TMI Blog2010 (5) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... for Research and Development activities. 2. The facts of the case are that the appellants are the manufacturer of organic and inorganic chemicals. They have conducted Research Development work by using various inputs and machineries installed in their premises on which they had availed Cenvat Credit. Those inputs were being used exclusively for R D purpose consisting of development of new products, quality control for testing of input and finished goods and trouble shooting etc. It was alleged that as per Rule 2 of Cenvat Credit Rules, the input, capital goods on which Cenvat Credit has been availed should be used in or in relation to the manufacture of the finished goods. It is alleged that these goods were not used in or in relation to the manufacture of final product hence the credit availed by the appellants were denied on inputs and capital goods installed in R D section. Duty demand was confirmed along with penalties. Aggrieved by the same the appellant is before me. 3. The issue involved in the above appeals is that - (i) Whether Cenvat Credit of duty paid on input used for Research Development (R D) activities consisting of development of new products, quality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted bags, weighed, stitched and accounted in excise register. If the lot is having deviation from the standards, then it is hold on the plant. In such case R D after performing few experiments in the lab from the available stock of inputs helps in producing suitable batch which can be used in matching the deviated lot. 2. Activities carried in R D Various key raw materials such as Aromatic amines, couplers, surfactants are checked for pigment suitability test in R D for approval inputs. Plant in-process samples are tested for compliance of the in-process test specification. Modification of the existing products as per customer requirements such as improvement in colour strength, ink viscosity, opacity, light fastness, heat stability etc. of the pigment properties. Development of new pigments equivalent to competitor s products. R D also works on reducing cost of production, cost of raw materials, work simplification, process optimization, alternative cheaper raw materials, reducing the waste, improvement in environment. Capital goods are used for checking inputs, in-process tests and final products. 3. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities and hence, the R D activities are an integral part of the activity of manufacture of the final product, hence the inputs used in R D are treated as used indirectly in or in relation to manufacture of final products. At this stage reliance was placed on the following judgments : (a) CCE v. Solaris Chemtech Ltd. - 2007 (214) E.L.T. 481 (S.C.) (para 8) (b) CCE v. Rajasthan State Chemical Works - 1991 (55) E.L.T. 444 (S.C.) (paras 1, 7, 9, 14, 17 22) (c) Maruti Suzuki Ltd. - 2009 (240) E.L.T. 641 (S.C.) (paras 11 to 16) (vi) that the Cenvat credit on inputs used for all the R D activities is admissible also on the ground that the entire expenses on R D activities forms part of the Cost of Production as per para 4.1 of the Cost Accounting Standards (CAS-4); (vii) In support of the say the Cenvat credit on input used for R D activities is admissible, reliance was placed on the following judgments : (a) Biddle Sawyer Ltd. - 2004 (168) E.L.T. 119 (T) (b) CCE v. Rajasthan State Chemical Works - 1991 (55) E.L.T. 444 (S.C.) (c) CCE v. Birla Tyres - 2001 (138) E.L.T. 168 (T) (viii) that the ratio of the Tribunal s decision in the case of Krebs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial. Hence the testing of the inputs and final product at various stages is necessary and same form an integral part of manufacturing activity and without testing it is not possible to manufacture the final product. Hence the activities carried over in the R D Section are integral part of manufacturing process hence inputs and the capital goods are being used in or in relation to manufacture of final product. 7. On the other hand Shri Manish Mohan, ld. SDR appearing on behalf of the Revenue submitted that to avail CENVAT credit on input or the capital goods, the credit is available only when those inputs are being used in or in relation to the manufacture of the final product and further submitted that the main ingredient of the availment is that the input should be used for manufacture of final product directly or indirectly. He also relied on Maruti Suzuki Ltd. (supra) and submitted that the case laws deals with the input. To avail CENVAT credit on input used, the relation to the manufacture of the final product is to be established, and only then the CENVAT credit is available. If the test being used in the manufacturing process is not qualified in that situation CENVAT credit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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