Modvat credit for components and spares of eligible capital goods allowed despite Rule 57Q exclusion

Components, spares and accessories used with eligible capital goods were treated as qualifying for Modvat credit, even where Rule 57Q(a) excluded certain items by classification, because the principle in Jawahar Mills and the Board's circular recognised credit for parts of such capital goods. Coal mills and cement mills were regarded as eligible capital goods for this purpose, and un-machined steel lining plates and un-machined steel castings used with them were held within the permissible credit. The denial of Modvat credit was therefore not justified, and the revenue appeals failed.

---

---

Issues: Whether components, spares and accessories such as un-machined steel lining plates and un-machined steel castings used in coal mill and cement mill were eligible for Modvat credit as capital goods despite the exclusion in Rule 57Q(a).

Analysis: The benefit of Modvat credit was considered in the light of the Board's Circular No. 276/110/96-TRU dated 2-12-1996 and the principle stated in Jawahar Mills that components, spares and accessories of eligible capital goods are not to be denied credit merely because of the classification heading or the exclusion clause. The coal mill and cement mill were treated as eligible capital goods for this purpose, and the impugned items, being components, spares and accessories used with those capital goods, were held to fall within the permissible benefit.

Conclusion: The denial of Modvat credit was not justified, and the revenue appeals failed.

---