Judgment:
1. Appellant in Appeal No. E/313/831 is M/s. Bajaj Auto Ltd.(B.A.L.).
Appellants in the other appeals are M/s. Mahindra & Mahindra (M.A.M.).
2. BAL manufacture two-wheelers and three-wheelers falling under Chapter 87 of Central Excise Tariff Act, 1985. They buy hand tools meant for tool kits supplied along with scooters cleared from the factory on payment of duty. They also buy and use steel articles, Argon gas, Thinners and solutions, Fevicol, Caustic Soda, packing materials and various kinds of chemicals. Assistant Collector disallowed Modvat credit under Section AA of Chapter V of Central Excise Rules, 1944 (for short, the Rules) in respect of hand tools, Argon gas, packing materials, caustic soda and steel articles. Collector (Appeals) allowed Modvat credit in respect of Argon gas, steel articles, packing articles and caustic soda used for deionization but confirmed disallowance of Modvat credit in respect of Hand Tools. BAL have therefore filed Appeal [E/313/93]. M.A.M. manufacture automobiles falling under Chapter 87 and certain parts and accessories. They also purchase a large number and variety of parts and accessories. Assistant Collector held that MAM are not entitled to avail Modvat credit in respect of bought out items, Tool Kits and Jack Assembly supplied along with automobiles. He passed separate orders pursuant to nine show cause notices. Collector (Appeals) dismissed the appeals filed by MAM against the orders passed by Assistant Collector. MAM have therefore filed Appeals E/720/94 and E/64 to 71/95.
3. The dispute in these appeals arises in relation to hand tools or tool kits purchased by BAL and MAM and jack assembly purchased by MAM.BAL supply tool kits optionally to buyers of two-wheelers. MAM supply tool kits and jack compulsorily to all buyers of automobiles. Both the concerns supply these articles along with the vehicles (optionally by BAL and compulsorily by MAM). These articles are not fitted to vehicles since they cannot be so fitted. According to BAL, tool kit is kept in a special pouch made in the two-wheelers. Both concerns add the value of these articles to the assessable value of vehicles and clear vehicles along with the articles paying duty at rate applicable to vehicles on such assessable value. They are also availing Modvat credit of duty paid on the articles treating the articles as "inputs" used "in relation to manufacture" of vehicles and have been utilizing the credit to pay duty on the vehicles cleared. The lower authorities found Modvat credit inadmissible on the ground that the articles are not "inputs" used in the manufacture of or in relation to manufacture of vehicles and, in any event, they fall under the exclusion Clause (i) of Explanation to Rule 57A of the Rules. Customs and Central Excise Board had issued conflicting clarifications.In Sundaram Clayton Limited v. Collector of Central Excise - 1989 (44) E.L.T. 578 a two-Member Bench of the Tribunal sitting at Madras held that Tool Kit is not an integral part of two-wheeler, that Moped is a finished article even without Tool Kit and mere providing storage space in the Moped for Tool Kit would not render the latter a component part of the former, that supply of Tool Kit is as an accessory and hence Modvat credit is not available in respect of duty paid on Tool Kit. The Bench indicated that Tool Kit does not participate in the process of manufacture of Moped, it is a bought out item which does not undergo any process in the factory and hence it cannot be said to be used in or in relation to manufacture of Moped as contemplated by Rule 57. of the Rules. The Bench also held that the fact that the value of Tool Kit is included in the assessable value of Moped for the purpose of payment of duty has no bearing on the controversy.
