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TMI Blog1992 (9) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... in duty paid dry battery cells, which are reportedly placed in the battery compartment in such a manner to prevent leakage of the dry cells and thereafter sealed and packed for delivery at the factory gate to the buyers. They filed a declaration under the Modvat Scheme, showing these battery cells as an input against the final product Quartz Wall Clocks. This, however, came to be objected to by the Department by issue of various Show Cause Notices (all reported to be within the normal limitation period). 5. The Show Cause Notice, only contends that the battery cell cannot be considered as an input used in the manufacture of final product namely clocks. However, in the order of the Assistant Collector, the following reasoning is given for holding that it is not an input for wall clock. Rule 57A of the Central Excise Rules speaks of goods used in or in relation to the manufacture of the final product as specified in the notification issued under this Rule. The battery cells are not required in the course of manufacture of Quartz Clocks but are required only to run the same. The battery cells are used for operational functions and are more in the nature of accessories of clocks th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on this issue and connected matters. (iv) Modvat Scheme and its economic objective. 11.1. Contentions raised in S.C.N./A.C. s Order/Order in Appeal. (i) The S.C.N. is cryptic in its allegation. It does not specify any reason for alleging that battery cell is not an input. Hence there is no scope for us to consider the objection in detail. (ii) However this allegation is upheld by the Assistant Collector by a reasoning to the effect that Rule 57A refers to inputs as the goods used, in or in relation to the manufacture of the final product. Battery Cells are not required in the course of manufacture of Wall Clocks but they are used for operational functions and hence are more in the nature of accessories of Clocks than as inputs required for the manufacture of Clocks. There is prima facie fallacy noticed in this reasoning of the Assistant Collector. Rule 57A does not stipulate that goods are to be only used in the course of manufacture of final product. In other words Rule 57A does hot stipulate that only goods used in the mainstream of manufacturing line of the final product, can be construed as inputs. The words used are in or in relation to the manufacture of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Combustion engine. We would deem it more appropriate to compare the dry battery cell to storage battery fitted to the motor car. Because both belong to the same genus and perform similar functions. However it was pleaded by Shri Mondal that storage battery in a car is only for starting the engine and once the engine is started, petrol provides the power for running the engine. While we appreciate this argument, we are to ask this question namely when, for a similar item storage battery confined only to the function of starting the engine a car, Modvat credit is given, could it be denied to the battery of cell, which is fitted into the Clock for the purpose of running the Clock? 11.2(i) Arguments on legal grounds : The Ld. Advocate s main plea is that the term Manufacturer used in Rule 57A is to be construed in the light of the definition given under Section 2(f) of the Central Excise Act and viewed in that context, even processes incidental or ancillary to the completion of the Manufactured product would come within its purview. Completion of the manufactured product can be only when the goods reach the state of delivery. We have taken a similar view in another case of Ashw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sides and also looked into the dictionary meanings of the terms. In the case of Jyoti Ltd. v. U.O.I. [1979 (4) E.L.T. J 546) (Guj.)], the Gujarat High Court construed an accessory as an object or device, which is not essential by itself but adds to the beauty, convenience or effectiveness. In the case of Precision Rubber Industries v. Collector of Central Excise [1990 (49) E.L.T. 170 (Bom.)], the Bombay High Court construed a component as a constituent part or ingredient such as the various components of electric motor. In the case of Chemical system, it is used to denote an ingredient of a Chemical compound. The word accessory is taken to mean an altogether different connotation. It signifies aiding or contributing in a secondary or subordinate way. It is used to suggest a role or status, which is supplementary or secondary to something of a greater or primary importance. In other words, accessory is something which is essential and secondary or subordinate or, incidental to the main object. The Bombay High Court also holds the view that a component is always an essential element of the machine, while accessory is an aid to the machine. A machine is not a machine witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons. In the olden days, the Clock was operated by spring mechanism, which is to be wound with a key, invaribly supplied with the Clock for winding. The key does not go into the mainstream of manufacture of Clock movement, fitted into the casing with dial and hands. A hole is provided in the casing for insertion of the key to wind the spring and key used to be placed separately and packed along with the clock. Now, with the advancement of technology, clocks with spring mechanism are replaced by Quartz Clocks, when the motive power for running the clock is provided by the battery cell. If a key could be construed to be an external component essentially required for running Quartz Clock, (which the Ld. SDK does not dispute) why not battery cell fitted and supplied along with Quartz Clock? This is the question which we are to answer, having regard to the ratio of the decision of the Apex Court in the above cases. 11.2(ix) In the case of Jay Engineering, even name plates affixed to the fan have been construed to be a component for the electric fan, though it is not an item essential for running of the fan but an item essential for marketing it. The Apex Court have held that an it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e invariably supplied along with these gadgets and those gadgets are marketed along with those cells fitted into and packed with gadgets, and this is the marketing pattern for those goods, Modvat credit cannot be denied to the dry cells, dismissing it as an accessory in view of the decision of the Apex Court considered by us. Dry Cells in such gadgets are not complimentary gifts, like spoons given with Tea packets or soap cake given with talcum powder, as sales promotion measure, where eligibility of Modvat credit on spoons and soap cakes could be questioned. Eligibility therefore depends on the facts of the each case and no generalisation is possible. However, questions, to be asked would, in our view, be whether they are essentially required for the operational need of this gadget, if the answer is yes ; whether it is compulsorily supplied with the gadget at the point of delivery through factory gate and if the answer is yes ; then whether its value is included in the value of the gadget at the factory gate? If the answer to all the questions is positive, then in terms of the Apex Court s judgment, cited supra, we are to allow Modvat credit. If the Govt. feels that it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of Modvat Credit on dry cells for Quartz Clocks, it has been decided by the Board not to allow the credit. No reasoning is forthcoming in the said Trade Notice, nor it was specifically put forth by the Ld. SDR as to why the Board have arrived at this decision. While we do not propose to dismiss the Board s advice to the field formations on the ground-that it is not binding on us, we are rather intrigued as to how such a stand could be maintainable in the context of their own instruction on tool kits, jack assembly, spare wheel for vehicles, and also in the context of their instructions on labels, stickers and nameplates affixed to final products. Hence we prefer to ignore the Board s view contained in Madurai Collectorate Trade Notice (supra) and go in all cases, by the ratio of the decision of the Apex Court. 12.3 It may also not be out of context to mention here that even the Tax Reforms Committee Chaired by Professor Raja Chellia in their final Report Part I (vide para 4.11 of Chapter 4) have cited this specific case of dry cell used in Quartz Clock as one example, arising out of lack of understanding of the economic justification for extension of Modvat Credit and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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