Modvat credit on capital goods upheld for accessories and spares of diesel generating sets, except a transport container item.

Rule 57Q permitted Modvat credit on duty-paid capital goods used in the factory, and its Explanation treated machinery, plant, equipment, components, spare parts and accessories as capital goods. Applying that definition, items used as accessories or spares of diesel generating sets in the captive power plant, or otherwise falling within the statutory category, were eligible for credit despite tariff classification not being the governing test for the period in dispute. Credit was therefore upheld for the disputed items in the first and third appeals. An item described as VCM bullet, used only as a transport container and not in the factory, did not qualify, so credit was denied for that item alone in the second appeal.

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Issues: Whether the assessees were entitled to Modvat credit on the disputed items as capital goods under Rule 57Q of the Central Excise Rules, 1944, including items used as accessories or spares of diesel generating sets and other plant equipment, and whether credit was unavailable for an item not used in the factory.

Analysis: Rule 57Q allowed credit on specified duty-paid capital goods used in the factory, and its Explanation treated machines, machinery, plant, equipment and their components, spare parts and accessories as capital goods. The disputed items in the three appeals were found to be used largely as accessories or spares of diesel generating sets in the captive power plant or otherwise as items covered by the statutory definition. For the period in dispute, tariff classification was not the governing test for eligibility. On the facts, all items in the first and third appeals were held eligible. In the second appeal, the item described as VCM bullet was used as a container for transportation of input and was not used in the factory, so credit was unavailable for that item alone.

Conclusion: Modvat credit was upheld for the disputed items as capital goods in substance, except for VCM bullet in the second appeal, for which credit was denied.

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