Modvat credit for capital goods may not be denied where a diesel generating set can be used without formal installation.

Modvat credit on a diesel generating set is available when the equipment can be put to use without formal installation, and credit cannot be denied merely because installation has not yet occurred. The text explains that Rule 57Q(7) allows immediate credit once goods are put to use where no installation is required. On the facts noted, the generating set was capable of use on receipt and no formal installation was necessary; even where installation is required, entitlement would arise after installation. The stated ratio is that eligibility depends on actual capability for use, not on a formal installation step.

---

---

Issues: Whether Modvat credit could be denied on the ground that the Diesel Generating Set was entered into credit before formal installation, when the equipment required no installation for use.

Analysis: The credit was disallowed because it was claimed before installation of the Diesel Generating Set. The decisive consideration was whether the equipment was capable of being put to use without formal installation. Rule 57Q(7) permits credit immediately when the goods are put to use where no installation is required. On the facts found, no formal installation was necessary and the generating set had been put to use on receipt. Even otherwise, entitlement would arise after installation if that were required.

Conclusion: The denial of Modvat credit was not justified and the issue was decided in favour of the assessee.

Ratio Decidendi: Where capital goods are capable of being put to use without formal installation, Modvat credit cannot be denied merely because installation has not been undertaken.

---