5. It is stated that another two-Member Bench of the Tribunal sitting at Calcutta took a contrary view in TELCO v. Collector of Central Excise -1991 (32) ECR 165 (Tribunal). The Bench noticed Trade Notices in favour of Modvat credit being available in respect of tool kit and jack assembly supplied along with automobile, and held that the legal position did not invalidate the position that the articles are used in the manufacture of motor vehicles. The Bench sought support from the inclusion of cost of such articles in the assessable value of vehicles and the extended definition of "manufacture" in Section 2(f) of Central Excise Act, 1944 (for short, the Act) as including any incidental or ancillary process. However, the decision mainly rested on the Collectorate notices in favour of the assessees contention.In Jayshree Industries v. Collector of Central Excise -1993 (63) E.L.T. 492, a two-Member Bench sitting at Bombay held that Dry Battery Cell purchased independently and fitted to quartz clock and time piece are to be regarded as essential component without which the clock cannot perform its function and is not an item which goes as an attachment to the clock for improving its efficiency or for performing a secondary or subordinate function. If key in the spring mechanism of old clock is to be regarded as an external component essentially required for running the clock, a battery cell fitted and supplied along with Quartz Clock has to be regarded as essential component. This is so, irrespective of the fact that battery cell can be purchased independently, provided it is supplied with clock at the point of delivery at the factory gate. If value of battery cell is included in the value of clock, Modvat credit is available for duty paid on battery cell. The Bench proceeded, to go into the question of Tool Kits and observed that Sundaram Clayton Limited held against the assessee without considering the impact of decisions of Supreme Court in the cases of Collector v. East End Paper Industries - 1989 (43) E.L.T. 201 and Collector v. Jay Engineering Works -1989 (39) E.L.T. 169. The Bench also observed that TELCO case allowed Modvat credit for Tool Kit and Jack Assembly, without noticing that the Bench in that case proceeded mainly on the basis of trade notices and incidentally found support for the trade notices. Considering the economic objective of Modvat Scheme, namely, avoiding the cascading effect of input taxation on the final product, the Bench observed that inputs, which go up to the stage of ready for delivery at the factory gate, may have to be given credit.
7. Appeal E/313/93 came up for consideration before the Bench which decided Jayshree Industries case and the Bench referred the appeal and two questions to a Larger Bench. The questions are :- (1) Whether in the context of the principles laid down by Apex Court in the case of East End Paper Industries v. Jay Engineering Works and also in view of the concept of value addition at the manufacturing stage, referred to as 'Modvat' by the Hon'ble Finance Minister, while introducing the Rules for the first time in 1986 Budget, will it be permissible to hold the dividing line set out in Rule 57A deters the concept of value addition to the final product marketed at the factory gate (2) Whether it is permissible to construe an item like Tool Kit (which is not subject to any process at the time of manufacture of vehicle but is marketed with the vehicle at the factory gate for meeting the safety requirements of the vehicle on the road as is statutorily required) as eligible input used in or in relation to manufacture of the motor vehicle as laid down in Rule 57A The referring Bench relied on the two decisions of the Supreme Court and the statutory requirement of the presence of Tool Kit in the vehicle for plying on public road, the need for Tool Kit for operation of the vehicle, the manufacturing of the vehicle with Tool Kit and observed that the Tool Kit has to be considered as being necessary for marketing the vehicle at the factory gate. Benefit has to be given to anything which adds to the "value addition" of the final product at the factory gate. The Bench compared the subject matter with plastic dropper packed along with sealed bottle containing pediatric medicine in carton in respect of which the Bench had held that Modvat credit would be available. The same Bench referred the appeals filed by MAM also to Larger Bench. We have heard both sides in all the appeals.
8. We think though these disputes are required to be considered in the appeals filed by M.A.M. they need not be considered in Appeal E/313/93 since the appeal can be disposed of on another ground. The Association of Indian Automobile Manufacturers wrote to the Central Board of Excise & Customs (for short, CBEC) requesting that Modvat benefit may be made available in respect of Tool Kits supplied along with motor vehicles.
