Modvat credit on capital goods requires prior installation; credit taken before installation was held inadmissible.

Rule 57Q, as recast by Notification No. 6/97-C.E. (N.T.) dated 01.03.1997, treated installation of capital goods as a mandatory precondition for Modvat credit. Because the machinery was not shown to have been installed when credit was taken, and the assessee's materials did not establish prior installation, the statutory condition was not met and the credit could not be sustained. The consequence was that Modvat credit on the capital goods was held inadmissible.

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Issues: Whether Modvat credit on capital goods was admissible when taken before the machinery was installed in the factory, having regard to sub-rule 7 of Rule 57Q of the Central Excise Rules, 1944.

Analysis: The relevant version of Rule 57Q, as recast by Notification No. 6/97-C.E. (N.T.) dated 01.03.1997, made installation of the capital goods a mandatory precondition for availing credit. On the record, the machinery was not shown to have been in an installed condition on the date credit was taken, and the materials relied on by the assessee did not establish prior installation. As the statutory condition was not satisfied, the credit could not be sustained.

Conclusion: The Modvat credit was not admissible to the assessee and the Revenue's appeal succeeded.

Ratio Decidendi: Where the governing rule makes installation of capital goods a mandatory prerequisite, credit cannot be taken before such installation is established.

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