Modvat credit on spares and accessories of capital goods was upheld despite classification under a different heading.

Rule 57Q of the Central Excise Rules, 1944, as amended by Notification No. 14/96-C.E. and Notification No. 25/96-C.E. (N.T.), was treated as covering components, spares and accessories of specified capital goods under Heading 84.74 for Modvat credit purposes. The contemporaneous circular clarified that such goods were eligible for credit irrespective of their chapter classification, and the Court also relied on the earlier Division Bench decision in the assessee's own case. The amendment was viewed as clarificatory, so a restrictive denial of credit on classification grounds was not justified. The issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether the Tribunal was justified in denying Modvat credit on spares, components and accessories of capital goods falling under Heading 84.74 for the period 23.07.1996 to 31.08.1996, in view of the governing circular and the earlier binding decision in the assessee's own case.

Analysis: The dispute turned on the scope of Rule 57Q of the Central Excise Rules, 1944 after the amendments by Notification No. 14/96-C.E. and Notification No. 25/96-C.E. (N.T.). The Court noted that clause (d) of the rule covered components, spares and accessories of the specified capital goods and that the contemporaneous circular clarified that such goods were eligible for credit irrespective of their classification under any chapter heading. The Court also treated the issue as covered by the earlier Division Bench decision in the assessee's own case and accepted the view that the amendment had clarificatory operation.

Conclusion: The Tribunal was not justified in passing the impugned order, and the issue was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Where the governing rule and contemporaneous circular show that components, spares and accessories of specified capital goods are eligible for Modvat credit irrespective of classification, the benefit cannot be denied by a restrictive reading inconsistent with the binding precedent.

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