Liberal construction of capital goods under Modvat rules extended credit to plant items used in paper manufacture.

Items used in a paper plant for manufacture of paper and paper board were treated as capital goods under Rule 57Q because the definition covered machines, plant, equipment, apparatus, tools, appliances, and their components, spare parts and accessories used for producing or processing goods. The provision was read as beneficial legislation warranting liberal construction, and items installed in and used by the plant for final production were brought within its scope. Accordingly, the disputed items qualified for Modvat credit as capital goods, and relief followed.

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Issues: Whether the disputed items used in the paper plant were eligible for Modvat credit as capital goods under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The items were admitted to be used in the appellant's paper plant for manufacture of paper and paper board. The relevant definition of capital goods covered machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods, as well as components, spare parts and accessories of such plant. The provision was treated as a beneficial one calling for a liberal construction, and items installed in and used by the plant for manufacture of final products were held to fall within the scope of capital goods.

Conclusion: All the disputed items were held eligible for Modvat credit as capital goods, and the appeals were allowed with consequential relief.

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