M/S. Indswift Laboratories Ltd vs C.C.E.&S.T., Chandigarh-Ii

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 would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether Lordships wish to see the fair copy of the order? Seen 4. Whether order is to be circulated to the Department Authorities? Yes

Appeal No.ST/52950/2014-CU[DB]

[Arising out of Order-in-Appeal No.JAL-EXCUS-000-APP-306-13-14, dated 17.02.2014 passed by the C.C.E.(Appeals), Chandigarh-II]

M/s. Indswift Laboratories Ltd. Appellants

Vs.

C.C.E.&S.T., Chandigarh-II Respondents

Appearance

Shri Rupinder Singh, Advocate - for the appellants

Shri Govind Dixit, DR - for the respondents

CORAM: Honble Mr. R.K. Singh, Member (Technical)

Final Order No.50026/2015, dated 09.01.2015

Per Mr. R.K. Singh :

The appellants filed this appeal against the Order-in-Appeal No.JAL-EXCUS-000-APP-306-13-14, dated 17.02.2014 only to the extent input service credit in respect of technical know-how (research and development) amounting to Rs.14,42,000/- and travel agent service amounting to Rs.59,651/- has been disallowed.

2. As regards disallowance of input service credit of Rs.59,651/-, which the appellants had already paid under protest but contested on merits, the Commissioner (Appeals) has conceded in para 8.1 of the impugned order that there is no denying the fact that the credit in respect of the said service is admissible, but added that the same is admissible to the extent of the use in respect of manufacture of final product and that though the appellants have contested that the service was received for booking travel tickets for company officials for the official purpose like procuring raw-materials or marketing of goods, they have not produced any evidence to that effect. The appellants have contended that they clearly stated that the services were availed by them from travel agent for booking travel tickets for company officials for the purpose of promoting and marketing the goods or to meet the input suppliers for procuring the inputs and are clearly admissible as input service. Indeed in the case of Vidyut Metallics Pvt. Ltd. Vs. CCE [2012 (27) STR 305 (Mu,.)], it has been clearly held that the service tax paid on services provided by travel agent for travelling of company officials is eligible for CENVAT credit and even the Commissioner (Appeals) has conceded as much. However, he has not given any reason as to why the impugned credit was not admissible when the appellants clearly stated that the services were for the official travels of the officials for the purposes mentioned earlier. Thus, I do not find the denial of the said credit sustainable.

3. Coming to the amount of Rs.14,42,000/-, Commissioner (Appeals) has denied the credit on the ground that the said amount of service tax was in relation to the technical know-how for production of two products namely Candisartan and Irbesartan and has been denied on the ground that the said products have not been manufactured by the appellants. In this regard, paras 61, 62 and 63 of the impugned order have been reproduced below:-

6.1 The adjudicating authority has disallowed cenvat credit on the inputs service i.e. purchase of Technical Knowhow, two products namely Candisartan and Irbesartan. The said products have neither been produced in trial production nor as commercial production. As per Rule 3 of the Credit Rules, credit of the specified services/inputs is allowed in case they are received by the manufacturer for use in, or in relation to, the manufacture of final product. The appellants have not used the services of technical knowhow to manufacture any final product. In this scenario the adjudicating authority held that credit cannot be admissible. The appellants have contested that they intend to manufacture the said final products in the coming times and there is no time frame to manufacture the products in question and hence credit cannot be denied. They have relied upon the decision in the case of Cadila Healthcare Ltd. Vs. CCE supra. I have gone through the said decision of the Honble Tribunal. I find that the facts in the relied upon decision are different from the present case in as much as in the said case the assessee had initiated trial production of the goods and the said services of Technical Testing and Analysis had been utilized in respect of the said goods which had been manufactured and subsequently cleared on payment of duty.

