ORDER
R. Jayaraman, Member (T)
1. All the aforesaid Reference Applications are against the common order passed by this Bench vide Order No. 504-510/93-WRB dated 8.4.1993. This order has been passed based on an earlier decision of this Bench in the case of M/s. Jayshree Industries . The issue involved in all these appeals is the eligibility for Modvat Credit in respect of dry battery cells, which are supplied along with quartz wall clocks as an external component for running the clock. These dry battery cells are placed in the space provided for keeping the cell for operating the clock and they are sealed and packed and despatched from the factory and the value of the cells is also included in the assessable value of the quartz clock. This Bench, after considering all the arguments made by the Departmental Representative, held the view that dry battery cell being a component, which is essential for running the clock and they are supplied along with the clock and marketed in that form at the factory gate, Modvat Credit should be admissible, so long as the value is included in the assessable value of the clock. This judgment was passed by us mainly relying on the decision of the Supreme Court in Eastend Paper Industries Ltd. and also in the case of M/s. Jay Engineering Works Ltd. . The Apex Court in the aforesaid decisions have clearly held that anything which goes into the making of the product up to the stage of marketing from the factory, it should be construed to be a component. Though these two decisions have been given in the context of Notification 201/79, the ratio of the decisions was found to be squarely applicable to the question of extending of MODVAT Credit benefit in respect of inputs.
2. The present Reference Applications are from the department against the aforesaid decision of this Bench. Only one question has been framed by the department, which is reproduced below:
Whether on the facts and in the circumstances of the case, dry battery cells could be construed to be inputs used in or in relation to the manufacture of the final products, namely the Quartz Wall Clocks in terms of provisions of Rule 57A of the Central Excise Rules, particularly when they are fitted into the clocks only after the clocks are manufactured and that they are used only for the purpose of running the clock.
3. Shri K.M. Mondal, the learned SDR makes the following submissions. Marketability does not depend on one pattern of marketing. The question to be looked into is whether it is capable of being bought or sold in the market without a dry cell. Quartz clock is complete in its manufacture even without the fitment of the dry cell. Dry cell is only a consumer item, which can be purchased from any shop and hence clock can be marketed without the fitment of dry cell. The next argument is that the concept of MODVAT is a kind of facility for giving input relief, and the inputs are to be used in or in relation to the manufacture of final products. Here the final product namely clock has already been completed without even the fitment of the dry battery cell and hence it cannot be said to have been used in or in relation to the manufacture of the final product. This position of law have not been properly appreciated.
4. He also pleaded that it is not relevant for construing whether the final products are marketed with dry battery cell or otherwise and their value of bought out items is included in the value of the final product. There is a distinction between Rules 56A and 57A. In the case of Rule 56A, Proforma Credit is admissible to raw materials and components, whereas in the case of Rule 57A, items which are used in or in relation to the manufacture of final products are only given the credit. Hence it is not necessary to consider whether an item goes as a component or otherwise. This particular legal position also calls for reference to the High Court.
5. He also pleads that the process incidental or ancillary to the completion of the manufacture of the final product cannot include placement of dry battery cell in the space provided for in the clocks and hence the ratio of the decisions of the Supreme Court may not be made applicable.
6. After hearing both the sides, we are unable to persuade ourselves to make a reference to the High Court on the basis of the arguments made by the learned SDR. The undisputed position is that dry battery cell is an essential component for running the Quartz clock and it is supplied as a component along with the clock, while being marketed at the factory gate…. This factual position has not been rebutted by the Department by any other evidences to show that clocks are being marketed at the factory gate without dry battery cell. Apart from this, the question be looked into for purpose of extending MODVAT Credit is not the capability of being marketed without dry cells but the condition in which they are actually marketed in the cases dealt with by this Bench. In the case of Eastend Paper Industries, the Supreme Court have clearly held that whatever item goes into the final product, which renders the final product marketable at the factory gate should be construed to be a component. We cannot go beyond the law laid down by the Supreme Court and hence none of the arguments namely whether it is capable of being marketed without a cell or packing a dry cell with the clock could be a process incidental or ancillary, could be accepted, once it is admitted that dry cell is an essential component for running the clock and it is packed along with the clock for sale at the factory gate.
7. We are also to point out that the definition of input under Rule 57A is more liberal than Rule 56A and no one can deny that a component is to be accorded the status of an input even under Rule 57A…. Moreover, in the case of Jay Engineering Works, electric fans are fully manufactured even without affixing name plates. All the same, the Supreme Court held that it is a component in the sense that it is affixed to the final product for identification and electrical fans are marketed with suchname plates. Moreover, in the case of engineering goods particularly machinery, certain components are manufactured in the factory while some other components are bought out items. All these are removed partly assembled and partly in CKD condition for installation by the consumer. The Department does not deny MODVAT Credit in respect of bought out items on the ground that they are removed as such and not fitted in the manufacture of the machinery inside the factory. Certain components may have to be built in the machines, while some others may be externally fitted at the place of usage of the machine. Here dry cell is one such external component essential for running the clock. Since this position is not disputed, the battery cells become eligible inputs. Even otherwise, as per the ratio of the decision of the Supreme Court in Eastend Paper Industries and Jay Engg. Works, they become components of clocks for marketing the clocks at the factory gate, since they are actually so marketed. Since we have gone by the undisputed factual position and relied on the decisions of the Apex Court, we are not inclined to accept the application seeking for a reference to the High Court, on an issue already decided by the Apex Court. Hence Reference Application is dismissed.
(Pronounced in the open Court.)