Modvat credit on dry battery cells supplied with remote controls was upheld as inputs used in relation to manufacture.

Dry battery cells supplied with remote controls for television sets were treated as inputs used in or in relation to manufacture for Modvat purposes because the remote control was itself a dutiable excisable product and, on the facts, could not function without the cells fitted as a component. The fact that replacement batteries were available in the market did not change their role in effective functioning and pre-delivery testing of the remote control. Following earlier Tribunal support for this approach, credit on the battery cells was held admissible and the allowance of Modvat credit was upheld.

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Issues: Whether dry battery cells fitted in remote controls supplied along with television sets were eligible for Modvat credit as inputs used in or in relation to the manufacture of the final product.

Analysis: The respondents manufactured both television sets and remote controls. The remote control was a dutiable excisable product and, on the facts found, could not function without dry battery cells fitted as a component. The availability of replacement batteries in the market did not alter the character of the battery cells supplied as part of the remote control for effective functioning and testing before delivery. The earlier Tribunal view relied upon by the Commissioner (Appeals) supported the claim that such items could be treated as going in or in relation to manufacture.

Conclusion: The dry battery cells were eligible for Modvat credit, and the order allowing credit was upheld.

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