Factory storage tanks integral to manufacture qualify as capital goods for Modvat credit under Rule 57Q.

Storage tanks and dip rods located within a factory and used to store and feed raw materials into the manufacturing line were treated as capital goods for Modvat credit under Rule 57Q because they were integrally connected with the process of manufacture. The reasoning applied a wider understanding of manufacture, recognising that storage and handling of essential raw materials can form part of production when the equipment functions as part of the plant. On that basis, the storage tanks were regarded as plant components eligible for credit, and the denial of Modvat credit was set aside.

---

---

Issues: Whether storage tanks and dip rods located within the factory premises and used for storing and feeding raw materials into the manufacturing process qualify as capital goods for Modvat credit under Rule 57Q.

Analysis: The storage tanks were within the factory and were used to hold liquid raw materials that were fed through pipelines and pumps into the manufacturing machinery. The relevant test was whether the goods were integrally connected with the process of manufacture. Applying the wider meaning of manufacture, storage and handling of raw material essential for production was treated as part of the manufacturing process. The reasoning was reinforced by the view that storage tanks form part of the plant, and components or parts of the plant were eligible as capital goods under Rule 57Q.

Conclusion: The storage tanks were held to be connected with manufacture and to qualify as capital goods, and the assessee was entitled to Modvat credit.

Final Conclusion: The appeal succeeded and the denial of Modvat credit on the storage tanks was set aside.

Ratio Decidendi: Storage tanks used within the factory for storing and feeding raw materials into production, when integrally connected with manufacture, constitute part of the plant and qualify as capital goods for Modvat credit under Rule 57Q.

---