Capital goods credit eligibility must be tested under Rule 57Q, while Rule 57S only governs utilisation of allowed credit.

Rule 57S governs utilisation of credit already allowed and does not enlarge the scope of capital goods under Rule 57Q. Eligibility for capital goods credit on preparatory machines, spares, generator spares and carbon tetra chloride must therefore be tested by reference to Rule 57Q and the applicable notifications. The impugned order was found to have proceeded on an incorrect understanding of the statutory scheme, so it was set aside and the matter remanded for fresh decision in accordance with law, without being influenced by earlier observations on Rule 57S.

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Issues: Whether the order granting capital goods credit on preparatory machines, their spares, generator spares and carbon tetra chloride required interference and whether the matter had to be decided with reference to the scope of Rule 57Q and Rule 57S.

Analysis: The credit entitlement had to be examined on the basis of the definition of capital goods under Rule 57Q. Rule 57S governed the manner of utilisation of credit already allowed and did not enlarge the scope of capital goods. The later notifications and prior Tribunal views were relevant to the extent they bore on eligibility, but the impugned order had proceeded on an incorrect understanding of the statutory scheme. In view of the Tribunal's earlier decisions, the proper course was to have the matter reconsidered by the Commissioner (Appeals) in accordance with law and without being influenced by the earlier observations on Rule 57S.

Conclusion: The order was set aside and the matter was remanded for fresh decision in accordance with law. The Revenue's challenge succeeded.

Ratio Decidendi: Rule 57S does not expand the definition of capital goods under Rule 57Q, and eligibility for capital goods credit must be determined by reference to the latter rule and the applicable notifications.

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