Modvat credit on factory-used capital goods allowed where machines fell within Rule 57Q despite no proof of pollution control use.

Modvat credit was available on the disputed machines and systems as capital goods where they were used in the factory for manufacture of final products. Credit could not be denied merely because the assessee did not establish them as pollution control equipment, since the governing test under Rule 57Q is whether the goods fall within the specified category and are used in the factory of production. On that basis, the denial of credit was unsustainable.

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Issues: Whether the disputed machines and systems were eligible for Modvat credit as capital goods under Rule 57Q.

Analysis: The use of the disputed items in the factory for manufacture of the final goods was not in dispute. Credit had been denied only on the ground that the assessee had not shown them to be pollution control equipment. The governing test under Rule 57Q, as applied in the decision, is whether the goods fall within the specified category and are used in the factory of production for manufacture of final products; actual use in the manufacture process is not the sole requirement where the rule covers factory-use capital goods.

Conclusion: The disputed items were eligible for Modvat credit as capital goods, and the denial of credit was unsustainable.

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