PER JUSTICE U.L. BHAT :

Appellant in Appeal No. E/313/83 is M/s. Bajaj Auto Ltd. (B.A.L.). Appellants in the other appeals are M/s. Mahindra & Mahindra (M.A.M.).

2. BAL manufacture two-wheelers and three-wheelers falling under Chapter 87 of Central Excise Tariff Act, 1985. They buy handtools meant for tool kits supplied along with scooters cleared from the factory on payment of duty. They also buy and use steel articles, Argon gas, Thinners and solutions, Fevicol, Caustic Soda, packing materials and various kinds of chemicals. Assistant Collector disallowed modvat credit under Section AA of Chapter V of Central Excise Rules, 1944 (for short, the Rules) in respect of hand tools, Argongas, packing materials, caustic soda and steel articles. Collector (Appeals) allowed Modvat credit in respect of Argongas, steel articles, packing articles and caustic soda used for deionization but confirmed disallowance of Modvat credit in respect of Hand Tools. BAL have therefore filed Appeal E/313/83. M.A.M. manufacture automobiles falling under Chapter 87 and certain parts and accessories. They also purchase a large number and variety of parts and accessories. Assistant Collector held that MAM are not entitled to avail Modvat credit in respect of bought out items, Tool Kits and Jack Assembly supplied along with automobiles. He passed separate orders pursuant to nine show cause notices. Collector (Appeals) dismissed the appeals filed by MAM against the orders passed by Assistant Collector. MAM have therefore filed appeals E/720/94 and E/64 to 71/95.

3. The dispute in these appeals arises in relation to hand tools or tool kits purchased by BAL and MAM and jack assembly purchased by MAM. BAL supply tool kits optionally to buyers of two-wheelers. MAM supply tool kits and jack compulsorily to all buyers of automobiles. Both the concerns supply these articles along with the vehicles (optionally by BAL and compulsorily by MAM). These articles are not fitted to vehicles since they cannot be so fitted. According to BAL, tool kit is kept in a special pouch made in the two-wheelers. Both concerns add the value of these articles to the assessable value of vehicles and clear vehicles along with the articles paying duty at rate applicable to vehicles on such assessable value. They are also availing Modvat credit of duty paid on the articles treating the articles as "inputs" used "in relation to manufacture" of vehicles and have been utilizing the credit to pay duty on the vehicles cleared. The lower authorities found Modvat credit inadmissible on the ground that the articles are not "inputs" used in the manufacture of or in relation to manufacture of vehicles and, in any event, they fall under the exclusion clause (i) of Explanation to Rule 57A of the Rules. Customs and Central Excise Board had issued conflicting clarifications.

4. In Sundaram Clayton Limited Vs. Collector of Central Excise, 1989 (44) ELT 578 a two-Member Bench of the Tribunal sitting at Madras held that Tool Kit is not an integral part of two-wheeler, that Moped is a finished article even without Tool Kit and mere providing storage space in the Moped for Tool Kit would not render the latter a component part of the former, that supply of Tool Kit is as an accessory and hence Modvat credit is not available in respect of duty paid on Tool Kit. The Bench indicated that Tool Kit does not participate in the process of manufacture of Moped, it is a bought out item which does not undergo any process in the factory and hence it cannot be said to be used in or in relation to manufacture of Moped as contemplated by Rule 57 of the Rules. The Bench also held that the fact that the value of Tool Kit is included in the assessable value of Moped for the purpose of payment of duty has no bearing on the controversy.

5. It is stated that another two-Member Bench of the Tribunal sitting at Calcutta took a contrary view in TELCO Vs. Collector of Central Excise, 1991 (32) ECR 165 (T). The Bench noticed Trade N