TMI Blog2018 (2) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... nt ORDER Per Bench The above appeals arise out of the same order and are disposed by this common order. Parties are hereby referred to as assessee and department for the sake of convenience. 2. The brief facts are that the assessees who are 100% EOU are engaged in the manufacture of Formulation and are registered with the Central Excise Department. The officers of the preventive unit on 22.04.2009 visited the premises on the intelligence gathered that (i) the assessees have imported/purchased indigenous raw materials and capital goods without payment of duty and have used the same in R D (ii) have availed irregular input tax credit on the services used in R D and thereby availed wrong exemption benefit under EOU scheme. SCN was issued proposing to deny exemption under the Notification No. 52/2003-Cus dated 31.03.2003 and Notification No. 22/2003-CE and for recovery of the duty, interest and for imposing penalties. After due process of law, the adjudicating authority confirmed the demand, interest and imposed penalties. In the SCN demands proposed were separately under Customs Act, 1962 and Central Excise Act, 1944. Hence assessee has filed appeal No. E/137/2011. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctiveness of the formulation. Based on such test results, the production process is fine tuned. This testing and research cycle is continued till the drug produced is acceptable to export standards. That therefore the R D Centre and its activities are essential and indispensible part of the manufacturing process of goods exported. b) The benefit of the notification is denied contending that the raw material and capital goods imported as well as legally procured availing benefit of notification are used for R D and not for manufacturing process. The said allegation is based on wrong interpretation of the notification as well as wrong appreciation of the facts. He submitted that the raw materials and capital goods as well as input services which are used in relation to R D are nothing but use of the same in the process of manufacture of final products which are exported. c) In fact, the actual process happening at the R D Centre is directly linked with the manufacture of the final products and its consequent export. He summarized the process of R D as under:- (i) Identification of the chemical entity in the innovator drug, physical characteristics like weight, thickne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the condition that the said goods are used for the purpose of manufacture of articles for export or used in connection to production or packing or job work for export of goods. The Notification has to be construed strictly. The Notification allows import of goods without payment of duty on the condition that the goods are used in the manufacture of articles for export. The appellants have used the imported goods as well as the locally procured goods for R D activities. The R D activity is distinct from the activity of manufacture. The goods having been used directly in R D activities is not eligible for exemption. That the R D activities/process cannot be considered as part of manufacture of goods, which are exported by the appellants. The reliance placed by the Ld. Counsel on the decisions are not applicable to the facts of the case for the reason that in the said decision only some quantity of the raw materials were used for R D purposes. In the present case, the appellants have used substantial portion of the raw materials as well as capital goods for R D purposes only. Such use cannot be equated with the use of the goods in manufacture of finished products. That the demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot be said to be used in connection with the production or packing of goods for export. Consequently, it appears that the aforesaid goods are not eligible to be imported without payment of duty under Notification No. 52/2003-Cus., dated 31.03.2003 as well as goods procured locally without payment of duty under Notification No. 22/2003-CE dated 31.03.2003 and they are also not eligible vis-a-vis service tax input credit on the services rendered to R D Centre. 5.2 The appellants have explained in detail how the R D activities are linked to the process of manufacture. We find that after the R D process the samples of the final products undergo test and then are manufactured and exported by the appellants. It is very much clear that the R D activities are directly linked to the process of manufacture of the final products of the appellants. The appellants being a 100% EOU, the finished products are exported. Therefore, the availment of concession of duty on inputs and capital goods and Cenvat credit on input services in our view is fully in order. A similar issue was discussed by the Tribunal in the case of Dr. Reddy Laboratories Ltd. (supra), where the Tribunal observed as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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