Modvat credit on capital goods used in mines is unavailable where the mining area is not part of the factory premises.

Rule 57Q allows Modvat credit only on capital goods used by the manufacturer in the factory itself. The definition of "factory" under Section 2(e) governs whether adjoining land forms part of the factory or its precincts, and mere physical linkage by a conveyor or site-plan connectivity does not make a mining area part of the factory. Mining is distinct from manufacture, so capital goods used in mines and connected transport arrangements outside the factory do not qualify for credit merely because they support the manufacturing flow. The Tribunal followed the binding Supreme Court view and treated credit on such mine-based capital goods as unavailable.

---

---

Issues: Whether Modvat credit on capital goods used in the mines and on the conveyor arrangement connecting the mines, crusher and factory was admissible under Rule 57Q of the Central Excise Rules, 1944 on the footing that the mines area formed part of the factory premises or precincts.

Analysis: Rule 57Q permits credit only on capital goods used by the manufacturer in his factory. The definition of factory in Section 2(e) of the Central Excise Act, 1944 governs what constitutes the factory and its precincts. On the facts found, the mining area could not be treated as part of the factory merely because a conveyor linked it with the factory or because the assessee's site plan showed physical connectivity. The controlling principle applied was that mining is distinct from manufacture, and activities carried on in the mines are not, by that reason alone, integral to the manufacturing process in the factory. The earlier decisions relied upon by the assessee could not prevail over the Supreme Court ruling on the same issue, and the Tribunal followed the binding view that credit on such goods used in mines was not available.

Conclusion: Modvat credit on the capital goods used in the mines was not admissible under Rule 57Q, and the denial of credit and consequential recovery were upheld.

Ratio Decidendi: For Rule 57Q, capital goods must be used in the factory itself, and mining operations or connected transport arrangements outside the factory do not become part of the factory or its precincts merely by physical linkage with the manufacturing premises.

---