Capital goods under Rule 57Q require manufacturing use, and later inclusion of testing equipment applies prospectively only.

A personal computer used by a manufacturer of computer parts and accessories was held not to qualify as capital goods for Modvat credit under Rule 57Q for the period before 31-5-1995. The record contained no evidence that the computer was used in or in relation to manufacture of the final product, and reliance on its use as testing equipment did not assist because testing equipment entered the Modvat scheme only from 16-5-1995. Later enlargements of the provision were treated as prospective only, so the credit claim for the earlier period failed and the Revenue's challenge succeeded.

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Issues: Whether a personal computer used by a manufacturer of computer parts and accessories qualified as capital goods for the purpose of Modvat credit under Rule 57Q of the Central Excise Rules for the period prior to 31-5-1995.

Analysis: For the relevant period, capital goods covered machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods or for bringing about a change in any substance for manufacture of the final products. The respondents produced no evidence to show that the personal computer was used in or in relation to manufacture of the final product. The only basis pressed was that it functioned as testing equipment. Testing equipment was brought within the Modvat scheme only from 16-5-1995 by Notification No. 11/95-C.E., and the later notifications were held to be prospective in nature.

Conclusion: The personal computer was not admissible as capital goods for Modvat credit for the period in question, and the Revenue's challenge succeeded.

Final Conclusion: The allowance of Modvat credit on the personal computer was set aside, and the Revenue's appeal was accepted.

Ratio Decidendi: A capital good claim under Rule 57Q for the pre-amendment period must be supported by evidence of use in or in relation to manufacture, and a later enlargement of the provision operates prospectively only.

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