2012 (12) TMI 227 - AT - Central Excise

Disallowance of Cenvat credit - Recovery of Cenvat credit with Interest and Penalty - inputs/capital goods and services utilised by the appellant in the research and development centre had no direct or indirect nexus with the manufacture of final product(Department) - appellant seeking waiver of condition of duty demand, interest and penalty - held that - Appellant who is manufacturer of motor vehicles is required to submit prototype of the vehicle for test by agency specified under the rules before starting actual production of motor vehicle for sale. Therefore, any charge incurred in research and development unit would fall within the definition of Input service, capital goods or input service for the purpose of availing cenvat credit - impugned order is not sustainable as nexus with manufacture is established and thus this is a fit case for grant of waiver of duty demand, interest and penalty pending appeal - after waiving the conditions ofi pre-deposit, impugned order is set aside and remand the matter back to the Commissioner concerned for de novo adjudication in the light of the Motor Vehicles Rules, 1989 after giving opportunity of being heard to the party as the above plea has been raised for the first time before the Tribunal in the interest of justice - Appeal is decided accordingly.

Summary

Issues:
1. Disallowance of cenvat credit related to inputs/capital goods/input services used in research and development center.
2. Imposition of penalty on the appellant.

Analysis:
1. The Appellate Tribunal considered the case where the Department disallowed cenvat credit amounting to Rs.64,59,330/- availed by the appellant for inputs/capital goods and services used in their research and development unit. The jurisdictional Commissioner upheld the disallowance and imposed a penalty. The appellant contended that the research and development center was crucial for ensuring product quality and compliance with Motor Vehicles Rules, 1989, which required submission of vehicle prototypes for testing before production. The appellant argued that expenses incurred in the research and development unit should be eligible for cenvat credit as input services or capital goods. The Tribunal found merit in the appellant's argument and remanded the case for fresh adjudication, considering the relevance of Motor Vehicles Rules, 1989, which the appellant had not raised during the initial proceedings.

2. The Revenue argued that the appellant's reliance on Rule 126 of the Motor Vehicles Rules, 1989 was a new plea introduced at the Tribunal stage and requested a remand for a fresh adjudication by the Commissioner. The Tribunal agreed to remand the case for de novo adjudication, setting aside the previous order and allowing the appellant an opportunity to present their case in light of the Motor Vehicles Rules, 1989. The Tribunal waived the pre-deposit condition and directed the Commissioner to re-examine the matter after giving the appellant a chance to be heard. Ultimately, the appeal was decided in favor of the appellant, emphasizing the importance of considering the relevant legal provisions in determining the eligibility of cenvat credit for expenses incurred in research and development activities related to compliance with statutory regulations.