Modvat credit for batteries used in remote control units may extend to inputs essential for making the final product functional.

Dry cell batteries used to operate the remote control unit supplied with VCP/VCR/television sets were treated as eligible inputs for Modvat credit where the batteries formed part of the chain of use making the final product functional as cleared. The analysis emphasised that the remote control facility was part of the manufactured product, and that sets cleared with and without such facility were distinct for tariff purposes. The accessory character of the remote control did not defeat credit because the relevant test was whether the batteries were used in or in relation to manufacture and completion of the final product. Credit was subject to verification that the batteries were supplied with the equipment and their cost was included in the price.

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Issues: Whether dry cell batteries used to operate the remote control unit supplied with VCP/VCR/television sets are eligible as inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: The batteries were not mere consumables used after manufacture, but formed part of the chain of use by which the remote control unit and the complete set were made functional. The final products were designed to be cleared with remote control facility, and the sets with and without such facility were treated as distinct products in the tariff regime. The character of the remote control as an accessory did not defeat credit, because the relevant inquiry was whether the batteries were used in or in relation to the manufacture and completion of the final product. The reasoning also drew support from the inclusive scope of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944 and from the later amendment recognising accessories cleared along with the final product.

Conclusion: Dry cell batteries used with the remote control unit were eligible inputs for Modvat credit, subject to verification that they were supplied with the equipment and their cost was included in the price.

Ratio Decidendi: Where an item supplied with the final product is essential to make the product function as manufactured and cleared, the input used for that item may qualify for Modvat credit as having been used in or in relation to the manufacture of the final product.

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