Modvat credit on DG set components allowed for captive power plant installation under capital goods rules.

Modvat credit was admissible on parts, components and accessories of diesel generating sets used in the initial setting up of a captive power plant in the factory. Rule 57-T(7) allowed credit on specified duty paid capital goods used by a contractor or job-worker for initial setting up, renovation, modernisation or expansion on behalf of the manufacturer. The Tribunal held that the DG set installation formed part of the factory's power plant and that the component parts qualified as capital goods under Rule 57-Q. Credit could not be refused merely because the assembled DG sets had not independently discharged duty.

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Issues: Whether Modvat credit was admissible on parts, components and accessories of diesel generating sets used for setting up a captive power plant in the factory of the manufacturer under Rule 57-T(7) of the Central Excise Rules.

Analysis: Rule 57-T(7) permits credit of specified duty on capital goods paid by a contractor or job-worker who undertakes initial setting up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products. The diesel generating sets in question constituted a power plant for the assessee's factory, and the contractor was engaged for initial setting up of that captive power plant. Parts, components and accessories of the DG sets fell within the expression of capital goods under Rule 57-Q, and credit could not be denied merely because the assembled DG sets themselves had not discharged duty. The Tribunal also noted that the reasoning that only complete DG sets could qualify was incorrect, because the rule covered the component parts themselves as capital goods.

Conclusion: Modvat credit on the parts, components and accessories of the DG sets was admissible under Rule 57-T(7), and the assessee succeeded on this issue.

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