Modvat credit on capital goods cannot be denied solely because production had not yet commenced if the machinery was installed and used.

Modvat credit on capital goods could not be denied merely because clinker production had not yet been commissioned, where the machinery was purchased for erection work, declarations were filed, and the credit was taken and utilised in the manufacturing process. The applicable rule prohibited credit only before the capital goods were installed or used for manufacture of excisable goods, so the timing of availment had to be measured against installation and use, not against commercial commissioning of the plant. On that basis, denial of credit was inconsistent with the rule, and the assessee was entitled to the credit and consequential relief.

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Issues: Whether Modvat credit on capital goods could be denied on the ground that the machinery had been declared and credit taken before commissioning of clinker production.

Analysis: The dispute turned on the timing of availment and utilisation of Modvat credit in relation to installation and use of capital goods. The relevant rule barred taking credit on a date prior to the date on which the capital goods were installed or used for manufacture of excisable goods. The record showed that the machinery had been purchased for erection work, declarations had been filed, and the credit had been utilised in the manufacture process. In these circumstances, denial of credit merely because clinker production had not yet been commissioned was held to be inconsistent with the rule.

Conclusion: The denial of Modvat credit was unsustainable and the assessee was entitled to the credit and consequential relief.

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