Modvat credit cannot be denied merely because capital goods are immovable; pollution-control equipment inputs also qualify.

Modvat credit under Rule 57Q was treated as unavailable only on the ground that the capital goods to which the inputs related resulted in immovable property; the Tribunal stated that immovability alone is not a valid basis to deny credit, so the disallowance was set aside. Inputs used in an electrostatic precipitator installed to remove suspended particulate matter from factory emissions were also held eligible for credit, because pollution-control equipment linked to cleaning factory emissions forms part of the manufacturing process, and that denial was likewise set aside.

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Issues: (i) Whether Modvat credit could be denied on steel plates, coils, bars, channels and other accessories used in the manufacture of storage tanks and conveyance on the ground that the resulting items were immovable property; and (ii) whether credit was admissible on inputs used in an electrostatic precipitator installed for removing suspended particulate matter from factory emissions.

Issue (i): Whether Modvat credit could be denied on steel plates, coils, bars, channels and other accessories used in the manufacture of storage tanks and conveyance on the ground that the resulting items were immovable property.

Analysis: The credit had been rejected solely because the capital goods in relation to which the inputs were used were treated as immovable. The Tribunal followed its earlier view that there was no provision under Rule 57Q of the Central Excise Rules to deny credit merely because the relevant capital goods resulted in immovable property, and applied the same reasoning to the present goods.

Conclusion: The denial of Modvat credit on this ground was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether credit was admissible on inputs used in an electrostatic precipitator installed for removing suspended particulate matter from factory emissions.

Analysis: The electrostatic precipitator was used to remove suspended particulate matter from smoke arising in the kiln before release into the atmosphere. Such pollution-control equipment was treated as connected with the manufacturing process, and the Tribunal applied the principle that machinery used to clean effluents arising in the factory forms part of the manufacturing process.

Conclusion: Credit on the inputs used in the electrostatic precipitator was admissible and the disallowance was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive disputes concerning immovable capital goods and pollution-control equipment, while the claim relating to ceramic tiles was not pursued.

Ratio Decidendi: Modvat credit under Rule 57Q cannot be denied merely because the capital goods in relation to which the inputs are used are immovable, and pollution-control machinery used to remove factory emissions is regarded as part of the manufacturing process.

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