Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Cen. Excise vs Telco Ltd. on 5 December, 2005
ORDER
Jyoti Balasundaram, Vice President Page 248
1. In this case, 8 show cause notices were issued to the assessees/respondents who are engaged in the manufacture of motor vehicles and parts thereof, proposing to disallow Modvat credit in respect of tool kits supplied along with motor vehicles and chassis on the ground that tool kits were not inputs used in or in relation to the manufacture of motor vehicles so as to be entitled to modvat credit in terms of Rule 57A of the Central Excise Rules 1944. The notices covered the period from May, 1992 to June 1995 and the total credit sought to be disallowed was Rs. 88,00,854.60. The notices also proposed to impose penalty in terms of Rule 173Q(1)(bb) of the Central Excise Rules. The notices were resisted by the assessees who contended, inter alia, that in the heavy and commercial vehicle segment, they manufactured and cleared only chassis from Pune works. In the light commercial vehicle segment, they manufactured and removed complete vehicles and in the case of removals of LCV. and cars, Page 249 tool kits were supplied as standard supply with each vehicle, without any option to customers, whenever chassis were removed to DGS & D customers/government customers, tool kits were required to be supplied as essential items and in the few cases of removal of chassis, tool kits were cleared with chassis as optional supply and when tool kits were not supplied with chassis, the value of tool kits was indicated as deletion allowance, that the value of tool kits was included in the assessable value of MCV & HCV chassis. They relied upon the Larger Bench decision in Bajaj Auto Ltd v. CCE 1995 (88) ELT 355 in which it was held that modvat credit was admissible under Rule 57A on tool kits supplied along with motor vehicle. They contended that if at all the demand is sustainable, it is to be restricted only to those cases where tool kits were removed along with MCV/HCV to dealers as customer's option and this was only in the case of 3303 vehicles cleared during the entire period in dispute. The addl. commissioner of central excise, who adjudicated the notices, relied upon the decision of the Hon'ble Patna High Court in civil writ No. 1512 of 1993 in the assessees' own case holding that Modvat credit on tool kits was not admissible under Rule 57A, did not follow the Larger Bench decision in Bajaj Auto Ltd.2 on the ground that the issue whether supply of tool kits with motor vehicle could be construed as used in or in relation to manufacture of motor vehicle, was referred to jurisdictional High Court and therefore, there was no finality in the Bajaj Auto Ltd. case, and confirmed the demand raised in the notices by disallowing the Modvat credit. He also imposed penalties totaling Rs. 8,70,000. The commissioner (appeals) set aside the adjudication order, following the decision of the Larger Bench of the Tribunal in Bajaj Auto Ltd. v. CCE, Pune in which it was held that Modvat credit was admissible on jack assemblies and tool kits supplied along with motor vehicles as they are inputs within the meaning of Rule 57A of the Central Excise Rules 1944; hence this appeal by the Revenue.
2. We have heard both sides. We note that in the case of the same assesses, the Hon'ble Patna High Court has disallowed Modvat credit on tool kits observing clearly that:
Para 19: The motor vehicle chassis cleared without tool kits is also manufactured and duty is paid thereon. Definitely, therefore the motor vehicle chassis are treated to be manufactured within Section 2(f) whether or not tool kits are supplied along with the motor vehicles. Again tool kits supplied with the motor vehicle chassis do not participate directly or indirectly in or in relation to manufacture of the motor vehicle chassis. The chassis is already manufactured goods and counted for as final product in petitioners' RG 1 register whether or not tool kit is supplied. There is no doubt that the supply of the tool kits is a subsequent action to the manufacture of chassis to be used in relation to maintenance and Page 250 repair of the motor vehicle chassis and not used in relation to the manufacture of the final product.
Para 20: Again examining it from another angle the definition of the "inputs" does not include tools 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 final products. The tool kits is definitely tools and it is specifically excluded from the definition of "inputs" by the law maker with clear intention to deny the Modvat credit on the tool kits supplied with motor vehicle chassis.
Para 21: It is also settled law that value of accessories and spares should be added to the value of the motor vehicle chassis and accordingly the petitioners include the value of tool kits in the assessable value of the motor vehicle chassis manufactured by them. In our opinion, the criteria for determination and inclusion of value is not the basis for allowing and disallowing Modvat credit as per provision stipulated under Modvat credit. As decided by the Apex Court in the case of Union of India v. Bombay Tyre Internation Ltd.4 expenses incurred on account of several factors including service which have contributed to the value of an excisable goods are liable to be included in the assessable value. Accordingly, the petitioners are adding cost of tool kits in the assessable value of the chassis on the above principle of law and not for the reason that such tool kits are used in or in relation to the manufacture of chassis, as submitted by the learned Counsel for the petitioners.
In para 23 High Court observed that from whatever angle, the issue is examined the irresistable conclusion that is arrived at is that tool kits cannot be said to be inputs.
