Modvat credit for capital goods in captive mines upheld where mines form an integrated unit with the cement factory.

Modvat credit under Rule 57Q of the Central Excise Rules, 1944 was admissible on capital goods used in the cement factory, and also on a hydraulic excavator used in captive mines. The Tribunal applied binding precedent and Supreme Court decisions recognising that where captive mines form an integrated unit with the cement factory, capital goods used in those mines qualify for credit. On that basis, the credit was held admissible and the disallowance unsustainable.

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Issues: Whether Modvat credit under Rule 57Q of the Central Excise Rules, 1944 was admissible on capital goods used in the factory and on the hydraulic excavator used in captive mines of a cement manufacturer.

Analysis: The credit on the goods used in the factory was allowable under Rule 57Q. For the hydraulic excavator used in mines, the dispute was covered by binding precedent holding that where the mines are captive mines and form an integrated unit with the cement factory, capital goods used therein qualify for credit. The Tribunal followed the Supreme Court decisions recognising admissibility of credit in such circumstances.

Conclusion: The credit was admissible, including in respect of the hydraulic excavator used in captive mines, and the disallowance was unsustainable.

Ratio Decidendi: Where captive mines constitute an integrated unit with a cement factory, capital goods used in the mines are eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

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