Capital goods for Modvat credit include testing equipment essential to manufacture when quality control is needed before marketability.

Master gear, air gauge and spline gauge used as testing equipment in the manufacturing process qualified as capital goods for Modvat credit under Rule 57Q. The equipment was essential because the finished goods became marketable and fit for delivery only after passing prescribed quality control tests, so manufacture was not complete until that stage. Following Jawahar Mills, the order granting credit was upheld and the Revenue's appeal failed.

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Issues: Whether master gear, air gauge and spline gauge were capital goods eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The items were used as testing equipment in the manufacturing process and the finished goods became marketable and fit for delivery only after passing the prescribed quality control tests. Since the goods could not be treated as fully manufactured until that stage, the testing equipment was essential to the manufacture of finished goods. The decision in Jawahar Mills was followed, and no infirmity was found in the order granting credit.

Conclusion: The items qualified as capital goods for Modvat credit under Rule 57Q, and the Revenue's appeal failed.

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