COMMISSIONER OF CEN. EXCISE Vs. TELCO LTD.

JUDGEMENT

(1.) Order No. A/1830 -1831/WZB/2005/CI/EB

(2.) IN this case, 8 show cause notices were issued to the assessees/respondents who are engaged in the manufacture of motor vehicles and parts thereof, proposing to disallow Modvat credit in respect of tool kits supplied along with motor vehicles and chassis on the ground that tool kits were not inputs used in or in relation to the manufacture of motor vehicles so as to be entitled to modvat credit in terms of Rule 57A of the Central Excise Rules 1944. The notices covered the period from May, 1992 to June 1995 and the total credit sought to be disallowed was Rs. 88,00,854.60. The notices also proposed to impose penalty in terms of Rule 173Q(1)(bb) of the Central Excise Rules. The notices were resisted by the assessees who contended, inter alia, that in the heavy and commercial vehicle segment, they manufactured and cleared only chassis from Pune works. In the light commercial vehicle segment, they manufactured and removed complete vehicles and in the case of removals of LCV. and cars, tool kits were supplied as standard supply with each vehicle, without any option to customers, whenever chassis were removed to DGS & D customers/government customers, tool kits were required to be supplied as essential items and in the few cases of removal of chassis, tool kits were cleared with chassis as optional supply and when tool kits were not supplied with chassis, the value of tool kits was indicated as deletion allowance, that the value of tool kits was included in the assessable value of MCV & HCV chassis. They relied upon the Larger Bench decision in Bajaj Auto Ltd v. CCE 1995 (88) ELT 355 in which it was held that modvat credit was admissible under Rule 57A on tool kits supplied along with motor vehicle. They contended that if at all the demand is sustainable, it is to be restricted only to those cases where tool kits were removed along with MCV/HCV to dealers as customer's option and this was only in the case of 3303 vehicles cleared during the entire period in dispute. The addl. commissioner of central excise, who adjudicated the notices, relied upon the decision of the Hon'ble Patna High Court in civil writ No. 1512 of 1993 reported in in the assessees' own case holding that Modvat credit on tool kits was not admissible under Rule 57A, did not follow the Larger Bench decision in Bajaj Auto Ltd.2 on the ground that the issue whether supply of tool kits with motor vehicle could be construed as used in or in relation to manufacture of motor vehicle, was referred to jurisdictional High Court and therefore, there was no finality in the Bajaj Auto Ltd. case, and confirmed the demand raised in the notices by disallowing the Modvat credit. He also imposed penalties totaling Rs. 8,70,000. The commissioner (appeals) set aside the adjudication order, following the decision of the Larger Bench of the Tribunal in Bajaj Auto Ltd. v. CCE, Pune in which it was held that Modvat credit was admissible on jack assemblies and tool kits supplied along with motor vehicles as they are inputs within the meaning of Rule 57A of the Central Excise Rules 1944; hence this appeal by the Revenue.

(3.) THE SLP filed by Telco before the Apex Court was dismissed as seen from 1994 (73) ELT A129 (SC). The above decision was noted by the Bench in the case of Daewoo Motors India Ltd. v. CCE 2001 (135) ELT 596 wherein it was held that the decision of the Larger Bench in Bajaj Auto Ltd.5 (supra) can no longer be treated as good law in view of the Supreme Court's dismissal of SLP against Patna High Court judgment holding that tool kits and jack assemblies are not inputs within the meaning of Rule 57A, The Daewoo Motors India Ltd. decision has taken note of Tribunals order in India Automotive Ltd. holding that tool kits are not essential accessories of final product viz. auto cycles, and therefore, their value will not be includible in the assessable value of auto cycles, which decision was approved by the Supreme Court as seen from 1998 (98) ELT A -72 and the Tribunal's order in Maruti Udyog Ltd. to the same effect. In an identical situation, in the case of CCE, Indore v. Bajaj Tempo Ltd. 2004 (177) ELT 1027, the Tribunal upon noting the Telco decision of the Patna High Court and the dismissal of SLP against that decision by the Apex Court and the Tribunal's decision in Daewoo Motors India Ltd. supra, has held that Modvat credit of duty paid on tool kits is not available.