Modvat credit on pollution control equipment was allowed where the items were linked to the manufacturing process.

Modvat credit was treated as admissible on pollution control equipment and dust collection bags as capital goods under Rule 57Q where the items formed part of the manufacturing process. The governing principle applied was that equipment connected with manufacture, including pollution control machinery essential to production activity, has a sufficient nexus with manufacture to qualify for credit. Earlier authorities had followed the same approach for similar equipment, and the result was that credit was allowed for both the pollution control equipment and the dust collection bags.

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Issues: Whether Modvat credit was admissible as capital goods on pollution control equipment and dust collection bags under Rule 57Q.

Analysis: The admissibility of credit turned on whether the items used for pollution control formed part of the manufacturing process. The reasoning followed the principle that a process connected with manufacture, including pollution control essential to the production activity, is sufficiently linked to manufacture to qualify for the benefit. The earlier authorities had applied the same principle to allow credit on similar equipment.

Conclusion: Modvat credit on pollution control equipment and dust collection bags was admissible as capital goods under Rule 57Q.

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