Modvat credit on paper mill equipment allowed where items had direct nexus with manufacture and assisted production

Modvat credit was held admissible on Vacuum Box, Tri Disc Refiner with auto control, Disc for 20" D.D.R., Control Panel, Fourdrinier Wire Cloth and Regular Felts as capital goods under Rule 57Q because each item had a direct nexus with the manufacture of paper and assisted the production process. The reasoning treated capital goods as including not only items that directly effect change in manufacture, but also components and accessories necessary for operation and production. The disallowance by the lower authority was therefore set aside.

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Issues: Whether Modvat credit was admissible on Vacuum Box, Tri Disc Refiner with auto control, Disc for 20" D.D.R., Control Panel, Fourdrinier Wire Cloth and Regular Felts as capital goods under Rule 57Q.

Analysis: The items were found to be used in the manufacturing process of paper and to have a direct nexus with production. Vacuum Box removed water from pulp, the Tri Disc Refiner improved the formation and quality of paper, the Disc for 20" D.D.R. was a spare of the refiner, the Control Panel regulated the speed of the paper machine, the Fourdrinier Wire Cloth was treated as covered by the rule, and the Regular Felts were necessary for moving wet paper and extracting excess water. The reasoning proceeded on the basis that capital goods under Rule 57Q include not only items that themselves effect a change, but also components and accessories that help or assist manufacture.

Conclusion: Modvat credit was admissible on all the disputed items and the disallowance by the lower authority was set aside.

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