R&D Input Credit Allowed Despite Non-Dutiable Products Under Section 57 CENVAT Rules

The CESTAT Mumbai set aside the demand for recovery of allegedly inadmissible credit along with interest and penalty. The appellant had claimed credit on inputs used exclusively in their R&D division, which the department challenged as inadmissible since R&D products were non-dutiable. The Tribunal relied on its earlier decision in Force Motors Limited case for the succeeding period (April-December 2013), holding that given the wide latitude for credit availment and absence of allegations that R&D was unrelated to manufacturing, the disallowance was unjustified. The impugned order was set aside and appeal allowed.

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Issues: Alleged inadmissible credit under CENVAT Credit Rules, 2004 for the period from January 2009 to March 2013, along with applicable interest and penalty.

The judgment pertains to an appeal against the recovery of allegedly inadmissible credit under rule 14 of CENVAT Credit Rules, 2004, for the period from January 2009 to March 2013, along with applicable interest and penalty. The appellant contended that the products used exclusively in the 'research and development (R&D)' division were eligible as inputs under rule 2(k) of the CENVAT Credit Rules, 2004, as they were used in the manufacture of final products in various plants. The Tribunal referred to a previous decision in Force Motors Ltd v. Commissioner of Central Excise, Pune-I, which emphasized that goods used in the research and development wing of a manufacturing facility could be eligible for credit if they contributed to the output for the purposes of credit availment. The Tribunal also cited the definition of 'manufacture' in the Central Excise Act, 1944, to support the contention that activities incidental or ancillary to production could still constitute manufacture. The judgment further quoted a Supreme Court decision in Maruti Suzuki Ltd v. Commissioner of Central Excise, Delhi-III, clarifying that inputs used in any activity contributing to the final product would comply with the definition of 'input' in the CENVAT Credit Rules, 2004.

Moreover, the Tribunal referred to the judgment in V. Ramakrishna Rao v. Commissioner of Central Excise, Hyderabad, which highlighted that denial of credit could result from establishing that the research and development facility was not integral to the manufacturing process. In the absence of any allegation that research and development did not contribute to the manufacturing process, the disallowance of CENVAT credit was set aside. The Tribunal, respecting the precedent set by previous decisions, allowed the appeal and set aside the impugned order, pronouncing the judgment in open court on 04/11/2024.

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