Modvat credit for boiler used in woollen fabric processing upheld as capital goods under Rule 57Q.

Boiler used to generate steam at different stages of woollen fabric processing was treated as an integral part of the plant and within the scope of capital goods under Rule 57Q. At the time credit was taken, woollen fabrics under Heading 51.07 were covered as final products by the amending notification, so Modvat credit was available. The finding that the boiler was not used in production or processing could not support denial because that basis was not alleged in the show cause notice. The disallowance of credit was therefore unsustainable.

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Issues: Whether boiler used in the manufacture of woollen fabrics was eligible for Modvat credit as capital goods under Rule 57Q of the Central Excise Rules, 1944 in view of Notification No. 39/94-C.E. (N.T.) dated 13-9-1994.

Analysis: At the time the credit was taken, woollen fabrics falling under Heading 51.07 stood covered as final products for the purposes of Rule 57Q by virtue of the amending notification. The authorities below also recorded a factual finding that the boiler was not used in production or processing of goods, but that basis was not alleged in the show cause notice and could not sustain denial of credit. The boiler was used for generation of steam required at different stages of processing, making it an integral part of the plant and falling within the scope of capital goods under the rule.

Conclusion: The boiler was eligible for Modvat credit under Rule 57Q, and the disallowance of credit was unsustainable.

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