Mirror And Sari Guard, Part Of Final Product- Motorcycle, CESTAT Allows Cenvat Credit To Hero MotoCorp

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), while allowing Cenvat Credit to Hero Motocorp, held that it is the statutory obligation of two-wheeler manufacturers to clear motorcycles from the factory with mirror assembly and sari guard.

The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that mirror assembly and sari guard fall under the definition of ‘input’ as defined under Rule 2(k) of the Cenvat Credit Rules, 2004 because these two items were cleared along with the motorcycle from the factory by paying the excise duty on the final products.

The appellant/assessee is in the business of manufacturing and clearance of two-wheelers and spares falling under Chapter No. 87 of the Central Excise Tariff Act, 1985. The assessee availed of the Cenvat Credit for duty paid on inputs and capital goods as per the Cenvat Credit Rules, 2004.

The department entertained the view that the appellant is not entitled to avail cenvat credit on Mirror Assemble (left and right) and Sari Guard as per the provision of Cenvat Credit Rules, and two show cause notices were issued.

The assessee contended that the order denying the cenvat credit on Mirror Assembly (left and right) and Sari Guard is not sustainable in law as it has been passed without properly considering the definition of ‘input service’ under Rule 2(k) of the Cenvat Credit Rules.

The assessee contended that the definition of input clearly provides that "inputs means any goods, including accessories, cleared along with the final product, the value of which is included in the value of the final product, and goods used for providing a free warranty for the final product". Therefore, it is amply clear that inputs include accessories, which are cleared along with the final products. It is a statutory obligation under the Central Motor Vehicle Rules, 1989, for the manufacture of two-wheelers to clear the motorcycle or two-wheeler from the factory with a side mirror (mirror assembly) and sari guard. Rules 128(13)(i) and 123 of the Motor Vehicle Act provide a statutory requirement under the Motor Vehicle Rules that these items, namely, the mirror assembly (right and left) and sari guard in motorcycles, should be fixed while clearing the final product.

The department contended that cenvat credit on mirror assembly (right and left) and sari guard cannot be allowed. The items, though cleared to be fitted with certain models for performing secondary or minor functions, are merely optional extra attachments and are neither used directly or indirectly in or in relation to the manufacture of final products nor have any nexus with the process of manufacture nor are integrally connected with the manufacture of final products. The mirror assembly and sari guard were not inputs covered under the definition of Rule 2(k) of the Cenvat Credit Rules, 2004, and the final product is complete without the use of the sari guard and mirror assembly (right and left), which, though cleared with the finished goods, is cleared separately with the finished goods and hence cannot be termed a part.

The tribunal noted that Rule 3 of the Cenvat Credit Rules provides that a manufacturer or producer of the final product shall be allowed to take cenvat credit on the excise duty or additional excise duty paid on any input or capital goods received in the factory for the manufacture of final products.

The tribunal held that it is statutorily required under Rule 128(13)(i) read with Rule 138 of the Central Motor Vehicles Rules, 1989, that Sari Guard be provided at the time when the motorcycle leaves the factory, and hence the noticee has correctly taken the Cenvat credit.

Case Title: M/s Hero Motorcorp Ltd. Versus Commissioner of Central Excise, Delhi-III

Case No.: Excise Appeal No. 2054 Of 2012

Date: 06.09.2023

Counsel For Appellant: Srinivas Kotn

Counsel For Respondent: Siddharth Jaiswal

Click Here To Read The Order