2014 (11) TMI 926 - HC - Service Tax

Cenvat Credit - input services - Non commencement of production / manufacturing activity - Whether the CESTAT was right in considering the services namely Technical Testing and Analysis Service, Technical Testing and Certification Service, and Intellectual Property Rights Services, availed by the assessee, as eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004 - Held that - Tribunal has merely followed its earlier decision in the case of M/s. Cadila Healthcare Pvt. Limited 2009 (8) TMI 172 - CESTAT, AHMEDABAD and has allowed the appeal. - It is an accepted position that the above decision of the Tribunal in the case of M/s. Cadila Healthcare Pvt. Limited came to challenged before this court 2013 (1) TMI 304 - GUJARAT HIGH COURT and the same had been answered in favour of the assessee and against the Revenue From the findings recorded by the Commissioner (Appeals) it appears that though the nature of services involved are more or less similar, the facts of the present case are different from that of M/s. Cadila Healthcare Pvt. Limited inasmuch as the services availed by the assessee are in respect of products which are not put to manufacture even after availment of the services in question. The assessee has not commenced manufacture of the final product in view of the fact that if the product is manufactured during the patent period there would be violation of Intellectual Property Rights which would have huge financial implications. Hence, the assessee is waiting till the time the product becomes generic before commencing manufacture of the final product. The Commissioner (Appeals) has, therefore, held that as and when the assessee is able to co-relate the use of the above services as input service used in its final product it would be eligible for credit of such taxes. The Tribunal, in the impugned order has without delving into the facts of the present case and noticing the distinguishing features, has blindly followed its earlier decision in the case of M/s. Cadila Health Care Pvt. Limited. However, the Tribunal being the final fact finding authority having not examined the facts of the case in proper perspective, in the absence of proper facts being placed before it, it is not possible for this court to answer the question formulated hereinabove. Under the circumstances, the matter is required to be remitted back to the Tribunal - Matter remanded back - Decided in favour of Revenue.

Summary

Issues Involved:
1. Eligibility of Technical Testing and Analysis Service for input service credit.
2. Eligibility of Technical Inspection and Certification Service for input service credit.
3. Eligibility of Intellectual Property Rights Services for input service credit.

Detailed Analysis:

1. Technical Testing and Analysis Service:
The primary issue is whether the Technical Testing and Analysis services can be considered as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal referenced its earlier decision in the case of M/s. Cadila Healthcare Pvt. Limited, which was upheld by the High Court. The court examined whether these services, availed for clinical samples tested before commercial production, qualify as input services. The definition of "input service" includes services used directly or indirectly in the manufacture of final products. The court highlighted that technical testing and analysis are essential for the production of medicaments, as regulatory approval is required before commercial production can commence. Therefore, these services are directly related to the manufacture of the final product, making the assessee eligible for Cenvat credit.

2. Technical Inspection and Certification Service:
The second issue pertains to whether Technical Inspection and Certification services qualify as input services. These services involve the inspection and calibration of precision instruments used in manufacturing. The court noted that such instruments must meet statutory requirements under the Drugs and Cosmetics Act. The maintenance and calibration of these instruments are essential for manufacturing, thus falling within the scope of "in relation to the manufacture of final products." The Tribunal correctly held that these services qualify as input services, and the assessee is entitled to Cenvat credit.

3. Intellectual Property Rights Services:
The third issue concerns the eligibility of Intellectual Property Rights services for input service credit. The assessee availed of Service Tax credit for intellectual property rights transferred by M/s. Astron Research Ltd., but the adjudicating authority and the Commissioner (Appeals) initially denied the credit. The Commissioner (Appeals) noted that these services were used for developing a drug formulation, but commercial production was deferred due to potential patent violations. The Tribunal did not adequately examine the specific facts of this case, instead relying on the Cadila Healthcare decision. The High Court remitted the matter back to the Tribunal to re-evaluate the facts and determine whether these services qualify as input services, considering the product had not yet entered commercial production.

Conclusion:
The High Court remitted the matter back to the Tribunal for a detailed examination of the facts, particularly concerning the Intellectual Property Rights services. The Tribunal must reassess whether these services qualify as input services under Rule 2(l) of the Cenvat Credit Rules, 2004, in light of the specific circumstances of the case. The appeal was disposed of with no order as to costs.