Modvat credit for lubricants fails where crusher machinery operates outside the approved factory premises.

Lubricating oils and greases used for crusher and material-handling machinery outside the approved factory premises were not eligible for Modvat credit as capital goods under Rule 57Q, because the rule required use in the factory of manufacture of the final product. The limestone mine and crusher site were not part of the approved ground plan, so goods used there could not be treated as used in the factory under Section 2(e) of the Central Excises and Salt Act, 1944. The lubricants were therefore ineligible, and the prior view that the machinery itself was not qualifying capital goods reinforced that result.

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Issues: Whether lubricating oils and greases used for crusher and material-handling machinery located outside the approved factory premises were eligible for Modvat credit as capital goods under Rule 57Q.

Analysis: Rule 57Q required the capital goods to be used in the factory of manufacture of the final product. The limestone mine and crusher site were not included in the approved ground plan of the factory under Rule 44. Goods used outside the approved factory area could not be treated as part of the factory under Section 2(e) of the Central Excises and Salt Act, 1944. The lubricants were used only for machinery situated and operating outside the factory, and the earlier decision in the same assessee's case had already held the machinery itself to be ineligible capital goods. The decisions cited on crushing of limestone as manufacture were treated as distinguishable and, in any event, inconsistent with the later Supreme Court view on the meaning of manufacture.

Conclusion: The lubricants used in the crusher and other material-handling equipment outside the cement factory were not eligible capital goods for Modvat credit under Rule 57Q.

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