ORDER
Jyoti Balasundaram, Member (J)
1. The issue for determination in this appeal of the Revenue is the admissibility of Modvat Credit of Rs. 4,96,388.42 of floor mats falling under Heading 87.08 of the CET, 1985 supplied by the respondents as accessories with light commercial vehicles manufactured by them. The Assistant Collector disallowed modvat credit availed of for the period from September 1989 to January 1990 on the ground that it cannot be considered as an input “used in or in relation to the manufacture of motor vehicles”. The lower appellate authority set aside the demand holding as follows:
“I have gone through the case records. The point for determination is whether credit on ‘floor mat’ is allowed. The appellants have contested that the floor mats are not manufactured in running lengths but are designed and manufactured to their specifications and that even if it is to be considered as accessory, if supplied with the motor vehicle and of which the value is included in the A.V., it is an input eligible for credit of duty under Rule 57A of Central Excise Rules, 1944. I observe that the Assistant Collector has not given any findings/reasons on the above submissions already made before him. The floor mats are not manufactured in running lengths but are designed/manufactured to the specification given by the appellants. They are so designed that they fit on the floor of the cabin of the motor vehicles. It is irrelevant whether the floor mats are supplied as accessories or otherwise. I also observe that the floor mats have been cleared on payment of duty by its manufacturers under sub-heading No. 8708.00 which covers “parts and accessories of motor vehicles of Heading 87.01 to 87.05. This fact establishes a nexus between floor mats and motor vehicles. Further the subject floor mats are not for general sale since they are specially designed to fit in their L.C.V. I, therefore, hold that “Floor Mats” of which the value is included in the assessable value is an input eligible for credit of duty under Rule 57A of Central Excise Rules, 1944 since these are used in or in relation to the manufacture of final product. The appeal is accepted by setting aside the orders of Assistant Collector with consequential relief.”
Hence this appeal.
2. The learned SDR contends that floor mats are not used in or in relation to the manufacture of the final product which is complete even otherwise and it is, therefore, immaterial, whether floor mats are manufactured in running length or made according to specifications. He further submits that inclusion of their value in assessable value is not a relevant factor for consideration for eligibility to Modvat credit under Rule 57A of Central Excise Rules. He cites the decision reported in 1989 (44) E.L.T. 578 (Tribunal) in the case of Sundaram Clayton Ltd. v. Collector of Central Excise, Coimbatore wherein Modvat credit has been disallowed on tool kits on the ground that they do not at all participate in the process of manufacture of mopeds and seeks to draw an analogy therefrom.
3. In reply, learned Counsel, Shri Lakshmikumaran, submits that Modvat credit is available to floor mats which are admittedly specifically designed and supplied along with LCVs as they are used in relation to the manufacture of motor vehicles inasmuch as they serve to insulate the vehicle and act as heat resistors to the cabin floor. He submits that it is not essential for the purpose of Rule 57A that the input should have participated in the process of manufacture and draws our attention to the judgment of the Hon’ble Supreme Court in the case of Collector of Central Excise v. Jay Engineering Works Ltd. reported in 1989 (39) E.L.T. 169 (SC) wherein the benefit of proforma credit under Notification 201/79 was extended to fan nameplates. He cites the decision of the East Regional Bench of the Tribunal in the case of TELCO reported in 1991 (32) ECR 165 allowing Modvat credit for tool kit and jack assembly for mopeds and points out that the TELCO order was approved by the West Regional Bench of the Tribunal in the case of Jayshree Industries v. Collector of Central Excise, Rajkot reported in 1992 (40) ECC 220.
4. Upon consideration of the arguments advanced by both sides and careful perusal of the case law cited we are inclined to accept the respondents’ plea on admissibility of Modvat credit. The Hon’ble Supreme Court, in the case of Collector of Central Excise v. Jay Engineering Works Ltd. -1989 (39) E.L.T. 169 has held that the dealer of the nameplate for fan is entitled to the benefit of Notification 201/79-C.E. for the purpose of obtaining proforma credit. Paras 8 and 9 of the citation are reproduced below :
“8. It appears that the Department’s own instructions in their commodity Manual made it obligatory for every manufacturer to affix the nameplates on the fans. In those circumstances, namely, for marketing the nameplates, these were essential. In other words, they could not be marketed without the nameplates. The relevant particulars of the fan for the determination of duty, depended on the particulars which are contained only in the nameplates. The Department’s instructions requiring every manufacturer to affix the nameplates on the fans, indicate that nameplate was an essential ingredient to complete the process of manufacture for marketable electric fans.
