Liberal interpretation of capital goods under Modvat rules extends credit to bar code tracking equipment used in manufacturing.

Bar code systems and related parts used to track raw materials and maintain smooth production were treated as capital goods for Modvat credit purposes under Rule 57Q of the Central Excise Rules, 1944. A liberal interpretation of "capital goods" was applied to extend coverage to machinery items used in the production and manufacture process where they facilitate manufacture and inventory control. On that basis, Modvat credit was not denied on the impugned goods.

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Issues: Whether Modvat credit was admissible on Bar Code system and parts used for tracking raw materials in the factory as capital goods under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The impugned goods were machinery items used for keeping track of raw materials in the factory and for maintaining smooth production. In view of the liberal interpretation adopted for the expression "capital goods" in Rule 57Q of the Central Excise Rules, 1944, goods used in the production and manufacture process are covered where they facilitate manufacture and inventory control.

Conclusion: Modvat credit could not be denied on the impugned goods and the appeal succeeded.

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