2020 (3) TMI 1276 - AT - Service Tax

CENVAT Credit - input services - appellant has created a single Integrated Product Development Organisation Unit (IPDO) at Bachupally to undertake research and development activities of their products, it caters to the requirements of various manufacturing units of the appellant - extended period of limitation - HELD THAT - Pharmaceutical industry is a specialised industry distinct from other industries. Not only is the manufacturer required to manufacture the correct drug but is also required to make it of the requisite quality and standards. Further, a manufacturer is also required to obtain the necessary clearances and certifications from the authorities before the product can be marketed. Without any of these activities, the product cannot be manufactured and sold. Therefore, for a marketable pharmaceutical product to come into existence, the certifications and quality control are absolutely essential. Further, pharmaceutical industry is one which involves a lot of research and development which distinguishes the product of the manufacturer from those of others. The services used in the R D have a direct nexus with the manufacture of the final products. It is not necessary that the pharmaceutical industry has a complete R D facility in each of its manufacturing units. In order to economise and benefit from the economies of scale, R D units are set up as independent units for serving various manufacturing units of the manufacturer. In such a case, the services availed in the R D units have a direct nexus to the manufacture of the products in various units. If the assessee is registered as an input service distributor, the CENVAT Credit availed on the services used in the R D unit can be distributed to various manufacturing units. The appellant has just done that. This view is consistent the view taken by the Tribunal Allahabad in the case of Jubiliant Life Sciences Ltd. 2017 (8) TMI 358 - CESTAT ALLAHABAD and upheld by the Hon ble Apex Court. The impugned orders are unsustainable and need to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Whether CENVAT Credit is admissible on input services used in an Integrated Product Development Organisation Unit (IPDO) for a pharmaceutical manufacturer.

Analysis:
The judgment dealt with the issue of whether a pharmaceutical manufacturer is entitled to claim CENVAT Credit on input services used in their IPDO. The appellant, a major manufacturer of bulk drugs and formulations, created an IPDO for research and development activities. The Revenue contended that as the IPDO is not a manufacturer of excisable goods or provider of taxable services, no CENVAT Credit is admissible on the input services used in the IPDO. The appellant argued that there is a direct correlation between the services used in the IPDO and the manufacture of final products, thus entitling them to claim CENVAT Credit. The key question was whether the appellant could avail CENVAT Credit on the input services used in the IPDO. The appellant had also taken registration as an Input Service Distributor and distributed the credit taken in the IPDO to their manufacturing units.

The Tribunal considered the arguments and examined the nature of the pharmaceutical industry, emphasizing the importance of research and development in the manufacturing process. It noted that certifications, quality control, and regulatory clearances are crucial for producing marketable pharmaceutical products. The Tribunal highlighted that research and development are integral to the pharmaceutical industry, distinguishing products and incurring significant costs. It was established that services used in the R&D have a direct nexus with the manufacture of final products, even if the R&D unit is not physically located within the manufacturing units. The Tribunal found that the appellant, as an input service distributor, was entitled to distribute the CENVAT Credit availed on services used in the IPDO to various manufacturing units.

The Tribunal relied on precedent cases, including the decision of the Tribunal Allahabad and the Hon'ble Supreme Court, which supported the appellant's position. The judgments in similar cases were cited to establish that the issue was no longer res integra and had been decided in favor of the appellant. Consequently, the impugned orders were deemed unsustainable, and the appeals were allowed, setting aside the orders with consequential relief granted to the appellant.