Functional test for capital goods allowed Modvat credit on gear boxes and measuring tanks used in manufacturing

Gear boxes and measuring tanks were treated as capital goods for Modvat credit purposes because their function in the manufacturing process made them components necessary to the plant and machinery used in manufacture. Gear boxes operated as mechanical components fitted in reaction vessels to drive the stirrer, while measuring tanks received and measured liquid raw material and were connected to the plant for controlled material flow. On that functional basis, both items fell within Rule 57Q(i)(b), and Modvat credit was admissible; the credit disallowance was unsustainable.

---

---

Issues: Whether gear boxes and measuring tanks qualified as capital goods for Modvat credit under Rule 57Q(i)(b) of the Central Excise Rules, 1944.

Analysis: The goods were examined by reference to their function in the manufacturing process. Gear boxes were found to operate as mechanical components installed in the reaction vessels for driving the stirrer, while measuring tanks were used to receive and measure liquid raw material and were connected to the plant for controlled passage of material. On this functional basis, both items were treated as components necessary to the plant and machinery used in manufacture.

Conclusion: The goods satisfied the definition of capital goods under Rule 57Q(i)(b), and Modvat credit was admissible. The disallowance of credit was unsustainable.

---