1992 (9) TMI 200 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of Modvat Credit for duty paid on dry battery cells used in Quartz Clocks and timepieces.

Summary:

Issue 1: Contentions in Show Cause Notice, Assistant Collector's Order, and Collector (Appeals) Order
The Show Cause Notice (S.C.N.) contended that battery cells are not inputs used in the manufacture of clocks. The Assistant Collector upheld this by reasoning that Rule 57A of the Central Excise Rules refers to goods used "in or in relation to the manufacture" of the final product, and battery cells are used for operational functions, not in the manufacturing process. The Collector (Appeals) also held that dry cells are not required in the manufacture or in relation to the manufacture of Quartz Wall Clocks, comparing their role to petrol in a motor car.

Issue 2: Arguments on Legal Grounds by Both Sides
The appellants argued that the term 'manufacture' in Rule 57A should be construed in light of Section 2(f) of the Central Excise Act, which includes processes incidental or ancillary to the completion of the manufactured product. They contended that battery cells are essential components for the running of the clock and not merely accessories. The respondents argued that battery cells are consumer items and not identifiable components for the Wall Clock.

Issue 3: Board's Classification and Connected Matters
The Board had identified certain inputs as eligible and others as not eligible for Modvat Credit. The Tribunal noted that items like tool kits and spare wheels supplied with motor vehicles are considered eligible inputs. The Tribunal found the Board's view in the Madurai Collectorate Trade Notice, which denied Modvat Credit on dry cells for Quartz Clocks, inconsistent with other Board instructions and the decisions of the Apex Court.

Issue 4: Modvat Scheme and Its Economic Objective
The Modvat Scheme aims to mitigate the burden of levies on inputs going into the manufacture of the final product by giving credit for the duty paid on all inputs. The Tribunal held that inputs used up to the stage of delivery at the factory gate should be given credit, aligning with the economic objective of the Modvat Scheme and the decisions of the Apex Court.

Conclusion:
The Tribunal allowed the appeals, holding that dry battery cells are essential components for Quartz Clocks and thus eligible for Modvat Credit. The Department was given liberty to verify that the dry cells are supplied in the required number for each clock, packed and sealed with the clock, and their value included in the assessable value of the Quartz Clock. If verified, the Credits disallowed earlier should be restored.