1995 (7) TMI 98 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of ribbons as inputs for Modvat credit.
2. Interpretation of "inputs used in or in relation to the manufacture" under Rule 57A.
3. Application of conflicting tribunal and court decisions.
4. Procedural objections regarding new grounds raised in the appeal.

Issue-wise Detailed Analysis:

1. Eligibility of Ribbons as Inputs for Modvat Credit:
The primary issue was whether ribbons supplied with line printers qualify as inputs for Modvat credit. The respondents claimed Modvat credit on the additional duty of customs paid on imported ribbons, which was initially disallowed by the Assistant Collector but later allowed by the Collector (Appeals). The department contested this, arguing that ribbons are not used in the manufacture or in relation to the manufacture of line printers, as printers are marketable without ribbons. The Tribunal examined whether ribbons are essential for the functioning of printers and concluded that ribbons, being indispensable for the operation of printers, qualify as inputs used in or in relation to the manufacture of line printers.

2. Interpretation of "Inputs Used in or in Relation to the Manufacture" under Rule 57A:
The Tribunal discussed the criteria for Modvat credit eligibility, emphasizing that inputs must be used in or in relation to the manufacture of the final product. The Tribunal referred to various precedents, including the Supreme Court's decision in State of Uttar Pradesh v. Kores (India) Limited, which held that typewriter ribbons are accessories, not parts. However, the Tribunal distinguished this case, noting that ribbons for line printers are essential for their functioning and are fitted during the manufacturing process, thus qualifying as inputs under Rule 57A.

3. Application of Conflicting Tribunal and Court Decisions:
The Tribunal addressed conflicting decisions from different benches on similar issues. The South Regional Bench in Wipro Infotech Limited v. Collector of Central Excise held that ribbons are accessories and not eligible for Modvat credit, while the West Regional Bench in Jayshree Industries v. Collector of Central Excise held that dry cells in quartz clocks are essential components and eligible for Modvat credit. The Tribunal also considered the Patna High Court's decision in Tata Engineering & Locomotive Company Limited v. Union of India, which held that tool kits supplied with motor vehicles are not inputs used in their manufacture. The Tribunal concluded that the role of ribbons in printers is distinct from tool kits in motor vehicles and aligns more with the reasoning in Jayshree Industries.

4. Procedural Objections Regarding New Grounds Raised in the Appeal:
The respondents argued that the department raised new grounds in the appeal that were not addressed by the Assistant Collector. The Tribunal noted that the Collector (Appeals) had addressed the issue of ribbons being used in the manufacture of line printers, and the department's appeal challenged this finding. The Tribunal accepted the department's right to raise this issue in the appeal, as it stemmed from the Collector (Appeals)'s decision.

Conclusion:
The Tribunal held that ribbons used in line printers qualify as inputs for Modvat credit, as they are essential for the functioning of printers and are used in the manufacturing process. The appeal by the department was dismissed, and the Assistant Collector was directed to verify that the Modvat credit allowed relates only to ribbons fitted in the printers and not to those supplied separately. The respondents' cross-objection was dismissed as it merely reiterated arguments made during the appeal.