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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 ..... troyed in the process of so called R & D; - appellants are eligible for Cenvat credit on the impugned inputs – in favor of assessee - E/4399/2004 - A/22/2012-EX(BR)(PB) - Dated:- 12-1-2012 - Ms. Archana Wadhwa, Shri Mathew John, JJ. REPRESENTED BY : Shri Ravi Raghvan, Advocate, for the Appellant. Shri Sunil Kumar, DR, for the Respondent. [Order per : Mathew John, Member (T)]. The Appellants are an undertaking of Punjab State Government. They are engaged in the manufacture of Telecommunication equipment falling under Chapter 85 of the First Schedule to the Central Excise Tariff Act. They were making such equipment for the Department of Telecommunication, Ministry of Defense, Indian Railways etc. They were taking Cenvat credit of excise duty on inputs used by them. 2. On scrutiny of their Annual Financial Statements Revenue found that during the period April 94 to March 97, the appellants had shown issue of material worth Rs. 3,51,02,448/- to their Research and Development (R D) Section. Revenue was of the view that use of inputs in R D did not result in manufacture of dutiable final products and therefore they were not eligible for Cenvat Credit on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the appellants that the inputs have gone, in fact, in the manufacture of the equipment only. The appellants will produce within two months from the date of receipt of this Order the detailed submissions co-relating the inputs to the manufacture and removal of the final products and submit to the Adjudicating Authority who will take into consideration the same before deciding the matter afresh. At this stage, Ld. Advocate for the appellants submitted that they could correlate the use of inputs which are of high value and not in respect of 100% inputs such as small items like screws, etc. We may only mention that the adjudicating authority may consider this plea of the appellants also while deciding the matter afresh. The appeal is thus allowed by way of remand. 3. The ld. adjudicating authority has re-adjudicated the case vide her order dated 28-2-2004 re-confirming the duty demand of Rs. 64,69,849/- along with interest as applicable under Rule 57-I(5) of Central Excise Rules read with Section 11AA of the Central Excise Act. Further penalty of Rs. 64,49,849/- is imposed under Rule 57-I(4), read with Rule 173Q and Rule 226 of CER, 1944. Aggrieved by the order the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can demonstrate the use of all major components which were issued to R D personnel and show that the duty on the final products that emerged in such activity was paid. As may be seen from the order dated 5-12-2001 of the Tribunal, the matter was remanded back basically to verify contention. 7. On overall appreciation of facts, the case of Revenue is that the appellants have not been able to prove that final products manufactured in the process of so-called R D was cleared on payment of duty. The weakness in Revenue s case is that they have not been able to prove any clandestine removal of inputs or final products. The case of revenue appears to be that the inputs were destroyed in the process of R D, though such a direct statement is not seen in the impugned order. Basically this is a demand based on entries in account books of the appellant. However the explanation for the entries given by the appellant that R D meant only a special stage of manufacture, that is the initial trial and error period is not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of Indian Customers and that any such change in specification was being handled by a set of such trained Engineers. That the initial production carried out under their guidance was booked under R D and equipment (after change as per specifications/pilot production) were cleared under the cover of invoice on payment of Excise Duty. The Preventive staff of Hqrs. Office visited the factory of the notice on 10-2-2004 and conducted enquiries with regard to the directions given by the Hon ble CEGAT. After verifying the relevant records maintained by the notice it was observed by the visiting officers that :- (i) The noticee recorded the receipt of raw materials in the RG23-1 but no issue of the same was shown for R D. The private computerized record of the issue of inputs for R D was found to have been maintained but the notice did not maintain any record, private or otherwise showing the receipt of the inputs back from the R D section and further issuance thereof 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 hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e noticee on payment of duty had actually been manufactured out of inputs initially issued in the R D section and received back subsequently. 33. As regards the existence of R D section, the noticee has informed that at present they do not have any R D section as the same was stopped in 1997-98, as they are reported to have suffered heavy losses. They further informed 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 opportunities elsewhere and that they were not in a position to explain as to what type of R D work was being done in the factory. In view of these submissions of the noticee it is not possible to trace the movement of raw material issued for R D and its subsequent receipt in the store and further issuance of the same for the manufacture of final goods. Regarding the noticee s contention that they are able 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 priv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final products was inputs used by R D section for manufacture of VSAT Communication equipment. What was required to be verified was whether the VSAT Communication equipments were cleared on payment of duty. It is quite evident that the department has no expertise to verify the accounts maintained by the appellant and give a conclusive finding on the contention that the impugned inputs were used in manufacture of final products and were cleared. The matter had been already remanded once with no improved results on re-adjudication. This is a matter relating to the period 1994 to 1997. The matter is stated by a Government Company. So we do not consider that it will be fruitful to remand the matter again for any verification. So we accept the claim of the Appellants. 11. We take note of the following facts : (a) The genesis of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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