Construction materials for plant erection are not capital goods under Modvat credit rules; credit denial upheld.

Cement and steel structures used to erect a blast furnace were held not to qualify as capital goods under Rule 57Q of the Central Excise Rules, 1944. The provision covered only machines, machinery, plant, equipment, apparatus, tools or appliances used directly for producing or processing goods, or for bringing about a change in a substance for manufacture. Building materials used as construction material for a plant do not themselves become plant or equipment merely because they form part of the manufacturing infrastructure. On that reasoning, Modvat credit was denied for the disputed materials and the denial was upheld.

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Issues: Whether cement and steel structure used in erection of a blast furnace are capital goods eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: Rule 57Q allowed credit only on machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods or for bringing about a change in any substance for manufacture of final products. The disputed cement and steel structure were used as construction material in erecting the blast furnace. A blast furnace may be an essential part of the manufacturing setup, but building material used to construct a plant cannot itself be treated as plant or equipment for the purposes of Rule 57Q. The reasoning applied the principle that materials used for construction of a plant are not goods used as plant in manufacture.

Conclusion: The cement and steel structure did not qualify as capital goods under Rule 57Q and the denial of Modvat credit was upheld.

Ratio Decidendi: Building materials used in the construction or erection of a plant are not capital goods merely because they become part of the manufacturing infrastructure; the provision applies only to plant, machinery, equipment and similar goods directly used for producing or processing final products.

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