CENVAT credit on residential telephone service allowed where the line supported business communication and formed part of business expenditure.

CENVAT credit was admissible on service tax paid for a telephone installed at a partner's residence where the telephone was used for business-related communication with overseas customers and the expenditure was borne by the company. The department did not produce evidence of non-business use or rebut the claim that the service formed part of business expenditure. Applying the principle that an input service integrally connected with business and included in the cost of the final product qualifies for credit, denial of credit was unsustainable. The authority also treated precedent on services used in a residential colony as inapplicable, so the demands for credit reversal, interest, and equal penalty could not be sustained.

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Issues: Whether CENVAT credit was admissible on service tax paid for telephone installed at the residence of a partner when the service was claimed to be used for business-related communication.

Analysis: The telephone service was claimed to be used for contacting overseas customers in connection with the assessee's business, and the expenditure was stated to have been borne by the company. The department failed to produce evidence showing use of the telephone for non-business purposes or to rebut the claim that the service formed part of business expenditure. Relying on prior decisions allowing credit for telephones used away from the factory premises and on the principle that an input service integrally connected with the business and included in the cost of the final product qualifies for credit, the denial of credit was found unsustainable. The decision concerning services used in a residential colony was held inapplicable.

Conclusion: CENVAT credit was admissible, and the denial of credit, interest, and equal penalty could not be sustained.

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