Modvat credit for component capital goods cannot be denied merely because the full equipment was not purchased together.

A diesel engine established to form part of a generating set qualifies for Modvat credit as capital goods under Rule 57Q. Credit cannot be denied merely because the complete generating set was not purchased as one unit, since entitlement to the whole extends to its constituent part. The note also indicates that a further enquiry into whether the set was integral to the manufacturing process was unnecessary. The assessee's entitlement to credit was therefore upheld.

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Issues: Whether a diesel engine, treated as a part of a generating set used in the factory, was eligible for Modvat credit under Rule 57Q of the Central Excise Rules despite the generating set as a whole not having been purchased.

Analysis: The finding that the diesel engine formed part of the generating set was not disputed. On that footing, the engine fell within the relevant clause of the Explanation to Rule 57Q. Denial of Modvat credit merely because the entire generating set was not bought together was unsustainable, since entitlement to credit for the whole necessarily includes its constituent part. The further enquiry directed on the integrality of the manufacturing process was unnecessary.

Conclusion: The diesel engine was eligible for Modvat credit and the assessee's entitlement was upheld.

Ratio Decidendi: Where a component is established to be part of eligible capital goods, Modvat credit cannot be denied merely because the complete equipment was not purchased in one unit.

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