Modvat credit for external water pipelines was allowed where the system was treated as part of the factory.

Modvat credit on PVC pipes used to draw water from a well outside the factory was admissible because the water was an essential input for manufacturing aerated water. The well belonged to the assessee and was close to the factory, and the pipelines connecting the well to the factory were treated as an extension of the internal pipeline system, bringing them within the ambit of the factory under Section 2(e) of the Central Excise Act, 1944. On that basis, the pipes were not regarded as used outside the factory premises, so credit under Rule 57Q of the Central Excise Rules, 1944 could not be denied.

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Issues: Whether Modvat credit was admissible on PVC pipes used for drawing water from a well situated outside the factory premises, on the footing that the pipes formed part of the factory and were used in relation to manufacture.

Analysis: The water drawn through the pipes was an essential ingredient for manufacturing aerated water. The well was owned by the assessee and was situated only a short distance from the factory. The pipelines connecting the well to the factory were treated as an extension of the internal pipeline system and, therefore, as falling within the ambit of the factory under Section 2(e) of the Central Excise Act, 1944. On that basis, the use of the pipes was not regarded as outside the factory premises so as to deny credit under Rule 57Q of the Central Excise Rules, 1944.

Conclusion: Modvat credit on the PVC pipes was admissible, and the Revenue appeal failed.

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