Factory-use requirement limits Modvat credit on capital goods used in underground mines beneath the factory premises.

Modvat credit on capital goods was confined to use in the manufacturer's factory under Rule 57Q of the Central Excise Rules, 1944. Capital goods used in mines situated beneath the factory premises did not satisfy that requirement because the mines, though under common ownership with the concentration plant, were not part of the factory. The definition of factory covered the premises and precincts where manufacturing or an incidental process was carried on, but not underground mines located below the factory area. Earlier decisions cited by the assessee were distinguished on their facts, and the credit claim was rejected.

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Issues: Whether Modvat credit on capital goods used in mines situated underneath the factory premises was admissible under Rule 57Q of the Central Excise Rules, 1944.

Analysis: Credit under Rule 57Q was available only where the capital goods were used in the factory of the manufacturer of final products. The mines in question were admitted to be the site where the capital goods were used, and the mere fact that the mines and the concentration plant were under common ownership did not make the mines part of the factory. The definition of factory was construed to cover the premises and precincts where manufacturing or a connected process was carried on, but not underground mines located beneath the factory area. The prior decisions relied on by the assessee were distinguished on their facts and on the basis that they did not negate the specific factory-use requirement for capital goods credit.

Conclusion: Modvat credit on the capital goods used in the mines was not admissible, and the appeal failed.

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