Capital goods eligibility for Modvat credit extended to equipment used in computer-aided drawing and designing for manufacture.

UPS systems and high voltage test sets used with computers for drawing and designing the final product were treated as capital goods eligible for Modvat credit under Rule 57Q. The Tribunal held that items directly connected with manufacture are not excluded merely because they are not used in the immediate physical processing of goods, and accepted that these goods were essential to the manufacturing process. Credit was therefore admissible and the denial was set aside in favour of the assessee.

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Issues: Whether UPS system and High Voltage Test Set used in connection with computers for drawing and designing of the final product qualify as capital goods eligible for Modvat credit under Rule 57Q.

Analysis: The goods were found to be used in the process of drawing and designing that was necessary for manufacture of the final product. The lower appellate authority had also accepted that both items were essential for manufacture. On that basis, the Tribunal held that the items were directly connected with production and could not be excluded from the scope of capital goods merely because they were not used in the immediate physical processing of goods.

Conclusion: The goods in question were held to be capital goods eligible for Modvat credit under Rule 57Q, and denial of credit was set aside in favour of the assessee.

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