2013 (1) TMI 612 - AT - Central Excise

CENVAT credit wrongly availed - Whether tool/first aid kits sold along with motorcycle fall within the purview of the definition of input - Whether tool/first aid kits can be termed as accessories of final product as envisaged in the definition of input in Rule 2(k)(i) of CCR, 2004 - Department argued that tool/first aid kit is neither inputs of two wheelers essential for its functioning nor the accessories helping in its better performance - the tool/first aid kits are sold by the appellant along with final product and their cost is included in the same Held that - Driving of the vehicle without tool kit and first aid kit accessories would be violation of Rule 138 of Central Motor Vehicle Rules, 1989 The appellant had supplied the tool/first aid kits to the buyers as per statutory requirements under Central Motor Vehicle Rules, 1989 as accessories to be used in relation to the manufacture of vehicle. Thus, both squarely covered by the definition of input given under Rule 2(k)(i) of CCR, 2004 and that the appellant had rightly availed the Cenvat credit. In favour of assessee

Summary

Issues:
1. Whether tool/first aid kits sold along with two wheelers qualify as inputs eligible for Cenvat credit.
2. Validity of the order disallowing Cenvat credit and imposing penalty.

Analysis:
1. The appellants, engaged in manufacturing two wheelers, availed Cenvat credit on tool/first aid kits sold with two wheelers. The Department alleged wrongful credit availing, leading to show cause notices and subsequent disallowance of credit by the Commissioner. The appellant contested, citing the definition of 'input' under Rule 2(k)(i) of Cenvat Credit Rules, 2002, and Rule 138 of Central Motor Vehicle Rules, 1989. The appellant argued that the kits were necessary accessories per statutory requirements, entitling them to claim Cenvat credit under Rule 3(i) of Cenvat Credit Rules, 2002.

2. The appellant challenged the order-in-original, seeking waiver of pre-deposit for duty demand, interest, and penalty. During the hearing, the appellant's counsel argued that the order disregarded legal provisions and relied on Tribunal decisions supporting their claim. On the other hand, the Revenue contended that the kits were not accessories as per the rules, being 'bought out items' not directly related to the manufacture of two wheelers. The Tribunal analyzed the definition of 'input' under Rule 2(k)(i) of Cenvat Credit Rules, 2004, and the mandatory requirement of tool/first aid kits under Rule 138 of Central Motor Vehicle Rules, 1989.

3. The Tribunal found that the tool/first aid kits were sold along with two wheelers, their cost included in the final product. Considering the statutory obligation for drivers to carry these kits as per Rule 138, the Tribunal concluded that the kits were necessary accessories for the vehicles. Therefore, the kits fell within the definition of 'input' under Rule 2(k)(i) of Cenvat Credit Rules, 2004. Relying on previous Tribunal decisions, the Tribunal allowed the appeal, setting aside the order disallowing Cenvat credit, duty demand, interest, and penalty.

4. In conclusion, the Tribunal held that the impugned order disallowing Cenvat credit was legally unsustainable. The appeal was allowed, and the order confirming the demand, interest, and penalty was set aside. The Tribunal disposed of the appeal accordingly.