6.2 Even otherwise the appellants contention when accepted on the face of it, technical knowhow as also claimed by the appellants, is a ready to use service, meaning thereby that they should have initialized production of their finished goods using the said ready to use technology, within a reasonable period of time. In the present case already 4 years period has elapsed, but there is no claim of the appellants that they have or are on the verge of producing finished goods using the said technical knowhow. I observe that even during the pendency of the present proceedings the appellants have not claimed that they have utilised the services of acquired technical knowhow in the production of their goods. In such a scenario, the credit cannot be held admissible to them at present as the said input services cannot be said to have been received by the appellants for use in or in relation to the manufacture of the final product. I therefore, hold that input service credit involved on the same amounting to Rs.14,42,000/- is not admissible to the appellants and the demand confirmed by the adjudicating authority, is upheld.

6.3 However, I may observe here that in case the appellants start utilizing the acquired technical knowhow in producing final products, they are at liberty to take credit of the service tax so paid on the said services at that time.

As is evident from the foregoing paragraphs, the Commissioner (Appeals) has clearly conceded that in case appellants start utilising the technical knowhow in producing the final products, they are at liberty to take credit of the service tax so paid on the said service. In other words, the Commissioner (Appeals) has conceded that the said technical know-how has actually been acquired by the appellants for producing the products namely Candisartan and Irbesartan. There is always going to be time lag between the date of acquiring such input service and the actual production of the goods and this time lag will depend upon the nature of product. The appellants have contended that even though there is a delay in manufacture of the said two products, they are fully determined to utilise the said technical knowhow for the manufacture of the said products; otherwise they would not have made the entire payment for the said technical knowhow and that it can be nobodys case that the expense would have been made merely for the purpose of availing the service tax credit. They have further stated that manufacture of pharmaceutical products is a complex process and can take long.

Commissioner (Appeals) has also not doubted the purpose for which the technical knowhow has been obtained in as much he has practically allowed the appellant to take such credit when they start utilising the technical knowhow to manufacure the final product. I find that this observation of the Commissioner (Appeals) does not flow from any legal requirement. The technical knowhow once obtained begins to be utilised for the purpose of manufacture of products for which it was obtained as such technical knowhow is relevant/required right from the point of setting up the necessary wherewithals required for manufacturing the product. Further as per Rule 4(7) of Cenvat Credit Rules, 2004, CENVAT credit in respect of input services becomes available on or after the date on which payment is made for the value of the input service. The definition of input service includes services used in or in relation to modernisation or renovation of factory. Indeed before the amendment to Rule 2(l) of CENVAT Credit Rules, 2004, even the services used in relation to setting up of the factory was also included in the scope of input service.

It can hardly be disputed that the time lag between the commencement of setting up of the factory and the actual production can be in some cases quite long. What is being stated is that the Cenvat Rules do not provide that the credit of input services can be taken only when the final products get manufactured. Commissioner (Appeals) has stated that they should have been initiated the production of their final goods utilising the said technical knowhow within a reasonable period of time, but has failed to elaborate what in his view would be a reasonable period of time or whether there is any legal yardstick to determine such reasonable period. In case of Cadila Health Care Ltd. Vs. CCE [2010 (17) STR (Tri.)], it was held that CENVAT credit of service tax availed on input services for the purposes of technical tests and analysis services in respect of medicine which never reached the market is to be considered as part of the manufacturing and business activity and the credit so availed is admissible. Commissioner (Appeals) has attempted to distinguish the said judgement on the ground that in that case the appellant had initiated the trial production.

But as is evident, in that case also no duty was paid on the final product as it never reached the market. The ratio of the CESTAT judgement in the case of Cadila Healthcare Ltd. (supra) is clearly supportive of the appellants claim. Thus, I do not find sufficient reasons for denial of the impugned credits.

4. In the light of the foregoing, it is held that the input service credit amounting to Rs.14,42,000/- and Rs.59,651/- is allowed and to that extent the appeal is allowed and the impugned order is set aside.

(Pronounced in the Open Court on 09.01.2015)

(R.K. Singh)

Member (Technical)

SSK

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