Broad construction of capital goods under Rule 57Q upheld; Modvat credit allowed for accessories integral to machinery.

Rule 57Q capital goods was construed broadly to include production machinery as well as its parts and accessories, and the amendments introduced by Notifications 11/95 and 14/96 were treated as clarificatory. On that basis, Modvat credit was held admissible on the disputed items covered by earlier Tribunal decisions. The package air conditioner was also accepted as an integral accessory necessary for the proper functioning of the DG set and its control panels, and the Revenue did not rebut that position. Credit was therefore admissible on all disputed items.

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Issues: Whether Modvat credit under Rule 57Q of the Central Excise Rules was admissible on the disputed items, including the package air conditioner, as capital goods or as parts and accessories of the main machinery.

Analysis: The definition of capital goods under Rule 57Q was construed broadly and was held to cover not only production machinery but also its parts and accessories. The disputed items were treated as covered by earlier Tribunal decisions, and the larger Bench view was applied that the amendments introduced by Notification 11/95 and Notification 14/96 were clarificatory. In relation to the package air conditioner, the evidence accepted was that it was an integral accessory required for the proper functioning of the DG set and its control panels, and the Revenue did not rebut that stand.

Conclusion: Modvat credit was admissible on the disputed items, including the package air conditioner, and the Revenue's appeal failed.

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