Modvat credit on replaceable manufacturing items remained admissible as inputs or, alternatively, as capital goods under excise rules.

Modvat credit was treated as admissible on wire mesh and felt used in the manufacture of paper because the items were used as replaceable goods in the manufacturing process and therefore qualified as inputs under Rule 57A of the Central Excise Rules, 1944. Even if they were excluded from the definition of inputs as machinery, plant or equipment, they would still fall within capital goods under Rule 57Q, which also allowed credit. The Tribunal's view was considered a possible view, and the references were answered in favour of the assessee, with no question of law arising for further reference.

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Issues: Whether Modvat credit was admissible on wire mesh and felt used in the manufacture of paper, either as inputs under Rule 57A or, if excluded as inputs, as capital goods under Rule 57Q of the Central Excise Rules, 1944.

Analysis: Rule 57A allowed credit on goods used in or in relation to the manufacture of final products, and its Explanation excluded machinery, plant, equipment and similar items from the definition of inputs. The materials in question were used as replaceable goods in the manufacturing process and therefore answered the description of inputs. Even on the Revenue's contention that they formed part of machinery and stood excluded from Rule 57A, they would fall within the scope of capital goods under Rule 57Q, which also permitted credit. On either view, the credit remained admissible, and the Tribunal's approach was a possible view.

Conclusion: Modvat credit on wire mesh and felt was admissible, and the question was answered against the Revenue.

Final Conclusion: The references were answered in favour of the assessee, and no question of law arose for directing reference in the connected petitions.

Ratio Decidendi: Where an item used in manufacture is either an input under Rule 57A or, if excluded from that category, qualifies as capital goods under Rule 57Q, Modvat credit cannot be denied merely because it is classified differently under the two provisions.

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