Capital goods credit extends to functional accessories of diesel generating sets when they are necessary for effective operation.

Flexible mounting and flexible connector used with diesel generating sets in a captive power plant were treated as accessories or fittings, not mere consumables, because they absorbed vibration and supported uninterrupted operation. Since the diesel generating sets were eligible capital goods, their functionally necessary accessories also fell within clause (b) of Explanation 1 to Rule 57Q of the Central Excise Rules, 1944. On that basis, capital goods credit was admissible for both items and denial of credit was unsustainable.

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Issues: Whether flexible mounting and flexible connector used in diesel generating sets of a captive power plant were eligible for capital goods credit as accessories under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The items were found to be used with the DG sets to absorb transverse vibrations and ensure continuous running of the power plant without breakdown. Flexible mounting was treated as a hardened rubber pad used as a mounting for the DG sets and not as a mere consumable. Flexible connector was also treated as a fitting/accessory serving the same operational function. Since the captive power plant itself was eligible capital goods under Rule 57Q, its accessories were also covered by clause (b) of Explanation 1 to sub-rule (1) of Rule 57Q as it then stood.

Conclusion: The flexible mounting and flexible connector were eligible for capital goods credit as accessories to the diesel generating sets, and the denial of credit was unsustainable.

Ratio Decidendi: Items used as accessories or fittings to eligible capital goods, and functionally necessary for their effective operation, qualify for capital goods credit under Rule 57Q.

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