Customs, Excise and Gold Tribunal - Bangalore
Bpl Sanyo Ltd. vs Cce on 15 December, 1995
Equivalent citations: 1996(63)ECR255(TRI.-BANGALORE)
ORDER
K. Sankararaman, Member
1. These three appeals filed by M/s BPL-Sanyo Ltd. involve the same question as to whether Electric Dry Batteries could be considered as inputs within the meaning of Rule 57A of Central Excise Rule s, 1944 in relation to the manufacture of their final products VCP/VCR/Television sets for grant of Modvat benefit. The dry cell batteries are required for operating the Remote Control unit which are required in turn to operate the aforesaid products.
2. In the impugned orders in appeal, the Collector of Central Excise (Appeals), Bangalore has held that Remote Control unit is an accessory for the VCP/VCR/Television sets which can function without such Remote Control. He had observed that even the sets supplied with the Remote Control unit can also work without the Remote Control units and that it is not the case as though the sets with remote control unit can be operated only with the remote control unit and not otherwise. He rejected the contention that these sets are not marketable without the Remote Control unit as far fetched. He also rejected the contention raised by the appellants relying upon the decision of the East Regional Bench reported in 1991 (32) ECR 165 holding that tool kit and jack assembly are to be treated as inputs in respect of motor vehicles and referred to the contrary decision of the South Regional Bench reported in 1991 (37) ECR 522 (T) : 1991 (56) ELT 445. He, therefore, held that Remote Control itself is an accessory. Its manufacture is complete even without the dry cell batteries. He agreed with the finding of the Assistant Collector that the dry cell batteries are required only to make them function and not for manufacture of the Remote Control unit. He has then referred to the Trade Notices issued by the Madurai, Bombay-I and Madhya Pradesh Collectorate that it had been decided not to allow Modvat Credit on dry battery cells used in the manufacture of electronic quartz clocks. He found no merit in the appeals, which he rejected upholding the orders of the Assistant Collector.
3. In the present appeals, the appellants have stated that dry cell batteries are essential inputs in the manufacture of VCP/VCR/Television sets as they are required to activate the Remote Control units. They form part of such sets with Remote Control facility as these particular models are sold only with Remote Control unit. Such VCR/VCP/Television sets with Remote Control facility are a distinct product having a separate commercial identity and character distinguishable from those sets without Remote Control facility. This is substantiated by the fact that the legislature itself had maintained separate identity for these products by prescribing different rates of duty for VCR/VCP/Television sets with and without Remote Control units. The customers who purchase the sets with Remote Control facility do so with an intention to make full use of the Remote Control unit as otherwise they could purchase the sets without Remote Control which would be much cheaper. These sets with Remote Control are not marketable without the Remote Control units. Further, certain facilities can be operated only by use of Remote Control unit and not on the sets directly. Thus, if a set designed for use with Remote Control is supplied without the Remote Control unit, it would be incomplete and would not give the desired performance. The Remote Control unit of such sets can be operated only with dry cell batteries and not through main. Therefore, the dry cell batteries are essential parts of the Remote Control units without which they cannot be operated. The appellants have contended that the Collector (Appeals) had erred in taking into consideration the question as to whether the Remote Control is essential for the functioning or it is a luxury item adding only to the comfort and convenience. He had erred in holding that these sets are completely functional even without the Remote Control unit. The models with Remote Control facility have inbuilt sensors which are essential to receive the signals generated by Remote Control hand set and activate the VCR/VCP/Television sets to perform the desired function. This sensor is not there in the Non-Remote models. Thus the manufacture of these sets is not complete without the Remote Control unit. The dry cell batteries are essential part of the Remote Control unit and hence the dry cells are to be considered as an essential input of the Remote Control unit. The appellants have then submitted that the Department had insisted on considering dry cell battery as an essential part of VCR/VCP/Television sets and including their value in the value of the latter when these were assesseed to duty on ad valorem basis. A totally contrary view cannot be taken when it comes to Modvat Credit. Lastly it has been submitted in the appeal that the Collector (Appeals) erred in basing his decision on the strength of Trade Notices. These have no legal force and, therefore, not binding. The orders passed by relying upon Trade Notices being bad in law, should be set aside.
