2015 (12) TMI 809 - AT - Service Tax

Waiver of pre deposit - Denial of CENVAT Credit - Held that - Under Rule 3 of Cenvat Credit Rules 2004 in respect of input service, credit is admissible to a manufacturer or a service provider unlike the case of inputs where the receipt of inputs in the factory is required. For input services there is no requirement that it should be received in a particular place for availament of credit. One of the main objections in this case is that the services were received in R & D unit and there was no manufacture of excisable goods or provision of output service in the R & D unit. There is no dispute that R & D units belong to the same manufacturer and in the excise registration and service tax registration for the units, the manufacturer is one and the same. In the case of M/s Cadila Healthcare Ltd., 2013 (1) TMI 304 - GUJARAT HIGH COURT even the credit relating to R & D work in respect of product which was ultimately not manufactured at all was held to be admissible. The Hon ble High Court of Gujarat upheld the decision by the Tribunal. R & D cost is necessarily factored to arrive the sale value of the final product. - Stay granted.

Summary

Issues:
Adjudication of show cause notices denying cenvat credit, grounds for denial of credit, appeal against denial of credit, admissibility of cenvat credit for R&D activities, limitation on demand, sustainability of interest and penalty.

Adjudication of show cause notices:
The Commissioner adjudicated upon two show cause notices covering the period from April 2005 to March 2011, denying cenvat credit of Rs. 9,72,22,192 and imposing interest and penalty equivalent to the service tax amounts availed as cenvat credit.

Grounds for denial of credit:
The demand was confirmed as the R&D activities did not result in the manufacture of excisable goods or provision of taxable services, making the cenvat credit inadmissible. The basic philosophy of Rule 6 of Cenvat Credit Rules, 2004 requires credit on tax paid on input services only if used for providing output service/manufacture of finished goods on which appropriate service tax/excise duty is payable or paid.

Appeal against denial of credit:
The appellant argued that R&D activity is essential for manufacturing finished products in the Pharma Industry, and the R&D cost is factored into the sale value of the finished goods. They cited favorable judgments to support their case, emphasizing the integral role of R&D in the manufacturing process.

Admissibility of cenvat credit for R&D activities:
The Tribunal considered that credit for R&D work, even if the final product was not manufactured, is admissible as per precedents. R&D cost is crucial in determining the sale value of the final product, supporting the admissibility of cenvat credit for R&D activities.

Limitation on demand:
The appellant contended that the demand was barred by limitation, and suppression could not be alleged for subsequent period show cause notices. They argued that interest and penalty were not sustainable in this case.

Sustainability of interest and penalty:
The Revenue reiterated points favoring the imposition of interest and penalty, which were already considered. However, the Tribunal observed that the appeal could proceed without pre-deposit, waiving the requirement for the entire dues and granting a stay against recovery of dues during the appeal's pendency.