Modvat credit for capital goods in a separate premises was upheld where the unit formed part of the manufacturing setup.

Capital goods used in a separate, unregistered premises near the registered factory were treated as used in the factory of manufacture for Modvat credit under Rule 57Q because the premises were owned and controlled by the assessee and were used only for processes connected with the main manufacturing unit. The physical separation of the premises, by itself, did not break the required nexus with manufacture of the final products. On the facts recorded, the Rule 57Q condition was satisfied and no disqualification arose; Modvat credit was therefore available.

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Issues: Whether capital goods used in a separate, unregistered premises situated near the registered factory could be treated as having been used in the factory of the manufacturer for the purpose of Modvat credit under Rule 57Q.

Analysis: The relevant test was whether the capital goods were used in the factory of the manufacturer of the final products. The factual findings recorded by the authorities showed that the so-called Mother Roll Plant was owned and controlled by the assessee, was used only for processes connected with the manufacture carried on in the main registered factory, and functioned as part of the overall manufacturing setup. On those findings, the mere physical separation of the premises and the absence of separate registration did not ate the nexus between the capital goods and the manufacture of final products. The condition in Rule 57Q was therefore satisfied and no disqualification arose on the facts found.

Conclusion: The capital goods were held to have been used in the factory of manufacture for the purposes of Rule 57Q, and the assessee was entitled to Modvat credit.

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