Capital goods credit for mining equipment used in integrally connected mines was allowed under MODVAT rules.

Dumpers and excavators used in mines contiguous to a cement factory were treated as capital goods eligible for MODVAT credit under Rule 57Q because the mining and transport of limestone were integrally connected with manufacture of the final product. The prior High Court view in favour of the assessee was followed, and equipment deployed for such mining activity was brought within the scope of credit on the basis that the mines formed part of the manufacturing chain. On that footing, MODVAT credit was allowable on the goods used in the mines, and the Revenue's challenge failed.

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Issues: Whether dumpers and excavators used in mines contiguous to the factory and integrally connected with cement manufacture qualified as capital goods for MODVAT credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The questions referred had already been answered by the High Court in favour of the assessee. On that basis, the mines where the capital goods were used were treated as integrally connected with the cement factory, and the mining and transport of limestone were regarded as processes connected with manufacture of the final product. The equipment used for such activity was therefore held to fall within the scope of capital goods eligible for credit.

Conclusion: MODVAT credit under Rule 57Q of the Central Excise Rules, 1944 was allowable on the dumpers and excavators used in the mines, and the Revenue's appeal was dismissed.

Ratio Decidendi: Where mines are integrally connected with the factory and the goods are used for processes integrally connected with manufacture, equipment used in those mines qualifies as capital goods for MODVAT credit under Rule 57Q.

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