3. The SLP filed by Telco before the Apex Court was dismissed as seen from 1994 (73) ELT A129 (SC). The above decision was noted by the Bench in the case of Daewoo Motors India Ltd. v. CCE 2001 (135) ELT 596 wherein it was held that the decision of the Larger Bench in Bajaj Auto Ltd.5 (supra) can no longer be treated as good law in view of the Supreme Court's dismissal of SLP against Patna High Court judgment holding that tool kits and jack assemblies are not inputs within the meaning of Rule 57A, The Daewoo Motors India Ltd. decision has taken note of Tribunals order in India Automotive Ltd. holding that tool kits are not essential accessories of final product viz. auto cycles, and therefore, their value will not be includible in the assessable value of auto cycles, which decision was approved by the Supreme Court as seen from 1998 (98) ELT A-72 and the Tribunal's order in Maruti Udyog Ltd. to the same effect. In an identical situation, in the case of CCE, Indore v. Bajaj Tempo Ltd. 2004 (177) ELT 1027, Page 251 the Tribunal upon noting the Telco decision of the Patna High Court and the dismissal of SLP against that decision by the Apex Court and the Tribunal's decision in Daewoo Motors India Ltd. supra, has held that Modvat credit of duty paid on tool kits is not available.
4. In the light of the above, we agree with the ld. SDR that tool kits are not inputs for vehicles and that benefit of Modvat credit of duty paid on tool kits is not admissible to the respondents.
5. The respondents contended in the alternative that even in the Revenue's contention of non admissibility of Modvat credit on tool kits is accepted, they cannot be directed to pay back amount of Modvat credit taken on duty paid tool kits as they had included the value of tool kits in the assessable value of the motor vehicles cleared by them during the relevant period. They submit that the Stand taken by them in their reply dated 13th June, 1997 to the show cause notice that the value of tool kits and jack assemblies has already been included in the assessable value of motor vehicles cleared during the period in dispute, has not been specifically controverted or rebutted by the addl. commissioner in the order in original or by the lower appellate authority and therefore, if the duty paid on the value of tool kits exceeds the credit taken on tool kits during the relevant period then the respondents cannot be called upon to make any further payment, and it is only if the duty paid is less than the credit taken, relief can be granted to the Revenue by directing the respondents to pay the differential duty. On the other hand, the ld. SDR vehemently opposed the contention regarding inclusion of value of tool kits in the assessable value of motor vehicle/chassis by the respondents in the absence of any evidence such as approved classification lists or price lists to substantiate the same. He also points out that in the case of sale of chassis to dealers, the respondents admit that tool kits are supplied as optional accessories which would show that the value of tool kits is not included in the assessable value of motor vehicle/chassis and therefore, urges that the respondents may be ordered to pay back the entire amount of credit taken on the tool kits.
6. We have carefully considered the alternative submission. We note that in the case of Sudhir Engg. Co. and Ors. v. CCE, Daman (Final Order A/309/1031/WZB/05-C.II dtd 6th May, 2005, the Tribunal clearly held that the issue as to whether the activity undertaken by the assessee would amount to manufacture or not is integrally linked with the eligibility to credit on the parts used in that activity and that when an assessment is reopened by the department that manufacture is involved and duty is determinable, rejecting the contention of the appellants that no manufacture is involved, all aspects of assessment including availability of Modvat credit can be gone into. The tribunal has consistently held that when credit is proposed to be denied by holding that the process in which inputs on which credit has been taken were used, did not amount to manufacture, duty paid by the assessee by utilising the credit on such inputs should be treated as reversed/paid back. One such recent decision is in the case of Systematic Steel Inds. Ltd. v. CCE [Final Order No. A/164/WZB/2005/C.I Page 252 dated 17th February, 2005. We also note that in the case of CCE v. Narayan Polyplast 2005 (179) ELT 20 (SC), where the assessee, instead of availing exemption available to final products under a particular notification, took credit of duty paid on inputs and paid duty on the final product utilising the credit and the Revenue sought to deny credit based on Rule 57C of the Central Excise Rules stipulating that credit is not admissible of duty paid on inputs used in the manufacture of exempted product, fine Supreme Court held that the credit availed and duty paid is identical and hence, the issue is Revenue neutral and accordingly dismissed the appeal of the Revenue.
7. In the light of the ratio of the above decision, we agree with the respondents that they cannot be directed to pay pack the entire credit taken on duty paid tool kits without first adjusting the same against the excess duty paid on the value of the motor vehicles/chassis by inclusion of value of tool kits which was not required to be included. However, since the material on record is not sufficient to determine whether the value of tool kits was included in the assessable value of motor vehicle/chassis cleared by the respondents during the relevant period, we remand this aspect for fresh decision to the jurisdictional addl. commissioner who shall verify as to whether the respondents had actually included the value of tool kits in the assessable value of motor vehicle/chassis cleared by them during the period in dispute and then adjust the amount of credit disallowed against the excess duty, if any, paid on the value of motor vehicle/chassis by such inclusion and recover the difference. He shall pass fresh orders after extending reasonable opportunity of hearing to the assessee and allowing them to place documentary evidences on record to substantiate their contention in this regard. It is open to the respondents to agitate the issue of wrong quantification of credit before him.
8. As regards penalty, we see force in the submission of the respondents that since the issue is entirely one of interpretation of law, it is not a fit case for imposition of penalty, and therefore, reject the prayer of the Revenue for restoration of the penalty imposed upon them by the adjudicating authority.
9. The appeal is partly allowed as above.
10. Cross objection is also disposed of accordingly.