CBEC by letter dated 23-9-1988 rejected the request on the ground that tools were specifically excluded from the definition of "input" under Explanation (b)(i) of Rule 57A of the Rules. The Association pursued the matter and in 1988 CBEC decided that Modvat credit in respect of excise duty paid on Tool Kits would be admissible, to provided such Tool Kits were supplied along with motor vehicles and the their value was included in the assessable value of the motor vehicles. On the basis of this decision of CBEC, various Collectorates issued Trade Notices on similar lines. However, on 21-10-1991, CBEC rescinded the earlier decision and declared that Modvat credit would not be available in regard to Tool Kits and Jack Assembly. On the basis of order of CBEC, fresh Trade Notices were issued by various Collectorates. In the decision in K.P. Verghese -131 ITR 592, Supreme Court held that the circulars issued by the Central Board of Direct Taxes under Section 119 of Income Tax Act, 1961 are binding on officers and persons employed in the execution of that Act even if they deviate from the statutory provisions. Following this view, in Laxmi Narayan Sharma v.Superintendent C.E. & C. Jaipur -1996 (87) E.L.T. 345, High Court of Rajasthan held as follows :- "It would thus appear that where an order, instruction or direction is issued by a superior authority to its subordinate officers in exercise of the powers conferred by the statute such order, instruction and guidelines are beneficial to the interest of the subject, they have a binding force and should be complied with. It is particularly so in matters relating to levy of tax, cess or duty on the subject." Several other High Courts have also taken a similar view. CBEC issues instructions under Section 37B of the Act. This provision empowers CBEC to issue orders, instructions and directions to Central Excise Officers for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods. The officers and all other persons employed in the execution of the Act shall observe and follow such orders, instructions or directions. When the statutory instructions are beneficial to the interest of assessee, he is entitled to the benefit thereof. Of course assessee is not bound by instructions which is against his interest.
9. The demand made against BAL relates to Modvat credit availed during the period from July, 1989 to February, 1991 during which period the CBEC instruction issued in 1988 to the effect that Modvat credit is admissible in regard to duty paid on Tool Kits and Jack Assembly supplied along with vehicles were in force the instruction was reversed only with effect from 21-10-1991. The assessee is entitled to claim that the instruction in force during the period in question should be followed by the subordinate statutory officers. On this ground alone, the demand made against B.A.L. fails and the orders of the lower authorities are unsustainable. However, the other disputes arising have to be considered in the appeals filed by M.A.M. (a) Where Tool Kit or Jack Assembly which are bought out items are supplied along with motor vehicle to the buyers, is the value thereof required to be added to the assessable value of the vehicle and excise duty liable to be paid on the total value at the rate of duty applicable to vehicle (b) If so, whether Tool Kit or Jack Assembly so supplied are "inputs" used in or in relation to manufacture of vehicle, the final product, within the ambit of the main provision in Rule 57A of the Rules (c) If so, whether Tool Kit or Jack Assembly so supplied are "Tools" excluded from the ambit of "inputs" by exclusion Clause (i) of the Explanation to Rule 57A 11. Learned Counsel for appellants as well as the Departmental Representative appearing for the Department took the stand that where Tool Kit or Jack Assembly which are bought out items, are supplied along with vehicles to the buyers, the value thereof is required to be added to the assessable value of the vehicles and excise duty is liable to be paid on the total value at the rate of duty applicable to the vehicles. This is evidently on the basis that the items which are supplied along with the vehicles as per the trade pattern have enhanced the value of the vehicles and given to the vehicles their marketability in the trade as contemplated in Bombay Tyre International case 1983 (14) E.L.T. 1896 (SC) Para 49. It is brought to our notice that Motor Vehicle Rules require that every motor vehicle other than motorcycle shall at all times be furnished with an efficient jack and other tools necessary to change a wheel or rim and tyre and with the equipment necessary to repair a puncture. Rule 191(3) of the Maharastra State M.V. Rules is an example of such a provision. There does not appear to be any such statutory requirement in the case of motorcycles. There is no dispute that MAM have been supplying these articles along with motor vehicles to buyers of vehicles in accordance with the trade pattern.
Such supply of these articles enriches the value of the vehicles and gives them the marketability in the light of the trade pattern. It is on this basis that both sides agree that value of these bought out items supplied along with the vehicles is to be added to the assessable value of the vehicles.
12. Section AA of Chapter V of the Rules deals with Modvat credit scheme. The main part of Rule 57A deals with applicability. The said Rule is applicable to finished excisable goods or final products to be specified for the purpose of allowing credit of any specified excise duty or specified additional duty paid on the specified "goods used in or in relation the manufacture of the said Affinal products" (called inputs) and for utilizing the credit so allowed towards payment of excise duty payable on the final products under the Act or any other specific Act. This is subject to the other provisions of the section and instructions that may be specified in the notification issued under the Rules. Explanation to the Rule defines "inputs" inclusively and exclusively. According to-exclusion Clause (i) of the Explanation, 'input' does not include "machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products". Rules 57D, 57F and other Rules in the section also refer to inputs "used in or in relation to manufacture" of finished product.
