Functional use in manufacture supports Modvat credit for testing and supporting goods used in or in relation to production.

Rule 57Q credit was treated as admissible on the hot water generator, industrial water heater, computer system, siliminate mortar and zimborne cement because the items had a direct functional nexus with manufacture and testing of the final product. The hot water generator and computer system supported thermal quality and heat-transfer testing, while the industrial water heater supplied heat required in the process. Even where siliminate mortar and zimborne cement were doubtful as capital goods, they were accepted as inputs since they were necessary for furnace operation and were used in or in relation to manufacture. The absence of a separate Rule 57A claim did not defeat entitlement where Rule 57T declaration had been made.

---

---

Issues: Whether credit under Rule 57Q was admissible on hot water generator, industrial water heater, computer system, siliminate mortar and zimborne cement used by the assessee in its manufacturing process.

Analysis: The goods were found to have a direct nexus with the manufacture and testing of the final product. The hot water generator and computer system were used for testing thermal quality and heat transfer value, while the industrial water heater supplied heat required for the manufacturing process. Applying the principle that capital goods are to be understood by their functional use in the manufacturing activity, the items qualified for credit. As to siliminate mortar and zimborne cement, even if their eligibility as capital goods was doubtful, they were treated as inputs because they were necessary for the proper running of the furnace and were used in or in relation to manufacture. The absence of a separate claim under Rule 57A did not defeat entitlement where the goods were otherwise eligible and declaration under Rule 57T had been made.

Conclusion: Credit was admissible and the denial of Modvat credit was unsustainable.

Ratio Decidendi: Goods having functional utility in the manufacturing process, including testing and supporting operations, qualify for Modvat credit as capital goods or inputs where they are used in or in relation to manufacture and the relevant procedural declaration has been made.

---