Modvat credit on capital goods cannot be denied merely because their end-use was fire-fighting equipment assembly.

Modvat credit on capital goods was treated as admissible where the goods were purchased under duty-paid invoices describing them under independent chapter sub-headings, none of which fell within the exclusion under Rule 57Q. The analysis states that credit taken on the strength of those invoices could not be denied merely because the goods were ultimately used in assembling a fire hydrant system, since the rule did not impose an end-use restriction. The stated consequence was that denial of credit was unsustainable and the assessee was entitled to the claimed credit with consequential relief.

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Issues: Whether Modvat credit on the capital goods was admissible when the goods were procured under duty-paid invoices describing them by independent chapter sub-headings and not as parts of fire-fighting equipment, and whether credit could be denied solely on the basis of end-use under Rule 57Q.

Analysis: The capital goods were purchased under duty-paid invoices at different times from different suppliers, and the invoices described them by specific chapter sub-headings. None of those sub-headings fell within the exclusion under Rule 57Q. The credit had been taken on the strength of the invoices, and the rule did not incorporate any condition denying credit merely because the goods were ultimately used in the assembly of a fire hydrant system.

Conclusion: Modvat credit was admissible and the denial of credit was unsustainable.

Final Conclusion: The appeal succeeded and the assessee was granted the credit claimed, with consequential relief.

Ratio Decidendi: Where capital goods are covered by duty-paid invoices and are not excluded by the relevant capital goods rule, credit cannot be denied merely on the basis of their end-use if the rule does not impose such a restriction.

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