Modvat credit on motor vehicles can cross product lines, but bought-out tool kits are not admissible inputs.

Modvat credit under Rule 57A and Rule 57F(3) was examined for use across different motor vehicle models and for tool kits supplied with vehicles. The scheme permitted credit on specified inputs intended for use in the manufacture of the declared final products, and did not require a strict one-to-one correlation between each input and a particular vehicle model, so credit could be utilised toward duty on different motor vehicle products. By contrast, bought-out tool kits supplied with motor vehicles were treated as not being inputs used in or in relation to manufacture, and were not admissible for Modvat credit.

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Issues: (i) Whether Modvat Credit taken on inputs used in the manufacture of one type of motor vehicle could be utilised towards payment of duty on another type of motor vehicle manufactured by the same assessee; (ii) Whether tool kits supplied with motor vehicles were admissible as inputs for Modvat Credit.

Issue (i): Whether Modvat Credit taken on inputs used in the manufacture of one type of motor vehicle could be utilised towards payment of duty on another type of motor vehicle manufactured by the same assessee.

Analysis: Rule 57A of the Central Excise Rules, 1944 and Rule 57F(3) permitted credit on specified inputs used in or in relation to the manufacture of the declared final products, and the credit could be utilised towards duty on any of the final products. The scheme did not require a strict variety-wise one-to-one correlation between particular inputs and each final product, so long as the inputs were intended for use in the manufacture of motor vehicles and the credit was utilised on motor vehicles.

Conclusion: The utilisation of Modvat Credit across different motor vehicle models was permissible and the Revenue's challenge on this issue failed.

Issue (ii): Whether tool kits supplied with motor vehicles were admissible as inputs for Modvat Credit.

Analysis: Although a Larger Bench view had supported credit on tool kits, the Patna High Court had held that tool kits supplied along with motor vehicle chassis, being bought-out items, could not be treated as inputs used in or in relation to manufacture. That view had been affirmed by dismissal of the Special Leave Petition, and the Tribunal followed the higher judicial pronouncements rather than the contrary view.

Conclusion: Tool kits were not admissible as inputs for Modvat Credit and the Revenue succeeded on this issue.

Final Conclusion: The common order was sustained in part on the inter-product utilisation issue and reversed in part on tool kits, resulting in a partial allowance of the Revenue appeals.

Ratio Decidendi: Modvat Credit may be utilised on any declared final product where the inputs are intended for use in the manufacture of that class of goods, but bought-out tool kits supplied with motor vehicles are not inputs used in or in relation to manufacture for Modvat purposes.

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