Functional use of plant components governs Modvat credit eligibility, even when tariff classification falls outside the capital goods table.

Oxygen storage tanks installed in a plant were treated as eligible for Modvat credit under Rule 57Q because they functioned as essential components of plant and machinery. A departmental circular was relied on to confirm that parts, components and accessories used with capital goods covered by Explanation (1) to Rule 57Q could qualify for credit even if classifiable under a chapter heading not listed in the capital goods table. Functional use, rather than tariff classification alone, determined eligibility, so the credit was allowed and the Revenue's objection failed.

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Issues: Whether oxygen storage tanks installed in the assessee's plant and used as essential components of plant and machinery were eligible for Modvat credit under Rule 57Q, notwithstanding their classification under Heading 73.11.00.

Analysis: The tanks were found to be essential components of the plant and machinery. Reliance was placed on the departmental circular clarifying that all parts, components and accessories used with capital goods falling within clauses (a) to (c) of Explanation (1) to Rule 57Q, and classifiable under any chapter heading, were eligible for Modvat credit. The classification of the tanks under a heading not mentioned in the table of capital goods did not disqualify them from credit once their functional use as components was established.

Conclusion: The credit was rightly allowed and the Revenue's challenge to deny exemption failed.

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