Broad construction of capital goods under Modvat credit rules covers machines integral to an inseparable manufacturing chain.

Rule 57Q capital goods was construed broadly to include machines, machinery, plant, equipment, apparatus, tools and appliances used for producing or processing goods, or for bringing about change in a substance for manufacture of final products. A CNC wire cut electric discharge machine used to make dyes and tools in an inseparable manufacturing chain was treated as integral to production of laminations and stampings. The machine therefore qualified as capital goods, and Modvat credit was available to the assessee.

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Issues: Whether a CNC wire cut electric discharge machine used to make dyes and tools for the manufacture of laminations and stampings qualifies as capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1994.

Analysis: The definition of capital goods under Rule 57Q was construed broadly. Machines, machinery, plant, equipment, apparatus, tools and appliances qualify if used for producing or processing goods or for bringing about any change in a substance for the manufacture of final products. The machine in question was used in a continuous and inseparable chain for producing dyes and tools, without which the final products could not be manufactured. The clause also reflects a legislative intent to give an expansive meaning to capital goods.

Conclusion: The machine was eligible capital goods and the assessee was entitled to Modvat credit. The question of law was answered in the negative, in favour of the assessee and against the Revenue.

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