CENVAT credit on R&D centre services allowed where nexus with manufacture existed despite location away from factory.

CENVAT credit on service tax paid for rent and maintenance of a research and development centre was held allowable when the services were used in the assessee's manufacturing activity and the credit was distributed through Input Service Distributor invoices. The Tribunal found that research and development is part of the production process, and the centre's location away from the factory did not by itself break the nexus with manufacture. It also noted that R&D cost forms part of production cost under CAS-4. On that basis, denial of credit was unsustainable and the assessee was entitled to the credit.

---

---

Issues: Whether CENVAT credit of service tax paid on rent and maintenance services for a research and development centre, distributed through Input Service Distributor invoices, could be denied merely because the centre was located away from the factory.

Analysis: The service tax credit related to services used in the assessee's research and development activity. The dispute turned on whether such services had a sufficient nexus with manufacture. The Tribunal noted that research and development forms part of the production process and that the fact that the R&D centre was situated away from the factory did not, by itself, sever the connection with manufacture. The credit was distributed through ISD invoices and the services were treated as integral to the manufacturing activity. Reliance was also placed on the understanding that R&D cost forms part of production cost under CAS-4.

Conclusion: The denial of CENVAT credit was unsustainable. The assessee was entitled to credit on the service tax paid on rent and maintenance services relating to the R&D centre.

---