Cenvat on input issued for R & D situated in factory

[Yatin Bhopi]

We are manufacturer. We have in house research and development centre where we are developing new products, grades as per requirement of customer.  Further some time we even take trail production before going for full batch production. To this purpose we issue some quantity of our raw material. My query is whether we need to reverse the cenvat credit to the proportionate to quantity issue to R & D. Please also give me 2 – 3 case law in support.

[Rajesh Nathoo]

Dear Mr. Bhopi,

There is no need to reverse credit . Inputs used in R& D are eligibile for taking Cenvat Credit .

If  we go by the definition of inputs ....................  whetther contained in the final product  or  not  ............................................... . R& D activity is an integral part of manufacturing  .U can not manufacture your product  without trial production . Cost incurred on inputs used in R & D is ultimately recovered from the buyers and is included in Transaction Value . So credit of  inputs used in R & D is eligible .

[YAGAY and SUN]

CENVAT credit on inputs used in R&D Activities would be allowed. As R&D is an important part of manufacturing.

[sreemannarayana B]

As per the cenvat credit rules, one can take the credit only when the inputs are used for dutiable goods including export products. Therefore, in the present case, you have used the cenvatable inputs to the trial production where you would not have paid the excise duty. In my view you may have to reverse the credit.

However, as long as the goods produced through trail run is available in the factory, you need not reverse the credit, as the goods cannot be treated as exempted till you clear the goods from the factory. 

 

AI Summary

Cenvat credit for R&D: permissible when R&D is integral to manufacturing; reversal only if resulting goods are exempted.
Inputs issued to in-house R&D and trial production are eligible for cenvat credit because R&D/trial runs are integral to manufacturing and costs are recovered in the transaction value; reversal is required only if inputs produce exempted goods that are cleared as exempted removals, whereas goods retained in factory from trial runs need not trigger reversal.