By TIOL News Service

MUMBAI, APRIL 09, 2018: CENVAT credit of Rs.20,53,569/- availed between April 2013 and December 2013 on inputs that were used exclusively in the research & development department was denied to the appellant.

The contention of the department is that CENVAT credit can be availed only in relation to manufacture of goods and the output of the said R&D department is not manufacture.

Before the CESTAT, the appellant adverted to the definition of ‘manufacture' contained in section 2(f) of the CEA, 1944 and submitted that the test of manufacture is not limited to the production of output.

The AR stuck to the stand taken by the department.

The Bench extracted the definition of “Input” contained in rule 2(k) of the CCR, 2004 and inter alia observed –

++ The inputs in dispute are not covered by the exclusion clause in the definition supra and, of the many elements that are specifically enumerated, it is only the first that is of relevance. A priori, it would appear that the goods used in the factory by the manufacturer of the final product would be eligible.

++ It is important to note here that inputs are not restricted to such goods used in the factory by the manufacturer for the final product. It would, therefore, appear that there is no bar to availing of credit of goods used in the research and development wing of the manufacturing facility. ++ There is no allegation that the appellant does not produce excisable goods; neither is there any allegation that research & development is not intended for the betterment of excisable goods manufactured by the appellant. However, a definition, by itself, would not suffice to enable availment of credit. The entitlement of CENVAT credit flows from rule 3 of CENVAT Credit Rules, 2004 in accord with which such inputs as that used in the production of output is eligible for credit.

++ It would appear that apart from production of excisable outputs any activity that is incidental or ancillary also constitutes manufacture. That the output of such incidental or ancillary operations may not directly result in goods that are excisable would not take it out of the ambit of manufacture and, prima facie, it would appear that the fruits of research and development facility ultimately finds its way, in form and in costs, to the excisable product.

Adverting to the apex court decision in Maruti Suzuki Ltd. [2009-TIOL-94-SC-CX] wherein it is clarified that inputs in any activity that contributes to the final product would be in compliance with the definition of ‘input' in CENVAT Credit Rules, 2004the Bench concluded that considering the wide latitude offered for availment of credit and in the absence of any allegation that research and development is not concerned with manufacture, the disallowance of CENVAT credit does not find favor and must be set aside.

The appeal was allowed.

(See 2018-TIOL-1114-CESTAT-MUM)