Functional test for capital goods credit allowed for testing instruments used in assembly-stage processing

Selective level meter and PCM Terminal Test Set were treated as capital goods under Rule 57Q because they were used to test electrical equipment at different stages of assembly and thus satisfied the functional test for machines, equipment, apparatus or appliances used in producing or processing goods for manufacture of final products. On that basis, the testing instruments were held eligible for Modvat credit.

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Issues: Whether selective level meter and PCM Terminal Test Set were eligible for Modvat credit as capital goods under Rule 57Q of the Central Excise Rules.

Analysis: The goods were used for testing various parameters of the electrical equipment at different stages of assembly. Under Explanation (1) to Rule 57Q, capital goods include machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing goods or for bringing about any change in any substance for the manufacture of final products. Goods that satisfy this functional test are eligible for capital goods credit, and the testing instruments here were found to be used in processing the final products.

Conclusion: The items qualified as capital goods and Modvat credit was admissible in favour of the assessee.

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