TMI Blog1996 (10) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed Modvat credit in respect of Argon gas, steel articles, packing articles and caustic soda used for deionization but confirmed disallowance of Modvat credit in respect of Hand Tools. BAL have therefore filed Appeal [E/313/93*. M.A.M. manufacture automobiles falling under Chapter 87 and certain parts and accessories. They also purchase a large number and variety of parts and accessories. Assistant Collector held that MAM are not entitled to avail Modvat credit in respect of bought out items, Tool Kits and Jack Assembly supplied along with automobiles. He passed separate orders pursuant to nine show cause notices. Collector (Appeals) dismissed the appeals filed by MAM against the orders passed by Assistant Collector. MAM have therefore filed Appeals E/720/94 and E/64 to 71/95. 3.The dispute in these appeals arises in relation to hand tools or tool kits purchased by BAL and MAM and jack assembly purchased by MAM. BAL supply tool kits optionally to buyers of two-wheelers. MAM supply tool kits and jack compulsorily to all buyers of automobiles. Both the concerns supply these articles along with the vehicles (optionally by BAL and compulsorily by MAM). These articles are not fitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les and the extended definition of "manufacture" in Section 2(f) of Central Excise Act, 1944 (for short, the Act) as including any incidental or ancillary process. However, the decision mainly rested on the Collectorate notices in favour of the assessees contention. 6In. Jayshree Industries v. Collector of Central Excise - 1993 (63) E.L.T. 492, a two-Member Bench sitting at Bombay held that Dry Battery Cell purchased independently and fitted to quartz clock and time piece are to be regarded as essential component without which the clock cannot perform its function and is not an item which goes as an attachment to the clock for improving its efficiency or for performing a secondary or subordinate function. If key in the spring mechanism of old clock is to be regarded as an external component essentially required for running the clock, a battery cell fitted and supplied along with Quartz Clock has to be regarded as essential component. This is so, irrespective of the fact that battery cell can be purchased independently, provided it is supplied with clock at the point of delivery at the factory gate. If value of battery cell is included in the value of clock, Modvat credit is avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the final product at the factory gate. The Bench compared the subject matter with plastic dropper packed along with sealed bottle containing pediatric medicine in carton in respect of which the Bench had held that Modvat credit would be available. The same Bench referred the appeals filed by MAM also to Larger Bench. We have heard both sides in all the appeals. 8.We think though these disputes are required to be considered in the appeals filed by M.A.M. they need not be considered in Appeal E/313/93 since the appeal can be disposed of on another ground. The Association of Indian Automobile Manufacturers wrote to the Central Board of Excise Customs (for short, CBEC) requesting that Modvat benefit may be made available in respect of Tool Kits supplied along with motor vehicles. CBEC by letter dated 23-9-1988 rejected the request on the ground that tools were specifically excluded from the definition of "input" under Explanation (b)(i) of Rule 57A of the Rules. The Association pursued the matter and in 1988 CBEC decided that Modvat credit in respect of excise duty paid on Tool Kits would be admissible, provided such Tool Kits were supplied along with motor vehicles and the thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period in question should be followed by the subordinate statutory officers. On this ground alone, the demand made against B.A.L. fails and the orders of the lower authorities are unsustainable. However, the other disputes arising have to be considered in the appeals filed by M.A.M. 10.In our view, three basic questions arise for consideration : (a) Where Tool Kit or Jack Assembly which are bought out items are supplied along with motor vehicle to the buyers, is the value thereof required to be added to the assessable value of the vehicle and excise duty liable to be paid on the total value at the rate of duty applicable to vehicle ? (b) If so, whether Tool Kit or Jack Assembly so supplied are "inputs" used in or in relation to manufacture of vehicle, the final product, within the ambit of the main provision in Rule 57A of the Rules ? (c) If so, whether Tool Kit or Jack Assembly so supplied are "Tools" excluded from the ambit of "inputs" by exclusion Clause (i) of the Explanation to Rule 57A ? 11.Learned Counsel for appellants as well as the Departmental Representative appearing for the Department took the stand that where Tool Kit or Jack Assembly which are bought out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or for bringing about any change in any substance in or in relation to the manufacture of the final products". Rules 57D, 57F and other Rules in the section also refer to inputs "used in or in relation to manufacture" of finished product. 13.It is contended for the Department that though value of Tool Kits and Jack Assembly is required to be added to the assessable value of vehicles under Section 4 of the Act, the question whether these articles are `inputs' for the purpose of Modvat credit scheme has to be considered independently on the basis of the provisions of Section AA of Chapter V of the Rules and these articles which are merely supplied along with vehicles and not fitted to them and not used in any process for bringing about the finished product, that is, vehicles cannot be regarded as "used in or in relation to the manufacture" of vehicles and therefore are not "inputs" for the purpose of these Rules. In any event, it is contended that since they are "tools" they are excluded from the ambit of "inputs" by virtue of exclusion Clause (i) of the Explanation to Rule 57A of the Rules. Appellants who rebut these arguments, contend that though these articles are not use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal was confirmed. 