Quality-control equipment qualifies for Modvat credit when used in relation to manufacture, even if it does not directly process goods.

Modvat credit on an electronic yarn evenness tester was treated as admissible because the item was used for quality control in relation to manufacture. It was not regarded as equipment that itself brought about material change or directly processed goods, but credit was still available as an input used in or in relation to manufacture where capital goods credit under Rule 57Q was unavailable. The tribunal's earlier decision on the same functional issue remained binding on the Commissioner (Appeals), and a pending reference application did not reduce its effect absent a stay. Classification under Heading 84.71 did not by itself justify denial once functional eligibility was established.

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Issues: Whether Modvat credit on an electronic yarn evenness tester was admissible as capital goods credit under Rule 57Q of the Central Excise Rules, 1944, or alternatively as inputs under Rule 57A of the Central Excise Rules, 1944.

Analysis: The tester was accepted as being used for quality control purposes. On that factual basis, it was not an instrument bringing about a change in the material or used for processing or producing goods, but the credit claim was still maintainable because the item qualified as an input used in or in relation to manufacture if Rule 57Q credit was not available. The earlier tribunal decision on the same functional issue bound the Commissioner (Appeals), and the mere filing of a reference application did not dilute that decision in the absence of any stay. The objection based on tariff classification under Heading 84.71 did not justify denial once eligibility was otherwise made out.

Conclusion: Credit was admissible and the Revenue's challenge failed.

Ratio Decidendi: Where an item is used for quality control in relation to manufacture, credit cannot be denied merely because it does not itself effect production or because a contrary reference is pending without stay; eligibility must be determined on the functional use of the item.

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