Capital goods credit on bagasse baling press remains available where the machine supports sugar manufacture through fuel and steam generation.

Credit as capital goods was held admissible on a bagasse baling press used in the factory to bale bagasse for fuel in boilers, where the resulting steam and electricity were employed in sugar manufacture. The exemption attached to bagasse did not by itself defeat credit, because the relevant restriction under Rule 57R(1) applies only when capital goods are used exclusively to produce an exempt final product or a nil-rate product. The machine's essential use in the manufacturing process was sufficient, and the fact that some bagasse was cleared did not alter that conclusion.

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Issues: Whether credit as capital goods was admissible on a bagasse baling press used in the factory for baling bagasse, where the bagasse was used as fuel for generation of electricity employed in the manufacture of sugar, notwithstanding that bagasse was exempt and some portion was cleared.

Analysis: The credit was already allowed in an earlier Tribunal decision on the same type of machine, on the basis that a bagasse baling press is used in the manufacturing process of sugar because the baled bagasse is used as fuel in boilers for steam generation and the steam so generated is used for plant operations including manufacture of sugar. The bar under Rule 57R(1) applies only where capital goods are used exclusively for production of an exempt final product or a product chargeable to nil rate. The present case involved use of the machine in the factory for pressing bagasse used in the generation of electricity for manufacture of sugar, so the cited distinction regarding some clearing of bagasse did not alter the essential use of the machine.

Conclusion: Credit on the bagasse baling press was admissible and the Revenue's challenge failed.

Final Conclusion: The appeal was rejected because the impugned credit on the bagasse baling press was upheld as allowable capital goods credit.

Ratio Decidendi: Capital goods used in the manufacturing process are not denied credit merely because they are connected with an exempt intermediate product, unless they are used exclusively for production of an exempt final product or one chargeable to nil rate of duty.

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