Whetherraw material obtained without payment of duty and used for R&D purpose is liable to duty?

PJ/CASE LAW/2015-16/2678

Case:-SERUM INSTITUTE OF INDIA LTD. VERSUS COMMISSIONER OF C. EX., PUNE-III

Citation:- 2014 (309) E.L.T. 519 (Tri. - Mumbai)

Brief Facts:-The appellant filed this appeal against the impugned order passed by the Commissioner of Central Excise, Pune, whereby a demand of Rs. 44,24,726/- is confirmed with interest and penalties are also imposed. The adjudicating authority also held that the goods in question are liable for confiscation and gave option to redeem the same on payment of redemption fine. The brief facts of the case are that the appellants are a 100% EOU engaged in the manufacture of vaccine (human medicine) falling under Chapter Heading 30.02 of the Central Excise Tariff. The appellants were importing raw material without payment of duty by availing the benefit of Notification No. 126/94-Cus., dated 3-6-1994 and Notification No. 52/2003-Cus., dated 31-3-2003. The Revenue on scrutiny of the records of the appellant, found that some quantity of the inputs received without payment of duty were used in their research and development activities. The show cause notice was issued for denying the benefit of the above-mentioned Notifications on the ground that the raw material is not used for the manufacture of final product. The adjudicating authority passed the impugned order.

Appelants Contention:-The contention of the appellant is that the appellants are manufacturing vaccines and for the manufacture of vaccines, a regular research and development is required. In these circumstances, the some inputs which were received without payment of duty, which are required for the manufacture of export goods are consumed to carry out the research and development for the improvement of products. Without the research and development, the manufacturing process cannot be undertaken and completed properly. The appellants relied upon the decision of the Tribunal in the case of CCE, Hyderabad v. Dr. Reddy Laboratories Ltd. reported in 2010 (253)E.L.T.316. The contention is that the Tribunal in a similar situation upheld the order passed by the lower authority whereby the confirmed demand on the same ground is set aside.

Respondents Contention:-The respondent reiterated the findings of the adjudicating authority.

Reasoning of Judgement:- The tribunal find that in the present case the appellants being a 100% EOU made import of certain raw material without payment of duty by availing the benefit of the above-mentioned Notifications. Part of the raw material is used for research and development activity which is essential for manufacture of human vaccines. The Tribunal in the case of Dr. Reddy Laboratories Ltd. (supra) rejected the contention of the Revenue that the manufacturer is liable to pay duty in respect of the raw material obtained without payment of duty, which is used for research and development purposes. In the present case, they find that there is no allegation that the raw material which is procured without payment of duty is diverted or not used within the 100% EOU as the research and development facility is within the 100% EOU. In these circumstances and in view of the above decision of the Tribunal, they find merit in the contention of the appellant. The impugned order is set aside and the appeal is allowed.

Decision:- Appeal allowed.

Comment:- The gist of the case is that the assessee who is 100% EOU procured duty free raw material which are used in the manufacture of vaccines for export and some part of such raw material is used for R&D purpose is liable to claim the benefit of notification no. 126/94-Cus and 52/2003-Cus . The assessee is not liable for duty merely because the goods procured duty free were used for R&D purpose because it was not the case that the goods have been diverted or have not been used.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2678

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