Factory-use test for capital goods credit upheld for underground telephone cables under the then-applicable excise rule.

Underground telephone cables used within a factory were treated as capital goods eligible for MODVAT/CENVAT credit under the excise rules then in force. The governing test under Rule 57Q was whether the goods were used in the manufacturer's factory, not whether they had a strict nexus with the finished product. The later amended definition in Rule 57AA did not control the relevant period, and credit entitlement had to be judged by the statutory provision applicable at the material time. On that basis, the cables qualified, and credit was allowed to the assessee.

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Issues: Whether underground telephone cables used within the factory qualified as capital goods for MODVAT/CENVAT credit under the applicable Central Excise Rules.

Analysis: Under Rule 57Q as it stood during the relevant period, the decisive requirement was that the capital goods should be used in the factory of the manufacturer. The cables were admittedly used within the factory for communication between different locations and were not an excluded item. The later amended definition in Rule 57AA did not alter the governing principle for the relevant periods. The rule applicable at the material time had to be applied, and the Supreme Court authority on the earlier text of Rule 57Q supported the user test rather than a strict nexus with the finished product. Decisions rendered under different statutory regimes and different periods did not displace this position.

Conclusion: The cables were eligible capital goods for credit, and the assessee was entitled to MODVAT/CENVAT credit.

Final Conclusion: The Revenue's appeals failed, and the order allowing credit to the assessee stood confirmed.

Ratio Decidendi: For the relevant excise regime, items falling within the specified class and used in the factory of the manufacturer qualify for credit, and entitlement must be determined by the statutory provision in force at the material time.

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