Modvat credit on external utility pipelines allowed where pipes carried water to the factory for manufacturing use.

Modvat credit was considered admissible on pipes and tubes laid outside the factory when the pipeline carried water from a distant reservoir for use in manufacture. The controlling principle applied was that, where one end of the pipeline is within the factory and the external segment functions as part of the manufacturing utility system, the distance outside the premises is not decisive. The Tribunal treated the line as an extension of the factory's operations and followed earlier decisions on similar external utility pipelines. Credit on the pipes and tubes was therefore allowed.

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Issues: Whether Modvat credit was admissible on pipes and tubes laid outside the factory and used for carrying water from a reservoir to the factory for manufacture of finished products.

Analysis: The dispute concerned pipes/tubes used to bring water from a reservoir located several kilometres away to the factory. The controlling principle applied was that, if one end of the pipeline is within the factory and the pipeline is used for bringing water for manufacture, the distance outside the factory is not decisive. The Tribunal treated the pipeline as an extension of the factory system and followed earlier decisions allowing credit on similar external utility pipelines used for the manufacturing process.

Conclusion: Modvat credit on the pipes and tubes was admissible and the issue was decided in favour of the assessee.

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