13. It is contended for the Department that though value of Tool Kits and Jack Assembly is required to be added to the assessable value of vehicles under Section 4 of the Act, the question whether these articles are 'inputs' for the purpose of Modvat credit scheme has to be considered independently on the basis of the provisions of Section AA of Chapter V of the Rules and these articles which are merely supplied along with vehicles and not fitted to them and not used in any process for bringing about the finished product, that is, vehicles cannot be regarded as "used in or in relation to the manufacture" of vehicles and therefore are not "inputs" for the purpose of these Rules. In any event, it is contended that since they are "tools" they are excluded from the ambit of "inputs" by virtue of exclusion Clause (i) of the Explanation to Rule 57A of the Rules. Appellants who rebut these arguments, contend that though these articles are not used in any process leading to the emergence of vehicles, they are used to render the vehicles marketable or to make the vehicles fit for marketing or for deliverable state and the finished products as per trade pattern are not merely vehicles but vehicles with these articles and hence the articles are part of the finished products in deliverable or marketable state and hence must be regarded as "used in relation to the manufacture" of vehicles. Appellants refer to the instances of wrapping paper used to wrap writing paper and packaging used for cosmetics to contend that in these cases also, though writing paper or cosmetics came into existence without use of wrapping paper or packaging, the latter are used to bring the former to marketable or deliverable state.
We shall now advert to various decisions relied on by either side.In Collector of Cental Excise v. Jay Engineering Works Ltd. -1989 (39) E.L.T. 169 (SC) Respondent who was manufacturing electric fans, brought into the factory nameplates (under T.I. 68) and affixed the same to the fans before marketing the fans claimed proforma credit in terms of Notification No. 201 /79, dated 4-6-1979 which was for the purpose of relief on excise duty paid on goods falling under T.I. 68, where those goods are used in the manufacture of other excisable goods.
Assistant Collector denied relief to Respondent but the Collector (Appeals) held in favour of Respondent and this order was confirmed by the Tribunal. The materials in that case showed that no electric fan was removed from the factory for being marketed without the nameplate, that even though electric fan could function without nameplate affixation of nameplate was considered essential for actual marketing of fan, that nameplate furnished particulars of variety of fan and sweep size of fan and rate of duty depended on such particulars.
Affixation of nameplates was required by instructions in 'Departmental Commodity Manual'. The Supreme Court observed that electric fans as such could not be marketed without nameplates, that fans do not become marketable products without affixation of nameplates, that fans with nameplates have certain value which fans without nameplate did not have and that value added for accretion of nameplate was entitled to proforma credit in terms of the notification. On such reasoning the order in favour of the Respondent passed by the Tribunal was confirmed.In Collector of Central Excise v. Eastend Paper Industries Ltd. -1989 (43) E.L.T. 201 (SC), Respondent was manufacturing, inter alia, wrapping paper and printing paper and captively consuming wrapping paper to wrap printing paper without paying duty on wrapping paper by virtue of Rule 56A of the Rules. While the Assistant Collector, Collector and Collector (Appeals) held against the Respondent, the Tribunal held in favour of the Respondent. Supreme Court observed that manufacture is the process or activity which brings into existence new, identifiable articles known in the market as goods and marketed or marketable in the market as such, that goods are those which can ordinarily come to the market to be bought and sold and is known to the market as such, that the market in which printing paper was sold was paper packed and wrapped in wrapping paper and, therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end-product and must be deemed to have been used in the completion or manufacture of the end-product. The Court also observed that manufacture in the sense of bringing the goods into existence as they are known to the market is not complete until these are wrapped in wrapping paper. After referring to the decision in Jay Engineering Works Ltd.'s case, the Court held as follows :- "To be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any material used for the same would be component part for the end product." 16. The case in TELCO v. State of Bihar -1994 (74) E.L.T. 193 (SC) was decided in the context of the provisions of the Bihar Finance Act, 1981. Appellants, manufacturing Motor vehicles, trucks etc. were purchasing items like tyres, tubes, batteries etc. and using the same in the manufacture of finished goods. According to appellants these items being "raw material" being "required directly for use in the manufacture" of finished goods for sale in the State or in the course of inter-state trade as contemplated in the statute, they were entitled to concessional rate of tax. The Department contended that the items being in a finished state were merely to be fitted in the chassis without any further modification and without undergoing any further process of manufacture and would not be "raw materials" within the meaning of the statutory provision. The notification issued under the statutory provision made available the concession only to "industrial raw materials (inputs)". After referring to the ordinary and well-accepted meaning of "raw materials" as something from which another new or distinct commodity can be produced, the Supreme Court observed :- "The word 'raw material' has no fixed meaning. It may varywith the use to which it is put. An item may be raw material for manufacturing goods 'A' and the goods so produced may itself be raw material for goods 'B'. For instance, batteries, tyres and tubes are by themselves finished products. They on their own cannot be considered to be raw material. But when it is used for manufacture of a vehicle then it becomes raw material for it as it is essential and necessary for producing the goods in which it has been used. No vehicle can operate or work nor can it be said to have been produced unless tyres, tubes and batteries are fixed to it. Use of these items is integrally connected with the ultimate production. They retain their identity in the end-product. But that could not exclude it from being treated as raw material ...
