Wide meaning of capital goods supports Modvat credit for items used in manufacture despite later notification.

Modvat credit under Rule 57Q was held admissible on items found, on detailed functional examination, to be used in the manufacturing process. The Revenue's objection that Notification No. 14/97-C.E. operated only prospectively and could not support credit for the earlier period was rejected. The applicable principle, drawn from Jawahar Mills, was that "capital goods" is a wide expression covering goods used for producing or processing goods, or for bringing about a change in the substance used in manufacture. Credit on the disputed items was therefore upheld.

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Issues: Whether Modvat credit under Rule 57Q of the Central Excise Rules, 1944 was admissible on the disputed items used in manufacture, and whether Notification No. 14/97-C.E. dated 23-7-97 could be treated as retrospective to deny the credit for the earlier period.

Analysis: The appellate authority had recorded detailed functional findings showing that the items in question were used in the manufacturing process. The Revenue's sole challenge was that the amended definition of capital goods introduced by Notification No. 14/97-C.E. operated only prospectively and could not support credit for the prior period. The Tribunal rejected this contention, holding that the governing principle laid down by the Supreme Court in Jawahar Mills was that the expression "capital goods" is wide and includes goods used for producing or processing goods or for bringing about a change in the substance used in manufacture.

Conclusion: The Modvat credit was rightly allowed on the disputed items, and the Revenue's objection based on the prospective operation of Notification No. 14/97-C.E. failed.

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