Modvat credit for pollution-control plant materials upheld; immovable character alone does not defeat eligibility or penalty relief.

Modvat credit was admissible on cement and steel used to erect an effluent treatment plant required for pollution-control compliance and forming an integral part of the manufacturing process. The materials were treated as eligible for credit because they supported installation of capital goods connected with pollution control, and the plant's immovable character did not by itself defeat eligibility. As the credit was taken after declarations and procedural compliance, the penalty could not be sustained. The assessee therefore succeeded on both credit entitlement and penalty.

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Issues: Whether Modvat credit was admissible on cement and steel used for erection and installation of an effluent treatment plant, and whether penalty could be sustained on such credit being availed.

Analysis: The effluent treatment plant was installed pursuant to pollution-control requirements and was an essential condition for operating the factory. Cement and steel were admittedly used for constructing and erecting that plant. The materials were used for installation of capital goods connected with pollution control, and the plant formed an integral part of the manufacturing process. Credit on such items was supported by earlier decisions recognising pollution control equipment and the materials used to support or erect such equipment as eligible for Modvat or capital goods credit. The fact that the plant may be an immovable structure did not justify denial of credit. As the credit was taken after filing declarations and complying with procedural requirements, no penalty could survive.

Conclusion: Modvat credit on cement and steel was admissible and the penalty was unsustainable; the decision was in favour of the assessee.

Ratio Decidendi: Materials used for erection or structural support of an eligible pollution control plant are entitled to Modvat or capital goods credit when the plant is an integral and necessary part of the manufacturing process, and immovable character of the resulting structure does not by itself defeat the credit.

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