Pollution control equipment as capital goods supports Modvat credit where the apparatus is integral to manufacturing.

Pollution control and effluent-treatment equipment used in a manufacturing plant was treated as an integral part of the manufacturing process and therefore qualified as capital goods for Modvat credit under Rule 57Q. The later inclusion of such equipment by Notification No. 14/96-CE did not defeat the claim, because the controlling issue was the legal character of the equipment in the manufacturing process rather than the date of the notification alone. On that reasoning, the Revenue's objection based on non-retrospectivity failed and the assessee's entitlement to credit was upheld.

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Issues: Whether pollution control equipment used in the plant was eligible for Modvat credit as capital goods under Rule 57Q of the Central Excise Rules, and whether the subsequent inclusion of such equipment by Notification No. 14/96-CE dated 23-7-1996 could be treated as retrospective.

Analysis: The appeal turned on the settled principle that equipment used for treatment of effluents and control of pollution is an essential and integral part of the manufacturing process. The Supreme Court had already treated such apparatus as part and parcel of manufacture, and the Tribunal had followed that view in relation to similar dust-filter equipment. The contention that pollution control equipment was excluded from the definition of capital goods before 23-7-1996 did not avail the Revenue, because the material question was not the date of introduction of the notification alone, but the legal character of such equipment in the manufacturing process. On that basis, the equipment was held to fall within the benefit of Modvat credit.

Conclusion: The pollution control equipment was eligible for Modvat credit as capital goods, and the plea against its allowance on the ground of non-retrospectivity failed.

Final Conclusion: The Revenue challenge to the grant of Modvat credit was rejected and the order allowing the assessee's claim was sustained.

Ratio Decidendi: Pollution control and effluent-treatment equipment used in a manufacturing plant forms part of the manufacturing process and is eligible for Modvat credit as capital goods, irrespective of the Revenue's objection based on the subsequent notification.

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