Capital goods credit for leakage-prevention materials in manufacturing machinery upheld where they enabled transfer of cane juice in process.

Asbestos packing and compressed asbestos fibres used to prevent leakage and ensure leakage-free transfer of cane juice within a sugar plant were treated as eligible components or integral parts of machinery under Rule 57Q. The Bench held that goods used directly in the manufacturing process to enable transfer of materials between stages, and to maintain the functioning of the plant, qualify for credit where the rule permits such treatment. Following an earlier identical ruling and declining the contrary single-member view relied on by the Revenue, credit was held admissible and the assessee succeeded.

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Issues: Whether asbestos packing and compressed asbestos fibres used to prevent leakage in pipes for transfer of cane juice within the sugar plant were eligible for credit as components or integral parts of machinery under Rule 57Q.

Analysis: The goods were used in the course of manufacture to ensure leakage-free transfer of cane juice from one stage to another. A prior Bench decision on an identical use of material for sealing leakage and enabling flow of liquids during manufacture had held that credit was admissible. The present Bench agreed with that view and declined to follow the contrary single-member view relied on by the Revenue.

Conclusion: Credit was admissible and the assessee succeeded on the issue.

Final Conclusion: The impugned order was set aside and the appeals were allowed.

Ratio Decidendi: Goods used as essential parts or components in machinery employed directly in the manufacturing process, including for preventing leakage and enabling transfer of materials during manufacture, qualify for credit where the governing rule so permits.

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