Capital goods credit for preparatory manufacturing machinery was upheld despite later express inclusion under the rule.

Capital goods credit under Rule 57Q was held admissible for machinery used in the preparatory stage of cotton yarn manufacture. The decisive principle was that equipment performing an integral preparatory function in the manufacturing process qualifies for credit even if the intermediate product is not itself excisable and even if the item was expressly brought within the rule only from a later date. The equipment was treated as functionally comparable to machinery previously recognised as eligible in a similar spinning-mill setting, so denial of credit was unsustainable.

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Issues: Whether capital goods credit under Rule 57Q of the Central Excise Rules, 1944 was admissible for a machine used in the preparatory stage of manufacturing cotton yarn prior to the date on which such item was specifically brought within the rule.

Analysis: The disputed equipment was used in the process of preparing cotton for the manufacture of cotton yarn during the relevant period, and the issue was whether credit could be denied merely because the item was later specifically recognised as capital goods from 21-10-1994. The ruling applied the principle that where machinery is used in a preparatory process integrally connected with the manufacture of the excisable final product, eligibility to capital goods credit is not lost merely because the intermediate product is not itself excisable or because the item was expressly listed only from a later date. On that basis, the present equipment was treated as functionally similar to the item previously held eligible in a comparable spinning-mill context.

Conclusion: Capital goods credit under Rule 57Q was admissible to the assessee for the disputed item used in the preparatory stage of manufacture, and denial of credit was unsustainable.

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