Modvat credit on fabrication components for capital goods upheld under a liberal reading of Rule 57Q.

Modvat credit was treated as admissible on components, parts and spares used to fabricate capital goods such as a crusher plant, diesel generator set and conveyor system, even though the final products were exempt and some iron and steel items were not specifically listed under Rule 57Q of the Central Excise Rules, 1944. The Tribunal applied a liberal construction of the capital goods provision, relied on prior rulings recognising generator sets and crusher plants as capital goods, and extended credit to allied steel items and intermediate products used in the fabrication stream. On that basis, the Revenue's challenge failed.

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Issues: Whether modvat credit was admissible on components, parts and spares used in the fabrication of capital goods such as a crusher plant, diesel generator set and conveyor system, notwithstanding that the final products were exempt and that some iron and steel items were not specifically enumerated under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The Tribunal noted that earlier decisions had recognised generator sets and crusher plants as capital goods and had extended the benefit of Rule 57Q(1) to parts and components used in their fabrication. It also relied on the liberal interpretation given to the scope of the provision and on prior rulings allowing credit on steel items and intermediate products used in the manufacturing stream. On that basis, the components, spares and allied items used for the fabrication of the generator set, crusher plant and conveyor system were treated as eligible capital goods-related items for the purpose of modvat credit.

Conclusion: Modvat credit was held admissible on the components used for fabrication of the said capital goods, and the Revenue's challenge failed.

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