Custom, Excise & Service Tax Tribunal
M/S Sabic Innovative Plastics India Pvt ... vs Commissioner Of Central Excise & on 22 July, 2015
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : E/10956/2013-SM (Arising out of Order-In-Appeal No. PJ/593/VDR-i/2012-13 Dated 20.03.2013 Passed by Commissioners Central Excise, Customs and Service Tax-VADODARA-I) M/s Sabic Innovative Plastics India Pvt Ltd : Appellant (s) VERSUS Commissioner of Central Excise & Service Tax-Vadodara-i : Respondent (s)
Represented by :
For Appellant (s) : Shri Willingdon C, Advocate For Respondent (s): Shri Govind Jha, Authorised Representative For approval and signature :
Mr. H.K. Thakur, Honble Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No 3 Whether their Lordships wish to see the fair copy of the Order?
Seen 4 Whether Order is to be circulated to the Departmental authorities?
Yes CORAM :
Mr. H.K. Thakur, Honble Member (Technical) Date of Hearing / Decision : 22.07.2015 ORDER No. A/11105 / 2015 Dated 22.07.2015 Per : Mr. H.K. Thakur;
This appeal has been filed by the appellant against OIA No. PJ/593/VDR-I/2012-13 Dated 20.03.2013 passed by commissioner (A), Vadodara under which OIO No. 01/Dem/JC/Div. iv/2012 dated 16.02.2012 passed by Adjudicating authority, has been upheld in toto. The issue involved in the present appeal is whether appellant is entitled to avail Cenvat Credit on inputs and capital goods used exclusively for R & D and Quality Control Laboratory situated inside the factory premises.
2. Shri. Willingdon Christian (Advocate) appearing on behalf of the appellant submitted that appellant has taken Cenvat Credit on inputs and capital goods used in the R&D and quality control Laboratory which is situated inside the factory premises. That in this Lab appellant is manufacturing test batches of all grades of Poly carbonates, ABS, PBT falling under Chapter - 39 of the Central Excise Tariff Act 1985. That certain tests are carried out on Injection Moulding Machine and the tests are matched with the samples supplied by the customers. That resultant Samples manufactured and tested are sent to customers for approval and on approval regular batches are manufactured and supplied to the customers. Learned Advocate argued that as per the definition of capital goods under Rule 2(a) of Cenvat credit Rules 2004 (CCR) only requirement for entitlement to capital goods credit is receipt and use of capital goods in the factory either in or in relation to the manufacture of finished goods. That by an earlier OIA No. Commr (AJ/442/VDR/-I/2011 dated 20/22.12.2011 first appellate authority allowed the credit on the same inputs and capital goods. Learned Advocate made the bench go through para 5.5 and 5.6 of the OIA dated 20.03.2013 to argue that first appellate authority has only denied credit on the grounds that capital goods and inputs are not used in the manufacture of finished excisable goods and has not given any cognizance to the earlier OIA dated 20/22.12.2011 passed by Commr (A) on the same issue Appellant relied upon the following case Laws:-
(i) Tata Engineering and Locomotive Co. Ltd. vs. CCE Pune [2010 (256) ELT 56 (Bom.)]
(ii) USV Ltd. vs. CCE Mumbai - [2006 (195) ELT 158 ( Tri.-Mumbai)]
(ii) Sudarshon Chemicals Inds. Ltd. vs. CCE, Pune-II [2010 (262) ELT 974 (Tri.-Mumbai)]
(iv) CCE Meerut-II vs. India Glycols Ltd. [2006(196) ELT 221 (Tri.-Del.)]
3. Shri Govind Jha (AR) appearing on behalf of the Revenue defended the orders passed by the lower authorities and argued that R &D machinery for tests of Samples and inputs used in R&D Laboratory cannot be considered a use in the manufacture or in relation to manufacture of excisable goods. It was his case that the credit has been correctly denied by the first appellate authority and penalties have also been imposed appropriately.
4. Heard both sides and perused the case records. The issue involved in these proceedings is whether appellant is entitled to Cenvat Credit on Capital goods and inputs used in the R&D and quality Control Laboratory of the appellant situated in the factory premises. It is observed from the provisions of Rule 2(a) (A) (1) of Cenvat Credit Rules 2004, that specified goods should only be used in the factory of the manufacture of final products. The requirement in Rule 2(a) (A) of CCR is not for use of the Capital goods in the manufacture of the final products is a factory. Similarly, definition of inputs given under Rule 2(K) of the CCR also require that input may or not be contained in the final product. It is not disputed that both Capital goods and inputs in R&D Laboratory are not used directly in the manufacture of finished excisable goods. The moot question for deliberation is whether R&D and Quality Control activity can be considered to be in relation to the manufacture of finished goods. It is observed that Appellant is using the Laboratory for carrying out tests regarding necessary colour texture to the plastic granule as per specifications and requirements of the customers, to match the specifications as per global norms and also for developing new products for the customers etc. Appellant will have to meet the specifications of the customers, before the products are manufactured and cleared on payment of duty, by suitable tests and norm fixation. Such an activity in R&D and Quality Control Laboratory is essential for manufacture of finished goods and has to be held as in relation to manufacture of excisable goods and will be eligible to Cenvat Credit under CCR.
