Capital goods credit under Rule 57Q was usable only after installation and production in the relevant plant.

Credit of duty on capital goods under Rule 57Q was confined to capital goods installed and used in the factory for the declared production process. Rule 57S(2) had to operate consistently with that requirement and with the declaration filed under Rule 57T(1). Credit taken on capital goods meant for plants that had not yet started production, such as the Acetic Acid and Hydrogen plants, could not be used to discharge duty on other final products. Once those plants were installed and commenced production, the corresponding credit was to be restored and then utilised against duty on the relevant final products.

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Issues: Whether credit of duty on capital goods under Rule 57Q could be utilised for payment of duty on any final product manufactured in the factory, or only on the final products for whose manufacture such capital goods had entered the production process.

Analysis: Rule 57Q made the use of capital goods by the manufacturer in his factory a condition for allowing credit and for utilising the credit so allowed. Rule 57S(2), as it then stood, had to operate in conformity with that basic requirement and with the declaration filed under Rule 57T(1). The departmental clarifications and trade notices were treated as contemporaneous exposition supporting the view that credit on capital goods became admissible only when the capital goods were installed and used in production. Where the Acetic Acid and Hydrogen plants had not commenced production, credit taken on capital goods meant for those plants could not be used for payment of duty on other products. Once those plants were installed and went into production, the corresponding credit could be restored and utilised against duty payment.

Conclusion: The utilisation of capital goods credit before the relevant plants entered production was not permissible, but corresponding credit was to be restored and allowed for use when the plants commenced production and duty was paid on the final products.

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