2013 (1) TMI 529 - AT - Central Excise

Whether tool kit can be termed as accessories of final product as envisaged in the definition of input in Rule 2(k)(i) of Cenvat Credit Rules, 2004 - Appellants are engaged in the manufacture of two wheelers Under chapter 87 - Cenvat credit on bought out items - Department argued that the Cenvat credit availed on tool kits was not permissible - under Rule 3(1) of Cenvat Credit Rules, 2004 Tool kits are bought out items which are neither fitted with motorcycle/two wheelers nor are used in or in relation to the manufacture of motorcycles by the appellant Held that - Rule 138 of Central Motor Vehicle Rules, 1989 (as amended) deals with signals and additional safety measures for motor vehicle. Clause 4(b) of Rule 138 makes it incumbent on driver of every vehicle to carry the tool kit prescribed by the manufacturer. Since carrying of the tool kit in the vehicle is obligatory for the driver, it can be safely inferred that tool kit is necessary accessory of the motor vehicle because driving of the vehicle without those accessories would be violative of Rule 138(4)(b) of Central Motor Vehicle Rules, 1989. The tool kits were sold by the appellant along with final product and their cost is included in the price charged from the customers. The appellants have supplied the tool kit as per statutory requirements under Central Motor Vehicle Rules, 1989 as accessories to be used in relation to the manufacture of vehicle. Thus, tool kit is squarely covered by the definition of input given under Section 2(k)(i) of Cenvat Credit Rules. And appellant have rightly availed the Cenvat credit in relation to tool kits. In favour of assessee

Summary

Issues:
Disallowed Cenvat credit on tool kits sold along with two wheelers under Rule 3(1) of Cenvat Credit Rules, 2004.

Detailed Analysis:

1. Background and Disallowance of Cenvat Credit:
The appellant, engaged in manufacturing two-wheelers, availed Cenvat credit on tool kits sold with the two-wheelers. The Commissioner disallowed the credit amounting to Rs. 4,19,58,916 and Rs. 3,71,98,802 for two different locations of the appellant. Show cause notices were issued, leading to the disallowance and imposition of penalties.

2. Arguments of the Appellant:
The appellant contended that tool kits are essential components sold with two-wheelers, meeting the requirements of Rule 138 of Central Motor Vehicle Rules, 1989. They argued that tool kits qualify as inputs under Rule 2(k) of Cenvat Credit Rules, 2004, entitling them to claim Cenvat credit for excise duty paid on the kits.

3. Appellant's Legal Basis:
The appellant cited Rule 2(k)(i) defining 'input' to include accessories of the final product cleared along with it. They referenced previous Tribunal decisions supporting their claim, emphasizing the necessity of tool kits for compliance with statutory provisions.

4. Revenue's Counter-Argument:
The Revenue argued that tool kits are not inputs as per Rule 2(k) of Cenvat Credit Rules, 2004, as they are considered "bought out items" not directly used in manufacturing two-wheelers. They supported the disallowance of Cenvat credit and duty demand.

5. Judicial Analysis and Decision:
The Tribunal examined Rule 3 of Cenvat Credit Rules, emphasizing the definition of 'input' to include accessories of the final product. Considering Rule 138 of Central Motor Vehicle Rules, 1989 mandating the presence of tool kits in vehicles, the Tribunal concluded that tool kits are necessary accessories for vehicles and qualify as inputs under the Cenvat Credit Rules.

6. Precedent and Legal Interpretation:
The Tribunal distinguished the judgments cited by the Revenue, noting that they were based on different rules not incorporating accessories in the definition of inputs. The Tribunal's decision aligned with previous rulings supporting the inclusion of accessories like tool kits as inputs.

7. Final Verdict and Disposition:
The Tribunal set aside the Commissioner's order disallowing the credit on tool kits, ruling in favor of the appellant. The stay applications and appeals were disposed of accordingly, allowing the appellant to claim Cenvat credit on tool kits sold with two-wheelers.

This detailed analysis highlights the legal arguments, statutory provisions, precedent, and final decision regarding the disallowed Cenvat credit on tool kits sold with two-wheelers under the Cenvat Credit Rules, 2004.