By TIOL News Service

MUMBAI, MAR 23, 2018: THE appellant is engaged in the manufacture of prototype vehicles and clear the same on payment of duty.

For the purpose of research and development of prototype vehicle, they received various inputs and capital goods on which they availed credit. Being R&D unit, there is no regular production of the motor vehicle. However, the appellant continuously receives the inputs.

The case of the department is that during the impugned period, the appellant has not manufactured and cleared prototype vehicle whereas they kept on availing the cenvat credit and also removed the inputs as such. Inasmuch as since the appellant had carried out only trading activity, no cenvat credit is admissible on the inputs and the same is recoverable.

Against the disallowance of credit, the appellant is before the CESTAT.

It is submitted that the time gap in removal of prototype vehicle was due to the reason that the prototype vehicle is manufactured after R&D activity and which takes lot of time; that since the factory is registered, they are entitled to credit on inputs and there is no reason for denying the same.

The AR justified the order by emphasizing that no prototype vehicle has been manufactured and cleared for a very long time and the appellant has only been clearing inputs as such; being a trading activity, no credit is admissible.

The Bench considered the submissions and inter alia observed -

+ Being a manufacturer, whatever inputs are received in the factory are admissible input in terms of the definition of input given in rule 2(k) of CENVAT Credit Rules.

+ Either inputs should be used in the manufacture of final products and such final products should be cleared on payment of duty which is also not under dispute as the appellant has cleared prototype vehicle on payment of duty.

+ The other option is if the input is not used in the manufacture of final product and cleared as such, the excise duty equal to the cenvat credit should be paid in terms of rule 3(5) of CENVAT Credit Rules. The appellant admittedly cleared the input as such on payment of duty.

+ Only for the reason that there is a long interval in the manufacture of prototype vehicle, the manufacturer will not cease to be a manufacturer. Therefore, it cannot be said that the appellant is a trading unit and not a manufacturing unit.

+ Moreover, even if the manufacturing is not undertaken but the unit is registered, the appellant is entitled to avail the CENVAT credit in terms of rule 16 of the Central Excise Rules, 2002. The only requirement is as and when the said input is cleared, excise duty equal to CENVAT credit is required to be discharged. To this aspect, there is no dispute.

Concluding that there is no cause for denial of CENVAT credit, the impugned order was set aside and the appeal was allowed.

In passing: Notably, this case involves an order-in-appeal passed in February 2017. Perhaps, as the old adage goes, the more things change, the more they stay the same! Welcome GST.

(See 2018-TIOL-926-CESTAT-MUM)