2022 (5) TMI 249 - AT - Central Excise

CENVAT Credit - testing of medicament - inputs and packing material used in the manufacture of medicament and the same is tested for trial and quality purpose and were destroyed thereafter - process of quality testing is an integral part of manufacturing of final product or not - HELD THAT - There is no dispute in the fact that packaging/ raw materials on which the appellant has claimed Cenvat credit has been used in the process of manufacturing of medicaments for trial and testing purpose under the Drugs and Cosmetics Act, which was subsequently destroyed. On the basis of such tests only the marketability of the product is ascertained. Accordingly, the process of testing of the medicaments is an integral part which is used in relation to manufacturer of the final product. Accordingly, the raw/ packaging material which is used in manufacturing and which goes for testing are indeed the inputs which are used in or in relation of manufacturing of final products. The appellant is entitled for the credit on the input and packaging material used for testing products - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is entitled to Cenvat credit for inputs and packing material used in the manufacture of medicament tested for trial and quality purposes and destroyed thereafter.

Analysis:
The appellant argued that testing medicaments is mandatory under the Drugs and Cosmetics Act to ensure quality for human consumption, making it an integral part of manufacturing. Citing various judgments, including Tata Engineering and Locomotives Co. Ltd. vs. CCE, Pune, the appellant claimed that inputs and packing materials used for testing should be eligible for Cenvat credit. The appellant's position was supported by the argument that quality testing is crucial for determining product marketability.

The Revenue, represented by the Joint Commissioner, relied on the judgment of CCE Madras vs. Union Carbide India Limited, emphasizing the findings of the impugned order. However, the Tribunal noted that the raw materials claimed for credit were used in the manufacturing process of medicaments for testing purposes under the Drugs and Cosmetics Act, which were subsequently destroyed. The Tribunal agreed that testing of medicaments is an integral part of the manufacturing process to ascertain product quality for sale, therefore making the inputs and packing materials eligible for Cenvat credit.

In distinguishing the judgment of CCE Madras vs. Union Carbide India Limited, the Tribunal highlighted that in that case, the raw material was destroyed before the manufacturing of the final product, unlike the current scenario where testing was conducted on materials used in the manufacturing process. Consequently, the Tribunal concluded that the appellant is entitled to credit on the input and packaging material used for testing products, setting aside the impugned order and allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, recognizing the importance of testing in the manufacturing process of medicaments and deeming the inputs and packing materials used for such purposes eligible for Cenvat credit. The judgment emphasized the distinction between cases where raw materials are destroyed before manufacturing and those where testing is an integral part of the manufacturing process, ultimately supporting the appellant's claim for credit.