Modvat credit on integral components allowed where batteries were necessary for generating sets to operate effectively.

Batteries fitted with generating sets were treated as admissible Modvat inputs under Rule 57A because they were an integral and necessary component for the sets to function effectively. The department's own treatment of the batteries as part of the assessable value supported the position that they were not mere accessories, and no evidence showed that generating sets were supplied without them. On that basis, duty-paid batteries qualified for credit, and the disallowance of Modvat credit was unsustainable.

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Issues: Whether Modvat credit under Rule 57A of the Central Excise Rules, 1944 was admissible on batteries fitted with generating sets.

Analysis: The batteries were treated by the department as part of the assessable value of the generating set, showing that they were regarded as an integral and necessary component. The generating set could not be put to effective use without the battery, and no evidence was produced to show that the sets were supplied without batteries. In the circumstances, the battery was not a mere accessory but a component required for running the final product, and the Modvat principle justified credit on such input-duty paid items.

Conclusion: Modvat credit on the batteries was admissible, and the disallowance was unsustainable.

Final Conclusion: The appeal succeeded and the assessee was held entitled to consequential relief in accordance with law.

Ratio Decidendi: An item that is a necessary and integral component for making the final product operational, and whose value is included in the assessable value of that product, qualifies for Modvat credit as an admissible input.

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