Modvat credit on water-treatment equipment and moulds cannot be denied where they are integrally used in manufacture.

Modvat credit was treated as admissible on parts of a water treatment plant and equipment used to purify bore water for shampoo manufacture, because water was considered essential to the production process and such equipment was an integral manufacturing adjunct. Modvat credit was also treated as admissible on moulds used for jars and caps, since permission for removal to job workers and return within the stipulated period had been granted by the Assistant Commissioner, defeating the objection based on Rule 57S(5). The analysis concludes that denial of credit on both categories of goods was not justified on the stated grounds.

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Issues: (i) Whether Modvat credit was admissible on items used as parts of the water treatment plant and on equipment used for purifying bore water for manufacture of shampoo; and (ii) whether Modvat credit on moulds used for manufacture of jars and caps could be denied for want of permission under Rule 57S(5).

Issue (i): Whether Modvat credit was admissible on items used as parts of the water treatment plant and on equipment used for purifying bore water for manufacture of shampoo.

Analysis: The disputed items were treated as capital goods used in the manufacturing process. Water was held to be a necessary requirement for manufacture of shampoo, and equipment used for purifying bore water was regarded as an essential adjunct of production. Relying on the earlier view that credit was available on equipment used for de-mineralisation of feed water, the denial of credit on parts of the water treatment plant and allied purification equipment was found unjustified.

Conclusion: Modvat credit on these items was held admissible in favour of the assessee.

Issue (ii): Whether Modvat credit on moulds used for manufacture of jars and caps could be denied for want of permission under Rule 57S(5).

Analysis: The denial rested on the alleged absence of permission for removal of moulds to job workers. The certificate issued by the Assistant Commissioner granted permission for such removal and for return of the moulds within the stipulated period for manufacture of jars and caps. On that basis, the factual foundation for denial was not accepted.

Conclusion: Modvat credit on the moulds was held admissible in favour of the assessee.

Final Conclusion: The entire appeal succeeded, and the denial of Modvat credit on the disputed items was set aside.

Ratio Decidendi: Capital goods and equipment integrally used for purifying water required in manufacture, and moulds removed to job workers with granted permission, cannot be denied Modvat credit on the stated grounds.

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