Modvat credit on capital goods is not denied merely because factory-use items become part of immovable structures.

Rule 57Q allowed Modvat credit on capital goods used in the factory where the goods had a nexus with manufacturing activity, even if they did not directly produce the final product. On that basis, material handling equipment, electrical machinery, apparatus and cables were treated as eligible capital goods. Credit on cement, steel and allied structural items was not barred merely because the items formed part of an immovable structure; eligibility depended on their actual use in factory foundations, housing or protective structures. The immovability objection was rejected, but the factual question of actual use was left open for verification on remand.

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Issues: (i) Whether items such as material handling equipment, electrical machinery, apparatus and cables were eligible for Modvat credit as capital goods under Rule 57Q; (ii) Whether cement, steel and allied structural items used in the factory foundation and supporting structures were eligible for credit, and whether the factual use of such items required verification.

Issue (i): Whether items such as material handling equipment, electrical machinery, apparatus and cables were eligible for Modvat credit as capital goods under Rule 57Q.

Analysis: Rule 57Q permitted credit on capital goods used by the manufacturer in the factory. The legal test applied was not whether the goods directly produced or processed the final product, but whether they were required for manufacture and had a nexus with the manufacturing activity. On that footing, equipment and cables used in the factory were within the scope of capital goods.

Conclusion: The credit was admissible in respect of these items and the finding was in favour of the assessee.

Issue (ii): Whether cement, steel and allied structural items used in the factory foundation and supporting structures were eligible for credit, and whether the factual use of such items required verification.

Analysis: The reasoning proceeded on the basis that Rule 57Q did not exclude credit merely because the goods, when used, became part of an immovable structure. Plant could include buildings or structures necessary for the factory, but credit would depend on whether the goods were actually used as foundation, housing, protective cover or similar factory-related structures. The Tribunal therefore confined the issue to verification of actual use and remanded it for evidence and decision.

Conclusion: The legal objection to credit on the sole ground of immovability was rejected, but the factual question of actual use was remanded for determination.

Final Conclusion: Credit was allowed for the eligible items, while the claim relating to structural items was kept open for limited factual examination on remand.

Ratio Decidendi: Under Rule 57Q, Modvat credit cannot be denied merely because capital goods used in manufacture become part of an immovable structure; eligibility depends on whether the items are used in the factory for manufacturing purposes within the scope of capital goods.

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