2017 (4) TMI 946 - AT - Service Tax

CENVAT credit - ISD invoices are not proper - The department entertained a view that since the invoice is issued to the appellants R&D unit, the same is not eligible for credit on the ground that R&D unit is not providing any output service - Held that - The credit is solely denied for the reason that R&D cannot be considered as output services or input services, because such services do not have nexus with services exported - The Ld. Counsel also argued on the grounds of limitation. This contention of the department that CENVAT credit taken by the appellant attributable to their R&D unit is irregular, does not have any merits - credit allowed - decided in favor of appellant.

Summary

Issues: Disallowance of credit for ISD invoices mentioning R&D unit as ineligible for credit.

Analysis:
1. The appellant, registered under various service categories, availed credit on ISD-Mumbai Office invoices mentioning 'CMC Ltd-Hyderabad, R&D'. The department disallowed credit, stating R&D unit did not provide output service.
2. Appellant argued the entire premises should be considered one unit, as per registration, and R&D building was used for administrative purposes only, not R&D activities. Rule 7 of CENVAT Credit Rules was cited for credit distribution.
3. The department contended R&D unit did not provide output services, hence credit inadmissible. Appellant's Mumbai Office distributed credit mentioning separate buildings, including R&D. The Tribunal noted the lay out plan, affirming no R&D activities in the building, only administrative and accounting works connected to output services.
4. The Tribunal found the denial of credit baseless, as R&D activities were not carried out in the building, and administrative works were connected to output services. The department's contention lacked merit, and the appellant's affidavit supported the absence of R&D activities. The impugned order was set aside, and the appeal allowed with consequential reliefs.