2007 (6) TMI 85 - AT - Central Excise

Cenvat/Modvat - Revenue contended that appellant is not entitle for credit on inner tubes and flaps which is cleared by the appellant after affixing with the tyres - the assessable value calculated after considering the amount of inner tubes and flaps and accordingly allowed credit

Summary

Issues:
- Dispute over availability of credit for inner tubes and flaps used in the manufacture of tyres for exports.

Analysis:
The appellant, a tyre manufacturer for earthmovers and industrial equipment, procures inner tubes and flaps from outside suppliers. The majority of the appellant's products are exported, making them eligible for a rebate of excise duty paid on the tyres. The core issue revolves around whether credit is available for inner tubes and flaps, with the impugned order denying the credits based on the argument that these items are not inputs used in tyre manufacturing. The Commissioner's finding was that since tyres and tubes are separate products, tubes cannot be considered inputs for tyres.

The appellant contends that the definition of 'inputs' under the Cenvat Credit Rule is broad and includes "accessories," which should cover inner tubes and flaps. They argue that the value of these items is included in the price of the tyres, making availing credit revenue-neutral. The appellant also cites a judgment by the Hon'ble Supreme Court in a similar case to support their position.

The Tribunal agrees with the appellant, emphasizing that inner tubes and flaps are essential for the functioning of the tyres and should be considered accessories. The definition of 'inputs' explicitly includes accessories of final products, which encompasses these items. The Tribunal highlights that excise duty is levied on the final product as it leaves the factory, including all components and accessories, aligning with the scheme of taxation and Cenvat credit rules.

Drawing parallels to a previous case involving pipes and sockets, the Tribunal further supports its decision by applying a functional test of essentiality. Just as sockets were deemed essential for the functioning of pipes in the previous case, inner tubes and flaps are essential for the functioning of tyres in the present case. Therefore, the value of these items should be included in the assessable value of the tyres, and the appellant is entitled to take credit for the duty paid on tubes and flaps.

The Tribunal orders the appeals in favor of the appellant, subject to verification of whether the value of tubes and flaps was included in the assessable value of the tyres. If included, the appellant is entitled to Cenvat credit; otherwise, no relief will be granted.