Rule 57Q capital goods credit extends to compressors, spray guns and spares when functionally linked to manufacturing machinery.

Capital goods credit under Rule 57Q was available for an air compressor, spray guns and their spares because the compressor was not the type excluded as refrigerating or air-conditioning equipment, and compressors had already been recognised as eligible capital goods. The spray guns, mounted on the machine and used as accessories in the manufacturing process, fell within the definition of capital goods under clause (d) of Explanation (1) to Rule 57Q. Parts, components, accessories and spares of eligible capital goods were also entitled to Modvat credit even if classifiable under different tariff headings, provided they were functionally connected with the capital goods used in manufacture.

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Issues: Whether capital goods credit under Rule 57Q was available on an air compressor, spray guns and their spares.

Analysis: The air compressor was not of the kind used in refrigerating or air-conditioning appliances, which alone stood excluded from the definition of capital goods, and compressors had already been treated as eligible capital goods. The spray guns were mounted on the machine and used as accessories in the manufacturing process, bringing them within clause (d) of Explanation (1) to Rule 57Q. The clarification in Circular No. 276/96-TRU also made it clear that parts, components, accessories and spares of capital goods covered by clauses (a) to (c), even if classifiable under any chapter heading, were eligible for Modvat credit.

Conclusion: Capital goods credit was available on the air compressor, spray guns and their spares; the disallowance was unsustainable.

Ratio Decidendi: Accessories, parts and spares of eligible capital goods are entitled to Modvat credit under Rule 57Q even if they fall under different tariff headings, provided they are functionally connected with the capital goods used in manufacture.

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