Capital goods exemption for machine accessories affirmed where dobby cards were treated as weaving machine accessories and not inputs.

Dobby cards, treated as accessories of weaving machines, were considered capital goods because accessories of capital goods fall within the capital goods definition under the Cenvat Credit Rules. The restriction denying exemption for goods used in exempt final products was held to apply to inputs, not to capital goods or their accessories. On that basis, the benefit of Notification No. 67/95-CE was available and the denial of exemption was set aside in favour of the assessee.

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Issues: Whether dobby cards, being accessories of weaving machines, were capital goods eligible for exemption under Notification No. 67/95-CE, notwithstanding their use in manufacturing exempt final products.

Analysis: The dobby cards were treated as accessories of weaving machines. Since weaving machines are capital goods and their accessories also fall within the definition of capital goods under the Cenvat Credit Rules, the restriction applicable to inputs used in exempted final products did not govern the present goods. The earlier Tribunal decisions recognizing that the disqualification for use in exempted final products applies only to inputs, and not to capital goods, were followed.

Conclusion: The dobby cards were held to be capital goods eligible for exemption under Notification No. 67/95-CE, and the denial of benefit was set aside in favour of the assessee.

Ratio Decidendi: A restriction denying exemption for use in exempted final products applies to inputs and not to capital goods or their accessories when the goods otherwise fall within the definition of capital goods.

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