K. Sreedharan, J. (President)
1. Appellant is engaged in the manufacture of Motor Vehicles falling under Chapter Heading 8702 to 8706 of the Central Excise Tariff Act, 1985. The issue raised in these appeals is whether the value of tool kits has to be included in the assessable value of passenger cars manufactured by them under Section 4 of the Central Excise Act.
2. Excise Department issued show cause notices to the appellant company calling upon them to show cause why value of tool kits cleared with passenger cars should not be added to the assessable value of the cars and duty assessed accordingly. Appellants raised many contentions against the inclusion of the value of tool kits to the assessable value of the passenger cars manufactured by them. It was contended that tool kits is not a statutory requirement for the purpose of registration of a passenger car or for running the same, tool kits does not enhance the marketability of the car; nor does it go to ensure completion of the manufacturing process of the car and that the Central Excise tariff entry does not talk of vehicles with tool kits. These contentions raised by the appellant were rejected by the adjudicating officer as evidenced by Order-in-Original No. 32-34/AC/NOIDA/99 dated 25.5.99. As per that order Central Excise duty amounting to Rs. 20,07,454 was confirmed under Section 11A of the Act. Interest at the rate of 18% per annum also levied for the period from the expiry of three months from the date of order till the date of payment under Section 11AA of the Act. This order was challenged in appeal before the lower appellate authority. Appellate authority while disposing of the appeal as per Order-in-Appeal No. 930-931-CE/MRT/99 dated 24.11.99 observed that the appellant should be given the facility of Modvat credit on tool kits subject to their establishing the claim (with satisfactory evidence) of duty payment on the ‘tool kits’. Appellate authority also directed the Assistant Commissioner to give credit to the sales tax amounts as provided by Section 4(4)(d)(ii) of the Act. In appeal before this Tribunal the short question that was urged was whether the value of tool kits should be added to the price of the car for purposes of imposing duty under the Central Excise Act.
3. Way back in 1994, a Division Bench of Patna High Court went into the question as to whether tool kits supplied by manufacturers of motor vehicle chassis is ‘input’ used in relation to the manufacture of final product entitled to Modvat credit under Rule 57A of the Central Excise Rules, in Tata Engineering & Locomotive Co. Ltd. v. Union of India . The High Court took the view that tool kits supplied with motor vehicle chassis do not participate directly or indirectly in or in relation to the manufacture of motor vehicle chassis. Relying on the decision of the Supreme Court in the case of Union of India v. Bombay Tyre International Ltd. 1983(14) ELT 1896, Their Lordships found that manufacturers of chassis were adding cost of tool kits in the assessable value of chassis because they have contributed to the value of the chassis and not for the reason that such tool kits are used in or in relation to the manufacture of chassis. Since the chassis are marketable without the help and assistance of tool kits, the tool kits supplied at the request of the customers cannot be said to be ‘inputs’. Their Lordships thereby came to the conclusion that tool kits which are bought out items supplied along with motor vehicle chassis cannot be treated as ‘inputs’ for the purpose of availing the benefit of Modvat credit under Rule 57A of the Central Excise Rules.
4. The above decision of the Patna High Court was taken up before the Supreme Court by up Tata Engineering & Locomotive Co. Ltd. in S.L.P. Civil No. 12474 of 74. Supreme Court dismissed that appeal on 16.8.94. Thus the decision of the Patna High Court stands confirmed.
5. A Larger Bench of this Tribunal in Bajaj Auto Ltd. v. Collector of Central Excise, Pune went into the question as to whether hand tools, Jack assemblies or tool kits purchased by manufacturers of automobile are inputs used in relation to the manufacture of the vehicle. On the facts before this Tribunal, the manufacturer of vehicle were adding value of these articles to the assessable value of the vehicle. While clearing the vehicle along with these articles duty at the rate applicable to the vehicle on such assessable value was paid after availing Modvat credit of duty paid on them, namely, hand tool, tool kits and jack assemblies. The Larger Bench after distinguishing the decision rendered by Patna High Court on the ground that the High Court did not take note of the statutory rule under Motor Vehicles Act came to the conclusion that jack assemblies and other tools supplied along with motor vehicles are “inputs” as contemplated in Rule 57A of the Rules. Consequently, the manufacturers were found entitled to avail Modvat credit in respect of excise duty paid on such tool kits.
6. The decision rendered by the Larger Bench in Bajaj Auto Ltd. was followed in Collector of Central Excise, Hyderabad v. Mahindra Nissan Allwyn by a Bench of two Members. Facts therein were that M/s. Mahindra Nissan Allwyn which were engaged in the manufacture of light commercial motor vehicles, was filing price lists paying duty on the approved prices availing Modvat credit of the duty paid on jack and tool kits. By virtue of an order of this Tribunal, namely, Order No. 195/92 dated 29.4.92, manufacturer was found not entitled to Modvat credit in respect of duty paid on bought out items. Consequently the manufacturer filed a revised price list declaring the price without including the value of jack and tool kits. The Assistant Collector while approving the price list directed that the value of jack and tool kits is to be added to the assessable value of motor vehicles. In appeal the Collector (Appeals) set aside the order. Therefore the Revenue came in appeal before this Tribunal. Relying on the Larger Bench decision in Bajaj Auto Ltd. this Tribunal reversed the order of the Collector and restored that passed by the Assistant Collector. Department was directed to allow the manufacturer Modvat credit on duty paid on jack and tool kits.
