Capital goods under Modvat credit extend to items used in manufacture, following the Jawahar Mills principle on Rule 57Q.

Items used in the manufacture process were treated as capital goods for Modvat credit under Rule 57Q because the Tribunal applied the Larger Bench ruling in Jawahar Mills, which held that control panels and similar items used in the manufacturing process fall within the rule and that the earlier view in Shanmugaraja Spinning Mills was not good law. On that basis, the disputed items were held eligible for credit, and the denial of Modvat credit was set aside.

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Issues: Whether the items used in the manufacture process qualified as capital goods for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The items in dispute were denied credit on the view that they had no role in the manufacture of the final product and were not covered by the definition of capital goods. The Tribunal applied the Larger Bench ruling in Jawahar Mills, which had held that the earlier view in Shanmugaraja Spinning Mills was not good law and that control panels and similar items used in the manufacturing process were capital goods within Rule 57Q. On that basis, the disputed items, being parts falling within the scope of the rule, were held to be eligible for Modvat credit.

Conclusion: The denial of Modvat credit was set aside and the appeal was allowed.

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