MODVAT credit for vehicle tool kits denied where accessories were not used in manufacture or processed in the factory

Tool kits supplied with finished vehicles were treated as accessories rather than inputs used in or in relation to manufacture, because they were not an integral part of the vehicle, did not participate in the manufacturing process, and were received and cleared as bought-out items without any factory process. On that basis, the article explains that such kits do not qualify for MODVAT credit under Rule 57A. It also notes that the earlier Tribunal view on the same issue was followed, and the trade notice relied on by the assessee was considered contrary to law.

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Issues: Whether tool kits supplied along with finished vehicles were eligible for MODVAT credit under Rule 57A.

Analysis: Tool kits were supplied as accessories with the finished vehicles, were not an integral part of the final product, did not participate in the manufacturing process, and were received and cleared as bought-out items without undergoing any process in the factory. On that reasoning, they could not be regarded as inputs used in or in relation to the manufacture of the final product. The earlier Tribunal view on the same question was followed, and the trade notice relied on by the assessee was held to be contrary to law.

Conclusion: Tool kits were not eligible for MODVAT credit, and the Revenue's appeal succeeded.

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