Quality testing equipment qualifies as capital goods for Modvat credit when used as part of the manufacturing process.

Quality testing equipment used as an integral part of manufacture qualifies as capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1944. The hardness tester used to test rear axle shafts in the manufacture of motor vehicles was accepted as part of the manufacturing process, so it fell within the scope of capital goods and credit was admissible. The fork lifter issue did not survive because the related credit had already been reversed and was not covered by the notice. The denial of Modvat credit on the hardness tester was therefore unsustainable.

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Issues: Whether the hardness tester used for testing rear axle shafts in the manufacture of motor vehicles was eligible as capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The dispute relating to the fork lifter did not survive, as the credit taken on that item had already been reversed and was not the subject-matter of the notice. The only live question was the eligibility of the hardness tester. The testing of rear axle shafts was accepted as part of the manufacturing process of the final products, and the hardness tester was used for that purpose. A quality testing equipment used in manufacture is treated as being used in the manufacture of final products and falls within the scope of capital goods for Modvat purposes.

Conclusion: The hardness tester was eligible as capital goods under Rule 57Q, and the assessee's claim to Modvat credit on that item was allowed.

Final Conclusion: The impugned order was unsustainable to the extent it denied Modvat credit on the hardness tester, and the appeal succeeded on that issue.

Ratio Decidendi: Quality testing equipment used as an integral part of the manufacturing process qualifies as capital goods for Modvat credit under Rule 57Q.

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