2017 (6) TMI 942 - AT - Central Excise

CENVAT credit - rent and maintenance charges with regard to Research and Development activities - denial on account of nexus - Held that - services utilized in respect of R & D Centre is clearly a part of the production and therefore, appellants are entitled to CENVAT credit on the service tax paid on rent and maintenance service with regard to the R & D Centre - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against rejection of service tax credit for services rendered at R & D center away from the factory.

Analysis:
The case involved an appeal against the rejection of service tax credit availed by the appellants for services rendered at their R & D center located away from the factory. The appellants, manufacturers of Food Flavors, had availed service tax credit in respect of services rendered at their Creative Lab (R & D) situated at a different location. The Department observed that the services were not directly or indirectly used in relation to the manufacture and clearance of final products, leading to a show-cause notice for recovery of the credit, interest, and penalty. The original authority confirmed the demand, but the appellant contended that the R & D activities were directly connected to the manufacturing process. The Commissioner (A) rejected the appeal, leading to the present appeal before the Tribunal.

The appellant argued that the impugned order ignored binding judicial precedents and settled law in favor of the appellant regarding the eligibility of credit distributed through ISD invoices, irrespective of the location of the R & D center. The appellant also highlighted that rent and maintenance are integral parts of R & D services, supported by relevant case laws and Cost Accounting Standards. The appellant emphasized that the cost of R & D is a component of CAS-4, and CENVAT credit cannot be denied based on the location of the R & D center.

Upon hearing both parties and considering the submissions along with relevant case laws, the Tribunal held in favor of the appellant. The Tribunal noted that services utilized in connection with the R & D center are part of the production process, entitling the appellants to CENVAT credit on the service tax paid for rent and maintenance services related to the R & D center. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief, if any. The judgment provided clarity on the eligibility of service tax credit for services rendered at an R & D center away from the manufacturing unit, emphasizing the direct connection between R & D activities and the production process.