15.In Collector of Central Excise v. Eastend Paper Industries Ltd. - 1989 (43) E.L.T. 201 (SC), Respondent was manufacturing, inter alia, wrapping paper and printing paper and captively consuming wrapping paper to wrap printing paper without paying duty on wrapping paper by virtue of Rule 56A of the Rules. While the Assistant Collector, Collector and Collector (Appeals) held against the Respondent, the Tribunal held in favour of the Respondent. Supreme Court observed that manufacture is the process or activity which brings into existence new, identifiable articles known in the market as goods and marketed or marketable in the market as such, that goods are those which can ordinarily come to the market to be bought and sold and is known to the market as such, that the market in which printing paper was sold was paper packed and wrapped in wrapping paper and, therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end-product and must be deemed to have been used in the completion or manufacture of the end-product. The Court also observed that manufacture in the sense of bringing the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Use of these items is integrally connected with the ultimate production. They retain their identity in the end-product. But that could not exclude it from being treated as raw material......................... Raw material has been further explained by using the word 'inputs', which dictionarily means, 'what is put in', 'enter', 'enter system'. The concessional rate of tax is thus applicable to that raw material that is put in the manufacture or use of the goods." After referring to the decision in Jay Engineering Works Ltd., the Court observed : "The tyres, tubes and batteries were purchased for being put in the vehicle, which could not be operative without it. They were thus 'input'. The use of this word was indicative that the benefit was intended for every item which was raw material in the widest sense made wider by using the expression, 'input'. The purpose was for roadening the meaning of raw material by including in it even those items which could be placed in the vehicle, to make it marketable as vehicles." (Emphasis suppled) Accordingly appellants were held entitled to benefit of concessional rate of tax under the notification. 17.On behalf of the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot used in relation to manufacture of chassis. It was opined that value of accessories and spares should be added to the value of chassis as they contribute to the value of chassis and not because Tool Kits are used in or in relation to the manufacture of chassis. The Court also observed that unlike wiper machine or seat which are essential parts of chassis, Tool Kit cannot be said to be essential component of chassis since it is supplied only on request of customers and hence it is clear that chassis is marketed without the help and assistance of the Tool Kit. Thus, it was held that the ratio of Jay Engineering case was not applicable. 16.In Doypack Systems (Pvt.) Ltd. v. Union of India - 1988 (36) E.L.T. 201, Supreme Court considering the expression "in relation to" in Section 4(1) of Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, held that it is used in an expansive sense and is an expression of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The Court referred with approval to pages 620 and 621 of Corpus Juris Secundum wherein it has been stated that the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory gate, cannot be allowed to be used or allowed to be used in any public place except in conformity with Rule 191(3) of MMV Rules and at the stage of delivery from the private premises of the manufacturer must be furnished with an efficient jack and other tools. According to MAM, the trade pattern is consistent with the aforesaid provisions. Jack Assembly and Took Kit are not accessories compulsorily supplied along with the vehicles. They are articles which are required to be placed in the vehicles in order to render them fit for marketable state since without such articles the vehicles cannot be marketed. Motor Vehicles (other than motorcycles) without these articles cannot be marketed ordinarily except perhaps, where the buyer brings such articles to be kept in vehicles on delivery at the factory gate. Hence, these articles not only enrich the value of but give to the vehicles their marketability and hence their value has to be added to the assessable value of the motor vehicles. 19.Let us recall the observation of Supreme Court in Jay Engineering Works Ltd. case. Electric fans do not become marketable without name plates. They do not become marketable products without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor vehicles". What was considered and decided was that these articles were not used in relation to the manufacture of chassis. Hence, the decision of the High Court of Patna would not apply to the present fact-situation. 21.Jack Assemblies and Tool Kits being "inputs" used in relation to the manufacture of Motor Vehicles, the question naturally arises whether they are covered by exclusion Clause (i) of Explanation to Rule 57A of the Rules. The provision reads as follows :- "For the purpose of this rule, "inputs" includes - * * * ** * * * but does not include - (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;" `Tools' appear in the company of "machines, machinery, plant, equipment, apparatus, appliances" which are all complete and self-contained units or group or assemblage of parts as explained by larger Bench of the Tribunal in Union Carbide India Ltd. case. Meaning of "Tool" has been given as follows in various dictionaries : McGraw-Hill Dictionary of Scientific and Technical Terms - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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