Modvat credit on capital goods taken before installation required reconsideration after later eligibility arose under the rules.

Modvat credit on capital goods taken before installation and use in manufacture was initially irregular under Rule 57Q(7) of the Central Excise Rules, but the later installation and use of those goods required fresh examination of whether the credit could nevertheless be retained or adjusted. The record showed that the authorities had not considered the assessee's subsequent eligibility after installation, which was central to the claim. The order confirming denial of credit was therefore set aside, and the matter was remitted to the adjudicating authority for reconsideration on merits.

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Issues: Whether Modvat credit taken on capital goods before their installation and use in manufacture of the final product was liable to be disallowed outright, or whether the assessee's subsequent eligibility after installation required fresh examination.

Analysis: The credit had been availed during a period when the capital goods were admittedly not installed or put to use, attracting the prohibition under Rule 57Q(7) of the Central Excise Rules. At the same time, the record showed the assessee's case that the capital goods were later installed and used for manufacture of the final product, and that the authorities below had not examined whether the credit, though initially irregularly taken, could be retained or adjusted once eligibility arose. Since that aspect went to the core of the claim, it required reconsideration on merits.

Conclusion: The matter was required to be re-examined by the adjudicating authority, and the order confirming denial of credit was set aside.

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