2023 (11) TMI 468 - AT - Central Excise

Pharmaceutical company's cenvat credit upheld as research activities integral to manufacturing process under Rule 3

CCE & ST-Chandigarh-I Versus M/s Ind-Swift Laboratories

CESTAT Chandigarh dismissed Revenue's appeal challenging cenvat credit availed by pharmaceutical company. Revenue alleged respondent only conducted ... Recovery of wrongly availed CENVAT Credit - Scientific and Technical Consultancy Services - manufacture of drug - time limitation - HELD THAT:- The Respondent is registered with the Central Excise Department and has taken cenvat credit on capital goods as well as inputs - it is found that though the Revenue has alleged that the Respondent does not have the facility of manufacturing of Pharmaceutical Products and is only doing research and development activity for which cenvat credit on input and capital goods is not permissible under Rule 3 of Cenvat Credit Rules, 2004; Revenue in order to deny the cenvat credit has only relied upon the statement of one Senior Scientist of the Respondent but the said statement of the respondent has not been brought on record and the copy of which has not been given to the respondent even on asking by the respondent. It is also found that in the pharmaceutical industry before a drug is manufactured and supplied in the market, a lot of research has to be undergone and a number of tests are to be conducted before releasing in the market. In view of these facts, the respondent is engaged in the manufacturing of drug also - Besides this, the Ld. Commissioner has also come to the conclusion that even for conducting research and development, the respondent is registered under the service tax and is paying service tax and therefore the respondent is entitled to cenvat credit - the cenvat credit on inputs and capital goods have been rightly availed by the respondent. Time Limitation - HELD THAT:- The Ld. Commissioner has considered this issue in detail and has come to the conclusion that the entire demand is barred by limitation. There is no infirmity in the impugned order - Appeal of Revenue dismissed. Issues Involved:1. Entitlement to CENVAT credit for non-manufacturing activities.2. Validity of the extended period for recovery of CENVAT credit.3. Adequacy of evidence provided by the Revenue.Summary:Entitlement to CENVAT Credit:The Respondent, M/s Ind-Swift Laboratories, registered for central excise and availed CENVAT credit on capital goods, inputs, and input services. The Revenue alleged that the Respondent was not entitled to CENVAT credit as they were engaged solely in Research and Development (R&D) activities and not in manufacturing. The Ld. Commissioner vacated the show cause notice, stating that the Respondent was entitled to CENVAT credit even for R&D activities as they were registered under Service Tax for Scientific and Technical Consultancy Services and were regularly paying service tax. The Tribunal upheld this finding, noting that the Respondent's machinery was capable of manufacturing pharmaceutical products and that significant research and testing are inherent to pharmaceutical manufacturing.Validity of the Extended Period:The Revenue invoked the extended period for recovery of CENVAT credit, alleging suppression of facts. The Ld. Commissioner found that the demand was barred by limitation, as the Respondent had filed statutory returns and maintained records as required by law. The Tribunal agreed, citing the Supreme Court's ruling that extended periods require evidence of fraud, collusion, or wilful misstatement with intent to evade tax. The Tribunal noted that the Revenue failed to provide such evidence and that the Respondent had transparently declared the availing and utilization of CENVAT credit in their returns.Adequacy of Evidence:The Revenue's case relied on the statement of a Senior Scientist from the Respondent, claiming the unit was designed only for R&D. However, this statement was not provided to the Respondent, nor was it substantiated by technical expert reports. The Tribunal found that the Revenue did not provide sufficient evidence to prove that the Respondent's machinery was incapable of manufacturing activities. The Tribunal upheld the Ld. Commissioner's reliance on a Chartered Engineer's certificate confirming the machinery's capability for manufacturing.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the Ld. Commissioner's order that the Respondent was entitled to CENVAT credit and that the demand was barred by limitation. The Tribunal emphasized the lack of evidence for the Revenue's claims and the necessity for transparency and due process in tax recovery actions.