Tariff classification governs capital goods credit under amended Rule 57Q; excluded air-conditioning machinery cannot qualify by use in production.

After the 1-3-1997 recast of Rule 57Q, eligibility for Modvat capital goods credit depended on tariff classification under the exclusionary schedule. Air-conditioning machinery falling under Heading 84.15 was expressly excluded from Chapter 84 eligibility, so its use in production could not override the statutory classification. Earlier Board circulars and pre-amendment decisions were confined to the prior regime and did not govern the amended rule. On that basis, credit on the air-conditioning machinery for March 1999 was not available, and the Revenue's position was upheld.

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Issues: Whether air-conditioning machinery installed in the factory was eligible for capital goods credit under Rule 57Q of the Central Excise Rules, 1944 for March 1999, and whether the nature of use of such machinery could override its tariff classification under the post-1-3-1997 regime.

Analysis: The rule was comprehensively recast with effect from 1-3-1997, and for the period thereafter eligibility for Modvat capital goods credit was governed by tariff classification. Under the table annexed to Rule 57Q(1), goods falling under Chapter 84 were eligible except those specifically excluded, and air-conditioning machinery under Heading 84.15 was expressly covered by the exclusionary clause. The earlier Board's Circular and the decisions relied upon were confined to the pre-1-3-1997 position and could not govern the subsequent regime. Since the goods were admittedly within the excluded heading, the nature of their use in production could not confer eligibility.

Conclusion: The assessee was not entitled to capital goods credit on the air-conditioning machinery for March 1999, and the Revenue succeeded.

Final Conclusion: Under the amended Rule 57Q regime, classification controlled eligibility and the excluded air-conditioning machinery did not qualify for capital goods credit.

Ratio Decidendi: After the 1-3-1997 recast of Rule 57Q, eligibility for capital goods credit depended on tariff classification under the exclusionary schedule, and machinery expressly falling within an excluded heading could not qualify merely because it was used in production.

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