Modvat credit on fitted printer ribbons allowed where the ribbons formed part of the manufacturing process and completion of the printer.
The Tribunal held that the department was entitled to challenge, in appeal, the finding that the declaration covered the ribbons, so the preliminary objection that a new case was being raised failed. On Modvat credit, it applied the Rule 57A test of use in or in relation to manufacture and held that ribbons fitted with line printers, supplied along with them and necessary for functioning and testing, formed part of the manufacturing process. Their later replaceability or inclusion in valuation did not defeat eligibility. Modvat credit was therefore admissible on the fitted ribbons, subject to verification of the admissible amount.
Issues: (i) Whether the department could challenge, in appeal, the Collector (Appeals)' finding that the ribbons were covered by the declaration and whether the objection was a new case; (ii) whether ribbons fitted with line printers and supplied along with them were inputs used in or in relation to the manufacture of the printers so as to qualify for Modvat credit.
Issue (i): Whether the department could challenge, in appeal, the Collector (Appeals)' finding that the ribbons were covered by the declaration and whether the objection was a new case.
Analysis: The Assistant Collector's original objection was that no declaration or intimation had been filed regarding ribbons. The Collector (Appeals) found otherwise and accepted the declaration already filed. Once that objection was rejected, the department was entitled to challenge the finding that the declaration covered ribbons. The issue was therefore not barred as a new case in appeal.
Conclusion: The preliminary objection was rejected against the assessee.
Issue (ii): Whether ribbons fitted with line printers and supplied along with them were inputs used in or in relation to the manufacture of the printers so as to qualify for Modvat credit.
Analysis: The applicable test under Rule 57A is whether the item is used in or in relation to the manufacture of the final product, including any process incidental or ancillary to completion of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944. The Tribunal distinguished cases involving separately sold accessories or optional supplies and held that the ribbon in the present case was fitted to the printer at the time of manufacture and supply, was essential to its functioning and testing, and formed part of the manufacturing process. The fact that it could be replaced later or that duty valuation included its cost did not negative Modvat eligibility.
Conclusion: Modvat credit was admissible on ribbons fitted in the printers manufactured and supplied by the assessee.
Final Conclusion: The appeal failed, and the assessee retained entitlement to Modvat credit on ribbons actually fitted with the printers, subject to verification of the admissible amount.
Ratio Decidendi: For Modvat purposes, an input is eligible only if it is used in or in relation to the manufacture of the final product, and an item supplied fitted with the product will qualify where its fitment forms part of the manufacturing process and is necessary for completion and marketability of the product.
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