Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise vs Ashok Leyland Limited on 19 November, 1993
Equivalent citations: 1996(83)ELT364(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal has been filed by the Revenue, against the order of the Collector of Central Excise (Appeals), Madras. The brief facts of the case as set out in the impugned order are as under :
"The appellants are engaged in the manufacture of motor vehicles falling under Chapter 87. They are availing modvat credit on batteries which have been declared as inputs under Rule 57G. These batteries are used in the manufacture of motor vehicles. The appellants vide their application dated 5-12-1988 requested for remission of duty of Rs. 25,066.37 BED and Rs. 649.88 SED in terms of Rule 57F(4)(c) on the ground that due to long storage excess sulphation had rendered the batteries dead and thereby the electrolysis process is lost. The Assistant Collector, Hosur vide the impugned order rejected the application for remission of duty on the plea that the appellants' case is not covered by rule 57F(4)(c). He held that the batteries became dead due to long storage on the chassis which were held in stock. He also observed that the dead batteries which are in the nature of unserviceable material, cannot be considered as waste arising in the course of manufacture, so as to qualify for destruction and remission of duty as per Rule 57F(4)(c).
2. The Collector (Appeal) while agreeing to the Respondent's plea has held as under :
"I have carefully considered the appeal records and the contentions urged by the appellants. It can be observed from the contentions made by the appellants that the batteries are required to be used during the trial run of the vehicles for purposes of test and inspection besides for moving the chassis from one place to another place in the stores room area, to avoid damage to tyres and tubes. Therefore, it is not correct to say that the damage to batteries does not occur in the process of manufacture of the final products, ft is well settled principle now that testing and inspection of goods is an essential process in the manufacture of goods. 1 therefore hold that the subject goods qualify to be termed as waste arising during the manufacture of goods and therefore eligible for remission of duty as per provisions of Rule 57F(4)(c). I therefore allow the appeal and direct the lower authority to submit the records to the competent authority for passing orders on the application filed by he appellants for remission of duty, and permission for destruction of goods."
3. The learned appellant-Collector has urged the following grounds in his appeal:
"(1) Clause (c) of the Rule 57F(4) of the Central Excise Rules, 1944 provides for remission of duty on waste arising from the processing of the input if such waste arising out of the input is found unfit for further use or not worth the duty payable thereon and destroyed.
(2) The batteries which were fitted to the motor vehicle and become unusable after a period due to long storage is not a waste arising from the processing of input, but only the input itself which has become unusable after some time due to excess sulphitation on long storage. Such a situation is not covered under Rule 57F(4).
(3) In this case, the storage batteries fitted to the motor vehicles have become unfit as they have lost their electrolysis capacity due to long storage in the yard. Therefore, in this case the input viz. storage battery itself has become unusable as the same deteriorates in its quality due to long storage after fitment to the motor vehicle."
4. The learned SDR for Department reiterated the grounds of appeal. He pleaded that the Dept. has accepted batteries to be an eligible input in the manufacture of the vehicle and since the same become dead even though after some use in the factory, the same could not be regarded as a waste and therefore, the Respondent is required to pay duty in respect of the same.
5. The learned Counsel for the Respondent pleaded that the authorities have allowed the batteries as input and have accepted the fact that the same were used in or in relation to the manufacture of vehicles. Batteries, he pleaded, by their very nature act as store of electric current and the same are used to start the engine and also to provide electric current for the functional purpose of the vehicle. He pleaded that the learned lower appellate authority has taken note of the fact that the batteries are used from time to time when the vehicles are cleared from the factory and for movement of the vehicles within the factory. He pleaded that since the batteries became dead in the factory, they have to be taken to be waste and duty could not be recovered in respect of the same. He therefore, pleaded for dismissal of the appeal filed by the Revenue.
6. We observe that' we have our reservations about treating the batteries as an eligible input in the manufacture of vehicles. The Hon'ble Supreme Court in the case of Kores India Ltd. has held that ribbon used in the -typewriter is an accessory and therefore cannot be considered as part of the typewriter. This Bench in the case of Wipro Infotech Limited v. Collector, Bangalore in Appeal No. E/91/92, decided on 6-1-1993 [reported in 1994 (69) E.L.T. 82 (Tri.)] following the ratio of the judgment of the Hon'ble Supreme Court cited supra, have, held that ribbon used in the printer cannot be considered as an input in or in relation to the manufacture of printer. Likewise, in the case of watches we have held that batteries are not eligible for the benefit of MOD VAT Credit. Vehicle as known in the market is complete without the batteries. To us it appears that the ratio of the Hon'ble Supreme Court relied upon by this Bench in the Kores India case would apply to the facts of this case. However, there is no plea before us from the Revenue so far as eligibility of the electric storage batteries to the benefit of MODVAT Credit as an input under Rule 57A of the MODVAT Rules and the MODVAT Credit on the batteries having been allowed by the appellant, the question that would arise for consideration is whether the authorities now can turn around and say that these batteries which were used in the vehicles in the factory as pleaded by the assessee and thereafter become dead can be treated as waste arising in the course of the manufacture of the finished product. Under Rule 57F the manner of utilisation of input and credit allowed in respect of duty paid thereon has been, provided for. Rule 57F(1), reads as under :
"Manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon -
(1) The inputs in respect of which a credit of duty has been allowed under Rule 57A may -
(i) be used in or in relation to, the manufacture of final products for which such inputs have been brought into the factory; or
(ii) may be removed subject to the prior permission of the Collector of Central Excise, from the factory for home consumption or for export on payment of appropriate duty of excise or for export under bond, as if such inputs have been manufactured in the said factory."
