Cenvat credit on capital goods used in factory R&D was admissible, and reversal demand could not be sustained.

Cenvat credit was admissible on capital goods installed within the registered factory and used in the research and development section, because Rule 2(a) of the Cenvat Credit Rules, 2004 permits credit on specified capital goods used in the factory of manufacture and excludes only office equipment or appliances. The goods were located inside the factory premises and used for testing and development, so the denial of credit was not sustainable. The demand for reversal was therefore unsustainable.

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Issues: Whether Cenvat credit was admissible on capital goods installed within the factory premises and used in the Research and Development section.

Analysis: Rule 2(a) of the Cenvat Credit Rules, 2004 allows credit on specified capital goods used in the factory of the manufacturer, subject to the exclusion of office equipment or appliances. The capital goods in question were installed within the registered factory premises and were used for testing and development in the R&D section. As the goods were located inside the factory premises and the issue was covered by earlier tribunal and Supreme Court decisions, the denial of credit was not sustainable.

Conclusion: Cenvat credit on the capital goods used in the R&D section was admissible and the demand for reversal was unsustainable.

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