2008 (7) TMI 160 - HC - Service Tax

Court Allows Cenvat Credit for Employee Mobile Services

The court upheld the Tribunal's decision allowing the respondent-assessee to claim Cenvat credit on mobile phone services for phones used by employees and ... Cenvat credit on mobile phone services as input service - interpretation of 'input service' under the Cenvat Credit Rules, 2004 - output service and provider of taxable service - use of services 'in or in relation to the manufacture' as qualifying input service - installation in factory premises not requisite for entitlement to creditInterpretation of 'input service' under the Cenvat Credit Rules, 2004 - use of services 'in or in relation to the manufacture' as qualifying input service - output service and provider of taxable service - Whether service tax paid on mobile phone services used by employees/officers of the assessee qualifies as an input service entitling the assessee to Cenvat credit under the Rules - HELD THAT: - The Court construed Rule 2(l) of the Cenvat Credit Rules, 2004 to mean that an 'input service' includes any service used by a manufacturer, directly or indirectly, in or in relation to manufacture and clearance of final products, and also any service used by a provider of taxable service for providing an output service. Rule 2(p) (output service) and Rule 2(r) (provider of taxable service) mean that where a service provider is liable to pay service tax and renders that service, it constitutes an output service. On a conjoint reading, service tax charged by the mobile service provider and recovered in the bill renders the mobile service an output service of the provider and, where such service is used by the manufacturer in relation to its manufacturing activities, it falls within the definition of 'input service'. The facts showed mobile phones were provided by the assessee to its employees and officers with nothing to indicate their activities were unrelated to the manufacturing business. Applying the statutory definitions, the Tribunal's allowance of credit was justified. [Paras 6, 7, 8]Service tax on mobile phone services used in relation to the assessee's manufacturing activity qualifies as an input service and is eligible for Cenvat credit.Cenvat credit on mobile phone services as input service - installation in factory premises not requisite for entitlement to credit - Whether denial of credit on the ground that mobile phones were not installed in factory premises is a valid reason under the Rules to refuse Cenvat credit - HELD THAT: - The Court held that disallowance solely because the phones were not installed in the factory premises is not a ground germane to the provisions of the Cenvat Credit Rules relied upon for denial. Given the statutory scope of 'input service' and the factual finding that the services were used in relation to manufacturing, the installation location of the phones within factory premises is not determinative of entitlement to credit. [Paras 9]The absence of physical installation of phones in factory premises is not a valid basis, under the Rules, to deny Cenvat credit for mobile phone services used in relation to manufacture.Final Conclusion: The appeal is dismissed; the Tribunal was not in error in permitting Cenvat credit on the mobile phone services for the period March 2005 to September 2005, and the ground of non-installation in factory premises is not a valid basis for denial under the Rules. Issues:1. Entitlement to Cenvat credit on mobile phone services.2. Interpretation of 'input service' under Cenvat Credit Rules, 2004.3. Applicability of Circular No.59/8/2003 in relation to Cenvat Credit Rules, 2004.4. Establishing the relation of service tax paid on mobile phone services to business activity.5. Definition and scope of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004.Entitlement to Cenvat credit on mobile phone services:The appellant, Revenue, questioned the Tribunal's decision to allow input credit on mobile services to the respondent-assessee. The dispute revolved around the assessee availing Cenvat credit of Service Tax paid on mobile phone services for phones used by employees and officers. The appellant contended that mobile phones not installed in the factory premises could not be considered 'input service' as per Circular No.59/8/2003. However, the Tribunal, relying on its decision in a previous case, permitted the credit.Interpretation of 'input service' under Cenvat Credit Rules, 2004:The appellant argued that the definition of 'input service' under Rule 2(l) did not encompass the service in question, making it ineligible for credit under Rule 3. The rule defines 'input service' as any service used by a provider for providing an output service or by the manufacturer directly or indirectly in relation to manufacturing final products. The court emphasized that the activities of staff using mobile phones were related to the business of the assessee, thus falling under the definition.Applicability of Circular No.59/8/2003 in relation to Cenvat Credit Rules, 2004:The appellant rejected the assessee's argument that Circular No.59/8/2003 was not applicable to Cenvat Credit Rules, 2004. The court noted that the circular's context was different but upheld the Tribunal's decision based on the Rules' provisions and the nature of the service provided by the mobile service provider.Establishing the relation of service tax paid on mobile phone services to business activity:In another case, the Tribunal had questioned the establishment of the credit's relation to the business activity of the assessee. The court highlighted the importance of proving this connection for claiming Cenvat credit under the Rules.Definition and scope of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004:The court analyzed the definitions of 'input service,' 'output service,' and 'provider of taxable service' under the Rules. It clarified that the mobile service provider, by paying and recovering service tax, was providing a taxable service constituting 'input service' for the assessee. The court dismissed the appeal, stating that the disallowance of credit based on phone installation location was irrelevant to the Rules' provisions.