4. The appellants were represented by Shri G. Sampath, learned Counsel. He reiterated the submissions urged in the appeal. He then referred to the Larger Bench decision of the Tribunal in the case of Collector of Central Excise, Jaipur v. Lipi Data Systems reported in 1995 (10) RLT 33, wherein it had been held that Ribbons are eligible for Modvat Credit as inputs in the manufacture of line printers and contended that this decision would fully support their case. He also made available a copy of the said decision as also a copy of the Notification No. 28/95-CE (NT) dated 29.6.1995 amending inter alia, Rule 57A whereby the term input includes accessories of the final product cleared along with it, the value of which is included in the assessable value thereof.
5. In reply, Shri Section Murugandi, learned Departmental Representative stated that the Collector (Appeals) has correctly decided the matter. The battery cells are consumable replaceable items required only for operating the Remote Control unit. These cannot be said to be used in the manufacture of the final products which are VCP/VCR/Television sets. He pleaded that the appeals be dismissed.
6. I have considered the arguments advanced and the submissions made in the appeal and perused the record as also the decision relied upon by the learned Counsel. I was a party to the Larger Bench decision in the Lipi Data Systems case and in fact had authored the order. In that case the judgment and decisions regarding the Modvat admissibility or otherwise of items like Tool kits supplied along with Motor vehicles as also of battery cells used in quartz clocks were considered. As regards the former item namely Tool kits, I find that the appellants had relied upon the East Regional Bench decision reported in 1991 (32) ECR 165. That decision to which again I was a party had been taken accepting the stand of the Department itself that Tool kits are eligible inputs in relation to Motor vehicles, as has been correctly noted by the Collector in his impugned orders. The instructions of the Board had been subsequently withdrawn by them following the decision of the South Regional Bench holding the said instructions were contrary to law. Such a stand in respect of Tool kits has received authoritative endorsement from the Hon'ble Patna High Court in Tata Engineering & Locomotive Company Ltd. v. Union of India reported in 1994 (72) ELT 525. An Section L. P. against that judgment was dismissed by the Hon'ble Supreme Court vide the report in 1994 (73) ELT A 129. But, as observed in the Larger Bench order in the Lipi case, the role of Tool Kits in the manufacture of Motor vehicles is quite different from that of Ribbons in the manufacture of Line Printers as also the manner of their use in the functioning of the final products. It was held by the Patna High Court in the TELCO case that the supply of Tool kits was as per the option of the customers. It was noted in the Larger Bench decision in the Lipi case that of more importance was the fact that Tool kits are not used in or in relation to the manufacture of the Motor vehicles and they are not necessary for making use of them. Only when some repair or attention is required at intervals after the vehicles are used for sometime would the tool kits be made use of. It was also noticed that one of the reasons which weighed with the Patna High Court in ruling that Modvat is not admissible for Tool Kits was that Tools are specifically excluded from the definition of inputs in Rule 57A. It was noted by the Larger Bench with respect that the tools kept out of the definition of inputs under Rule 57A were the tools used for producing or processing of any good, and the Tool Kits supplied with the Motor chassis are not used in such manner to attract the Modvat ban under the said provision. The role of battery cells used in the Remote Control unit supplied along with a VCR/VCP [Television set designed for use with such Remote Control is different from that of Tool kits supplied along with Motor vehicles. It is akin to the role of Ribbons used in Line Printer. The cells are required for the operation of the final products and are supplied along with the complete set of VCR/VCP'/Television sets. They satisfy the definition of manufacture under Section 2(f) of Central Excises and Salt Act, 1944 which includes any process incidental or ancillary to the completion of the manufactured product. The supply of the Battery cells in the Remote Control unit of the products in question is for the completion of the manufactured product. The Supreme Court had held in the case of Collector of Central Excise v. East End Paper Industries 1990 (26) ECR 10 (SC) : ECR C 1535 SC : 1989 (43) ELT 201 that anything that enters into and forms part of the process must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion of manufacture of the end product.
