2017 (8) TMI 358 - AT - Service Tax

CENVAT credit - input service distribution - credit in respect of input services utilised at the R D centres of the appellant company and transferred to factory through input service distribution mechanism - Held that - the appellant have rightly taken Cenvat credit as permissible under Rule 3 read with Rule 2(l) of CCR, 2004 as the services in question have been admittedly used by the manufacturer indirectly in relation to manufacture of final dutiable products - also, there is no dispute with regard to the distribution of the credit as permitted in the scheme of the Act and the Rules - appeal allowed - decided in favor of appellant.

Summary

Issues:
Admissibility of Cenvat credit on input services utilized at R&D centers for manufacturing drugs.

Analysis:
The appellant, a drug manufacturer with R&D centers outside factory premises, received Scientific and Technical Consultancy Services for pharmaceutical formulation and drug manufacture. The Revenue alleged wrongful distribution of Cenvat credit for Service Tax and Cess, leading to a show cause notice. The appellant argued that R&D units are integral, serving different manufacturing locations, and the services received indirectly relate to the manufacture and clearance of excisable goods. The Revenue contended that credit for services used in units manufacturing exempted goods cannot be distributed. The appellant cited Rule 2(l) of CCR, 2004, stating that the services are indirectly used in relation to manufacturing final products. The appellant also relied on a Bombay High Court ruling emphasizing the broad interpretation of input services under Cenvat Credit Rules. The Department relied on a Tribunal ruling regarding maintaining separate accounts for input services used for taxable and exempted output services.

The Tribunal found that the appellant correctly took Cenvat credit as permissible under Rule 3 of CCR, 2004, as the services were used indirectly in relation to manufacturing dutiable products. The distribution of credit was in accordance with the Act and Rules. Therefore, the Commissioner erred in disallowing the Cenvat credit, leading to the appeal being allowed, and the impugned order set aside. The appellants are entitled to consequential benefits as per the law.