Capital goods credit for air conditioners used in manufacture was allowed where the equipment formed part of the production apparatus.

Capital goods credit under Rule 57Q was considered available for air conditioners used in the manufacturing process because the definition of capital goods was applied broadly and eligibility turned on actual use in relation to manufacture. Where the air conditioner conditioned and controlled surrounding air temperature for production, it was treated as part of the manufacturing apparatus. On that basis, the air conditioner and its components were treated as eligible capital goods, and Modvat credit was available.

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Issues: Whether capital goods credit under Rule 57Q of the Central Excise Rules, 1944 was available in respect of air conditioners used in the manufacturing process.

Analysis: The relevant definition of capital goods under the Explanation to Rule 57Q was held to be wide. The controlling principle applied was that the actual use of the item in relation to manufacture determines eligibility. Since the air conditioner was used for conditioning and controlling surrounding air temperature for manufacture of the final product, it was treated as part of the manufacturing apparatus for the purpose of credit.

Conclusion: The air conditioner and its components were held to be eligible capital goods, and Modvat credit was available to the assessee.

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