Modvat credit on capital goods outside factory premises denied, with only the mine-as-factory factual issue remitted.

Modvat credit on capital goods is available only when the goods are used in the factory of production; capital goods deployed outside the factory do not qualify. On that principle, credit for capital goods used in mines outside the factory premises was held inadmissible. The only issue left open was the factual contention that the mines were underground and therefore formed part of the factory premises, which was remitted for determination. The legal position on eligibility was thus decided against the assessee, subject to the limited factual inquiry on the status of the mines.

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Issues: Whether Modvat credit is admissible on capital goods used in mines outside the factory premises.

Analysis: Credit under the Modvat scheme is available only where the goods are used in the factory of production. Applying the governing principle that inputs or capital goods used outside the factory do not qualify for credit, the Tribunal held that capital goods deployed in mines situated outside the factory premises are not eligible. The only matter left open was the factual plea that the mines were underground and, therefore, formed part of the factory premises, which was remitted for determination.

Conclusion: Modvat credit on capital goods used in mines outside the factory premises is not admissible; the assessee's claim survives only to the extent of the remitted factual question.

Final Conclusion: The legal position on admissibility was answered against the assessee, while the matter was sent back for a limited factual inquiry on whether the mines were within the factory premises.

Ratio Decidendi: Modvat credit is not admissible on capital goods used outside the factory of production; eligibility depends on use within the factory premises.

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