Modvat credit for spares of factory material handling equipment was upheld where the underlying machinery qualified as capital goods.

Modvat credit was held admissible on tyres and tubes fitted to a flow car used for moving materials within the factory. The equipment was treated as material handling machinery used in factory operations, and its spares were therefore covered as capital goods under Rule 57G of the Central Excise Rules. On that basis, the denial of credit on the tyres and tubes was found unsustainable.

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Issues: Whether Modvat credit was admissible on tyres and tubes fitted to flow cars used within the factory for movement of materials.

Analysis: Material handling equipment used within the factory had already been treated as eligible for Modvat credit, and the flow car in question was used to transport components within the factory. Since the main equipment was used for material handling in the course of factory operations, its spares also fell within the category of capital goods for the purposes of Rule 57G of the Central Excise Rules.

Conclusion: Modvat credit on the tyres and tubes was admissible and the denial was unsustainable.

Ratio Decidendi: Spares of material handling equipment used within the factory are eligible for Modvat credit where the underlying equipment itself qualifies for such benefit.

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