Modvat credit on capital goods used to assist manufacture was allowed for a cot grinding machine in cotton yarn production.

Modvat credit under Rule 57Q was held admissible on a cot grinding machine used to assist the manufacture of cotton yarn. The Tribunal read Rule 57Q harmoniously with Rule 57S and held that capital goods are not confined to machinery that directly changes the product; machinery, components and accessories that help or assist manufacture also qualify. Because the machine was undisputedly used in relation to manufacture, the fact that it did not itself bring about a change in the goods was immaterial, and the department's appeal failed.

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Issues: Whether Modvat credit was admissible on a cot grinding machine as capital goods used in or in relation to the manufacture of cotton yarn.

Analysis: The Tribunal held that capital goods under Rule 57Q are not confined only to machinery that directly brings about a change in the product. Reading Rule 57Q harmoniously with Rule 57S, credit is available to machinery, components, accessories and other items that help or assist in the manufacture of the final product. Since the item in question was not disputed to be used for assisting the manufacture of cotton yarn, the mere fact that it did not itself bring about a change in the goods was held to be immaterial.

Conclusion: Modvat credit on the cot grinding machine was admissible and the department's appeal failed.

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