Modvat credit on UPS and related electrical components was allowed as capital goods supporting manufacturing operations.

Modvat credit under Rule 57Q was treated as admissible on UPS systems, their components, boost charges, batteries and capacitors because they were regarded as capital goods used in or in relation to manufacture. The reasoning extended credit beyond items that directly bring about a change in the goods, holding that components and accessories essential to continuous manufacturing operations and to protection of the electrical system also qualify. UPS was treated as functionally similar to a generating set when integrated with the manufacturing process, and capacitors were accepted for improving power factor and safeguarding the system. The amendment to the definition of capital goods was treated as clarificatory and retrospective, supporting the assessee's claim.

---

---

Issues: Whether Modvat credit under Rule 57Q of the Central Excise Rules, 1944 was admissible on UPS system and its components, boost charges, batteries and capacitors as capital goods used in or in relation to manufacture.

Analysis: The items were treated as essential to continuous manufacturing operations and to protection of the electrical system. UPS was regarded as functionally similar to a generating set when integrated with the main equipment used in the process of manufacture. The components of the UPS, namely boost charges and batteries, were held to share the same eligibility. Capacitors were also found to be eligible because they improved power factor and protected the electrical system. The order further applied the principle that capital goods credit is not confined to items directly effecting a change in the goods, but extends to components and accessories that assist or support the manufacturing process. The amendment to the definition of capital goods was treated as clarificatory and retrospective.

Conclusion: Modvat credit was admissible on UPS system, boost charges, batteries and capacitors, and the disallowance by the lower authority was set aside in favour of the assessee.

Ratio Decidendi: For Rule 57Q credit, capital goods include components and accessories that are essential to and assist the manufacturing process, and a clarificatory amendment to the definition applies retrospectively.

---