Raw material has been further explained by using the word 'inputs', which dictionarily means, 'what is put in', 'enter', 'enter system'.
The concessional rate of tax is thus applicable to that raw material that is put in the manufacture or use of the goods." After referring to the decision in Jay Engineering Works Ltd., the Court observed: "The tyres, tubes and batteries were purchased for being put in the vehicle, which could not be operative without it. They were thus 'input'. The use of this word was indicative that the benefit was intended for every item which was raw material in the widest sense made wider by using the expression, 'input'. The purpose was for roadening the meaning of raw material by including in it even those items which could be placed in the vehicle, to make it marketable as vehicles." Accordingly appellants were held entitled to benefit of concessional rate of tax under the notification.
17. On behalf of the Department, reliance is placed on the decision of High Court of Patna in TELCO v. Union of India - 1994 (72) E.L.T. 325 (Pat.). Appellants, manufacturers of motor vehicle chassis were purchasing tool kits comprising of Spanners, Wrenches, Screwdrivers and Jack attachments and supplying the same to buyers of chassis at their option. They were adding the value of Tool Kit in the assessable value of chassis and paying duty thereon. The question directly arose as to whether appellants were entitled to Modvat credit in respect of such Tool Kits. The Tribunal in the decision reported in 1991 (32) ECR 165 (Tri.) held that TELCO were entitled to Modvat credit, mainly on the basis of trade notices. Thereafter CBEC on 21-10-1991 withdrew the earlier instructions. Thereupon Assistant Collector issued notice and subsequently passed an order holding against TELCO's entitlement to Modvat credit. This order was unsuccessfully challenged by TELCO before the High Court. The High Court was of the view that the definition of "input" in the Explanation to Rule 57A of the Rules not being exhaustive, the word has to be understood in the context of its use "in or in relation to the manufacture" of final product. The expression "in relation to" has to be read in the context of manufacturing process of finished goods. Relying on the decision of Supreme Court in Eastend Paper Industries case -1989 (43) E.L.T. 201 (SC) and Doypack Systems (Pvt.) Ltd. v. Union of India - 1988 (36) E.L.T. 201 (SC), the Court indicated that the expression "in manufacture of" denotes direct participation of the input in the manufacturing process usually in the emergence of the final product, whereas the words "in relation to manufacture" convey the meaning of indirect participation of the inputs in the manufacture of the final product but such indirect participation is essential. The Court noticed that Tool Kits were supplied on the request of buyers and supply was limited to some of the chassis and not all chassis manufactured and sold by TELCO. Tool Kits, it was observed, do not participate directly or indirectly in or in relation to manufacture of chassis and chassis were already manufactured goods and counted as finished products whether or not Tool Kits were supplied.
