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2018 (11) TMI 493 - AT - Central ExciseCENVAT Credit - inputs/capital goods used in their Research and Development (R&D) unit - case of the Department is that since the capital goods installed in the R&D Division are not used for manufacture of finished products, they are not eligible for Credit - Held that - R&D Division is an integral part of the factory wherein the quality testing and other activities for improving the products takes place. It is usual that every manufacturing factory has a R&D Division wherein the Research and Development of the finished products as well as the process of manufacture is undertaken. This being the situation, the capital goods installed in the R&D Division are used in relation to the activity of manufacture and therefore, eligible for Credit. Disallowance of Credit on inputs - Held that - The definition of inputs that the goods brought within the factory used for any purpose would be eligible for Credit. Thus, the definition of inputs has a wide ambit so as to cover all goods which have been brought into the factory - credit allowed. Appeal allowed - decided in favor of appellant.
Issues:
1. Eligibility of CENVAT Credit on inputs and capital goods used in Research and Development (R&D) unit. 2. Interpretation of the definition of "inputs" and "capital goods" under CENVAT Credit Rules, 2004. 3. Whether capital goods installed in the R&D Division are eligible for Credit. 4. Comparison with precedent judgments on similar issues. Analysis: Issue 1: The Department challenged the eligibility of CENVAT Credit on inputs and capital goods used in the R&D unit during 2007-08 and 2008-09. A Show Cause Notice was issued, and after due process, the demand was confirmed. The appellant argued that R&D activities are integral to manufacturing and thus eligible for Credit. Issue 2: The appellant contended that the definition of "inputs" under CENVAT Credit Rules is broad, covering all goods used within the factory. Similarly, the definition of "capital goods" includes those used for quality testing and R&D of finished products, making them eligible for Credit. Precedent judgments like M/s. Sudarshan Chemicals Inds. Ltd. and M/s. Orchid Health Care supported this interpretation. Issue 3: The Department argued that only capital goods used within the factory for manufacturing are eligible for Credit. However, the Tribunal found that R&D Division, being an integral part of the factory, contributes to the manufacturing process. The capital goods in the R&D Division are deemed used in relation to manufacturing activities, thus eligible for Credit. Issue 4: The Tribunal compared the present case with precedent judgments like M/s. Sudarshan Chemicals Inds. Ltd. and M/s. Orchid Health Care, where inputs and capital goods used in R&D were deemed eligible for Credit. The Tribunal emphasized the link between R&D activities and the manufacturing process, concluding that the Credit availed on inputs and capital goods in the present case was eligible, setting aside the impugned Order and allowing the appeal with consequential benefits. This detailed analysis highlights the key arguments, interpretations, and comparisons made in the judgment regarding the eligibility of CENVAT Credit on inputs and capital goods used in the R&D unit, providing a comprehensive overview of the legal reasoning and conclusions reached by the Tribunal.
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