K.S. Venkataramani, Member (T)

1. This appeal is directed against the order dated 29-2-1988 passed by the Collector of Central Excise (Appeals), Madras, by which he had allowed an application filed by the Department before him, under Section 35E(4) of the Central Excises and Salt Act, 1944 against the order of the Assistant Collector of Central Excise, Hosur Division, holding that the Assistant Collector, Hosur, was wrong in allowing MODVAT credit to the appellants on the Tool kits supplied by them along with the Mopeds manufactured and cleared by the appellants.

2. The appellants are manufacturers of Two Wheelers (Mopeds) at Hosur. They were availing of MOD VAT credit under Rule 57-A of the Central Excise Rules, 1944 from 1-3-1986 onwards. They filed a declaration for the purpose as required under Rule 57G for Tool kits as one of the inputs for their final product, viz. Mopeds. A Show Cause Notice was issued to them on 17-2-1987 as to why the Tool kits should not be treated as not an input and the MODVAT credit denied to them. The Assistant Collector after hearing the appellants passed an order on 16-7-1987 confirming that the Tool kits which were supplied along with the Moped is an input covered by Rule 57-A and eligible for MODVAT credit. The Collector of Central Excise, Coimbatore, did not agree with the decision of the Assistant Collector and, therefore, gave a direction under Section 35-E(2) to the Assistant Collector, Hosur to seek a review of the Assistant Collector's order before the Collector (Appeals) and the Assistant Collector filed an application accordingly under Section 35-E(4) of the Central Excises & Salt Act, 1944, before the Collector (Appeals), who found that the Assistant Collector was wrong in holding that the Tool kits are inputs for the purpose of MODVAT credit under Rule 57-A for the manufacture of Mopeds.

3. Shri G. Sampath, the learned Counsel appearing for the appellants, contended that the Tool kits are invariably supplied along with the Mopeds. There is a cavity in the body of the Moped which is designed as a storage space for the tool kits in the Moped. It is, therefore, according to the appellants, an essential component or accessory to the Moped, the value whereof is also included in that of the Moped. Therefore, it was the argument of the appellants that the tool kit supplied must be held to be an input on which the appellants should be given MODVAT credit. The learned Counsel pointed out that the coverage of the provisions of Rule 57-A is wide enough to include the tool kits as an input. It is also, according to the appellants, not covered by the exclusions as to what would not constitute an input for the purpose of Rule 57-A as given in the Explanation to that Rule because the tools mentioned therein are the Tool kits in the manufacture of a final product whereas these are tools which are essential for the running of the Moped and which are supplied along with the Moped.

4. Heard Shri K.K. Bhatia, the learned S.D.R.

5. On a careful consideration of the submissions made by the learned Counsel and the learned S.D.R., we find that in this case the Tool kits are bought out items by the appellants. They are duty paid Tool kits which are bought by the appellants and brought into their factory. To consider whether the Tool kit would be eligible as an input for MODVAT credit, we have to see the provisions of Rule 57-A. Under this Rule credit is available in respect of any input specified under Notification No. 177/86 used in or in relation to the manufacture of the final product. The question for consideration will, therefore, be how far the Tool kit can be said to be used in or in relation to the manufacture of the final product viz. Mopeds in the present case. Admittedly, the tools are not an integral part of the Moped. They are supplied as an accessory to the Two Wheeler. It is also not the case that the Moped is unfinished without the Tool kit. Merely because the appellants provide for a storag