1995 (11) TMI 151 - AT - Central Excise

Issues Involved:
1. Whether Electric Dry Batteries can be considered as inputs under Rule 57A of Central Excise Rules, 1944, for the manufacture of VCP/VCR/Television sets to grant Modvat benefit.
2. Whether Remote Control units are considered accessories or essential components of VCP/VCR/Television sets.
3. The relevance of Trade Notices in determining Modvat Credit eligibility.

Detailed Analysis:

Issue 1: Electric Dry Batteries as Inputs Under Rule 57A
The primary issue revolves around whether Electric Dry Batteries qualify as inputs under Rule 57A of the Central Excise Rules, 1944, in the context of manufacturing VCP/VCR/Television sets for Modvat benefit. The appellants argued that dry cell batteries are essential inputs because they are required to activate the Remote Control units, which are integral to the functionality of these sets. They contended that models with Remote Control facilities have a distinct commercial identity and are not marketable without the Remote Control units. The Collector (Appeals) had rejected this contention, stating that the Remote Control unit is an accessory and the sets can function without it. However, the judgment found that the role of battery cells in Remote Control units is akin to the role of ribbons in line printers, as held in the Larger Bench decision in the Lipi Data Systems case. The cells are necessary for the operation of the final products and are supplied along with the VCP/VCR/Television sets, thus satisfying the definition of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944.

Issue 2: Remote Control Units as Accessories or Essential Components
The Collector (Appeals) had held that the Remote Control unit is an accessory and not essential for the functioning of VCP/VCR/Television sets. This decision was based on the observation that the sets can operate without the Remote Control units. The appellants argued that the Remote Control units are integral to the sets designed to function with them, and the sets are not complete without these units. The judgment agreed with the appellants, stating that the Remote Control units are part of the final products and are not merely accessories. The existence of separate rates of duty for sets with and without Remote Control facilities further substantiates this point. The Remote Control unit's functionality, enabled by the battery cells, is essential for the complete operation of the VCP/VCR/Television sets.

Issue 3: Relevance of Trade Notices
The appellants contended that the Collector (Appeals) erred in basing his decision on Trade Notices, which they argued have no legal force. The judgment supported this view, emphasizing that Trade Notices should not be the basis for denying Modvat Credit. The amendment of Rule 57A, which includes accessories of the final product cleared along with it, further clarifies that such inputs are eligible for Modvat Credit. The judgment highlighted that the irrelevance of assessable value for specific rated goods cannot exclude inputs from Modvat benefit if they are part of the final product's structure.

Conclusion:
The appeals were allowed, with the judgment concluding that Electric Dry Batteries used in Remote Control units for VCP/VCR/Television sets qualify as inputs under Rule 57A for Modvat Credit. The Assistant Commissioner was directed to verify that the credit is limited to the cells supplied with the equipment and that their cost was included in the price. The judgment emphasized that the Remote Control units are integral to the final products and not merely accessories, and the reliance on Trade Notices for denying Modvat Credit was inappropriate.

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