Cenvat Reversal on Inputs used in R&D situated in factory

presuming goods are captively consumed  if Finished Goods are excisable no  excise duty be paid but if Finsihed Goods are Liable to Nil rate of duty then Goods captively consumed are laible to excise duty .This is what i have read so far. but you say it is used for R&d  for which i also want to have a knowledge on that whether cenvat to be paid or not .please let me know if u get any answer from any of the experts accordingly

Yes you can avail and utilize this credit if your final product, in regard to which u r doing R&D, is dutiable.

Definition of Inputs in rule 2(k) of Cenvat Credit rules read as-

"input means all goods used in or in relation to manufacture of final product, whether directly or indirectly and whether contained in the final product or not.."

As R & D comes within the ambit of  "in relation to manufacture.." there is no point why u cannot avail Cenvat credit..

Sir,

I am very much satisfied with Mr. Ojha. But are there any relevant authority i.e case law, circular,notification etc.

Regards 

In my view, cenvat credit of duty paid on inputs cannot be availed. The cenvat credit is available only for inputs used in the manufacture of final products on which duty is discharged.

Moreso, the inputs used in R&D cannot be said to be used in realtion to manufacture of final product

Allowing credit in such a situation would mean allowing credit on goods which are in no way connected to the manufacture fo the final product. The credit of inputs used in R&D can be allowed only in cases where the product arising out of R&D activity is further used in the manufacture final product on which duty is discharged

this topic is an arguable one. As recently I came to see a judgment in the matter of CCE Vs. English Electric Company 1997(93) ELT 293 (CEGAT) in which the credit on R&D is rejected.

in this case it was held that ammonia paper used for preparation of drawings is basically a R&D exercise and is not eligible as input as the process is not integrally connected with the manufacturing process.

It would be important to research that this judgment is superseded or not.

There could be thousands of example like above. Basically the Question of whether to disallow Cenvat credit on  Research & Development Activity components or not is a Question of fact. Thus unless very similar judgement is found, no general interpretation could be framed.

Also, in the case of Singh Alloys & steel Ltd(cal) it was held that "it is immaterial whether the final product could be manufactured with or without a particular input actually used."

Also, it is not for the court to decide how research & development should be done for each product or process. it depends on the nature & custom of the specific industry . Thus in my opinion, which is  based on rule 2(k) and the rule of harmonious interpretation of law, u should claim credit..

Dear Rajesh Sir,

Please addesss ur comment...

Regards 

Logically the inputs used in R&D should be available as it is intrinsically used for the business in future and is a part of any growing/ vibrant manufacturing unit.

However the dept argues that once the product is in existecne then the same is goods and until then all inputs consumed are not for manufacture of goods.

As on date the case laws favour the revenue and unless contrary case laws are are reported we may have to follow the practice of not availing the crediot. If the amounts are substantial then you may avail the same and reverse the same under protest, so that in future when the decision to allow comes, you can avail for the past years without limit.

My Question to Mr. Hiregange- You said that on the date, law favours the revenue on the above subject. Is there any legal authority which specifically state that cenvat credit on above should not be taken.... Because it is a question of fact, thus a general conclusion cannot be drawn from only few cases... Please let me know.....

Considering, Amendment in new definition of Input, Cenvat credit of RM consumed in R&D deptt. can be taken or not !! Pls guide us.