2020 (12) TMI 416 - AT - Service Tax

Distribution of Cenvat Credit including Education Cess and SHE cess taken - Research Development services received to their manufacturing units - Rule 7 of Cenvat Credit Rules, 2004 - HELD THAT - The issue decided in the case of 2019 (11) TMI 1330 - CESTAT HYDERABAD where it was held that Demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Whether the appellant is entitled to distribute the Cenvat Credit for Education Cess and SHE cess taken on Research & Development services to their manufacturing units in accordance with Rule 7 of Cenvat Credit Rules, 2004.

Analysis:
The judgment of the Appellate Tribunal CESTAT Hyderabad revolves around the issue of the appellant's entitlement to distribute Cenvat Credit, including Education Cess and SHE cess, taken on Research & Development services to their manufacturing units under Rule 7 of the Cenvat Credit Rules, 2004. The Tribunal considered the arguments presented by both sides and examined the records. It highlighted the specialized nature of the pharmaceutical industry, emphasizing the importance of research and development in manufacturing pharmaceutical products. The Tribunal noted that research and development activities are integral to the entire manufacturing process in the pharmaceutical industry, contributing significantly to the quality, certifications, and marketability of the products. It acknowledged that the services used in Research & Development have a direct nexus with the manufacture of final products, even if Research & Development units are set up independently to serve multiple manufacturing units for efficiency. The Tribunal referenced previous decisions, such as the Tribunal Allahabad case of Jubiliant Life Sciences Ltd. and decisions from other benches, to support its conclusion that Cenvat Credit availed on services used in Research & Development units can be distributed to various manufacturing units if the appellant is registered as an input service distributor. The Tribunal ultimately ruled in favor of the appellant, setting aside the impugned orders and allowing the appeal with consequential benefits as per the law.

This judgment establishes a precedent that in industries like pharmaceuticals where research and development play a crucial role in the manufacturing process, Cenvat Credit on services used in Research & Development units can be distributed to manufacturing units if the appellant is registered as an input service distributor. The decision emphasizes the direct correlation between Research & Development activities and the manufacture of final products, recognizing the necessity of research and development for product quality, certifications, and marketability in specialized industries like pharmaceuticals. The judgment aligns with previous rulings and provides clarity on the admissibility of Cenvat Credit in such scenarios, ensuring consistency in the application of tax laws within the pharmaceutical industry.