2016 (9) TMI 627 - AT - Central Excise

Cenvat credit - recovery as wrongly availed in respect of capital goods used exclusively for R&D purposes - machines/ equipments/ apparatus installed in engineering Research Design and Development laboratory was located in the buildings separately from the production area - Held that - the assessee s R&D facility is located within the factory premises registered with the Central Excise Department, housed in buildings which are different from the factory sheds. When considered with reference to the definition of capital goods, we are of the view that there is no bar in using the capital goods in the buildings earmarked for R&D activities as long as it is situated within the factory premises registered with the Central Excise Department. The definition as it stands now does not make it mandatory that the capital goods should be used in or in relation to the manufacture of final products as was the case in some earlier periods. Therefore, the demand for reversal of cenvat credit is not sustainable inasmuch as it is allowable under the definition of capital goods under the Cenvat Credit Rules in view of the various decisions of Hon ble Supreme Court, High Court and Tribunal. - Decided in favour of appellant

Summary

Issues:
Challenging order of Commissioner, Central Excise - Tribunal's Final Order set aside - Remand by High Court for fresh decision - Definition of capital goods under Cenvat Credit Rules - Eligibility of cenvat credit for R&D capital goods - Location of R&D facility within factory premises - Requirement of capital goods usage in factory of manufacture - Compliance with High Court directions - Appeal allowed.

Analysis:
The judgment involves the challenge against the order of the Commissioner, Central Excise, Gurgaon, which was set aside by the Tribunal in a Final Order dated 15.01.2015. Subsequently, the Revenue appealed to the Hon'ble High Court of Punjab & Haryana, leading to a remand back to the Tribunal to decide the matter afresh and pass a reasoned speaking order. The key issue revolves around the eligibility of cenvat credit for capital goods used in R&D activities, particularly focusing on whether such goods must be used in the factory of manufacture of final products.

The appellant, engaged in manufacturing motor vehicles, claimed cenvat credit on capital goods exclusively used for R&D purposes within the factory premises. The internal audit revealed this claim, leading to a show cause notice for recovery of wrongly availed credit. The Tribunal's previous order, setting aside the demand, was challenged by the Revenue based on the argument that the capital goods were not used for manufacturing final products but solely for R&D purposes in a separate building. The appellant relied on the definition of capital goods under the Cenvat Credit Rules and relevant case laws to support their claim.

Upon careful consideration, the Tribunal analyzed the definition of capital goods under the Cenvat Credit Rules, emphasizing the requirement of usage in the factory of the manufacturer of final products. The Tribunal found that the appellant's R&D facility, though in a separate building, was within the factory premises registered with the Central Excise Department. Citing precedents and case laws, including USV Limited and CCE vs. Jawahar Mills Limited, the Tribunal concluded that capital goods used in R&D within factory premises are eligible for cenvat credit, even if not directly related to final product manufacturing.

In light of the above analysis, the Tribunal held that the demand for reversal of cenvat credit was unsustainable as it fell within the definition of capital goods under the Cenvat Credit Rules. Consequently, the impugned orders were set aside, and the appeals were allowed, aligning with the settled legal principles and precedents in favor of the appellant. The judgment reflects a comprehensive examination of the legal provisions, factual circumstances, and relevant case laws to arrive at a reasoned decision in compliance with the High Court's directions.