Capital goods credit for factory air-conditioners used in production and quality control was upheld as manufacturing-related equipment.

Air-conditioners installed in a factory and used in the production hall and quality control section were treated as capital goods connected with manufacture under Rule 57Q of the Central Excise Rules, 1944. The record showed that three units maintained the temperature required for producing tablets and capsules, while the fourth was used in quality control for checking finished goods. On those facts, the goods were held to have a direct nexus with production of medicaments during the relevant period, and Modvat credit was allowed.

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Issues: Whether air-conditioners installed in the factory and used in the production hall and quality control section were eligible for capital goods credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The credit was claimed for air-conditioners used to maintain the temperature required for manufacture of medicaments. The record indicated that three air-conditioners were used in the production hall for tablet and capsule production and the fourth was used in the quality control section for checking the finished product. On these facts, the use of the goods was connected with the production of the final product during the relevant period.

Conclusion: The air-conditioners were eligible for Modvat credit under Rule 57Q, and the Revenue's appeal failed.

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