Modvat credit on capital goods used for captive intermediate production remains admissible despite tariff-heading exclusion.

Modvat credit is allowable on capital goods and spares used in carding and combing machines when those machines produce intermediate goods captively consumed in the manufacture of final dutiable goods. Credit cannot be denied merely because the relevant machinery falls under Chapter Heading 52.02, which is excluded from the capital goods definition under Rule 57Q of the Central Excise Rules, 1944, where the machinery is integrally connected with the manufacturing process. The settled position therefore favoured the assessee, and the credit was held admissible.

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Issues: Whether Modvat credit was admissible on capital goods and spares used for carding and combing machines producing intermediate goods, notwithstanding that Chapter Heading 52.02 stood excluded from the definition of capital goods under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The appeal was covered by earlier binding decisions holding that Modvat credit cannot be denied merely because the machinery falls under a heading excluded from the capital goods definition, where such machinery is used in the manufacture of intermediate products that are captively consumed in the production of final dutiable goods. The Tribunal's view was thus consistent with the settled position that credit is available when the capital goods are integrally connected with the manufacturing process leading to duty-paid final products.

Conclusion: The question was answered against the Revenue and in favour of the assessee; Modvat credit was held admissible.

Ratio Decidendi: Modvat credit is allowable on capital goods used in the manufacture of intermediate products captively consumed for producing final dutiable goods, even if the relevant tariff heading is excluded from the capital goods definition under Rule 57Q of the Central Excise Rules, 1944.

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