In regard to the wastage the relevant rule is Rule 57F(4) which reads as under :
"Any waste arising from the processing of inputs in respect of which credit has been taken may -
(a) be removed on payment of duty as if such waste is manufactured in the factory; or
(b) be removed without payment of duty, where it belongs to such class or category of waste as the Central Government may from time to time by order specify for the purpose for being used in the manufacture of the class or categories of goods as may be specified in the said order, subject to the procedure under Chapter X being followed; or
(c) destroyed in the presence of proper officer on the application by the manufacture and if found until for further use, or not worth the duty payable thereon the duty payable thereon being remitted."
Under Rule 57F(1)(ii), the inputs are to be used in or in relation to the manufacture of final product for which these inputs have been brought into the factory or the same can be removed from factory on payment of appropriate duty has been set out. The Respondent's claim is that the batteries have been used in or in relation to the manufacture of the vehicles. It is seen that so far as the batteries are concerned, if it has been allowed as an input, the same have been considered as a component part which gets fitted on to the vehicle and acts as a source for electric current for use in the circuitory of the vehicle. These batteries, as observed in the lower appellate authority's order had accumulated over a period of time and were lying in the yard for a long time. The learned lower appellate authority has observed in his order that the batteries which had been taken as input have not been fitted on to the vehicle cleared from the factory and they have become unfit for use during the long storage. He has observed that this cannot be considered as a manufacturing waste and therefore cannot be considered as waste under Rule 57F(4). Before the lower appellate authority, the Respondent's plea was that these batteries were required to be used for trial running of the vehicle for the purpose of testing and inspection besides moving from one place to another and avoid damage to the tyre and tubes and therefore it is not correct to say that damage to the batteries does not occur in the process of manufacture of the final product. The lower appellate authority has accepted this plea of the Respondent, observing that testing and inspection is an essential process in the manufacture of the goods and the lower appellate authority has allowed the Respondent's plea for remission of duty in terms of Rule 57F(4)(c). We would like to observe that there is nothing on record to show that these batteries were in fact issued and used for the purpose as set out in the lower appellate authority's order. No evidence in this regard appears to have been produced before the lower appellate authority nor the lower appellate authority himself has called for any record in this regard for verification of their plea. Be that as it may we observe that batteries have long life and there is no record to show that these were continuously used with reference to the vehicles for the purpose as set out in the lower appellate authority's order. We observe that it is possible that these batteries could have become unfit for use on account of their long storage without use. The lower appellate authority should have gone into this aspect also. We observe that under Rule 57F(4)(c) waste which can be allowed to be disposed of should be such as has arisen out of the processing of the inputs in respect of which credit has been taken. The plea of the revenue is that no process as such in the batteries is involved and therefore the benefit of MOD VAT Credit would not be eligible. We observe that under the MOD VAT Scheme, the benefit of input is available both in respect of the raw material used as an in-process material as also components as specified under Notification issued in terms of Rule 57A. In the case of components after fitment, if they become defective or have to be discarded after fitment and use, the term 'waste' arising from the processing of the inputs will have to be taken to be covering these. It cannot be accepted that Rule 57F(4) applies only to inputs taken into use as in-process materials which undergo some processing and not in respect of components which also are covered under the MODVAT Scheme. The rules framed under MODVAT Scheme introduced have to be interpreted in a harmonious manner so as to apply to all inputs unless there is a specific provision to the contrary. In this view of the matter we hold that in case an input has been held to be eligible and which is used in the final product and which becomes defective because of the use in conjunction with the final product and by virtue of that use becomes unusable, that has to be treated as waste. In the present case, however, we find that no basis has been laid that these batteries had in fact been used with reference to the vehicles and the learned lower appellate authority has not gone into any evidence in this regard. In view of the above, we hold that the impugned order is not a proper order and therefore has to be set aside and we remand the matter to the learned lower authority for de novo adjudication in the light of our observations above.