Input duty credit cannot be denied where Chapter 85 goods are used as manufacturing inputs despite exclusion from capital goods.

Goods falling under Chapter 85 and excluded from the definition of capital goods under Rule 57Q could not, on that basis, be denied input duty credit under Rule 57A where they were used as inputs in the manufacture of finished goods. The exclusion from the capital goods category did not justify treating the items as ineligible for credit when their actual use was as manufacturing inputs. The denial of input duty credit was therefore unsustainable, and the appellants were entitled to the credit.

---

---

Issues: Whether goods classified under Chapter 85 and excluded from the definition of capital goods under Rule 57Q could be denied input duty credit under Rule 57A.

Analysis: The items in question were not covered as capital goods under Rule 57Q. Since they were used as inputs in the manufacture of finished goods, and were not capital goods for the purpose of the exclusion in Rule 57A, denial of credit was not justified.

Conclusion: The denial of input duty credit was unsustainable and the appellants were entitled to the credit.

Ratio Decidendi: Where goods are excluded from the capital goods definition under Rule 57Q and are otherwise used as inputs in manufacture, they cannot be denied input duty credit under Rule 57A on the footing that they are capital goods.

---