Input service credit for telephone used in sales promotion was allowed, with demand and penalty sent back for fresh quantification.

Telephone service used for sales promotion and in connection with manufacture was treated as an eligible input service for Cenvat credit. Credit of service tax on that service was held admissible, and the composite demand could not stand without first allowing that credit. The matter was remitted to the adjudicating authority for fresh quantification of the demand after giving effect to the admissible credit, with penalty also to be reconsidered on the same basis.

---

---

Issues: Whether service tax paid on telephone service used for sales promotion qualified as an eligible input service for cenvat credit, and whether the denial of credit and penalty required reconsideration on that basis.

Analysis: Telephone service, as used for sales promotion and in connection with the business of manufacture of final products, was treated as an eligible input service. As the denial covered a composite amount without bifurcation among the four services, the demand required fresh computation after extending credit for telephone service. The penalty also required corresponding reconsideration.

Conclusion: Credit of service tax paid on telephone service was held admissible to the assessee. The matter was remitted to the adjudicating authority for requantification of the demand and penalty.

---