Modvat credit on DG set components allowed as capital goods used in factory manufacturing infrastructure

Parts and components of a DG set received in the factory and used for erection and commissioning of the set qualified as capital goods under Rule 57Q of the Central Excise Rules, 1944. Because the DG set formed part of the manufacturing infrastructure and generated electricity for production, Modvat credit was available on the components as parts, spares and accessories covered by the rule. Prior decisions on similar equipment were applied, and the later Supreme Court view on DG set plant components was followed. The assessee was therefore entitled to Modvat credit, and the revenue's challenge to the credit allowance failed.

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Issues: Whether the assessee was entitled to Modvat credit on parts and components of a DG set received in its factory and used for erection/commissioning of the DG set.

Analysis: The credit claim was examined under Rule 57Q of the Central Excise Rules, 1944, which permits credit on capital goods, including parts, spares and accessories. The components were received in the assessee's factory and were used to erect the DG set required for generating electricity for manufacture of the final product. The governing principle applied was that such equipment, when forming part of the manufacturing setup and used for the assessee's factory operations, qualifies as capital goods for Modvat purposes. The prior decisions relied upon were treated as covering the issue, and the later Supreme Court view on DG set plant components was followed.

Conclusion: The assessee was entitled to Modvat credit on the DG set parts and components.

Final Conclusion: The revenue's challenge to the grant of Modvat credit failed, and the allowance of credit by the appellate authority stood affirmed.

Ratio Decidendi: Parts and components of equipment received in the factory and used as part of the assessee's manufacturing infrastructure are eligible for Modvat credit as capital goods when they are covered by the applicable rule.

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