Modvat credit on tank coating material turned on whether storage tanks were capital goods and integral to manufacturing.

Modvat credit under Rule 57Q on coating material used inside storage tanks depended on whether the tanks qualified as capital goods and on the proper classification of the tanks. The Tribunal found that the Chapter 73 classification relied on to deny credit was not supported by the show cause notice or the original findings, so the denial could not be sustained on that basis. It further held that the record did not permit a conclusive finding on the tanks' eligibility and that the issue had to be examined first by determining whether the tanks were integrally connected with the manufacturing process. The denial of credit was set aside and the matter remanded for fresh determination.

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Issues: Whether Modvat credit under Rule 57Q was admissible on coating material used for coating the inside of storage tanks, and whether the eligibility of the tanks as capital goods required reconsideration.

Analysis: The classification of the storage tanks as falling under Chapter 73 was not supported by material in the show cause notice or the original findings. The denial of credit on the footing that the tanks were ineligible was therefore not sustained. The Tribunal noted that an earlier two-member decision had treated tanks as eligible capital goods and that the present record did not permit a conclusive finding on the tanks' eligibility. The proper course was to first determine whether the tanks were so integrally connected with the manufacturing process that, without them, manufacture could not be carried out, and then decide the eligibility of the coating material as component or accessory of such tanks.

Conclusion: The order denying credit was set aside and the matter was remanded to the Assistant Commissioner for fresh determination of the classification and eligibility of the tanks and the consequential Modvat credit claim on the impugned goods.

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