Thus supply of Tool Kit was a subsequent action to the manufacture of chassis to be used in relation to maintenance and repair of chassis and not used in relation to manufacture of chassis. It was opined that value of accessories and spares should be added to the value of chassis as they contribute to the value of chassis and not because Tool Kits are used in or in relation to the manufacture of chassis. The Court also observed that unlike wiper machine or seat which are essential parts of chassis, Tool Kit cannot be said to be essential component of chassis since it is supplied only on request of customers and hence it is clear that chassis is marketed without the help and assistance of the Tool Kit. Thus, it was held that the ratio of Jay Engineering case was not applicable.In Doypack Systems (Pvt.) Ltd. v. Union of India -1988 (36) E.L.T.201, Supreme Court considering the expression "in relation to" in Section 4(1) of Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, held that it is used in an expansive sense and is an expression of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. The Court referred with approval to pages 620 and 621 of Corpus Juris Secundum wherein it has been stated that the term "relate" is also defined as meaning "to bring into association or connection with" and "relating to" has been held to be equivalent or synonymous with "concerning with" and "pertaining to".Union Carbide India Ltd. v.Collector of Central Excise, Calcutta - 1996 (86) E.L.T. 613 (Tribunal) observed as follows :- "The wide impact of the expression "used in relation to the manufacture" must be allowed its natural play ... . The purpose is certainly to widen further the scope, ambit and content of "inputs".
The purpose is to widen the ambit so as to attract also goods which do not enter directly or indirectly into the finished product, but are used in any activity concerned with or pertaining to the manufacture of finished goods." 18. Let us examine the fact-situation in the cases relating to MAM in the light or the above decisions. It is not disputed that MAM manufacture Motor Vehicles other than Motor Cycles in their factory, purchase Tool kits and Jack Assembly and supply the same along with automobiles to the wholesale buyers on the basis of orders received for supply of automobiles. These articles are supplied compulsorily and not at the option of the buyers. Buyers have no option to purchase the articles from other sources. The Department requires the addition, MAM have agreed to the addition of the value of these articles to the assessable value of the automobiles cleared and MAM have all along been paying duty on the total assessable value at the rate applicable to automobiles. The dispute in these appeals relates to jeeps manufactured by MAM in their factory situated in Maharashtra State. Rule 191(3) of the Maharashtra Motor Vehicle Rules, 1989 states as follows :- (3) Every motor vehicle other than motorcycle shall at all times be furnished with an efficient jack and other tools necessary to change a wheel or rim and tyre, and with the equipment necessary to repair a puncture." "145. General (1) - No person shall use and no person shall cause or allow to be used or to be in any public place any motor vehicle which does not comply with the rules contained in this Chapter, or with any order thereunder made by competent authority." It is thus clear that motor vehicles other than motorcycles, on clearance at the factory gate, cannot be allowed to be used or allowed to be used in any public place except in conformity with Rule 191(3) of MMV Rules and at the stage of delivery from the private premises of the manufacturer must be furnished with an efficient jack and other tools.
According to MAM, the trade pattern is consistent with the aforesaid provisions. Jack Assembly and Took Kit are not accessories compulsorily supplied along with the vehicles. They are articles which are required to be placed in the vehicles in order to render them fit for marketable state since without such articles the vehicles cannot be marketed.
Motor Vehicles (other than motorcycles) without these articles cannot be marketed ordinarily except perhaps, where the buyer brings such articles to be kept in vehicles on delivery at the factory gate. Hence, these articles not only enrich the value of but give to the vehicles their marketability and hence their value has to be added to the assessable value of the motor vehicles.
19. Let us recall the observation of Supreme Court in Jay Engineering Works Ltd. case. Electric fans do not become marketable without name plates. They do not become marketable products without affixation of name plates. Fans with name plates have certain value while fans without name plates do not have. It was on this basis that the value added for account of name plates was held entitled to proforma credit.
Jack Assemblies and Tool Kits placed in motor vehicles and supplied along with motor vehicles do not stand on a different footing since they enrich the value of the vehicles and give to the vehicles their marketability. In the words of Supreme Court in Eastend Parer Industries Ltd. case, anything required to make the goods marketable must form part of the manufacture and any raw material or any materials used for the same would be component part for the end-product. Judged by this test also, Jack Assemblies and Tool Kit must be regarded as component parts of Motor Vehicles. In that sense they are "inputs" since they are required to be and are placed in the vehicles to make them marketable judged by the principle laid down in TELCO case by Supreme Court. These articles cannot be said to be used "in the manufacture of" Motor Vehicles. However, considering the comprehensiveness of the words "used in relation to the manufacture of" occurring in Rule 57A of the Rules, and further considering that the finished products are Motor Vehicles with these articles placed in them as necessitated by Trade Pattern, marketability test and statutory rules, it has to be held that these articles are "used in relation to the manufacture of" motor vehicles and hence "inputs" as contemplated by Rule 57A of the Rules.
