Modvat credit on integral thermal system equipment remains admissible despite heat being used outside the factory.

Modvat credit on a radiant coil forming part of a Thermal Fluid System installed in the factory was admissible because the coil was an integral capital good used in production. The fact that heat generated by the system was extended to a neighbouring factory did not change the character of the goods used in the appellant's factory, and the departmental decision concerning distribution of power from a D.G. set was materially different. On these facts, credit could not be denied merely because some heat was used elsewhere.

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Issues: Whether Modvat credit on radiant coil, as part of a Thermal Fluid System installed in the appellant's factory, could be denied on the ground that heat generated by the system was extended to a neighbouring factory.

Analysis: The radiant coil was treated as an integral component of the Thermal Fluid System installed in the appellant's factory. The fact that heat generated from the system had been extended outside the factory did not alter the character of the capital goods used in the factory for production. The reasoning adopted in the cited departmental decision concerned power generated by a D.G. set being distributed to another unit, which was materially different from the present facts. On the facts found, there was no basis to deny the credit merely because some heat was utilised elsewhere.

Conclusion: Modvat credit on the radiant coil was admissible and the denial was unsustainable.

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