9. In those circumstances, in our opinion, the Tribunal was right in arriving at the conclusion that the nameplate was not a piece of decoration. Without the nameplate, the electric fans as such, could not be marketed; and that the dealer was entitled to the benefit of the Notification No. 201/79-C.E. for the purpose of obtaining proforma credit. Fans with nameplates, have certain value which the fans would without the nameplates, did not have. If that be so, then the value added for the accretion of nameplate was entitled to poforma credit in terms of the said notification. It is true that an electric fan may perform its essential function without affixation of the nameplate, but that is not enough. Electric fans do not become marketable products without affixation of nameplates”.
4.1 The East Regional Bench of the Tribunal has extended Modvat credit to tool kits and jack assembly for mopeds in the case of TELCO v. Collector of Central Excise, Patna reported in 1991 (32) ECR 165 holding in paragraph 5 thereof as follows :
“The legal position also does not invalidate the proposition that the inputs in question are used in the manufacture of motor vehicles. The arguments advanced in this regard about the inclusion of the cost of such inputs in the assessable value of the motor vehicles coupled with the extended definition of manufacture under Section 2(f) which covers any process incidental or ancillary to the completion of a manufactured product would support the stand taken by the appellants. If the inputs in question are held to be not used in the manufacture or in relation to the manufacture of the motor vehicles then the inclusion of their cost in the assessable value would also not be justified .”
4.2 This ratio has been followed by the West Regional Bench of the Tribunal in the case of Jayshree Industries and Ors. v. Collector of Central Excise, Rajkot reported in 1992 (40) ECC 220 wherein the Tribunal upheld the eligibility of the Modvat credit in respect of duty paid on dry battery cells fitted to quartz clocks and time pieces. In para 12.1 of the order the Tribunal held that “on the question of eligibility of Modvat credit on tool kits for scooters, the South Regional Bench of the Tribunal in the case of Sundaram Clayton 1989 (22) ECC 190 (SRB) held that the Modvat credit is not admissible. The reasoning given is that tool kit is not an integral part of scooter and it is not required in or in relation to the manufacture of scooter and scooter cannot be construed as unfinished without tool kit.
However, we find that the decisions of the Apex Court (supra) were not cited before them nor they were considered. The East Regional Bench of the Tribunal in the case of TELCO – 1991 (32) ECR165 (CEGAT – ERB), however, allowed Modvat credit for tool kit and jack assembly, accepting the Board’s clarification as within the framework of law. We are inclined to accept the view of the East Regional Bench for the reason that if the items are essentially supplied for the running of the vehicle and this is the pattern of marketing at the factory gate, they would have to be construed as eligible components, in terms of the Apex Court’s decision. That appears to be probable reason, why the Department in the aforesaid Trade Notice, have also construed labels, stickers, nameplates affixed to the final products as eligible inputs.”
4.3 In the above appeals admittedly the floor mats are supplied with motor vehicles and can be held to be an item entering into the stream for completion of the manufactured product rendering it fit for marketing. Following the ratio of the above decisions, we hold that the floor mats come within the wide scope of the exemption “in relation to the manufacture of final product viz. light commercial vehicles manufactured by the respondents herein.
4.4 In the light of the above discussion we uphold the impugned order and reject the Revenue’s appeal.
S.K. Bhatnagar, Vice President
5. I wish to add and emphasise that the phrase ‘in or in relation to the manufacture’ has a very wide amplitude; it not merely includes the processes and inputs essential for or incidental or accessory to the completion of manufacture (including deemed manufacture) but any item or process which is essential for making the final product marketable. Therefore, any material or item which was normally so used and was, as a matter of commercial practice, provided normally with the final product ready for delivery at the factory gate and was not an optional accessory, would qualify as an input for the purposes of Modvat.
6. In the instant case admittedly the floor mats were specifically designed for use in particular types of motor vehicles and were normally supplied with it. They obviously constituted one of the items which rendered the vehicle fit for marketing at the factory gate.
7. Hence concurring with the conclusion of Hon’ble Member (Judicial) I also uphold the impugned order and reject the Departmental appeal.