Capital goods under Modvat rules include plant items essential to cement manufacture, allowing credit for production-linked equipment.

Items used in a cement plant were examined item-wise to determine whether they qualified as capital goods under Rule 57Q for Modvat credit. Equipment connected with transport of crushed material, compressed air and water supply, kiln lining, temperature and pressure measurement, storage, filtration, electricity transmission, speed reduction, coal crushing, pollution control, conveyor operation, electrical protection, motor-driven operation, bearing support, primary air supply and safety functions was treated as directly connected with cement manufacture or as parts, accessories or equipment essential to plant and machinery. On that basis, the disputed items were held eligible for Modvat credit as capital goods, and credit was allowed on the items satisfying the capital goods test.

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Issues: Whether the disputed items used in the cement plant qualified as capital goods under Rule 57Q of the Central Excise Rules, 1944 and were therefore eligible for Modvat credit.

Analysis: The disputed articles were examined item-wise with reference to their functional role in the manufacture of cement. Items used for transportation of crushed material to the kiln, supply of compressed air and water, lining of the kiln, temperature measurement, storage and pressure control, filtration, transmission of electricity, speed reduction, material handling, coal crushing, pollution control, bearing support, primary air supply, conveyor operations, electrical protection, motor-driven operation, pressure measurement, and safety in electrical equipment were treated as directly connected with production or processing of cement, or as parts, accessories, or equipment essential to the plant and machinery. The items were thus held to fall within the scope of capital goods for Modvat purposes.

Conclusion: The disputed items were held eligible for Modvat credit as capital goods under Rule 57Q.

Final Conclusion: The impugned orders were modified to the extent of allowing Modvat credit on the items found to satisfy the capital goods test, and the appeals were disposed of accordingly.

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