2017 (3) TMI 870 - AT - Service Tax

CENVAT credit - 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 u/r 3 read with Rule 2(i) 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 - credit allowed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Admissibility of Cenvat credit on input services utilized at R&D centers and transferred to factory through input service distribution mechanism.

Analysis:
1. The issue in the appeals pertained to the admissibility of Cenvat credit on input services utilized at R&D centers owned by the appellant and transferred to the factory through an input service distribution mechanism. The appellant, engaged in manufacturing drugs at various locations, maintained R&D centers outside the factory premises. The question was whether the Cenvat credit on input services used at these R&D centers and transferred to the factory was permissible.

2. The Revenue contended that the credit of Service Tax attributable to services used in a unit exclusively engaged in the manufacture of exempted goods shall not be distributed as per Rule 7 of CCR, 2004. It was alleged that the appellant wrongly distributed Cenvat credit of Service Tax and Cess on input services used in R&D units, contravening various rules. Show cause notices were issued, proposing disallowance and recovery of Cenvat credit, along with penalties.

3. The appellant argued that the services provided by the R&D centers were classifiable under 'Scientific and Technical Consultancy Service' and were indirectly used by the manufacturing units in relation to the manufacture and clearance of excisable goods. The appellant contended that the service was not an exempt service, and the distribution of credit was permissible under the relevant rules. Reference was made to a ruling of the Bombay High Court to support the argument.

4. The Special Counsel for the Department relied on the impugned order and a previous ruling of the Tribunal in a similar case. The Department emphasized the need for maintaining separate accounts for input services used for providing taxable output services and availing credit only on the intended quantity of input services.

5. After considering the arguments, the Tribunal held that the appellant had rightly taken Cenvat credit as permissible under the rules, as the services were used indirectly in relation to the manufacture of final dutiable products. The Tribunal found no dispute regarding the distribution of credit as permitted by the law. Consequently, the impugned orders disallowing the Cenvat credit were set aside, and the appeals were allowed.

This comprehensive analysis covers the issues, arguments, and the Tribunal's decision in the legal judgment.