4.1 It is observed from the order of CESTAT Mumbai in the case of USV Ltd. vs. CCE Mumbai-I (Supra) held that credit of equipments used in the Research Laboratory is admissible. Para 2,4 and 7 of this case. Case Law are relevant and reproduced below:-
2. As per the facts on records, the appellants are engaged in the manufacture of medicines falling under Chapter 30 of Schedule to Central Excise Tariff Act, 1985 and were availing the benefit of Modvat credit on the inputs as also on the capital goods used in the manufacture of the said goods. The appellant has a Molecular Medicines Research Laboratory (MMRL) within their licensed factory premises. During the period April to December, 1998, they imported/indigenous ly procured capital goods/equipments, which were installed in their Research Laboratory. They availed the benefit of Modvat credit of duty paid on the said capital goods in terms of the provisions of Rule 57Q. The revenues objection to said availment of credit is on the ground that the capital goods are installed and used in the Research Laboratory and are not being used in the manufacture of the final products. On the other hand, the appellants have contended that the relevant provisions of Rule 57Q, as applicable during the period, allowed Modvat credit on capital goods installed in the factory and there was no condition of their actual use in the manufacture of final products. For the above proposition, they referred to Finance Ministers speech as also to the Trade Notice No. 40/96 issued by the Bombay-I Commissionerate.
4. After hearing both sides, we find that as per definition of capital goods contained in Rule 57Q, the same applied to the various goods described in the table annexed to the said Rule and used in the factory of the manufacturer of final products. (emphasizes provided). As such, it is seen that for earning the credit in terms of the said Rule, the only requirements for such specified capital goods should be used in the factory of the manufacturer of the final products. Undisputedly, Research Laboratory is situated in the licensed factory premises of the appellants, and are being used for the manufacture of the excisable goods. As such, going by the definition of the capital goods, the disputed items in question earn the credit irrespective of their not being actually used in the production of the final products.
7. The said decision stands confirmed by the Honble Supreme Court [2001 (132) E.L.T. 3 (S.C.)]. Though the period before the Supreme Court was different when the definition of capital goods meant differently. However, the said definition underwent a change as already observed by us and the earlier requirement of the various capital goods being used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products was done away with and the only requirement was that the specified goods in the table annexed with Rule 57Q should be used in the factory of the manufacture of the final products. Admittedly, Research Laboratory being situated within the factory premises, disputed capital goods were used in the factory for manufacture of final products and thus would get covered by the definition of capital goods under Rule 57(2) as they existed at the relevant time and would earn the credit. 4.2 similarly on admissibility of Cenvat Credit on inputs used in such Laboratories Bombay High Court in the case of Tata Engineering & Locomotive Co. Ltd. (Supra) held as following paras 33 to 35:-
33.?Having seen the judicial pronouncements expanding the scope of Rule 57A and accepted by the Board vide its Circular dated 4th May, 1994 referred to hereinabove, one has to put a question, can it be said that input or material on which Modvat credit is taken, if subjected to testing in a laboratory to determine tensile strength and other quality but not physically used in the manufacture of the final product would not fall within the sweep of the words in relation to the manufacture of finished goods appearing in Rule 57A of the Rules.
34.?In order to answer the above question, at the cost of repetition, once again turning to the importance of the quality control in the age of global competition, no manufacturer could afford to push its product in the national or international market without achieving certain level of quality in the product. The quality control has become integral part of the manufacturing process, which is required to be undertaken either before the commencement of actual production or subsequent thereto depending upon the nature of the product.
35.?Laboratory test or quality check is always in relation to the manufacture of finished goods. It is immaterial whether or not the input is physically present in the final finished product as such, in our considered view, the laboratory test in relation to the manufacture of final product is a part of manufacture. 4.3 Similar view was expressed by CESTAT Mumbai in the case of Sudarshan Chemicals Inds. Ltd. vs. CCE pune-II (Supra) by passing following observation in para:-
9.?After careful examination of the facts of the case, I find that the manufacturing activity of the appellant is as such that the input procured by the appellant is first to be tested and then they have to be taken into the manufacturing process. Moreover, if some variations found with regard to the quality of input, it is to be retested as per required composition. In that situation, the manufacturing activity explained by the learned Advocate in the facts and circumstances in this case, the testing in the R&D Section is being done for manufacturing of final product. If these tests have not been taken over by the appellant at the various stages the final product will not be produced. In that situation, I find that in this case the testing done in R & D section as stated by the appellant is an integral part of the manufacture of final product. The case cited by the learned Advocate and the arguments of the learned DR both are of the view that if any input which is being used in or in relation to the manufacture of final product are entitled for CENVAT credit. In this case these tests are required to manufacture the final product. Accordingly, the appellants are entitled for CENVAT credit availed on such inputs which went for testing and analysis to manufacture the final product. The CENVAT credit on capital goods used in R & D section is also entitled as the same has been used in or in relation to the manufacture of the final product.
5. In view of the above observations and relied upon case laws appeal filed by the appellant is allowed with consequential relief, if any.
(Operative part of the order pronounced in the Court) (H.K. Thakur) Member (Technical) VM 1