Modvat credit on machinery spares depends on eligibility at receipt; later inclusion of the intermediate product did not help.

Modvat credit under Rule 57Q was unavailable on the carding unit and spares because eligibility had to be assessed when the goods were received in the factory, and at that time the intermediate product, cotton carded/combed under Heading 52.02, was not a notified item. On the finding that cotton carded/combed was a marketable commodity, the machinery did not produce a specified item within the rule's ambit when credit arose. Rule 57S on transfer of machinery did not create eligibility where none existed at receipt. Credit was therefore unavailable both before and after 21-10-1994.

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Issues: Whether Modvat credit was available on the carding unit and spares under Rule 57Q of the Central Excise Rules when the intermediate product emerging from their use, namely cotton carded/combed falling under Heading 52.02, was not a notified product at the relevant time, and whether such credit could become available from a later date when that item was subsequently included.

Analysis: The availability of Modvat credit had to be determined with reference to the time when the goods were received in the factory. On the final finding that cotton carded/combed was a marketable commodity, the goods falling under Heading 52.02 stood outside the purview of Rule 57Q at the relevant time. Since no specified item emerged from the use of the machinery when the credit position arose, credit could not have been taken then. Rule 57S, which deals with splitting of credit on transfer of machinery, did not support creation of eligibility where none existed at the time of receipt.

Conclusion: Modvat credit was not available either before 21-10-1994 or after 21-10-1994, and the appeal was decided against the assessee and in favour of Revenue.

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