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TMI Blog2012 (11) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... nal products and therefore they were not eligible for Cenvat Credit on such inputs used in R & D. Revenue issued a Show Cause Notice dated 10-03-99, demanding reversal of Cenvat Credit on such inputs and proposing penalty under Cenvat Credit Rules. The Notice was adjudicated by order dated 18-2-2000 confirming the duty demand of Rs. 64,49,849/- with interest as also penalties. Aggrieved by the order the Appellants filed an Appeal with the Tribunal. The Tribunal vide order dated 5-12-2001 [2002 (149) E.L.T. 685 (Tri. - Del.)] remanded the matter to the adjudicating authority with the following directions. "We have considered the submissions of both the sides. We observe that the question to be decided in the present appeal is whether the inputs, which were shown to have been consumed in R & D section, were in fact used in the manufacture of finished products and which were cleared on payment of duty. The Ld. Advocate for the Appellants have attempted to show us by referring to various document and registers that the inputs received in the factory in respect of which modvat credit was availed of by them have been in fact utilized in the manufacture of the equipment's which were subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rule 173Q and Rule 226 of CER, 1944. Aggrieved by the order the Appellants have filed this appeal. 4. One of the arguments raised in the present appeal is that inputs used for testing, quality control, trial production are indeed used in relation to the manufacture of final products even though some of the inputs may get destroyed in such process and may not actually be present in the final product finally cleared. The Appellants rely on the following decisions in support of this argument. (i) Tata Engineering & Locomotive Co. Ltd. v. C.C.E. - 2010 (256) E.L.T. 56 (Bom.) (ii) Sudarshan Chemical Inds. Ltd. v. C.C.E. - 2010 (100) RLTONLINE 295. (iii) Reva Electric Car Com (P) Ltd. v. C.C.E. - 2010 (250) E.L.T. 149 (iv) Tetra Pak India Pvt. Ltd. v. C.C.E. - 2010 (252) E.L.T. 283. (v) C.C.E. v. Duracell (India) Pvt. Ltd. - 2001 (137) E.L.T. 882. 5. Actually this argument might have been good enough to decide the appeal in favor of the appellants. However the appellants have been giving another argument in earlier round of litigation and are arguing that point even now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot being accepted by Revenue. 8. Since the appellants had made a claim in the First round of litigation that all the final products made in R & D division were cleared on payment of duty Tribunal had remitted the matter for verification of this claim. For this the Appellant had given a list of 13 unique inputs (that is products unlike items like resistors, capacitors etc. which are used in all their products) having value of Rs. 1,46,71,738 involving duty element of Rs. 33,45,228 and accounted that final products corresponding to those unique products have been cleared on payment of duty. 9. The finding in this matter is seen in paras 30 to 34 of the impugned order which are re-produced below : "30. "Therefore, as per the directions of the Hon'ble Tribunal the Preventive staff of this office visited the factory premises of the Noticee twice to carry out the verification of the relevant record as directed by the Hon'ble CEGAT. The notice with reference to the visit of their factory in the month of May, 2003, addressed a letter to the Commissioner of Central excise vide their letter No. PMT-F-4.37514 dated 13-5-2003. Gist of this letter is as under :- "that Puncom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of for production of excisable goods. (ii) Regarding the R & D Section, the notice informed that at present they do not have any R & D Section as the same was stopped in 199798, as they had suffered heavy losses and that most of the staff associated with the R & D work either has retired or opted for the VRS or left the service for better opportunity elsewhere and as such the notice was not in a position to explain as to what type of R & D work was being done in the factory. (iii) As regards the noticee's contention that they can correlate the use of inputs of high value, it was found that they have not kept any separate record of the R & D work or the nature of R & D work or the goods manufactured in the R & D and its subsequent use in the manufacture of final product. The noticee had maintained private records showing the movement of inputs issued to the R & D section but no record are maintained showing the return of the inputs from the R & D section and its subsequent use in the manufacture of final products. (iv) That the plea of the party that inputs issued to R & D were used in the manufacture of finished goods w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to correlate the use of inputs of high value. I observe that the noticee has not kept any separate record of the R & D work or the nature of R & D or the goods manufactured in the R & D and its subsequent use in the manufacture of final product. The noticee had maintained only private records showing the movement of inputs issued to the R & D section but there is no such record which show the return of the inputs from the R & D section and its subsequent use in the manufacture of the final products. Thus, in the absence of any records it is not possible for the department to say as to what type of R & D work has been done by the noticee. The only document is the balance sheet in which noticee has shown such activity of R & D. The noticee, in their letter dated 13-5-2003, has admitted that the technology holders used to provide technology for standard equipment and technology holders used to provide technology for standard equipment and company needed to do slight modification in the system to meet the specifications of Indian customers and that such change in specification was being handled by a set of Engineers and the pilot production used to be carried out under their guidance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case is the name of a Division of the Company as "Research and Development Division" and Revenue's view that inputs used in Research and Development are not eligible for Cenvat credit. Both these are not good enough for confirming the impugned demand. Demand can arise only in a situation where the inputs are cleared as such after taking credit or if the inputs are not used in relation to manufacture of dutiable final products. The expression "used in relation to" does not meant that the inputs should find a place in the final products cleared on payment of duty. Since this issue is well argued and decided in many cases we do not consider it necessary to write a discourse on this issue in this case. (b) The entire case of Revenue is just based on material consumption shown in Schedule 19 of the Annual Financial Statements. The appellants have explained that the entry in this schedule shows material consumed in specialized production process and is on identical footing as that in Schedule 17 (showing consumption of raw material for normal manufacturing process involving mass production), as far as manufacture of final product is concerned. The submission ..... 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