7. Larger Bench while deciding Bajaj Auto Ltd. distinguished the decision rendered by Patna High Court without knowing the fact that the said decision was confirmed by the Supreme Court by dismissing the S.L.P. filed against it. The Larger Bench further relied on the rules framed under the Motor Vehicles Act to hold that jack assemblies and tool kits are required to be placed in the vehicle in order to render them fit for marketable state and that without such articles vehicle cannot be marketed.
8. Learned Counsel representing the appellant stated before us that no rules framed under the Motor Vehicles Act require tool kits and jack to form part of motor cars for making it marketable. Rules framed under the Motor Vehicles Act (Punjab Motor Vehicles Rules, 1989) provide for spare wheels and tools in every public service vehicles. That rule is not applicable to motor cars and motor cabs manufactured by the present appellant. No argument has been advanced on behalf of the Revenue, by the Learned Departmental Representative, that rules under Motor Vehicles Act require tool kits and jack to make the motor vehicles marketable.
9. In view of the Supreme Court’s decision dismissing the S.L.P. filed against the Patna High Court decision, the decision of the Larger Bench in Bajaj Auto Ltd. cannot be treated as good law.
10. High Court of Gujarat in Amkar Engineering Works v. Superintendent of Central Excise 1979 ELT (J 145) examined the question as to whether Tool Box or Jack, or angle supporter or chains would form components of a Trailer. High Court took the view that these items are only in the nature of accessories and cannot be characterised as components or integral parts of a trailer. Consequently Their Lordships came to the conclusion that their value is not includable in the value of the trailer for determination of the asessable value under Section 4 of the Central Excise Act. Following this decision a Three Member Bench of this Tribunal in Steel Crafts v. CCE, Belgaum took the view that the value of Tool Box is not to be included in the value of the trailer. This view was taken relying on the following observation of the Gujarat High Court:
Unless it is shown that the items in question are components or integral parts of a trailer and without them a trailer is not a complete manufactured item and cannot be used, it would be difficult to hold that these items which are only in the nature of accessories could be characterised as components or integral parts of a trailer.
Similarly, on the facts before us it cannot be stated that jack assembly and tool kits are integral parts of the car manufactured by the appellant. Nor can it be said that without the jack assembly and tool kits cars manufactured are not complete and cannot be used.
11. In Appeal No. E/677/81-A preferred by M/s. India Automotive Ltd. a Bench of two Members was called upon to examine whether tool kits, number plate are essential item for running the auto cycles and hence their value is includible in the assessable value of the finished product. The Bench took the view that tool kits consist of a set of spanners, screw drivers etc. which are of general use and are available at any hardware shop. They are not designed for use only as tool kits with the final product. Consequently the Bench took the view that tool kits are not essential accessories of the final product and therefore their value will not be includable in the assessable value of the auto cycles. This decision was taken to the Supreme Court by the Department in Civil Appeal No. 1163 of 1990. Supreme Court dismissed that appeal vide 1998 (98) ELTA72.
12. On account of the dismissal of the S.L.P. against the decision of the Patna High Court, it is to be taken that manufacturers of motor vehicles are not to include the value of Jack assemblies and tool kits to the assessable value of their final product, namely, automobile with liberty to avail Modvat credit in respect of excise duty paid on such goods. On account of confirmation of Order No. 399/89-A (in Appeal No. E/677/81-A) by the Supreme Court by dismissal of Civil Appeal No. 1163/90, it is to be held that the value of tool kits and jack are not to be included in the assessable value of the automobile because they are not essential accessories of the final product.
13. In the appeal filed by the Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. (E/31/99-NB), identical question was again agitated before a Bench of two Members. Department wanted to include the cost of tool kits and jack assembly in the value of motor vehicles manufactured by Maruti Udyog Ltd. and wanted differential duty for the period mentioned in the show cause notice. The claim of the Department was rejected relying on the decision of the Apex Court in India Automotive case referred to earlier. The Bench took the view that Department was not justified in including the value of tool kits and jack assembles in the assessable value of the vehicles manufactured by Maruti Udyog Ltd. (vide Final Order No. A/407/2000-NB dated 15.5.2000).
14. In view of the above discussion, following legal position emerge:
Manufacturers of automobile are not entitled to include the value of jack assemblies and tool kits in the assessable value of the automobile with eligibility to avail Modvat credit in respect of excise duty paid on such goods. Nor can the Department require the manufacturers to include the value of jack assemblies and tool kits in the assessable value of the vehicles as they are essential accessories of the automobile.
15. In view of the above discussion, we hold that the action of the Department in adding value of the jack assembly and tool kits to the value of automobiles manufactured by the appellant and in claiming differential duty is ill-conceived. Order in this regard passed by the authorities are set aside.
16. Appeals are allowed.