Capital goods under Modvat credit extended to factory accessories, components and parts used in plant operations.

High temperature colour closed circuit TV, mechanical interlock and assembled expansion joints were treated as capital goods eligible for Modvat credit because their use in the factory was undisputed and each item functioned as an accessory, component or part of equipment used in the plant. The closed circuit TV monitored kiln burning conditions, the mechanical interlock formed part of pollution control equipment, and the expansion joints were used as parts of ducts. On that basis, Rule 57Q was applied to extend credit to these items, and the disallowance of Modvat credit was found unsustainable.

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Issues: Whether the disputed items, namely high temperature colour closed circuit TV, mechanical interlock, and assembled expansion joints, qualified as capital goods and eligible for Modvat credit under Rule 57Q.

Analysis: The use of all the items in the factory was not disputed. The closed circuit TV was used as an accessory to the kiln for monitoring burning conditions, the mechanical interlock formed part of pollution control equipment, and the assembled expansion joints were used as parts of ducts in the plant. Rule 57Q extends credit not only to specified goods used in the factory but also to their accessories, components and parts. On that basis, the disputed items fell within the scope of capital goods for Modvat credit.

Conclusion: The items were eligible for Modvat credit and the disallowance was unsustainable.

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