7. The Collector (Appeals) has rejected the appeals, on the ground that the Remote Control unit itself is an accessory for the VCR/VCP/Television sets. To be an accessory of a final product is not a disqualification for Modvat purposes. The reliance placed by him upon the Supreme Court decision reported in 1991 (51) ELT 173 is not appropriate. The Supreme Court in that case (as referred to by the Additional Collector himself in his impugned order) had referred to stereo or air-conditioner designed and manufactured for fitment to a motor car while examining the issue as to what is an accessory. A car can be used without these items. Such is not the case with the Remote Control unit of a VCR/VCP/Television set. Here I do not agree with the rejection by the Collector (Appeals) of the submissions made by the appellants that these equipments with Remote Control unit are different from similar equipment but without such Remote Control units. The two items are treated as different products in the relevant exemption Notification. To say that the Remote Control unit itself is only as an accessory does not really solve the problem of battery cells and Modvat admissibility therefor. The dispute is not of the Modvat admissibility of the Remote Control unit itself vis-a-vis the complete article viz. VCR/VCP/ Television sets. Obviously, the Remote Control unit has been treated along with the equipment itself as part thereof. The problem has arisen only in respect of the battery cells used in the Remote Control unit which is used to operate the equipment in question namely VCR/VCP/Television sets. It is in this context that the decision of the West Regional Bench of the Tribunal in the case of Jayshree Industries v. Collector of Central Excise reported in 1993 (45) ECR 185 (T) : 1993 (63) ELT 492 becomes relevant. There, the issue was Modvat Credit for the cells supplied in Quartz Clocks. Note was taken of the Report of the Tax Reforms Committee chaired by Professor Raja Chelliah. Final Report Part I, Chapter 4, Para 4.11 wherein the specific case of dry cell used in Quartz Clock was cited as an example arising out of lack of understanding of the economic justification for extension of Modvat credit and a case of denial of relief at the officer's discretion.
8. I find that the position has now been made clear by the amendment of Rule 57A of the Central Excise (Ninth Amendment) Rule s, 1995 whereby Clause (e) has been added to the Explanation under the aforesaid Rule . The said Clause reads "accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product". This would apparently take care of products assessed to duty on ad valorem basis. In the present case, I find from the pleadings before the Collector (Appeals) and his findings thereon that the final products in question had been earlier assessed to duty on ad valorem basis when the assessees had claimed to have included the cost of the battery cells in their assessable value and thereafter they attracted specific rate of duty. The irrelevance of assessable value for specific rate goods cannot have the effect of keeping outsider the purview of Modvat benefit the duty paid on the inputs going into the composition of the final products which are cleared with such inputs in their structure. Moreover, this amendment figures in the Explanation under Rule 57A for the inclusive definition of "inputs". Where the inputs are used in or in relation to the manufacture of the final product, such inputs will get the benefit of Modvat on the basis of such use without having to depend upon the aforesaid Clause added now in the Explanation. This added provision will be applicable to cases like the Tool Kits supplied with motor vehicles which get fully manufactured before the Tool Kits are provided therein. The battery cells make the Remote Control unit functional and thereby the VCR/VCP/Television sets also. When the Remote Control units are part of these sets designed to operate with such Remote Control facility, the inputs for such Remote Control unit becomes inputs for the completed final products themselves viz. VCR/VCP'/Television sets. The question whether the Remote Control unit is an accessory or component part of the completed equipment is not really material for deciding the Modvat question. For a set designed to function with the Remote Control unit and which is supplied along with the set, the Remote Control unit itself would qualify for Modvat benefit, if separately procured from outside. Here apparently it is manufactured by the appellants themselves and its integrated identity with the equipments themselves is established by the existence of separate rates of duty for the sets with such Remote Control facility and for sets without such facility. The Remote Control unit is not treated as a separate product different from the VCR/VCP/Television sets themselves. The utility of the battery cells to activate the Remote Control unit and then the equipment itself will be akin to that of the battery in a motor vehicle. It cannot be said that the motor vehicle has already been manufactured without the battery. The battery in a motor vehicle or battery cell in a Remote Control unit supplied as part of such equipment at the time of removal from the factory would be eligible inputs for the purpose of Modvat credit.
9. While coming to this conclusion, I direct that the Assistant Commissioner should verify that the credit is limited to the cells so supplied with equipment and that the cost of the cells had been included in their price.
10. The appeals are allowed on the above terms.