Modvat credit on inputs for DG set chimney fabrication allowed where the chimney qualified as an accessory to capital goods.

Modvat credit was held admissible on steel channels and steel sheets used to fabricate a chimney for DG sets because the DG sets were treated as capital goods under Chapter 85 and covered by Rule 57Q. The chimney was treated as an accessory of the DG set, and accessories of specified capital goods also qualified for credit. Credit could not be denied merely because the inputs were not used as standalone parts of the DG set; their use in fabricating an eligible accessory was sufficient. The denial of credit was therefore unsustainable.

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Issues: Whether Modvat credit was admissible on steel channels and steel sheets used in the fabrication of a chimney for DG sets.

Analysis: DG sets were treated as capital goods under Chapter 85 of the Central Excise Tariff and were covered by the table below Rule 57Q of the Central Excise Rules, 1944. The chimney was regarded as an accessory of the DG set, and accessories of specified capital goods were also eligible as capital goods. Since the impugned steel channels and sheets were used to fabricate the chimney, the credit could not be denied merely because the items were not used as standalone parts of the DG set.

Conclusion: Modvat credit was admissible on the steel channels and steel sheets used for fabrication of the chimney, and the denial of credit was unsustainable.

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