Modvat credit eligibility turns on use at receipt; later manufacturing use cannot revive an ineligible capital goods claim.

Modvat credit on a grinding machine claimed as capital goods for research and development use was held inadmissible because eligibility had to be assessed at the time the machine was received. On the facts found, the machine was used only as a prototype for research and development when credit was taken, and it was not then employed in manufacturing the assessee's dutiable final products. A later assertion that the machine was subsequently installed for manufacture of other dutiable goods did not cure the defect or revive the claim, especially where no satisfactory explanation was given for its earlier non-production before the lower authority. The denial of Modvat credit was therefore upheld.

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Issues: Whether Modvat credit on a grinding machine taken as capital goods for research and development use was admissible under Rule 57Q, and whether later installation or use of the machine for manufacture of dutiable final products could revive or validate the credit.

Analysis: The imported machine was received and credit was taken when, on the facts found, it was being used only as a prototype for research and development and was not employed in the manufacture of the respondent's final products at the relevant time. The subsequent plea that the machine was later installed for use in manufacturing other dutiable products was not supported by a satisfactory explanation for its non-production before the lower authority. The governing principle applied was that admissibility of Modvat credit is determined when the capital goods are received, and later change of use does not alter that determination.

Conclusion: The later use of the machine did not make the credit admissible, and the denial of Modvat credit was upheld in favour of Revenue.

Final Conclusion: The appeal failed because eligibility for Modvat credit was to be tested at the point of receipt of the capital goods, not by a subsequent change in use.

Ratio Decidendi: Eligibility for Modvat credit on capital goods is determined with reference to their use at the time of receipt, and a subsequent use for other purposes does not revive an ineligible claim.

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