Modvat credit on capital goods used in a factory training centre was admissible after the Rule 57Q amendment

After the amendment to Rule 57Q, Modvat credit on capital goods depends on use in the factory of the manufacturer and inclusion in the prescribed table, not on direct use in the manufacture of final products. Capital goods used in a training centre forming part of the factory premises were held eligible because the goods were used within the factory and were not excluded from the eligible list. On that basis, denial of credit and the consequential penalty were not justified, and the assessee obtained relief on the credit claim.

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Issues: Whether Modvat credit on capital goods used in the training centre, which formed part of the factory premises, was admissible under the amended Rule 57Q.

Analysis: The amendment brought in by Notification No. 11/95-N.T. widened the scope of credit on capital goods by requiring that the goods be used in the factory of the manufacturer and that they fall within the prescribed table. The decisive consideration was no longer use in or in relation to the manufacture of final products. Since the training centre was part of the factory and the capital goods were used there, and since the goods were not excluded from the list of eligible capital goods, denial of credit was not justified.

Conclusion: Modvat credit was admissible and the denial of credit and consequential penalty could not be sustained.

Final Conclusion: The appeal succeeded and the assessee obtained relief on the eligibility of capital goods credit.

Ratio Decidendi: After the amendment to Rule 57Q, eligibility for Modvat credit on capital goods depends on their use in the factory of the manufacturer and inclusion within the prescribed list, not on their direct use in the manufacture of final products.

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