2008 (12) TMI 144 - AT - Service Tax

Phone Location Irrelevant: Service Tax Credit Allowed for Phones Outside Factory

The court dismissed the Revenue's appeal challenging the admissibility of service tax credit for mobile phones and telephones installed outside the ... Cenvat credit for input services - admissibility of credit for telephone and mobile phone services - interpretation of CENVAT Credit Rules, 2004 - installation in business premises not required for input service credit - precedential value of Tribunal and High Court decisionsCenvat credit for input services - admissibility of credit for telephone and mobile phone services - interpretation of CENVAT Credit Rules, 2004 - installation in business premises not required for input service credit - Whether CENVAT credit of service tax paid on telephone and mobile phone services used by managers and installed outside factory premises was admissible under the CENVAT Credit Rules, 2004 - HELD THAT: - The Tribunal examined whether CCR, 2004 required telephones to be installed in the business or factory premises for input service credit to be admissible. Relying on the Tribunal precedent in Indian Rayon & Industries Ltd. and the Gujarat High Court decision in Commissioner of Central Excise v. Excel Crop Care Ltd., the Court found that the fact of phones not being installed in factory premises was not germane to the statutory scheme. The Commissioner (Appeals) had correctly held that CCR, 2004 did not prohibit availment of credit for telephone services merely because the instruments were installed outside the factory, and sub-rule (7) of Rule 4 (regarding payment and service tax being indicated in invoices) did not impose an installation-location requirement. In the absence of contrary findings by the lower authorities, telephone service as used in the present facts fell within the definition of input service under CCR, 2004 and credit was therefore allowable.The demand for service tax and interest in respect of telephone and mobile phone services was set aside; the impugned Cenvat credit was held admissible.Final Conclusion: Revenue's appeal dismissed; Cenvat credit for service tax on telephone and mobile phone services used by the assessee and installed outside factory premises for the year 2005 is admissible under the CENVAT Credit Rules, 2004. Issues:- Admissibility of service tax credit for mobile phones and telephones installed outside the factory premises.Analysis:1. The appeal filed by the Revenue challenged the demand for service tax credit amounting to Rs.11,970/- availed by the respondents for the use of mobile phones and telephones installed in the managers' residences. The original authority had demanded the amount and applicable interest, but the Commissioner (Appeals) set aside the order based on a Tribunal decision in the case of Indian Rayon & Industries Ltd. The Commissioner found that the CENVAT Credit Rules, 2004 did not require telephones to be installed in the premises of the service provider for credit eligibility.2. The Revenue contended that as per Board's Circular, credit could only be allowed for telephones installed in business premises, not for phones outside the factory, including mobile phones. However, the respondents relied on the Indian Rayon & Industries Ltd. case to support their claim that the credit was admissible under CCR, 2004 as long as the phones were used for providing output service or in relation to manufacturing final products.3. The Judge considered the facts and submissions, noting that the original authority denied credit for mobile phones not installed in business premises. Referring to the Indian Rayon & Industries Ltd. case and a High Court judgment, it was held that the location of phones outside the factory premises was not a relevant ground for credit denial. The Judge concluded that the impugned credit was admissible to the respondents based on the Tribunal order and the High Court judgment, dismissing the Revenue's appeal.This judgment clarifies the admissibility of service tax credit for mobile phones and telephones installed outside the factory premises, emphasizing that the location of the phones does not affect credit eligibility under the CENVAT Credit Rules, 2004. The decision highlights the importance of considering the purpose of phone usage in providing output services or in relation to manufacturing activities rather than focusing solely on their physical location.