The definition of 'capital goods' under Rule 57Q includes items integral to production, allowing for MODVAT credit when such goods are essential for manufacturing processes.

1. This appeal arises out of the judgment / final order dated 30.04.2003 passed by Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'CEGAT') whereby the Tribunal has dismissed the appeal of the appellant thereby confirming the order of the Commissioner insofar as it denies the appellant MODVAT credit on some of the capital goods and parts which were detailed in the show cause notice issued under R.57Q of the Central Excise Rules , 1944 (hereinafter referred to as 'Rules').

2. The dispute has arisen in the following factual background. The appellant is engaged in the manufacture of pig iron falling under Chap.72 of the Schedule to Central Excise Tariff Act, 1985. The appellant is availing MODVAT credit on various capital goods and parts thereof under R.57Q of the Rules. The respondent - authority had issued two show cause notices thereby proposing to deny the appellant the MODVAT credit availed by them under R.57Q on the following items: -

3. The Commissioner was of the view that the aforesaid goods were not covered within the definition of “capital goods” under R.57Q of the Rules. After giving opportunity to the appellants to file reply to the said show cause notices and hearing the appellants, the Commissioner passed the orders dated 30.10.2001. By the said order, the demand in respect of certain capital goods was dropped. At the same time, the MODVAT credit on the aforesaid four items was denied by the Commissioner. The appellants filed appeal against the said order before the CEGAT and the CEGAT has affirmed the order of the Commissioner thereby dismissing the appeal of the appellant.

4. In the present appeal preferred by the appellants against the order of the CEGAT, the relief is confined to item (b) above alone, namely, in respect of railway track material used for handling raw materials, processed goods for which credit for sum of Rs. 16,59,987/- was claimed and was earlier allowed but reversed by the Commissioner. The question is as to whether the said item can be treated as “capital goods” under R.57Q of the Rules which was holding the field at the relevant time.

5. The relevant extract of the R.57Q, in the form in which it existed then, is reproduced as hereinbelow: -
RULE57Q. Applicability. - (1) The provisions of this section shall apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the “final products”) for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleared under R.57 - S, subject to the provisions of this section and the conditions and restrictions as the Central Government may specify in this behalf:
Provided that credit of specified duty in respect of any capital goods produced or manufactured -
(a) in a free trade zone and used for the manufacture of final products in any other place in India; or
(b) by a hundred per cent export - oriented undertaking or by a unit in an Electronic Hardware Technology Park [or by a unit in Software Technology Parks] and used for the manufacture of final products in any place in India,
shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under S.3 of the Customs Tariff Act, 1975 (51 of 1975) equivalent to the duty of excise paid on such capital goods. Explanati