowing credit was sustained.

Ratio Decidendi: Goods used in packing of finished products, where packing is part of the manufacturing process necessary to render the goods marketable, and goods used for supplying electricity to the manufacturing plant, are eligible capital goods under Rule 57Q.

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