Department deny for R&D distribute service Tax credit. Challan issued by R&D, as the R&D centre cannot be treated as an office to distribute input service credit.

[Rajan Rajan]

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Dept. deny for R&D distribute Service tax credit. Issue is challan issued by R&D, as the R&D cannot be treated as on office to distribute input service tax credit.

Is it sustainable under ST rule, can we challenge this. please provide  case laws/inputs

[DR.MARIAPPAN GOVINDARAJAN]

Dear Sir,

Research and Development, if it is for the purpose of the improving the quality of goods or upgrading the goods or service, then it is having nexus with the manufacturing of goods or providing output service. As such it may be treated as an office which may distribute credit. Soime case laws are there in this regard. I shall give it within a considerable time.

[Mahir S]

Sir,

Presently CENVAT Credit benefit under CENVAT Credit Rules, 2004 is not available to Capital Goods used for RandD purposes which do not fall under specified Chapter Heading. Further, in regard to Inputs/Capital goods used in R and D units located outside the factory of manufacturer, benefit of CENVAT credit is not available, therefore not eligible as input credit also.

In view of above, department’s contention is true and correct.

AI Summary

Cenvat credit distribution limited where R&D lacks nexus to manufacturing; eligibility hinges on nexus and location of R&D assets.
Whether R&D can be treated as an office to distribute input service credit turns on nexus with manufacturing or output services; R&D that improves or upgrades goods or services may qualify to distribute credit. Conversely, CENVAT rules exclude credit for capital goods/inputs used for R&D not falling under specified headings and for R&D units located outside the manufacturer's factory, supporting denial of credit where nexus or location requirements are unmet.