20. TELCO case decided by the High Court of Patna considered the matter of manufacture, sale and clearance of motor vehicle chassis and not motor vehicles. It was not argued before the High Court that Jack Assemblies and Tool Kits are supplied along with chassis as trade pattern or as a consequence of any statutory requirement. The central fact repeatedly emphasised by the High Court was that the articles were supplied optionally only at the request of customers and supply was limited to some of the chassis manufactured and sold by TELCO. The statutory rules under the Motor Vehicles Act were not brought to the notice of the High Court. Clearly there was no statutory or trade pattern requirement that chassis should have these articles. The High Court also did not decide the question whether these articles were used in relation to the manufacture "of motor vehicles". What was considered and decided was that these articles were not used in relation to the manufacture of chassis. Hence, the decision of the High Court of Patna would not apply to the present fact-situation.
21. Jack Assemblies and Tool Kits being "inputs" used in relation to the manufacture of Motor Vehicles, the question naturally arises whether they are covered by exclusion Clause (i) of Explanation to Rule 57A of the Rules. The provision reads as follows :- (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;" Tools' appear in the company of "machines, machinery, plant, equipment, apparatus, appliances" which are all complete and self-contained units or group or assemblage of parts as explained by larger Bench of the Tribunal in Union Carbide India Ltd. case. Meaning of "Tool" has been given as follows in various dictionaries: McGraw-Hill Dictionary of Scientific and Technical Terms - IV Edition :- Tool: Any device, instrument or machine for the performance of an operation.
Tool: A portable and usually hand-held instrument that is used to increase the efficiency of a work effect.
Tool: An instrument of manual operation, like a humansaw, plane, file or the like used to facilitate mechincal operations, as distinguished from an appliance moved by and regulated by machinery.
The tools supplied by MAM consist of Jack Assemblies and other tools necessary to change a wheel or rim and tyre and to repair a puncture.
In that sense it can be stated that the articles together constitute a complete and self-contained unit but they do not fall in the family consisting of machines, machinery, plant, equipment, apparatus or appliances.
21. Even assuming that the articles in question are "tools", that by itself is not sufficient to bring them within the ambit of the exclusion Clause (i) of the Explanation to Rule 57A of the Rules. The tools must satisfy one or more of the following requirements :- (b) Tools used for bringing about any change in any substance in the manufacture of the final products, -OR (c) Tools used for bringing about any change in any substance in relation to the manufacture of the final products.
The articles in question are not used for producing or processing of any goods. They are not used for bringing about any change in any substance either in or in relation to the manufacture of the final products, namely, Motor Vehicles. Assuming that Jack Assemblies and other Tools are "Tools", since they are not used as contemplated in the exclusion Clause (i) of the Explanation they do not fall within the ambit of the exclusion clause. The High Court of Patna in TELCO case observed that "tool kit" is definitely tools and it is specifically excluded from the definition of "inputs" did not consider the further requirement of exclusion.
Clause (i), namely, whether such tools are used for producing or processing any goods or for bringing about any change in any substance in or in relation to the manufacture of final products. The decision is per incurium. We hold that the Jack Assemblies and other tools supplied along with Motor Vehicles are not covered by the exclusion Clause (i).Sundaram Clayton Limited v.Collector of Central Excise -1989 (44) E.L.T. 578 did not consider all relevant aspects of the controversy and with respect, we do not agree with the ratio of the decision. In the light of the earlier decisions of various facts of the controversy, it is unnecessary to consider the matter in the backdrop of the objective of avoiding of cascading effect of input taxation on the cost of final product in relation to the controversy.
23. Since we have held that Jack Assemblies and other Tools supplied along with Motor Vehicles are inputs as contemplated in Rule 57A of the Rules and are not covered by the exclusion Clause (i) of the Explanation to the Rule, it follows that MAM are entitled to avail Modvat credit in respect of excise duty paid on such goods.
24. For the reasons indicated above, we set aside the orders impugned in these appeals and allow the appeals.