Modvat credit on parts of capital goods cannot be denied by applying the installation meant only for capital goods themselves.

Rule 57Q(2) requiring installation before credit is taken applied only to capital goods as such and not to their components, spare parts or accessories. Where Modvat credit was claimed on parts of capital goods, the installation condition could not be used to deny the credit. Credit on those parts was therefore admissible, and the disallowance was unsustainable.

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Issues: Whether the condition in Rule 57Q(2) of the Central Excise Rules, requiring capital goods to be installed before credit is taken, applies to parts of capital goods, and whether Modvat credit on such parts is admissible.

Analysis: Rule 57Q at the relevant time allowed credit on capital goods, while sub-rule (2) imposed a restriction that credit on capital goods received in the factory on or after 1 January 1996 could not be taken before installation or use. The Tribunal held that this condition was confined to capital goods as such and did not extend to components, spare parts and accessories of capital goods. Since the credit in question related to parts of capital goods, the installation requirement could not be invoked to deny the credit.

Conclusion: The credit was admissible on the parts of capital goods, and the denial of credit was unsustainable. The issue is decided in favour of the assessee.

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