Tribunal allows appeal for Cenvat credit on R&D input services under Rule 3

The Tribunal allowed the appeal, setting aside the Commissioner's decision to disallow Cenvat credit for input services utilized at R&D centers for drug manufacturing. The Tribunal held that the services were indirectly related to manufacturing dutiable products, permitting the distribution of credit under Rule 3 of CCR, 2004. The appellant's interpretation aligned with the law, leading to the decision in their favor and entitlement to consequential benefits.

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Issues:
Admissibility of Cenvat credit on input services utilized at R&D centers for manufacturing drugs.

Analysis:
The appellant, a drug manufacturer with R&D centers outside factory premises, received Scientific and Technical Consultancy Services for pharmaceutical formulation and drug manufacture. The Revenue alleged wrongful distribution of Cenvat credit for Service Tax and Cess, leading to a show cause notice. The appellant argued that R&D units are integral, serving different manufacturing locations, and the services received indirectly relate to the manufacture and clearance of excisable goods. The Revenue contended that credit for services used in units manufacturing exempted goods cannot be distributed. The appellant cited Rule 2(l) of CCR, 2004, stating that the services are indirectly used in relation to manufacturing final products. The appellant also relied on a Bombay High Court ruling emphasizing the broad interpretation of input services under Cenvat Credit Rules. The Department relied on a Tribunal ruling regarding maintaining separate accounts for input services used for taxable and exempted output services.

The Tribunal found that the appellant correctly took Cenvat credit as permissible under Rule 3 of CCR, 2004, as the services were used indirectly in relation to manufacturing dutiable products. The distribution of credit was in accordance with the Act and Rules. Therefore, the Commissioner erred in disallowing the Cenvat credit, leading to the appeal being allowed, and the impugned order set aside. The appellants are entitled to consequential benefits as per the law.

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